<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended June 29, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ___ to ___
Commission File Number: 1-6192
GROUND ROUND RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 13-5637682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 Braintree Hill Office Park, Braintree, Massachusetts 02184 (Address of
principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 380-3100
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 [ ]
Number of shares of Common Stock, $ .16 2/3 par value outstanding as of
August 8, 1997: 11,173,421
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1997 AND SEPTEMBER 29, 1996 (Dollars in
thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,049 $ 1,775
Receivables, net of allowances for
uncollectible accounts of $991 and
$1,123 at June 29, 1997 and
September 29, 1996, respectively 1,270 1,299
Income tax refunds receivable 0 2,550
Inventories 1,946 2,056
Prepaid expenses and other current assets 1,990 1,471
Assets held for sale 1,579 12,806
--------- ---------
Total current assets 7,834 21,957
Property and equipment:
Land 7,042 7,042
Buildings and leasehold improvements 97,929 97,235
Machinery and equipment 34,086 33,441
--------- ---------
139,057 137,718
Accumulated depreciation and amortization 59,583 53,154
--------- ---------
Property and equipment, net 79,474 84,564
Other assets 12,027 14,717
--------- ---------
Total Assets $ 99,335 $ 121,238
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 7,212 $ 8,630
Accrued expenses 11,454 15,002
Current portion of long-term debt
and capital lease obligations 640 11,499
Term loan payable to bank (see Note 4) 37,138 0
--------- ---------
Total current liabilities 56,444 35,131
Long-term debt and capital lease obligations 1,780 39,947
Other long-term liabilities 8,678 9,423
STOCKHOLDERS' EQUITY:
Preferred Stock, undesignated, par value
$100 per share; authorized 30,000
shares; none issued Common Stock,
par value $.16 2/3 per share: authorized
35,000,000 shares at June 29, 1997
and September 29, 1996; issued
11,173,421 at June 29, 1997
and September 29, 1996 1,862 1,862
Additional paid-in capital 57,883 57,883
Accumulated deficit (27,312) (23,008)
--------- ---------
Total stockholders' equity 32,433 36,737
--------- ---------
Total Liabilities and Stockholders' Equity $ 99,335 $ 121,238
========= =========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
REVENUE $ 45,736 $ 55,779 $ 142,086 $ 165,462
COSTS AND EXPENSES:
Cost of products sold 40,349 51,148 124,288 152,556
Selling, general and
administrative 3,715 4,336 11,310 12,619
Depreciation and amortization 2,214 2,893 6,791 9,064
Interest expense, net 1,214 1,183 3,622 3,633
Other expense 118 373 378 498
--------- --------- --------- ---------
47,610 59,933 146,389 178,370
--------- --------- --------- ---------
Loss before income tax benefit (1,874) (4,154) (4,303) (12,908)
Income tax benefit 0 (1,038) 0 (3,227)
--------- --------- --------- ---------
NET LOSS $ (1,874) $ (3,116) $ (4,303) $ (9,681)
========= ========= ========= =========
Weighted average common
shares outstanding 11,173 11,173 11,173 11,173
PER SHARE DATA:
Net loss per common share $ (.17) $ (.28) $ (.39) $ (.87)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 29, June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,303) $ (9,681)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 7,974 9,378
Deferred taxes 0 (3,015)
Change in operating assets and liabilities:
Accounts receivable 222 (228)
Income tax refunds receivable 2,550 1,541
Inventories and prepaid expenses 428 1,280
Accounts payable and other liabilities (5,675) 4,040
-------- --------
Net cash provided by operating activities 1,196 3,315
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,423) (1,471)
Proceeds from sales of property and equipment 11,329 3,034
Sale of liquor license 60 293
-------- --------
Net cash provided by investing activities 9,966 1,856
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term borrowings (11,888) (5,322)
Payments of deferred debt costs 0 (460)
-------- --------
Net cash used by financing activities (11,888) (5,782)
NET DECREASE IN CASH (726) (611)
Cash and cash equivalents at beginning
of period 1,775 2,425
-------- --------
Cash and cash equivalents at end of period $ 1,049 $ 1,814
======== ========
</TABLE>
See notes to consolidated financial statements.
