<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended July 26, 1998
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)
Florida 65-0367604
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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 / /
------ ------
The number of shares of the registrant's common stock outstanding as of
August 10, 1998 was 9,308,741.
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ROADHOUSE GRILL, INC.
FORM 10-Q
FISCAL QUARTER ENDED JULY 26, 1998
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements:
Condensed Balance Sheets as of July 26, 1998 (unaudited)
and April 26, 1998............................................................... 1
Condensed Statements of Operations for the Fiscal Quarters Ended
July 26, 1998 and July 27, 1997 (unaudited)...................................... 2
Condensed Statement of Changes in Shareholders' Equity
for the Fiscal Quarter Ended July 26, 1998 (unaudited) .......................... 3
Condensed Statements of Cash Flows for the Fiscal Quarters Ended
July 26, 1998 and July 27, 1997 (unaudited) ...................................... 4
Notes to Condensed Financial Statements............................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 12
Item 6. Exhibits and Reports on Form 8-K...................................................... 12
Signatures ...................................................................................... 13
Exhibit Index ...................................................................................... 14
</TABLE>
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PART I
Item 1. Financial Statements
ROADHOUSE GRILL, INC.
Condensed Balance Sheets
July 26, 1998 and April 26, 1998
<TABLE>
<CAPTION>
July 26, April 26,
1998 1998
------------------------- ----------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................... $ 2,628,347 $ 3,554,875
Accounts receivable................................................. 304,479 242,381
Inventory........................................................... 968,080 939,169
Due from related party.............................................. -- 1,000,000
Current portion of note receivable.................................. 184,198 182,536
Pre-opening costs, net.............................................. 875,990 966,688
Deferred tax assets, net............................................ 421,000 421,000
Prepaid expenses.................................................... 578,046 542,031
------------------------- ----------------------
Total current assets............................................. 5,960,140 7,848,680
Note receivable....................................................... 89,874 111,557
Property & equipment, net............................................. 67,279,869 66,898,728
Intangible assets, net of accumulated amortization of $130,425 and
$120,652 at July 26, 1998 and April 26, 1998, respectively.......... 604,778 614,551
Other assets.......................................................... 4,120,118 4,022,865
Investment in and advances to affiliates.............................. 568,137 611,710
------------------------- ----------------------
Total assets.................................................... $ 78,622,916 $ 80,108,091
========================= ======================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable.................................................... $ 3,319,875 $ 4,857,804
Accrued expenses.................................................... 3,773,603 5,459,569
Due to related parties.............................................. 1,500,000 1,500,000
Current portion of long term debt................................... 698,593 687,788
Current portion of capitalized lease obligations.................... 1,245,577 1,207,367
------------------------- ----------------------
Total current liabilities ...................................... 10,537,648 13,712,528
Long term debt........................................................ 16,785,911 16,906,928
Capitalized lease obligations......................................... 6,870,696 6,335,004
------------------------- ----------------------
Total liabilities................................................ 34,194,255 36,954,460
Shareholders' equity:
Common stock $.03 par value. Authorized 30,000,000 shares;
issued and outstanding 9,308,741 and 9,305,408 shares as of
July 26, 1998 and April 26, 1998, respectively...................... 279,262 279,162
Additional paid-in-capital............................................ 48,550,843 48,535,944
Accumulated deficit................................................... (4,401,444) (5,661,475)
------------------------- ----------------------
Total shareholders' equity...................................... 44,428,661 43,153,631
Commitments and contingencies (Note 2)................................ -- --
------------------------- ----------------------
Total liabilities and shareholders' equity...................... $ 78,622,916 $ 80,108,091
========================= ======================
</TABLE>
See accompanying notes to condensed financial statements.
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ROADHOUSE GRILL, INC.
