<PAGE>
PROSPECTUS SUPPLEMENT NO. 2 Filed Pursuant to Rules 424(b)(3) and 424(c)
(To Prospectus dated June 13, 1996) Registration Statement No. 333-3360
KOO KOO ROO, INC.
COMMON STOCK
(Par Value $.01 per Share)
--------------------------
THE FOLLOWING INFORMATION SUPPLEMENTS, AND MUST BE READ IN CONJUNCTION
WITH, THE INFORMATION CONTAINED IN THE PROSPECTUS, DATED JUNE 13, 1996 (THE
"PROSPECTUS"), OF KOO KOO ROO, INC., A DELAWARE CORPORATION (THE "COMPANY"), AS
PREVIOUSLY SUPPLEMENTED BY SUPPLEMENT NO. 1, DATED AUGUST 5, 1996 ("SUPPLEMENT
NO. 1"). THIS SUPPLEMENT NO. 2 MUST BE DELIVERED ALONG WITH A COPY OF THE
PROSPECTUS AND SUPPLEMENT NO. 1. ALL CAPITALIZED TERMS NOT OTHERWISE DEFINED
HEREIN SHALL HAVE THE MEANINGS GIVEN TO THEM IN THE PROSPECTUS.
Quarterly Report on Form 10-Q. Attached is a copy of the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 (the
"Form 10-Q"). The Form 10-Q is hereby incorporated by reference into this
Supplement No. 2.
---------------
----------------------------------------------
The date of this Supplement is August 16, 1996
<PAGE>
UNITED STATES
CONFORMED
SECURITY AND EXCHANGE COMMISSION
Washington, DC 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 Quarterly period ended June 30, 1996 or
-----------------
___ 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 0-19548_________________________________
KOO KOO ROO, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-3132583
- ---------------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
11075 Santa Monica Boulevard, Suite 225, Los Angeles, CA 90025
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(310) 479-2080
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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
------- -------
As of July 30, 1996, the registrant had outstanding 14,848,740 shares of
common stock, $.01 par value per share (excluding 72,512 shares held in the
Treasury), and 1,200,000 shares of 5% Convertible Preferred Stock, liquidation
preference $25.00 per share.
Page 1 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
INDEX FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statements of
Operations for the Six and
Three Months Ended June 30, 1995 and 3
June 30, 1996
Condensed Consolidated Balance Sheets
as of December 31, 1995 and June 30, 1996 4
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1995 and June 30, 1996 5
Notes to Condensed Consolidated
Financial Statements 6-7
Management's Discussion and Analysis
of Financial Condition and Results of
Operation 8-11
PART II. OTHER INFORMATION
Item 4. Submission of matters to
a vote of security holders 12
Item 6. Exhibits required under Rule 601 12
Exhibits and Reports on Form 8-K
Signatures 13
</TABLE>
Page 2 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Six Three Three
Months Ended Months Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Sales $8,161,568 $16,019,263 $4,510,836 $8,661,890
Interest and other 140,922 833,591 91,182 714,959
--------------- ---------------- --------------- ----------------
Total revenues 8,302,490 16,852,854 4,602,018 9,376,848
Cost of Sales 5,759,276 11,055,763 3,051,548 5,910,355
--------------- ---------------- --------------- ----------------
Gross profit 2,543,214 5,797,091 1,550,470 3,466,494
Operating Expenses 5,598,869 9,206,354 3,426,206 5,099,234
--------------- ---------------- --------------- ----------------
Loss before minority interest (3,055,655) (3,409,263) (1,875,736) (1,632,740)
Minority interest in loss 89,135 111,256 14,822 37,301
--------------- ---------------- --------------- ----------------
Net loss (2,966,520) (3,298,007) (1,860,914) (1,595,439)
Preferred Dividends ------ (424,200) ------ (375,000)
--------------- ---------------- --------------- ----------------
Net Loss Applicable to Common Stockholders $(2,966,520) $(3,722,207) $(1,860,914) $(1,970,439)
============== =============== ============== ===============
Net loss per common share: $(0.29) $(0.26) $(0.17) $(0.13)
============== =============== ============== ===============
Weighted average number of common and
common equivalent shares 10,196,105 14,571,560 10,804,999 14,785,915
============== =============== ============== ===============
</TABLE>
Page 3 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1995 1996
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $3,501,815 $18,547,542
Marketable securities 3,663,111 8,294,433
Inventories 186,742 267,046
Prepaid expense and other 680,703 868,770