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GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 29, 1997 AND JUNE 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated financial
statements contain all adjustments, which are of a normal recurring nature,
necessary to present fairly Ground Round Restaurants, Inc.'s (the "Company")
financial position as of June 29, 1997 and the results of operations for the
13-week and 39-week periods ended June 29, 1997 and June 30, 1996. These
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such regulations, although the Company believes the
disclosures provided are adequate to prevent the information presented from
being misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K, as amended, for the year ended September
29, 1996 and Form 10-Q for the quarterly period ended March 30, 1997.
Certain items in specific captions in the accompanying consolidated financial
statements have been reclassified for comparative purposes.
2. COST OF PRODUCTS SOLD
Cost of products sold comprises the following:
13 Weeks Ended 39 Weeks Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
------- ------- ------- -------
Food and beverage costs $14,992 $19,525 $46,849 $57,694
Labor costs 15,793 19,482 48,005 58,175
Other costs 9,564 12,141 29,434 36,687
------- ------- -------- --------
$40,349 $51,148 $124,288 $152,556
======= ======= ======== ========
3. LITIGATION
The Company is subject to various claims and legal actions that arise in the
ordinary course of business, including, but not limited to, claims and actions
brought pursuant to "dram shop" statutes and under federal and state employment
laws prohibiting employment discrimination. The Company believes it is not
currently a party to any "material" pending legal proceedings as defined in Item
103 of Regulation S-K of the Securities Exchange Act of 1934, as amended.
The Company has been named in a number of separate claims brought by former
employees alleging that the Company engaged in discriminatory practices,
including those based on age or sex. Plaintiffs maintaining claims of employment
discrimination, such as those being brought against the Company, generally are
entitled to have their claims tried by a jury and such claims may result in
punitive damage awards. In December 1996, the Company settled a pending
litigation for approximately $0.5 million which was paid in the first quarter of
fiscal 1997. Most of the remaining proceedings against the Company are still in
the discovery or motion phase and management believes that the discrimination
claims against the Company are without merit and the Company is actively
defending the claims. Management does not expect that the resolution of these
matters will have a material adverse effect on the consolidated results of
operations, cash flows or financial position of the Company.
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4. DEBT
On September 12, 1996 the Company restructured its existing credit agreement
dated October 8, 1993, by entering into the Amended and Restated Credit
Agreement ("Amended Credit Agreement") dated as of September 12, 1996,
among The Ground Round, Inc., GR of Minn., Inc. (collectively, the
"Borrowers"), the lenders listed therein (collectively, the "Lenders"), and The
Bank of New York, as Agent, and The Chase Manhattan Bank, as Co-Agent, which
consolidated the then existing Tranche A revolving loan, Tranche A Term Loans
and Tranche B Term Loans into a single term loan in the aggregate principal
amount of approximately $48.5 million. Interest on the facility is payable at
LIBOR plus 2.625% on the Company's LIBOR loans and Alternate Base Rate
("ABR") plus 0.75% on the Company's ABR based loans. As a result of the
Company's prepayment to the Lenders of more than approximately $10.8 million
the maturity date of the loan under the Amended Credit Agreement was extended
to December 31, 1997. Through June 29, 1997 the Company has reduced its
outstanding debt balance by $12.5 million.
In consideration of the Lenders entering into the Amended Credit Agreement, the
Company and each of the Borrowers executed a series of Convertible Notes dated
September 12, 1996, whereby the Borrowers promised to pay to the Lenders a
restructuring fee in the aggregate sum of approximately $2.7 million which has
been reduced to approximately $1.36 million as a result of certain prepayments
of the credit facility. The Company amended The Amended Credit Agreement by
entering into a Third Amendment (the "Amendment"), dated as of May 23, 1997.