Condensed Statements of Operations
For the fiscal quarters ended July 26, 1998 and July 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Quarter Ended
------------------------------
July 26, July 27,
1998 1997
----------- -----------
<S> <C> <C>
Total revenue ................................................................. $29,040,361 $23,083,009
Cost of restaurant sales:
Food and beverage .......................................................... 9,608,215 7,695,642
Labor and benefits ......................................................... 8,232,892 7,009,079
Occupancy and other ........................................................ 5,821,087 4,422,891
Pre-opening amortization ................................................... 363,355 555,053
------------ ------------
Total cost of restaurant sales ............................................. 24,025,549 19,682.665
Depreciation and amortization ................................................. 1,716,503 1,210,416
General and administrative .................................................... 1,630,808 2,082,971
------------ ------------
Total operating expenses ................................................... 27,372,860 22,976,052
------------ ------------
Operating income ........................................................... 1,667,501 106,957
Other income (expense):
Interest expense, net ...................................................... (497,050) (327,607)
Equity in net income of affiliates ......................................... 31,744 26,383
Other, net ................................................................. 92,775 88,660
------------ ------------
Total other income (expense) .......................................... (372,531) (212,564)
------------ ------------
Pretax income (loss) ................................................. 1,294,970 (105,607)
Income tax ................................................................... 34,939 42,700
------------ ------------
Net income (loss) ..................................................... $1,260,031 $(148,307)
============ ============
Basic net income (loss) per common
share ...................................................................... $0.14 $(0.02)
============ ============
Diluted net income (loss) per common
share ...................................................................... $0.13 $(0.02)
============ ============
Weighted average common shares
outstanding ............................................................... 9,308,411 9,305,408
============ ============
Weighted average common shares and
share equivalents outstanding-
assuming dilution ......................................................... 9,523,738 9,305,408
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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ROADHOUSE GRILL, INC.
Condensed Statement of Changes in Shareholders' Equity
For the fiscal quarter ended July 26, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance April 26, 1998 ........ 9,305,408 $279,162 $48,535,944 $(5,661,475) $43,153,631
Stock Options Exercised ....... 3,333 100 14,899 -- 14,999
Net income .................... -- -- -- 1,260,031 1,260,031
--------- -------- ----------- ----------- -----------
Balance July 26, 1998 ......... 9,308,741 $279,262 $48,550,843 $(4,401,444) $44,428,661
========= ======== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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ROADHOUSE GRILL, INC.
Condensed Statements of Cash Flows
For the fiscal quarters ended July 26, 1998 and July 27, 1997
(Unaudited)
<TABLE>
<CAPTION>
July 26, July 27,
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income .................................................................. $ 1,260,031 $ (148,307)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............................................. 1,676,718 1,227,604
Noncash compensation expense............................................... -- 80,650
Equity in net income of affiliate.......................................... (31,744) (26,383)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable................................. (62,098) (256,228)
Decrease (increase) in inventory........................................... (28,911) (58,351)
Decrease (increase) in pre-opening costs................................... 90,698 44,806
Decrease (increase) in prepaid expense..................................... (36,015) (97,220)
Decrease (increase) in other assets........................................ (107,697) 41,220
(Decrease) increase in accounts payable.................................... (1,537,929) (47,531)
(Decrease) increase in accrued expenses.................................... (1,685,968) 1,639,389
----------- -----------
Net cash provided by (used in) operating activities...................... (462,915) 2,399,649
Cash flows from investing activities
Dividends received from affiliate............................................ 70,002 --
Advances to affiliates, net.................................................. 5,316 (19,388)
Payments for intangibles..................................................... -- (14,770)
Proceeds from payment on notes receivable.................................... 1,020,021 18,487
Proceeds from sale-leaseback transaction..................................... 860,897 4,004,536
Purchase of property and equipment........................................... (2,037,646) (4,720,557)
----------- -----------
Net cash used in investing activities.................................... (81,410) (731,692)
Cash flows from financing activities
Issuance of common stock..................................................... 14,999 --
Repayments of long-term debt................................................. (110,212) (235,818)
Payments on capital lease obligations........................................ (286,990) (355,943)
----------- -----------
Net cash provided by financing activities................................ (382,203) (591,761)
Increase (decrease) in cash and cash equivalents................................ (926,528) 1,076,196
Cash and cash equivalents at beginning of period................................ 3,554,875 1,587,040
----------- -----------
Cash and cash equivalents at end of period...................................... $ 2,628,347 $ 2,663,236
=========== ===========
Supplementary disclosures:
Interest paid................................................................ $ 633,955 $ 451,382
=========== ===========
Income taxes paid............................................................ $ 454,000 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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ROADHOUSE GRILL, INC.
