<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 March 30, 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 May 9,
1997: 11,173,421
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 1997 AND SEPTEMBER 29, 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
ASSETS: (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 957 $ 1,775
Receivables, net of allowances for uncollectible accounts
of $1,079 and $1,123 at March 30, 1997 and
September 29, 1996, respectively 1,328 1,299
Income tax refunds receivable 0 2,550
Inventories 1,749 2,056
Prepaid expenses and other current assets 1,889 1,471
Assets held for sale 1,625 12,806
--------- ---------
Total current assets 7,548 21,957
Property and equipment:
Land 7,042 7,042
Buildings and leasehold improvements 97,179 97,235
Machinery and equipment 33,948 33,441
--------- ---------
138,169 137,718
Accumulated depreciation and amortization 57,172 53,154
--------- ---------
Property and equipment, net 80,997 84,564
Other assets 12,565 14,717
--------- ---------
Total Assets $ 101,110 $ 121,238
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 5,436 $ 8,630
Accrued expenses 12,561 15,002
Current portion of long-term debt and capital lease obligations 595 11,499
Term loan payable to bank (see Note 4) 37,138 0
--------- ---------
Total current liabilities 55,730 35,131
Long-term debt and capital lease obligations 1,738 39,947
Other long-term liabilities 9,334 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 March 30, 1997 and September 29, 1996; issued 11,174,000
at March 30, 1997 and September 29, 1996 1,862 1,862
Additional paid-in capital 57,883 57,883
Accumulated deficit (25,437) (23,008)
--------- ---------
Total stockholders' equity 34,308 36,737
--------- ---------
Total Liabilities and Stockholders' Equity $ 101,110 $ 121,238
========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 46,434 $ 54,958 $ 96,350 $ 109,683
COSTS AND EXPENSES:
Cost of products sold 40,863 51,185 83,939 101,408
Selling, general and administrative 3,807 4,227 7,595 8,283
Depreciation and amortization 2,201 2,958 4,577 6,171
Interest expense, net 1,189 1,192 2,408 2,450
Other expense 0 125 260 125
--------- --------- --------- ---------
48,060 59,687 98,779 118,437
--------- --------- --------- ---------
Loss before income tax benefit (1,626) (4,729) (2,429) (8,754)
Income tax benefit 0 (1,183) 0 (2,189)
--------- --------- --------- ---------
NET LOSS $(1,626) $(3,546) $ (2,429) $ (6,565)
========= ========= ========= =========
Weighted average common shares outstanding 11,173 11,173 11,173 11,173
PER SHARE DATA:
Net loss per common share $ (.15) $ (.32) $ (.22) $ (.59)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
GROUND ROUND RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
March 30, March 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,429) $ (6,565)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,353 6,382
Deferred taxes 0 (2,110)
Change in operating assets and liabilities:
Accounts receivable 140 (368)
Income tax refunds receivable 2,550 1,541
Inventories and prepaid expenses 726 913
Acccounts payable and other liabilities (5,623) 2,850
-------------- --------------
Net cash provided by operating activities 717 2,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (949) (975)
Proceeds from sales of property and equipment 11,329 1,793
Sale of liquor license 60 293
-------------- --------------
Net cash provided by investing activities 10,440 1,111
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term borrowings (11,975) (4,900)
Payments of deferred debt costs 0 (216)
-------------- --------------
Net cash used by financing activities (11,975) (5,116)
NET DECREASE IN CASH (818) (1,362)
Cash and cash equivalents at beginning of period 1,775 2,425
-------------- --------------
Cash and cash equivalents at end of period $ 957 $ 1,063
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
GROUND ROUND RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED MARCH 30, 1997 AND MARCH 31, 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 March 30, 1997 and the results of operations for the
13-week and 26-week periods ended March 30, 1997 and March 31, 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 December 29, 1996.
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:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Food and beverage costs $ 15,191 $ 19,360 $ 31,857 $ 38,169
Labor costs 15,795 19,364 32,212 38,693
Other costs 9,877 12,461 19,870 24,546
-------- -------- -------- --------
$ 40,863 $ 51,185 $ 83,939 $101,408
======== ======== ======== ========
</TABLE>
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.
4
<PAGE> 6
4. DEBT
On September 12, 1996 the Company and its lenders restructured its existing
credit agreement dated October 8, 1993, by entering into the Amended and
Restated Credit Agreement ("Amended Credit Agreement") dated September 12, 1996,
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 will
be 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.
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 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 loan is scheduled to mature on May 31, 1997,
subject to an automatic extension to December 31, 1997 if $10.8 million of the
principal amount of such credit facility is prepaid prior to May 31, 1997
(which amount has been repaid as of the date hereof), and the absence of any
default under the Amended Credit Agreement on such date. Through May 9, 1997
the Company has reduced its outstanding debt balance by $12.5 million. The
Lenders have the right to demand payment of the $1.36 million fee commencing
May 25, 1997.
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, which would enable
the Company to repay a portion of the term loan.
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 March 30, 1997.