The Amendment provides, among other things, for the issuance by the Company of
Amended and Restated Convertible Notes (the "Amended Convertible Notes") to the
Lenders to replace the Convertible Notes issued to the Lenders on September 12,
1996. The Amended Convertible Notes amended the original Convertible Notes to
provide, among other things, (y) that they shall become due thirty (30) days
after written demand for payment has been issued by any noteholder to the
Company with a final maturity date of December 31, 1997, and (z) that,
commencing June 1, 1997, interest shall accrue monthly on the unpaid principal
balance of the amended Convertible Notes, at the rate of ten percent (10%) per
annum, which interest shall be added to the principal amount thereof, and shall
be payable on the maturity date of the Amended Convertible Notes. As of the
date hereof, the Lenders have not demanded payment of the Amended Convertible
Notes. However, in the event the Lenders were to demand payment of the Amended
Convertible Notes, there can be no assurance that the Company will have
sufficient cash to pay the Amended Covertible Notes. The Company's failure to
make such payment or comply with covenants under the Amended Credit Agreement
would be an event of default under the Amended Credit Agreement and cause the
entire credit facility to be due and payable. Such event would have a material
adverse effect on the Company.
The term loan has been reclassified as current since the maturity date is within
the next 12 months. The Company is attempting to refinance or further extend the
existing credit facility in connection with sales and leaseback transactions
involving approximately 18 restaurant sites, owned in fee, virtually all of the
proceeds of which are required to repay a portion of the term loan. However,
there can be no assurance that the Company will be able to complete such sales
and leaseback transactions on commercially acceptable terms or that the Lenders
will consent to such transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company operated 122 and franchised 41 full service casual dining
restaurants at June 29, 1997.
For the purposes of this discussion and analysis, the 13-week periods ended June
29, 1997 and June 30, 1996 are referred to as the third quarter of 1997 and
1996, respectively. The 39-week periods ended June 29, 1997 and June 30, 1996
are referred to as the first nine months ended 1997 and 1996, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS ENDED
JUNE 29, 1997 AND JUNE 30, 1996
The following table sets forth the percentages which the items in the Company's
Consolidated Statements of Operations bear to total revenue unless otherwise
indicated:
Third Quarter Ended First Nine Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
----- ----- ----- -----
Restaurant revenue 98.7% 99.2% 98.9% 99.2%
Franchise revenue 1.3 0.8 1.1 0.8
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of products sold (1) 89.4 92.5 88.4 93.0
(1) As a percentage of Company-operated restaurant revenue.
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<TABLE>
<CAPTION>
Third Quarter Ended First Nine Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selling, general and administrative 8.1 7.8 8.0 7.6
Depreciation and amortization 4.8 5.2 4.8 5.5
Interest expense, net 2.7 2.1 2.5 2.2
Other expense 0.3 0.7 0.3 0.3
Loss before taxes (4.1) (7.4) (3.0) (7.8)
Income tax benefit 0.0 (1.9) 0.0 (1.9)
Net loss (4.1)% (5.5)% (3.0)% (5.9)%
</TABLE>
RESTAURANT REVENUE. Restaurant revenue totaled $45.1 million for the third
quarter and $140.5 million for the nine months ended June 29, 1997 compared to
$55.3 million and $164.1 million for the third quarter and nine months ended
June 30, 1996. Restaurant revenue is comprised of comparable restaurant revenue
(revenue from restaurants open during all of both fiscal years) and
non-comparable restaurant revenue.
Comparable restaurant revenue, comprised of revenue from restaurants open
during all of the first nine months of 1997 and 1996 remained flat at $137.3
million but decreased 3.3% in the third quarter of 1997 to $44.9 million from
$46.4 million. Comparable food sales for the third quarter ended June 29, 1997
were down 1.5% but increased 2.9% for the first nine months of 1997, management
believes the increases in the food sales year to date were largely due to
improved execution and greater consumer awareness of the new menu introduced in
the first quarter of 1996. Alcoholic beverage sales for the third quarter and
nine months ended June 29, 1997 were down 10.1% and 10.6%, respectively.