Notes to Condensed Financial Statements
1. Basis of Presentation
The financial statements of Roadhouse Grill, Inc. (the "Company") for the
fiscal quarters ended July 26, 1998 and July 27, 1997 are unaudited and reflect
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
statements for the interim periods. The financial statements should be read in
conjunction with then notes to condensed financial statements, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-K for the 17
weeks ended April 26, 1998 (the "transition period").
On December 11, 1997, the Company's Board of Directors voted to change
the Company's fiscal year to coincide with that of the majority shareholder,
Berjaya Group (Cayman) Limited ("Berjaya"). The new fiscal year ends on the last
Sunday in April. The Company filed a form 10-K for the transition period which
was from December 29, 1997 through April 26, 1998. This Form 10-Q is for the
first quarter of fiscal year 1999 (April 27, 1998 through July 26, 1998). All
previous year amounts have been recast to the new fiscal quarters.
The results of operations for the fiscal quarter ended July 26, 1998 are
not necessarily indicative of the results for the entire fiscal year ending
April 25, 1999.
Certain prior year balances have been reclassified to conform to the
current presentation.
2. 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.
During the quarter ended July 26, 1998, the Company completed
construction of three new Company-owned restaurants, which were opened during
the first quarter of fiscal 1999. As of July 26, 1998, the Company had
contracted to purchase four sites and had letters of intent on three sites. The
Company expects to begin construction on several sites during the second fiscal
quarter of 1999.
3. Acquisitions
In August 1996, the Company entered into an agreement to purchase the
remaining 50 percent interest in the Kendall Roadhouse Grill, L.C., a limited
liability company, that owned the Kendall Joint Venture from the joint venture
partners for a purchase price of $2,300,000. The purchase price was to be paid
from the proceeds of the IPO completed by the Company in December 1996 in which
2,500,000 shares were sold at $6.00 per share. During the first quarter of 1997,
the agreement was amended as follows: the purchase price was changed to
$1,800,000 with a deposit of $400,000 paid in January 1997, and the remaining
$1,400,000 payable by December 31, 1997 when the acquisition was expected to be
closed and consummated. Subsequent to the end of the quarter, the Company
purchased the remaining 50 percent interest in the Kendall Joint Venture for a
purchase price of $1,600,000.
4. Adoption of New Accounting Standards
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 defines start-up activities broadly (including
organizational costs) and requires that the cost of start-up activities be
expensed as incurred. SOP 98-5 amends provisions of a number of existing SOPs
and audit and accounting guides. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company's current accounting policy is to
capitalize pre-opening costs and amortize them over a one-year period. The
effect of initially applying the provisions of SOP 98-5 will be reported as a
change in accounting principle at the beginning of the period of adoption and
thereafter all such costs will be expensed as incurred. Amounts capitalized as
pre-opening costs as of July 26, 1998 were $875,990.
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5. Conversion of Long-Term Debt into Shares of Common Stock
On February 6, 1998, the Company's Board of Directors approved the
issuance of 400,000 shares of Common Stock to Berjaya, the majority shareholder
of the Company, to convert $1,500,000 of debt outstanding to common equity at a
price of $3.75 per share, based on the closing market price as of February 6,
1998. The debt carried an interest rate of 8.5% and was scheduled to be repaid
during the first quarter of 1998. The transaction is expected to be consummated
during the second quarter of fiscal 1999.