---------------- ----------------
Total current assets 8,032,371 27,977,791
Property and equipment 14,270,703 21,098,303
Lease Acquisition costs 1,511,328 1,980,177
Pre-opening costs 840,891 897,070
Investment in international joint ventures ------- 221,108
Intangibles and other assets 1,899,367 2,259,804
---------------- ----------------
$26,554,660 $54,434,254
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,660,899 $1,598,515
Accrued payroll 491,169 866,097
Accrued store closing costs 546,463 525,942
Notes and loans payable - short term 13,823 125,118
Other accrued liabilities 1,402,413 1,497,441
---------------- ----------------
Total current liabilities 4,114,767 4,613,113
---------------- ----------------
Notes and loans payable - long term 178,646 138,889
---------------- ----------------
Minority interest 718,109 875,267
---------------- ----------------
Stockholder's Equity
Preferred stock, $.01 par value, 5,000,000
shares authorized; 1,200,000 shares of
5% Convertible Preferred Stock issued and
outstanding (liquidation preference
$30,000,000) ------- 12,000
Common stock, $.01 par value, 50,000,000
shares authorized; 14,329,851 and 14,879,351
shares issued and outstanding 143,299 148,794
Additional paid-in capital 40,467,687 71,357,377
Accumulated deficit (18,274,719) (21,996,926)
Treasury stock, 84,352 and 72,512 shares
at cost (2,242) (2,124)
Common stock issued for unearned compensation (790,887) (712,137)
---------------- ----------------
Total stockholders' equity 21,543,138 48,806,984
---------------- ----------------
$26,554,660 $54,434,254
=============== ===============
</TABLE>
Page 4 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
1995 1996
---------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,966,520) $(3,298,007)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,014,892 1,780,306
Deferred franchise revenue (80,000) -------
Minority interest in net loss (89,135) (111,256)
Assets written off or abandoned 199,959 278,285
Common stock issued for expenses and other 111,000 75,750
Changes in operating assets and liabilities:
Inventories (3,699) (80,304)
Prepaid expenses & other current assets (237,106) (303,067)
Accounts payable 440,513 256,616
Accrued expenses and other liabilities 307,123 194,472
---------------- ---------------
Net cash used in operating activities (1,302,973) (1,207,205)
---------------- ---------------
Cash Flows From Investing Activities:
Sale of marketable securities (6,158,040) (4,631,322)
Acquisition of property and equipment (3,314,406) (8,284,720)
Lease acquisition and other assets (90,416) (709,579)
Investment in international joint ventures ------ (221,108)
Pre-opening costs (686,003) (657,607)
---------------- ---------------
Net cash used in investing activities (10,248,865) (14,504,336)
---------------- ---------------
Cash Flows From Financing Activities:
Minority capital contributions 114,664 268,414
Proceeds from private placements, net 17,661,625 30,465,492
Distributions to shareholders (45,781) (49,200)
Exercise of common stock options and warrants 1,578,794 72,562
---------------- ---------------
Net cash provided by financing activities 19,309,302 30,757,268
---------------- ---------------
Net Increase in Cash and Cash Equivalents 7,757,464 15,045,727
Cash and Cash Equivalents, beginning of period 544,185 3,501,815
---------------- ---------------
Cash and Cash Equivalents, end of period $8,301,649 $18,547,542
=============== ==============
</TABLE>
Page 5 of 13
<PAGE>
KOO KOO ROO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and two limited partnerships in which the
Company has a controlling interest. All significant inter-company
transactions and balances have been eliminated.
2. In the first quarter of 1996, the Company acquired 90% of the outstanding
stock of Color Me Mine, Inc. ("Color Me Mine") a chain of paint-your-own
ceramics studios. The consideration consisted solely of 377,000 shares of
restricted, unregistered shares of Koo Koo Roo Common Stock. Of this
total, shares aggregating $900,000 in value are subject to registration at
the end of one year, and 100,000 shares are subject to a lock-up to be
released at the end of three years. The founders of Color Me Mine will
continue to manage the concept with their own separate management team and
will develop it through area development agreements and Company-owned
stores. The founders of Color Me Mine have five-year employment contracts.