Decreases in the alcoholic beverage sales were largely due to a delay in
matching the Company's alcoholic beverage program to the Company's changing
customer base resulting from the Company's enhanced menu and the elimination of
discounting. During the third quarter of fiscal 1997, the Company hired a new
Vice President of Marketing who implemented a new alcoholic beverage program
incorporating server training, in-store promotions and customer preferences.
Although the Company experienced some improvement from the previous quarter in
alcoholic beverage categories following the implementation of the new beverage
programs, management believes it is too soon to assess long-term impact of such
programs on alcoholic beverage sales.
The average guest check was approximately $9.69 for both the third quarter and
first nine months of 1997 and $9.17 and $8.91 for the same periods of time in
1996. Management believes the increase in guest check is a result of evolving
menu mix with higher priced menu items, as well as improved server
communications with the guest on the new menu offerings.
Non-comparable restaurant revenue decreased by $8.6 million in the third quarter
and $23.6 million for the first nine months of 1997 as a result of the sale or
closing of six restaurants during the last three quarters of fiscal 1996, the
sale or closing of 18 restaurants during the first quarter of 1997 and the
closing of three restaurants (of which two are due to fire) during the second
quarter of 1997.
FRANCHISE REVENUE. The Company's franchise base consisted of 46 restaurants with
franchise agreements (of which 41 are presently operating) during the third
quarter of 1997 and 45 restaurants in the third quarter of 1996. Revenue from
franchised restaurants (consisting of royalties and franchise fees) were $0.6
million and $1.5 million in the third quarter and and first nine months ended
June 29, 1997 and $0.5 million and $1.4 million for the same periods ending June
30, 1996.
COST OF PRODUCTS SOLD. Cost of products sold consists of both food and beverage
costs and restaurant operating expenses. Food and beverage costs totaled 33.2%
and 33.3% of Company-operated restaurant revenue in the third quarter and first
nine months of 1997, respectively, versus 35.3% and 35.2% for the third quarter
and first nine months of 1996, respectively. Restaurant operating expenses were
56.2% and 57.2% of Company-operated
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restaurant revenue in third quarter of 1997 and 1996 and 55.1% and 57.9% in the
first nine months of 1997 and 1996, respectively. Food and beverage costs as a
percentage of Company-operated restaurant revenue decreased by 2.1% from the
third quarter of 1996 compared to the third quarter of 1997 and decreased by
1.9% for the first nine months of 1996 compared to the first nine months of
1997. The decrease can be partly attributed to improved purchasing practices
and through a reduction in waste. In addition, product costs in the first nine
months of 1996 were negatively impacted due to non-recurring training costs
during the implementation of the new menu.
Restaurant operating expenses as a percent of Company-operated restaurant
revenue decreased 1.0% and 2.8% from the third quarter of 1996 to the third
quarter of 1997 and from the first nine months of 1996 to the first nine months
of 1997, respectively, primarily due to a decrease in other controllable
expenses associated with the implementation of the new menu, which included
menu design and printing costs, plateware and supplies costs in the first
quarter of 1996 which were not repeated in 1997. Most other costs have remained
at constant dollar levels due to the fixed nature of certain costs associated
with operating a restaurant. Decreases in labor costs for the third quarter and
first nine months of 1997 are associated with increased kitchen staffing during
the implementation of the new menu as the number of menu items increased from
approximately 50 items to over 200 items in the first quarter of 1996, which
were not repeated in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 8.1% and 8.0% of total revenue in the third
quarter and first nine months of 1997 and 7.8% and 7.6% for the same periods in
1996. Selling expenses, comprised of the design, development and production
costs associated with point of purchase materials, were 0.1% and 0.2% of total
revenue in the third quarter and first nine months of 1997 as compared to 0.6%
and 0.5% for the third quarter and first nine months of 1996. The decrease in
selling expense during the first nine months of 1997 was primarily due to the
Company's reduction in production costs for the in-store marketing programs.