6. Loan Facility
On March 27, 1998, the Company borrowed $2,880,000 from a $15 million
loan facility with Finova Capital Corporation. The facility consists of a
10-year term loan collateralized by personal property and fixtures at four
Company-owned restaurants with an interest rate of 8.96%. The Company's
management expects that the proceeds, net of fees and other costs, will be used
primarily for expansion of the Company.
7. Sale-Leaseback Transaction
Pursuant to a $16.5 million funding commitment received from CNL Group,
Inc., the Company entered into a sale-leaseback transaction for a new Roadhouse
Grill restaurant in Pensacola, Florida. The resulting lease term will be 13
years with a 9.9% rental factor.
8. Net Income (Loss) per Common Share ("EPS")
The calculation of Basic EPS excludes all dilution and is based upon the
weighted average number of common shares outstanding during the year. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The following is a reconciliation of the numerators (net income) and the
denominators (common shares outstanding) of the basic and diluted per share
computations for net income:
<TABLE>
<CAPTION>
Fiscal Quarter Ended July 26, 1998
-------------------------------------------
Net Income Shares Amount
---------- ------ ------
<S> <C> <C> <C>
Basic EPS
Net income available
to common shareholders $1,260,031 9,308,411 $0.14
Effect of Dilutive Securities
Stock options -- 103,323 --
Convertible debt -- 112,004 --
---------- --------- -----
Diluted EPS $1,260,031 9,523,738 $0.13
========== ========= =====
</TABLE>
Options to purchase 637,418 shares of common stock at a weighted-average
exercise price of $6.66 per share were outstanding during the fiscal quarter
ended July 26, 1998 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares. The options, which expire on varying dates, were still
outstanding as of July 26, 1998.
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<PAGE> 9
<TABLE>
<CAPTION>
Fiscal Quarter Ended July 27, 1997
-------------------------------------------
Net Income Shares Amount
-------------------------------------------
<S> <C> <C> <C>
Basic EPS
Net income available
to common shareholders $(148,307) 9,305,408 $(0.02)
Effect of Dilutive Securities
Stock options -- -- --
--------- --------- ------
Diluted EPS $(148,307) 9,305,408 $(0.02)
========== ========= =======
</TABLE>
Options to purchase 364,784 shares of common stock at a weighted-average
exercise price of $7.17 per share were outstanding during the fiscal quarter
ended July 27, 1997 but were not included in the computation of diluted EPS
because the Company recognized a net loss during the quarter, and including such
options would result in anti-dilutive EPS.
9. Stock Option Plan
In February 1998, options were granted to the President and Chief
Executive Officer, the General Counsel and a consultant of the Company to
purchase 300,000 shares of the authorized, but unissued shares of common stock
at a purchase price of $3.50 per share. All options vest at the date of grant
and the General Counsel and consultant are employees of the Company. The options
are exercisable for a period of ten years after grant. In addition, the Company
granted options to purchase 15,000 shares of common stock, at $3.50 per share,
to the family of Tan Kim Poh, deceased former Chairman of the Board of Directors
of the Company. These options were all granted outside the Plan. No compensation
expense was recorded as a result of these issuances during the fiscal quarter
ended July 26, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the condensed financial statements and notes thereto, included elsewhere in this
Form 10-Q.
Roadhouse Grill, Inc. currently owns and operates 47 full-service, casual
dining restaurants under the name "Roadhouse Grill", (including Kendall
Roadhouse Grill for which the Company purchased the minority interest
outstanding subsequent to the end of the quarter). In addition, Roadhouse Grill,
Inc. licenses one and franchises three full-service casual dining restaurants.
The Company was incorporated in October 1992 and opened the first Company-owned
restaurant in Pembroke Pines, Florida in March of 1993. Since then, the Company
has opened 46 additional restaurants in 11 states. Two franchised locations are
located in Kuala Lumpur, capital city of Malaysia, and one domestic franchise is
located in Las Vegas, Nevada.
In May 1997, the Company entered into a licensing agreement with Sunshine
Roadhouse Group, Inc. for the licensing of the North Palm Beach, Florida
restaurant.