The acquisition has been accounted for utilizing the pooling of interest
accounting method and, accordingly; prior period financial statements have
been restated to include Color Me Mine.
Through their wholly-owned subsidiary Color Me Mine is in the business of
entering into area development agreements to establish Color Me Mine
franchises. During the current quarter Color Me Mine completed the sale of
three area development territories. Revenue from these sales amounting to
$255,000 has been recognized on the accompanying Consolidated Statement of
Operations in accordance with Statement of Financial Accounting Standards
No. 45.
3. On June 7, 1996 the Company entered into definitive agreements with a group
of investors in Toronto, Canada, to form a Canadian Limited Partnership,
Koo Koo Roo Canada Holdings, which plans to develop the Koo Koo Roo
California Kitchen restaurant and Arrosto Coffee Company concepts in
Canada. The partnership is 40% owned by Koo Koo Roo, Inc. and the
remaining 60% is owned by the group of investors based in Toronto.
4. On May 8, 1996 the Company entered into a business development agreement
with an entity associated with its Florida joint venture partner to
provide business development services similar to those provided in
connection with the Canadian joint venture. In consideration for the
agreement, the Company issued options to purchase 1.0 million shares of
common stock with an exercise price of $8.00 per share. The options will
become exercisable ratably over a three-year period beginning on the first
anniversary of the date of issuance, so long as the business development
agreement remains in place. The business development agreement
Page 6 of 13
<PAGE>
may be canceled with six months notice by the Company's CEO in his sole
discretion. The options also will vest upon a change in control (as
defined).
5. On May 8, 1996 the Company amended its area development agreement covering
Florida and certain counties in Southern Georgia. Under this amendment,
the area developer's rights to open franchise restaurants were terminated,
and all stores will be developed as joint ventures through newly-formed
partnerships of which the Company will own a 50% interest. In
consideration for this amendment, the Company granted the area developer
options to purchase 350,000 shares of the Company's common stock at $8.00
per share. The options vested and became exercisable immediately upon
grant.
6. The accompanying unaudited consolidated financial statements were prepared
on the accrual basis of accounting. In the opinion of management, all
adjustments (consisting only of normal, recurring accruals) which are
necessary for a fair presentation of the financial results for the periods
presented have been made. The interim period results of operations are not
necessarily indicative of the results of operation for the full year.
Page 7 of 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS FOR THE QUARTER ENDED JUNE 30, 1996
In accordance with the Company's business plan to rapidly replicate the Koo
Koo Roo California Kitchen(TM) concept, nationally and internationally, three
new Koo Koo Roo restaurants were opened during the period and a new entity, Koo
Koo Roo Canada Holdings, was formed with a group in Toronto, Canada. The joint
venture, which is 40% owned by Koo Koo Roo and 60% owned by a group of Canadian
business and civic leaders, will develop the Koo Koo Roo California Kitchen(TM)
restaurant concept and Arrosto Coffee Company outlets in Canada. During the
three months ended June 30, 1996, Koo Koo Roo restaurants were opened in Beverly
Hills and Yorba Linda, California and in North Miami, Florida.
In addition, two Color Me Mine ceramics studios were opened and three Color
Me Mine Area Development Agreements for the development of up to 36 stores were
signed. Color Me Mine ceramics studios were opened in Malibu and Beverly Hills,
California.
The Company distributed a quarterly dividend to the holders of its 5%
Convertible Preferred Stock in accordance with its purchase agreement. This
dividend, amounting to $375,000, was paid in July 1996 through the issuance of
41,401 shares of the Company's Common Stock.
RESULTS OF OPERATIONS
The Company incurred an operating loss for the quarter and six month
period ended June 30, 1996 in accordance with the Company's strategy of building
the infrastructure to support future growth. The Company's corporate overhead
contemplates a greater number of stores than is currently open and will support
a greater rate of new store development than is presently occurring.
The net loss for the six month period ended June 30, 1996 was $3,298,007
(before dividends on preferred stock) compared to a net loss of $2,966,520 for
the six month period ended June 30, 1995. The net loss for the quarter ended
June 30, 1996 was $1,595,439 (before dividends on preferred stock) compared to
$1,860,914 for the quarter ended June 30, 1995.