General and administrative costs, comprised of restaurant manager training
expenses, regional overhead and corporate administrative costs, were $3.7
million or 8.0% and $11.0 million or 7.7% of total revenue in the third quarter
and first nine months of 1997, respectively, and $4.0 million or 7.2% and
$11.7 million or 7.1% in the same periods of 1996. General and administrative
costs have decreased, on a constant dollar basis, as a result of lower training
costs due to fewer restaurants and decreases in corporate overhead expenses as
a result of a reduction in administrative personnel.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were 4.8%
of total revenue for both the third quarter and the first nine months ended
June 29, 1997 and 5.2% and 5.5% of total revenue in the third quarter and first
nine months of 1996, respectively. The decrease in depreciation and amortization
on a constant dollar basis was due mainly to the sale or closing of 25
restaurants during the past 12 months.
OTHER EXPENSE. The first nine months of 1997 reflects approximately $0.4 million
in expenses relating to the settlement of a lawsuit in the first quarter of 1997
and the payment of $0.2 million in professional fees paid during the third
quarter of 1997.
INTEREST EXPENSE. Interest expenses were 2.7% and 2.5% of total revenue in the
third quarter and first nine months of 1997, respectively, versus 2.1% and 2.2%
for the third quarter and first nine months ended June 30, 1996, respectively.
The Company's weighted average borrowing rates were 8.3% and 8.2% for the
third quarter and first nine months of 1997 and 8.1% and 8.0% for the third
quarter and first nine months of 1996.
INCOME TAXES. The Company's effective income tax rates were 0% during the third
quarter and first nine months of 1997 and 25% for the third quarter and first
nine months of 1996.
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NET LOSS. As a result of the above, the Company reported a net loss of $1.9
million, or $(0.17) per share and $4.3 million or $(0.39) per share for the
third quarter and first nine months of 1997, respectively, compared to a net
loss of $3.1 million, or $(0.28) per share and $9.7 million, or $(0.87) per
share for the same periods of time in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
A significant amount of the Company's restaurant sales are tendered in cash,
with the remainder made with credit cards that are generally realized in cash
within a few days. Because the Company does not have significant accounts
receivable or inventories and pays its expenses within normal terms, the Company
operates with working capital deficits as is typical in the restaurant industry.
The Company had working capital deficits of $11.5 million, excluding the term
loan payable to lenders in the amount of $37.1 million, and $13.2 million as of
June 29, 1997 and September 29, 1996, respectively.
Net cash provided by operating activities totaled $1.2 million in the first
nine months of 1997 as compared with $3.3 million in the first nine months of
1996. The decrease is primarily attributed to the costs associated with the
sale or closing of 18 restaurants in the first quarter of 1997 and the increase
in the amount paid for the restaurant management's annual bonus. The Company
incurred capital expenditures totaling $1.4 million for restaurant capital
maintenance during the first nine months of 1997, and $1.5 million for
restaurant capital maintenance during the first nine months of 1996. The
Company expects to incur approximately $1.9 million in capital expenditures
during fiscal 1997. Available cash, cash flow from operations and proceeds from
sales of restaurant locations in fiscal 1997 of approximately $11.3 million
funded 1997 capital expenditures and provided for the repayment of $11.9
million in borrowings under the Company's credit facility with its banks during
the first nine months of fiscal 1997.
On September 12, 1996 the Company restructured its existing credit facility by
entering into the Amended Credit Agreement with its Lenders. See Note 4 to the
Financial Statements. From the commencement of negotiations with the Lenders to
restructure the credit facility in May 1996 through June 29, 1997, the Company
has reduced its outstanding debt balance by $12.5 million. On June 29, 1997
and September 29, 1996, the Company's borrowings under its credit facility were
$37.1 million and $48.4 million, respectively. There are no material unused
amounts of credit available to the Company under the credit facility. The
Amended Credit Agreement contains financial covenants, including minimum levels
of net worth and certain required measures of profitability. The Company is
required to make accelerated principal payments based upon excess cash flows
from operations, the sale of certain assets and the offering proceeds from the
sale of stock of the Company. Provisions of the Amended Credit Agreement
restricting the payment of dividends would prevent the Company from paying
dividends over the term of the Amended Credit Agreement. The term loan has been
reclassified as current since the maturity date is within the next 12 months.
