SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-23226
GRILL CONCEPTS, INC.
--------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3319172
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
(IRS Employer Identification No.)
11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
-----------------------------------------------------------------
(Address of principal executive offices)
(310) 820-5559
--------------
(Issuer's telephone number)
(Former name,former address and former fiscal year,if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 May 6, 1996, 12,999,230 shares of Common Stock of the issuer were
outstanding.
<PAGE>
GRILL CONCEPTS, INC.
--------------------
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1996 and December 31,1995................................ 1
Consolidated Condensed Statements of Operations -
For the three months ended March 31, 1996
and March 26, 1995.................................................... 3
Consolidated Condensed Statements of Cash Flows -
For the three months ended March 31, 1996
and March 26, 1995.................................................... 4
Notes to Unaudited Consolidated Condensed Financial Statements.......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 6
PART II - OTHER INFORMATION
Item 5. Other Information................................................... 8
Item 6. Exhibits and Reports on Form 8-K.................................... 8
SIGNATURES................................................................... 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $334,710 $631,116
Inventories 161,732 154,898
Prepaid expenses 769,248 742,419
----------- -----------
Total current assets 1,265,690 1,528,433
----------- -----------
Property and equipment, at cost 6,378,626 6,340,966
Less: accumulated depreciation (2,777,702) (2,603,443)
----------- -----------
Property and equipment, net 3,600,924 3,737,523
----------- -----------
Other assets:
Goodwill 1,985,968 2,003,144
Liquor licenses, net 665,506 658,569
Other 75,970 104,143
----------- -----------
Total other assets 2,727,444 2,765,856
----------- -----------
Total assets $ 7,594,058 $ 8,031,812
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $814,843 $1,038,440
Accrued expenses 846,238 988,258
Current portion of long-term debt 448,500 450,386
----------- -----------
Total current liabilities 2,109,581 2,477,084
----------- -----------
Long-term debt, net of current 1,243,890 1,325,926
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares;
none issued and outstanding
Common stock, $.00001 par value;
20,000,000 shares authorized;
shares issued and outstanding
12,999,230. 130 130
Capital in excess of par value 6,726,081 6,726,081
Accumulated deficit (2,485,624) (2,497,409)
----------- -----------
Shareholder's equity 4,240,587 4,228,802
----------- -----------
Total liabilities and shareholders' equity $7,594,058 $8,031,812
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 26,
1996 1995
----------- ----------
<S> <C> <C>
Sales $5,245,779 $4,520,155
Cost of sales 1,346,127 1,216,618
---------- ----------
Gross profit 3,899,652 3,303,537
---------- ----------
Costs and expenses:
Restaurant operating expenses 3,186,801 2,659,664
General and administrative 470,934 378,642
Depreciation and amortization 191,435 162,642
Amortization of preopening expenses -- 4,043
----------- -----------
Total operating expenses 3,849,170 3,204,991
---------- ----------
Income from operations 50,482 98,546
Interest expense - net 37,897 35,363
---------- ----------
Income before taxes on income 12,585 63,183
Provision for taxes on income 800 800
----------- -----------
Net income $11,785 $62,383
========== ==========
Net income per share $0.00 $0.01
========== ==========
Average weighted shares outstanding 12,999,230 9,848,647
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 26,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $11,785 $62,383
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 191,435 166,685
Changes in operating assets and liabilities:
Inventories (6,834) 6,946
Prepaid expenses (26,829) 179,506
Other Assets 21,236 (14,321)
Accounts payable (223,597) 202,474
Accrued liabilities (142,020) (177,040)
----------- -----------
Net cash provided by (used in) operating activities (174,824) 426,633
----------- -----------
Cash flow from investing activities:
Additions to furniture, equipment and improvements (37,660) --
Net cash acquired through purchase of business -- 1,105,707
----------- -----------
Net cash provided by (used in) investing activities (37,660) 1,105,707
---------- -----------
Cash flows from financing activities:
Payments on long-term debt (83,922) (10,693)
----------- -----------
Net cash (used in) financing activities (83,922) (10,693)
----------- -----------
Net increase/decrease in cash and cash equivalents (296,406) 1,521,647
Cash and cash equivalents, beginning of period 631,116 191,242
----------- -----------
Cash and cash equivalents, end of period $334,710 $1,712,889
=========== ===========
*Net cash acquired through purchase of business
Working capital, other than cash $192,074
Furniture, equipment and improvements (1,348,853)
Excess of cost over net assets acquired (1,582,297)
Other assets (519,217)
Long-term debt 15,000
Fair value of stock exchanged 4,349,000
-----------
Net cash acquired $1,105,707
Supplemental cash flow information: Cash paid during the year for:
Interest $40,862 $43,434
Income taxes $13,300 $800
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL PRESENTATION
The interim financial statements are prepared pursuant to the requirements
for reporting on Form 10-QSB. The December 31, 1995 balance sheet data was
derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. The
interim financial statements and notes thereto should be read in
conjunction with the financial statements and notes included in the
Company's Form 10-KSB dated December 31, 1995. In the opinion of
management, these interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
the interim periods presented. The current period results of operations are
not necessarily indicative of results which ultimately will be reported for
the full year ending December 29, 1996.