Revenues for the six month period ended June 30, 1996 were $16,852,854
compared to $8,302,490 for the six month period ended June 30,1995, an increase
of 103%. Revenues for the three month period ended June 30, 1996 were
$9,376,848 compared to $4,602,018 for the three month period ended June 30,
1995, an increase of 104%.
Sales for the current quarter were produced by 10 Koo Koo Roo restaurants,
which were operating during the current quarter and a portion of the same period
of the prior year and 11 additional restaurants opened subsequent to June 30,
1995. Three new restaurants were opened during the current quarter, including
owned restaurants in Beverly Hills and Yorba Linda, California and a joint-
venture restaurant in North Miami, Florida. Sales for the quarter also include
revenues produced by four Color Me Mine studios, two of which were open during
the same period of the prior year.
Page 8 of 13
<PAGE>
Average weekly sales for the eight Koo Koo Roo restaurants open the full 13
weeks of the second quarter of both the current and prior year increased 16.0%
for the quarter. Four Arrosto locations open in both periods generated $205,838
in revenues for the current period and $186,488 during the same period of the
prior year, an increase of 10.4%. Management believes that these improvements
are due to a number of factors, including new customers generated by greater
awareness of the Company's operation, high frequency visits of a growing group
of customers, upgraded restaurant management through recruitment of more
experienced managerial personnel, improved training programs and the addition of
new products late in 1995 including hand-tossed, gourmet salads offered at
restaurants retrofitted with The Vegetable Stand. As of June 30,1996, all but
two of the 21 Koo Koo Roo locations had been retrofitted with The Vegetable
Stand.
Interest and other revenues include $378,860 in interest income for the
current quarter compared with $70,632 for the same period last year and $255,000
in Color Me Mine area development fees.
Cost of sales were $5,910,355 in the current quarter compared to $3,051,548
in the same period of the prior year. These costs increased to 68.2% of sales
compared to 67.6% in the same period last year due to higher costs associated
with new stores.
Gross profit for the quarter ended June 30, 1996 as a percentage of
revenues, increased to 37.0% compared with 34.4% in the same period of the prior
year. These results are due to $255,000 in Color Me Mine area development fees
and to the higher interest income mentioned above.
Operating expenses amounted to $5,099,234 for the current year's quarter
compared to $3,426,206 for the prior year's quarter. This increase was
primarily due to the Company's expansion of the Koo Koo Roo and Arrosto concepts
and partially to establishing the infrastructure needed to rapidly develop the
Color Me Mine concept. The current quarter also includes start-up costs to
develop a professional marketing capability. Operating expenses as a percentage
of revenues decreased to 54.4% from 74.5% in the same period of the prior year
due to increased store sales and higher per store volumes. Management expects
overall operating expenses to continue to decline as a percentage of revenues.
Personnel and corporate expense increased due to infrastructure added in
preparation for the Company's planned growth. Management expects the growth of
corporate overhead to continue, but at a significantly slower rate.
Approximately $220,000 in expenses associated with prospective restaurant sites,
which had been selected earlier and were abandoned after it was determined the
sites did not meet the Company's current site selection criteria, are also
included in the current quarter's operating expenses.
Page 9 of 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Total cash, cash equivalents, and marketable securities at June
30, 1996 amounted to $26,841,975. The Company has been expending cash resources
to build income producing assets in the form of new and remodeled Koo Koo Roo
California Kitchen and Color Me Mine stores. The Company completed the
construction of three restaurants and two ceramics studios during the quarter.
Purchases of property, equipment and computer hardware and software together
with costs for acquiring certain locations amounted to $5,277,014 compared with
$2,181,533 during the same quarter last year.
Corporate expenses for the development of the Koo Koo Roo California
Kitchen and Color Me Mine concepts, real estate development, and the
infrastructure necessary to manage store growth have resulted, to date, in
overall net operating losses. The Company's strategy is to build sufficient new
stores to generate positive overall operating cash flow as quickly as possible.
Management presently believes that it has sufficient resources for this
expansion and expects the cash used in operations to decrease during the next
six month period, and to become positive by the fourth quarter of 1996.
This strategy requires acquisition and development of successful new sites, and
while management has been successful in opening new Koo Koo Roo California
Kitchen restaurants and Color Me Mine ceramics studios in the past, there can be
no assurance that this success will continue in the future.