There can be no assurance that the Company will be able to negotiate an
extension of the credit facility or remain in compliance with certain financial
covenants of such agreement.
In consideration of the Lenders entering into the Amended Credit Agreement, the
Company and each of the Borrowers executed a series of Convertible Notes dated
September 12, 1996, whereby the Borrowers promised to pay to the Lenders a
restructuring fee in the aggregate sum of approximately $2.7 million which has
been reduced to approximately $1.36 million as a result of certain prepayments
of the credit facility. The Company amended the Amended Credit Agreement by
entering into a Third Amendment (the "Amendment"), dated as of May 23, 1997. As
of the date hereof, the Lenders have not demanded payment of the Amended
Convertible Notes. However, in the event the Lenders were to demand payment of
the Amended Convertible Notes, there can be no assurance that the Company will
have sufficient cash to pay the Amended Convertible Notes. The Company's failure
to make such payment or comply with convenants under the Amended Credit
Agreement would be an event of default under the Amended Credit Agreement and
cause the entire credit facility to be due and payable. Such event would have a
material adverse effect on the Company.
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The Company is contemplating a sale leaseback transaction involving
approximately 18 restaurant sites, virtually all of the proceeds of which would
be used to repay a portion of the term loan. The Company has retained a broker
to assist in the transaction and will pay commissions of between 1.5% and 3.0%
of the sale price received by the Company. The Company believes that a sale and
leaseback of most or all of the Company owned restaurants will provide the
Company with additional cash for operations and the ability to repay a portion
of the Company's credit facility thereby facilitating refinancing and/or
extending the Company's credit facility. The Company has received a number of
bids and is presently negotiating a non-binding letter of intent with one of
the parties. However, there can be no assurance that the Company will be able
to complete such sales and leaseback transactions on commercially acceptable
terms or that the Lenders will consent to such transaction.
The New York State Department of Taxation and Finance conducted a sales tax
audit of the Company for the period commencing December 1992 through November
1995. Such audit resulted in an assessment of approximately $0.7 million of
additional sales and use taxes, inclusive of penalties and interest. Management
has negotiated a settlement of this assessment with the Department of Taxation
for $0.4 million. There are nine scheduled monthly payments of which three have
been paid as of June 29, 1997. The Company has previously established reserves
against earnings in a sufficient amount to cover this assessment.
The effect of inflation has not been a factor upon either the operations or the
financial condition of the Company. The Company's business is not significantly
seasonal in nature.
FORWARD-LOOKING INFORMATION.
Statements contained in this Form 10-Q that are not historical facts, including,
but not limited to, statements found in this Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in this Form 10-Q could differ materially from those stated in such
forward-looking statements. Among the factors that could cause actual results to
differ materially are: the Company's ability to operate existing restaurants
profitably, changes in local, regional and national economic conditions,
especially economic conditions in the areas in which the Company's restaurants
are concentrated, increasingly intense competition in the restaurant industry,
increases in food, labor, employee benefits and similar costs, the ability of
the Company to repay and restructure its Amended Credit Agreement and the
terms thereof and other risks detailed from time to time in the Company's
periodic earnings releases and reports filed with the Securities and Exchange
Commission, as well as the risks and uncertainties discussed in this Form 10-Q.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) The Company filed a Current Report on Form 8-K (Date of Event -- May 15,
1997) under Item 5 -- Other Events, regarding an amendment to the Company's
Credit Facility and certain employment agreements.
In addition, the Company filed a Current Report on Form 8-K (Date of
Event -- July 9, 1997) to report under Item 1 -- Changes in Control of
Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROUND ROUND RESTAURANTS, INC.
Date: August 11, 1997 By:/S/ STEPHEN J. KIEL
-------------------
Stephen J. Kiel
Senior Vice President,
Chief Financial Officer
and Treasurer duly authorized
11
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