On December 11, 1997, the Company's Board of Directors voted to change
the Company's fiscal year to the last Sunday in April to coincide with that of
the majority shareholder, Berjaya.
The Company's revenues are derived primarily from the sale of food and
beverages. Sales of alcoholic beverages accounted for approximately 10.5% of
total revenues for the first quarter ended July 26, 1998. 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 with the first full accounting period
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<PAGE> 10
after the restaurant opens. During the first quarter of 1999, pre-opening
expenses incurred in connection with the opening of three Company-Owned
restaurants averaged approximately $141,000.
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 July 26, 1998 was approximately $1,429,000. The average real
estate acquisition cost for the 13 restaurant sites owned by the Company was
approximately $911,000. 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
for the restaurant sites leased by the Company is approximately $102,000 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 between $1.1 million and $1.6 million, depending upon whether the
Company converts an existing building or constructs a new restaurant.
Results of Operations
The following table sets forth for the periods indicated certain selected
statements of operations data expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
Fiscal Quarters Ended
-----------------------------
July 26, 1998 July 27, 1997
------------- -------------
<S> <C> <C>
Total revenues..................................... 100.0% 100.0%
Cost of restaurant sales:
Food and beverage.................................. 33.1 33.3
Labor and benefits................................. 28.3 30.4
Occupancy and other................................ 20.0 19.2
Preopening amortization............................ 1.3 2.4
----- -----
Total cost of restaurant sales..................... 82.7 85.3
Depreciation and amortization...................... 5.9 5.2
General and administrative......................... 5.6 9.0
----- -----
Total operating expenses........................ 94.2 99.5
----- -----
Operating income ............................... 5.8 0.5
Other income (expense):
Interest expense, net........................... (1.7) (1.4)
Equity in net income of affiliates.............. 0.1 0.1
Other, net ................................... 0.3 0.5
----- -----
Total other income (expense).................. (1.3) (0.8)
----- -----
Pretax income (loss).......................... 4.5 (0.3)
Income tax......................................... 0.1 0.2
----- -----
Net income (loss)............................. 4.4% (0.5)%
===== =====
</TABLE>
This Form 10-Q contains forward-looking statements, including statements
regarding, among other things (i) the Company's growth strategies, (ii)
anticipated trends in the economy and the restaurant industry and (iii) the
Company's future financing plans. In addition, when used in this Form 10-Q, the
words "believes," "anticipates," "expects" and similar words often are intended
to identify certain forward-looking statements. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of changes in trends in the economy and the restaurant industry,
reductions in the availability of financing, increases in interest rates and
other factors. In light of the foregoing, there is no assurance that the
forward-looking statements contained in this Form 10-Q will in fact prove
correct or occur. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances.
First Fiscal Quarter 1999. ended July 26, 1998 compared to First Fiscal Quarter
1998, ended July 27, 1997
Restaurants open. At July 26, 1998 there were 46 Company-owned restaurants
open, excluding the Kendall Joint Venture ("Company-owned restaurants"). At July
27, 1997, there were 36 Company-owned restaurants, excluding the Kendall Joint
Venture and the Boca Raton, Florida restaurant, which was owned by a limited
liability company in which the Company held a 50% ownership interest. (In
December 1997, the Company sold its ownership interest in the limited liability
company which owned the Boca Raton, Florida restaurant.) This represents a 27.8%
increase in the number of Company-owned restaurants.
Total revenues. Total revenues increased $5.9 million, or 26.0%, from $23.1
million for the first quarter of 1998 to
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<PAGE> 11
$29.0 million for the first quarter of 1999. This increase is primarily
attributable to 10 Company-owned restaurant openings and an increase in
comparable store sales of 0.2% for the 30 Company-owned restaurants opened for
18 months or longer.
Food and beverage. Food and beverage costs as a percentage of sales
decreased by 0.2% points from 33.3% for the first quarter of 1998 to 33.1% for
the same period in 1999. This decrease was primarily due to improved operating
procedures including portion control methods and increased management review and
supervision.