For the purposes of this discussion and analysis, the 13-week periods ended
March 30, 1997 and March 31, 1996 are referred to as the second quarter of 1997
and 1996, respectively. The 26-week periods ended March 30, 1997 and March 31,
1996 are referred to as the first six months ended 1997 and 1996, respectively.
COMPARATIVE RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND SIX MONTHS
ENDED MARCH 30, 1997 AND MARCH 31, 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:
<TABLE>
<CAPTION>
Second Quarter Ended First Six Months Ended
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Restaurant revenue 99.0% 99.3% 99.0% 99.2%
Franchise revenue 1.0 0.7 1.0 0.8
------ ------ ------ ------
Total revenue 100.0 100.0 100.0 100.0
Cost of products sold (1) 88.9 93.8 88.0 93.2
Selling, general and administrative 8.2 7.7 7.9 7.6
Depreciation and amortization 4.7 5.4 4.8 5.6
Interest expense, net 2.6 2.2 2.5 2.2
Other expense 0.0 0.2 0.3 0.1
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
Second Quarter Ended First Six Months Ended
March 30, March 31, March 30, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss before taxes (3.5) (8.6) (2.5) (8.0)
Income tax benefit 0.0 (2.1) 0.0 (2.0)
Net loss (3.5)% (6.5)% (2.5)% (6.0)%
</TABLE>
(1) As a percentage of Company-operated restaurant revenue.
RESTAURANT REVENUE. Restaurant revenue totaled $46.0 million for the second
quarter and $95.4 million for the six months ended March 30, 1997 and $54.6
million and $108.8 million for the second quarter and six months ended March 31,
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 six months of 1997 and 1996, increased by 1.7% from
$90.8 million to $92.4 million but decreased 0.3% in the second quarter of 1997
to $45.5 million from $45.7 million. Improved comparable food sales in the
second quarter and first six months of 1997 of 3.1% and 5.2%, respectively,
were offset by a decrease of 13.0% and 10.8% in alcoholic beverage sales for
the same periods of time. Management believes the increases in the food sales
were largely due to improved execution and greater consumer awareness of the
new menu introduced in the first quarter of 1996. Decreases in the alcoholic
beverage sales were 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 has hired a new Vice President of Marketing who will
implement a new alcoholic beverage program incorporating server training,
in-store promotions and customer preferences.
The average guest check was approximately $9.70 and $9.68 for the second quarter
and first six months of 1997 and $8.98 and $8.80 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 $8.4 million in the second
quarter and $15.0 million for the first six 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 second
quarter of 1997 and 44 restaurants in the second quarter of 1996. Revenue from
franchised restaurants (consisting of royalties and franchise fees) were $0.4
million and $0.9 million in the second quarter and and first six months ended
March 30, 1997 and $0.3 million and $0.8 million for the same periods ending
March 31, 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 33.1%
and 33.4% of Company-operated restaurant revenue in the second quarter and first
six months of 1997, respectively, versus 35.5% and 35.1% for the second quarter
and first six months of 1996, respectively. Restaurant operating expenses were
55.9% and 58.3% of Company-operated restaurant revenue in the second quarter of
1997 and 1996 and 54.6% and 58.1% in the first six months of 1997 and 1996,
respectively. Food and beverage costs as a percentage of Company-operated
restaurant revenue decreased by 2.4% from the second quarter of 1996 to the
second quarter of 1997 and decreased by 1.7% for the first six months of 1996 to
the first six 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 six months of 1996 were negatively impacted due to
non-recurring training costs during the implementation of the new menu.
6
<PAGE> 8
Restaurant operating expenses as a percent of Company-operated restaurant
revenue decreased 2.4% from the second quarter of 1996 to the second quarter of
1997 and 3.5% from the first six months ended March 31, 1996 and March 30, 1997
principally due to decreases in labor costs of 1.1% and 1.8% for the second
quarter and first six months of 1997, respectively, 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. Other costs decreased by 1.3%
and 1.8% for the second quarter and first six months of 1997, mainly as a result
of costs 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were 8.2% and 7.9% of total revenue in the second
quarter and first six months of 1997 and 7.7% 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 0.2% and 0.3% of total
revenue in the second quarter and first six months of 1997 as compared to 0.4%
and 0.5% for the second quarter and first six months of 1996. The decrease in
selling expense during the first six 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 $7.3 million or 7.7% of total revenue in the second quarter and
first six months of 1997 and $4.0 million or 7.2% and $7.7 million or 7.0% in
the same periods of 1996. General and administrative costs have decreased 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 4.7%
and 4.8% of total revenue for the second quarter and the first six months ended
March 31, 1997 and 5.4% and 5.6% of total revenue in the second quarter and
first six months of 1996, respectively. The decrease in depreciation and
amortization on a constant dollar basis was due mainly to the sale or closing of
27 restaurants during fiscal 1996 and the first six months of 1997.
OTHER EXPENSE. The first six months of 1997 reflects approximately $0.3 million
in expenses related to the settlement of a lawsuit for $0.5 million, which was
paid in the first quarter of 1997. Fiscal 1996 included a $0.2 million reserve
for this settlement.