CAPITAL RESOURCES. During the current quarter the Company received $72,562
from the exercise of common stock options and warrants. During the first
quarter the Company received $33.2 million before expenses of $2.7 million from
two private placements relating to the issuance of 450,000 shares of Common
Stock for $7.245 per share (subject to adjustment) and 1,200,000 shares of a
newly-designated class of 5% Convertible Preferred Stock for $25.00 per share as
well as related warrants issued to its placement agents. The number of shares
of Common Stock issuable in connection with such transactions is subject to
adjustment and will depend upon factors which cannot be predicted by the Company
at this time including, primarily, the future market price of the Common Stock.
The Company is also a partner in two limited partnerships formed to
establish new Koo Koo Roo restaurants in Florida which are controlled by the
Company. Financial results of these partnerships has been consolidated into
those of the Company. During the current quarter, $268,414 was contributed to
these partnerships by outside partners.
The Company has approximately $139,000 of long term notes and loans payable
which were assumed with the acquisition of Color Me Mine, Inc. and has no other
long term debt or store level debt financing as of June 30, 1996. In order to
achieve its present goal of 45 to 50 Koo Koo Roo restaurants open or under
construction by December 31, 1996, management estimates that an investment of
approximately $18 million will be required. Approximately $900,000 will be
required to open additional Company-owned Color Me Mine ceramics studios by
December 31, 1996. The Company plans to fund these investments through the use
of existing cash and marketable securities. In addition, the company intends to
investigate store-level, asset-based financing of fixtures, equipment and
leasehold improvements as its expansion continues.
The timing of future capital requirements will be affected by the number of
restaurants and ceramics studios opened, operational results, real-estate
development and potential other
Page 10 of 13
<PAGE>
corporate opportunities, including joint ventures in the United States and
internationally, and acquisitions of small entities with the objective of
converting locations to the Koo Koo Roo California Kitchen concept, the Color Me
Mine concept or dual branding. To achieve management's high growth strategic
goal for calendar 1997, the Company will need to raise additional funds. As the
Company's capital requirements increase, the Company may seek additional funds
from public or private offerings of debt or equity, or may seek bank financing
facilities. There can be no assurance, however, that the Company will be able to
raise such capital on acceptable terms when needed.
The forward-looking statements and comments contained in this Report concerning,
among other things, the prospects for the company to grow rapidly and attain
profitable operations, are necessarily subject to risks and uncertainties some
of which are significant in scope and nature. Actual results will be dependent
upon many factors the outcome of which cannot be predicted as of the date of
this Report. In addition to the matters discussed herein, factors that should
be considered are included under the caption "Business Risks" in the Company's
most recent Form 10-K and "Risk Factors" in its most recent Form S-1, each of
which has been filed with the Securities and Exchange Commission.
Page 11 of 13
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The annual meeting of Stockholders was held on May 15,1996.
(b) At the meeting the following nine individuals were elected as
Directors.
Kenneth Berg Kory L. Berg
Donna S. Guido Lee A. Iacocca
Robert F. Kautz Michael D. Mooslin
Jess M. Ravich Morton J. Wall
Don Wohl
(c) The Stockholders approved a resolution to reserve for issuance
shares of Common Stock (including shares issuable upon the
conversion of shares of the Copany's 5% Convertible Preferred
Stock, as dividends thereon and upon exercise of related warrants)
issued in a March 1996 Private Placement which received an
affirmative vote of 8,105,261. There were 486,786 negative votes
and 87,867 abstentions. In addition, 4,208,134 shares were not
voted.
The Stockholders ratified the appointment of BDO Seidman, LLP
as independent accountants for the Company for the fiscal year
ending December 31, 1996 with an affirmative vote of 12,824,049.
There were 21,472 negative votes cast and 42,527 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) 10.76 Color Me Mine Area Development Agreement.
(b) There were no reports on Form 8-K filed for the three months
ended June 30, 1996.
Page 12 of 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOO KOO ROO, INC.
-----------------
Date: August 13, 1996 /s/ KENNETH BERG
------------------ ----------------------------------------------
KENNETH BERG, CHAIRMAN OF THE BOARD
Date: August 13, 1996 /s/ ROBERT KAUTZ
------------------- ----------------------------------------------
ROBERT KAUTZ, CHIEF FINANCIAL OFFICER
Page 13 of 13