Labor and benefits. Labor costs as a percentage of sales decreased by 2.1%
points from 30.4% for the quarter ended July 27, 1997 to 28.3% for the quarter
ended July 26, 1998. This decrease was the result of the restructuring of the
restaurant level management team, improved productivity of the Company's
in-store meat operation and including hostesses as tipped employees eligible for
the tip credit.
Occupancy and other. Occupancy and other costs, as a percentage of sales
increased by 0.8% points from 19.2% for the quarter ended July 27, 1997 to 20.0%
for the quarter ended July 26, 1998. The increase is due to the implementation
of a new marketing plan including television, radio and print media, partially
offset by reductions in direct operating costs.
Preopening amortization. Preopening amortization, as a percentage of sales
decreased by 1.1% points from 2.4% for the quarter ended July 27, 1997 to 1.3%
for the quarter ended July 26, 1998. The decrease is due to a larger base of
restaurants open for more than one year, which no longer have preopening
amortization expense.
Depreciation and amortization. As a percentage of sales, depreciation and
amortization increased by 0.7% points from 5.2% for the first quarter of 1998 to
5.9% for the first quarter of 1999. This is primarily due to the Company
entering into sale-leaseback transactions for the financing of certain
restaurant furniture, fixtures and equipment. The transactions resulted in
capital leases with terms shorter than the original useful lives of the
furniture, fixtures and equipment; therefore, depreciation expense is higher for
the quarter ended July 26, 1998.
General and administrative. General and administrative costs decreased as a
percentage of sales from 9.0% for the first quarter of 1998 to 5.6% for the
first quarter of 1999. This 3.4% point decrease is primarily due to severance
charges of $430,000 or 1.9% of sales, incurred during the first quarter of
fiscal 1998 for the departure of several key executives of the Company,
including the President and Chief Executive Officer. General and administrative
costs would have been $1.6 million, or 7.2% of sales for the quarter ended July
26, 1998, had these changes not been incurred.
Total other income (expense). Total other income (expense) increased
$159,967 from expense of $212,564 for the first quarter of 1998 to expense of
$372,531 for the first quarter of 1999. As a percentage of sales, other income
(expense) increased by 0.5% points from (0.8)% for the quarter ended July 27,
1997 to (1.3)% for the quarter ended July 26, 1998. The variance is due to an
increase in interest expense as a result of new loan facilities obtained by the
Company.
Adoption of New Accounting Standards
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). SOP 98-5 defines start-up activities broadly (including
organizational costs) and requires that the cost of start-up activities be
expensed as incurred. SOP 98-5 amends provisions of a number of existing SOPs
and audit and accounting guides. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company's current accounting policy is to
capitalize pre-opening costs and amortize them over a one-year period. The
effect of initially applying the provisions of SOP 98-5 will be reported as a
change in accounting principle at the beginning of the period of adoption and
thereafter all such costs will be expensed as incurred. Amounts capitalized as
pre-opening costs as of July 26, 1998 were $875,990.
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, bank loans, leasing facilities
and loans from certain private parties, including present and former
shareholders of the Company.
During the first fiscal quarter of 1999, the Company received financing
commitments of $36.5 million, which will be used for developing new restaurants.
These commitments of $16.5 million and $20 million were obtained from Franchise
Finance Corporation of America and CNL Group, Inc., respectively. These
commitments added substantial flexibility to the current development plan
allowing the Company to focus on development of sites identified and on finding
new sites for additional restaurants. There is no guarantee that these
additional financings will be completed. Pursuant to the $16.5 million funding
commitment received from CNL Group, Inc., the Company entered into a
sale-leaseback transaction for a new Roadhouse Grill restaurant in Pensacola,
Florida. During the quarter, $860,000 were advanced for this project.
On March 27, 1998, the Company borrowed $2,880,000 from a $15 million loan
facility with Finova Capital
-9-
<PAGE> 12
Corporation. The facility consists of a 10-year term loan collateralized by
personal property and fixtures at four Company-owned restaurants with an
interest rate of 8.96%. The Company's management expects that the proceeds, net
of fees and other costs, will be used primarily for expansion of the Company.