INTEREST EXPENSE. Interest expenses were 2.6% and 2.5% of total revenue in the
second quarter and first six months of 1997 versus 2.2% for both the second
quarter and first six months ended March 31, 1996. The Company's weighted
average borrowing rates were 8.2% and 8.4% for the second quarter and first six
months of 1997 and 7.9% for both the second quarter and first six months of
1996.
INCOME TAXES. The Company's effective income tax rates were 0% during the second
quarter and first six months of 1997 and 25% for the second quarter and first
six months of 1996.
NET LOSS. As a result of the above, the Company reported a net loss of $1.6
million, or $(0.15) per share and $2.4 million or $(0.22) per share for the
second quarter and first six months of 1997, respectively, compared to a net
loss of $3.5 million, or $(0.32) per share and $6.6 million, or $(0.59) per
share for the same periods of time in 1996.
7
<PAGE> 9
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 $11.0 million, excluding the term
loan payable to lenders in the amount of $37.1 million, and $13.2 million as of
March 30, 1997 and September 29, 1996, respectively.
Net cash provided by operating activities totaled $0.7 million in the first six
months of 1997 as compared with $2.6 million in the first six months of 1996.
The decrease is primarily attributed to the costs associated with closing 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 $0.9 million for restaurant capital maintenance during the
first six months of 1997, and $1.0 million for restaurant capital maintenance
during the first six 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 $11.3 million in borrowings under the Company's
credit facility with its banks during the first six months of 1997.
On September 12, 1996 the Company and its lenders restructured its existing
credit facility by entering into the Amended and Restated Credit Agreement
("Amended Credit Agreement") 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 principle amount of approximately $48.5 million. The
interest rate is calculated at LIBOR plus 2.625% on the Company's LIBOR loans
and alternate base rate ("ABR") plus 0.75% on the Company ABR based loans. On
March 30, 1997 and September 29, 1996, the Company's borrowings under its credit
facility were $37.1 million and $48.4 million, respectively. From the
commencement of negotiations in May 1996 through May 9, 1997, the Company has
reduced its outstanding debt balance by $12.5 million. 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.
The Company is attempting to refinance or further extend the existing credit
facility and is contemplating sales and leaseback transactions involving
approximately 18 restaurant sites, the proceeds of which would be used to repay
a portion of the term loan.
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 Lenders have the right to demand payment of the
$1.36 million fee commencing May 25, 1997. The loan is scheduled to mature on
May 31, 1997, subject to automatic extension to December 31, 1997 if $10.8
million of the principal amount of such credit facility is prepaid prior to May
31, 1997 (which amount has been repaid as of the date hereof), and the absence
of any default under the Amended Credit Agreement on such date. There can be no
assurance that the Amended Credit Agreement will be automatically extended on
May 31, 1997 or that the Company will be able to negotiate an extension of such
agreement. Furthermore, there can be no assurance that the Company will be able
to pay the $1.36 million fee to the Lenders evidenced by the Convertible
Notes, or have sufficient cash available to meet operating needs and fund
anticipated capital expenditures through 1997, in the event that the Lenders
demand for payment of the Convertible Notes pursuant to the terms thereof.
Non-payment of the Convertible Notes would be an event of default under the
Amended Credit Agreement and could adversely affect the Company's ability to
automatically extend such Amended Credit Agreement on May 31, 1997. Any of such
events would have a material adverse effect on the Company.
8
<PAGE> 10
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, resulting in an assessment of approximately $0.7 million of additional
sales and use taxes, inclusive of penalties and interest, will in management's
opinion, be settled for an amount less than the $0.7 million mentioned above.
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.
SALE OF RESTAURANTS.
The Company is currently considering entering into sales and leaseback
transactions involving approximately eighteen (18) restaurant sites that are
owned by the Company in fee, in connection with a possible refinancing and
further extension of the Company's credit facility beyond December 31, 1997. 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.
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.
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 restructure its Amended Credit Agreement and the terms therof 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.
9
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits None
(b) No reports on Form 8-K were filed during the second quarter of fiscal 1997.
10
<PAGE> 12
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: May 14, 1997 By:/s/ Stephen J. Kiel
-------------------
Stephen J. Kiel
Senior Vice President, Chief Financial
Officer and Treasurer
duly authorized
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 957
<SECURITIES> 0
<RECEIVABLES> 2,407
<ALLOWANCES> 1,079
<INVENTORY> 1,749
<CURRENT-ASSETS> 7,548
<PP&E> 138,169
<DEPRECIATION> 57,172
<TOTAL-ASSETS> 101,110
<CURRENT-LIABILITIES> 55,730
<BONDS> 0
0
0
<COMMON> 1,862
<OTHER-SE> 32,446
<TOTAL-LIABILITY-AND-EQUITY> 101,110
<SALES> 96,350
<TOTAL-REVENUES> 96,350
<CGS> 83,939
<TOTAL-COSTS> 96,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,408
<INCOME-PRETAX> (2,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,429)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