In June 1997 and July 1997, the Company entered into sale-leaseback
agreements with unaffiliated third parties for interior furniture, fixtures and
equipment located in 11 Company-owned restaurants. The Company received proceeds
of approximately $1.8 million and $2.3 million, respectively, net of fees and
other costs. These proceeds were used for expansion of the Company.
The Company's capital expenditures aggregated approximately $2.0 million
for the quarter ended July 26, 1998 and $4.7 million for the quarter ended July
27, 1997, substantially all of which were used to open Roadhouse Grill
restaurants. At December 28, 1997, the Company owed Berjaya, its majority
shareholder $3,000,000 under a promissory note dated September 27, 1996 bearing
interest at 8.5%. In January 1998, the Company paid $1,500,000 of the
outstanding balance on this promissory note. On February 6, 1998, the Company's
Board of Directors approved the issuance of 400,000 shares of Common Stock to
Berjaya to convert the remaining debt outstanding of $1,500,000 to common equity
at a price of $3.75 per share based on the closing market price as of February
6, 1998. The transaction is expected to be consummated during the second quarter
of fiscal 1999.
The Company anticipates that it may require additional debt or equity
financing in order to continue to open new restaurants. There can be no
guarantee or assurance that the Company will conclude current financing
discussions or that necessary financing will otherwise be available on terms
acceptable to the Company, if at all. In the event the Company is unable to
secure additional financing sufficient to support continued growth, the
Company's operating and financial plans would require revision.
As is common in the restaurant industry, the Company has generally operated
with negative working capital ($4.6 million as of July 26, 1998). 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.
On December 11, 1997, the Company's Board of Directors voted to change the
Company's fiscal year to coincide with that of the majority shareholder,
Berjaya. With the new fiscal year structure, the Company's highest earnings are
expected to occur in the third and fourth fiscal quarters. The new fiscal year
ends on the last Sunday in April and consists of four 13 week quarters
structured as follows:
o 1st Quarter - May, June, July
o 2nd Quarter - August, September, October
o 3rd Quarter - November, December, January
o 4th Quarter - February, March, April
-10-
<PAGE> 13
The following is a pro forma summary (unaudited) of the quarterly results of
operations for the 12 months ended April 1998 and the 12 months ended April 1997
with the quarters structured according to the new fiscal year:
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total Year
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
12 Months Ended April 1998:
Total revenues $23,083,009 $22,866,463 $25,042,652 $29,202,089 $100,194,213
Income prior to unusual or infrequent
items 106,957 549,636 1,194,285 1,954,387 3,805,265
(Loss) from impairment of assets(1) -- -- (1,120,238) -- (1,120,238)
Operating income(2) 106,957 549,636 74,047 1,954,387 2,685,027
Pretax income (loss)(3) (105,607) 119,344 (999,226) 1,554,879 569,390
Net income (loss) (148,307) 69,844 (1,073,309) 1,504,601 352,829
Basic net income (loss) per common share (0.02) 0.01 (0.12) 0.16 0.04
Weighted average common shares outstanding 9,305,408 9,305,408 9,305,408 9,305,408 9,305,408
Diluted net income (loss) per common share (0.02) 0.01 (0.12) 0.16 0.04
Weighted average common shares and share
equivalents outstanding - assuming
dilution 9,305,408 9,305,879 9,305,408 9,343,605 9,315,139
12 Months Ended April 1997:
Total revenues $14,461,029 $16,667,139 $20,017,892 $23,501,609 $74,647,669
Operating income (loss) (389,522) (226,897) 369,188 1,599,131 1,351,900
Pretax income (loss) (569,296) (484,571) 105,271 1,451,383 502,787
Net income (loss) (569,296) (484,571) 95,271 1,412,047 453,451
Basic net income (loss) per common share (0.12) (0.10) 0.01 0.15 0.07
Weighted average common shares outstanding 4,697,232 4,747,379 7,852,849 9,305,408 6,650,717
Diluted net income (loss) per common share (0.12) (0.10) 0.01 0.15 0.07
Weighted average common shares and share
equivalents outstanding - assuming dilution 4,697,232 4,747,379 7,872,237 9,311,336 6,653,874
</TABLE>
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.
Year 2000
The Company has developed a plan to address the Year 2000 compliance
issues. As part of that plan the Company will evaluate its internal information
infrastructure, its major suppliers, financial institutions and credit card
vendors. The Company will assess the costs related to Year 2000 compliance after
each area is evaluated. At such point, the Company will accrue all costs that it
expects to incur for each area. Roadhouse Grill is working diligently to
complete the evaluation and its estimated date of completion is April 1999.
Impact of Inflation
The Company does not believe that inflation has materially affected its
results of operations during the past five 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.
- ----------------------
(1) During the third quarter of proforma 1998, the Company recognized an
impairment loss of $1,120,200, or $0.12 per share, relating to the
write-down of two under-performing Company-Owned restaurants.
(2) During the first quarter of proforma 1998, the Company recognized
non-recurring severance charges of $430,000, or $0.05 per share. These
charges were incurred for the departure of key executives of the Company.
(3) During the third quarter of proforma 1998, the Company incurred a loss on
divestiture of an under-performing joint venture of $611,000, or $0.07 per
share.
-11-
<PAGE> 14
Employees
The Company competes with other companies for qualified personnel,
especially management. A shortage of qualified personnel could materially affect
the Company. The Company has not experienced a shortage of qualified personnel
to date and believes that the risk of a shortage is minimal.
Site Location
The Company competes in the marketplace for qualified restaurant locations.
There is no assurance that the Company can find enough qualified sites to
continue its rapid expansion.
Consumer Taste
The restaurant industry is highly competitive and subject to changes in
consumer tastes. The Company believes that it has the ability to respond quickly
to changing taste and preferences because of its flexible format and trade name.
PART II
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the normal
course of business. While the resolution of any of such actions may have an
impact on the financial results for the period in which it is resolved, the
Company believes that the ultimate disposition of these matters will not, in the
aggregate, have a material adverse effect upon its business or financial
position.
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are filed with or
incorporated by reference in this report.
(b) The Company filed no reports on Form 8-K during the period covered by this
Form 10-Q.
-12-
<PAGE> 15
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 on August 31, 1998, by the undersigned, thereunto duly authorized.
ROADHOUSE GRILL, INC.
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ayman Sabi President, Chief Executive Officer August 31, 1998
- ----------------------------------- and Director
Ayman Sabi (Principal Executive Officer)
/s/ Dennis C. Jones Chief Financial Officer, August 31, 1998
- ----------------------------------- (Principal Financial Officer
Dennis C. Jones and Principal
Accounting Officer)
</TABLE>
-13-
<PAGE> 16
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
21.0 Subsidiaries of the Registrant.
27 Financial Data Schedule.
-14-
<PAGE> 1
EXHIBIT 21.0
SUBSIDIARIES OF THE REGISTRANT
- ------------------------------
None
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-25-1999
<PERIOD-START> APR-27-1998
<PERIOD-END> JUL-26-1998
<CASH> 2,628,347
<SECURITIES> 0
<RECEIVABLES> 304,479
<ALLOWANCES> 0
<INVENTORY> 968,080
<CURRENT-ASSETS> 5,960,140
<PP&E> 80,317,087
<DEPRECIATION> 13,037,219
<TOTAL-ASSETS> 78,622,916
<CURRENT-LIABILITIES> 10,537,648
<BONDS> 0
0
0
<COMMON> 279,262
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 78,622,916
<SALES> 28,889,525
<TOTAL-REVENUES> 29,040,361
<CGS> 19,682,665
<TOTAL-COSTS> 22,976,052
<OTHER-EXPENSES> 212,564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327,607
<INCOME-PRETAX> 1,294,970
<INCOME-TAX> 34,939
<INCOME-CONTINUING> 1,260,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260,031
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