2. BUSINESS AND ORGANIZATION
On March 3, 1995, pursuant to an exchange agreement previously entered into
by Magellan Restaurant Systems, Inc. (Magellan) and Grill Concepts, Inc.
(GCI), GCI became a wholly owned subsidiary of Magellan. Immediately
following the exchange, the name of Magellan was changed to Grill Concepts,
Inc., a Delaware corporation, and now is the Company.
All of GCI's common stock was exchanged for 8,500,000 shares of Magellan
Common Stock. As a result, following the Exchange, holders of GCI common
stock controlled 63% of the outstanding common stock of the Company, and
for accounting purposes the acquisition has been treated as a
recapitalization of GCI with GCI as the acquiror. The transaction was
therefore accounted for as a purchase under the "reverse acquisition"
method. The resulting goodwill is being amortized over 30 years.
As a result of the above, these interim statements include the accounts of
GCI and Magellan on a consolidated basis for 1996. The Statement of
Operations for 1995 includes the operations of GCI for the entire 13 week
period and the operations of Magellan for only the 3 week period between
March 3, 1995 and March 26, 1995.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Material Changes in Results of Operations for the Three Months Ended March 31,
1996 as Compared to the Three Months Ended March 26, 1995.
- - --------------------------------------------------------------------------------
Due to the Exchange explained in the Notes to Unaudited Consolidated
Condensed Financial Statements, the results of operations for the 13 week period
ended March 31, 1996 include all operations of Grill Concepts Inc., including
six Daily Grill restaurants and three Pizzeria Uno Restaurants on the east
coast. The 1995 results include the operations of six Daily Grill Restaurants
for all 13 weeks and the operations for a three week period of the Pizzeria Uno
Restaurants.
The Company's revenues for the three month period increased 16.1% to
$5,246,000 from $4,520,000 for the same period in 1995. The increase in revenues
was primarily attributable to the added period of time the Pizzeria Uno
Restaurants are included in 1996. During the period, the Daily Grill restaurants
experienced a 4% reduction in sales when compared to the 1995 first quarter.
While revenues increased by 16.1% in the 1996 quarter, when compared to the
same period in 1995, cost of sales increased only $130,000 (10.6%) and decreased
as a percentage of sales from 26.9% to 25.7%. The Pizzeria Uno Restaurants
produced a nearly similar cost of sales of 24.3% in 1996 versus 24.4% in the
1995 period. Daily Grill restaurant costs decreased from 27.0% to 26.7% of
sales. This can be attributed to slight price increases, but more importantly
results from continued control and monitoring of food and beverage costs. As a
result, gross profit increased 18.0% from $3,304,000 (73.1% of sales) in 1995 to
$3,900,000 (74.3% of sales) in 1996.
Total operating expenses rose 20.1% to $3,849,000 in 1996, representing
73.4% of sales, from $3,205,000 in the 1995 quarter, 70.9% of sales. The
increase in operating expenses was primarily attributable to increased
restaurant operating expenses. With sales increasing 16.1% and gross profit
increasing 18.0%, restaurant operating expenses increased 19.7% to $3,187,000 in
1996, from $2,660,000 in 1995. As a percentage of sales, restaurant operating
expensed increased from 58.8% in the 1995 period, to 60.7% in 1996. This
percentage increase is primarily attributable to the addition of the Pizzeria
Uno Restaurants which have a higher operating cost, together with a slight
increase in the cost percentage for Daily Grills with fixed costs being spread
over less sales in 1996 as compared with the 1995 quarter.
General and administrative expenses increased $92,000 to represent 9.0% of
sales in the 1996 period while amounting to 8.4% of sales in the first quarter
of 1995. This increase resulted primarily from added corporate costs for the
Pizzeria Uno Restaurants included for the full quarter this year, offset by
management income from The Grill on the Alley restaurant.
Net interest expense was comparable between the current and prior year
first quarters.
As a result of the above, the Company reported a net profit of $12,000
compared with a profit in the first quarter of 1995 of $62,000.
6
<PAGE>
Material Changes in Financial Condition, Liquidity, and Capital Resources
- - -------------------------------------------------------------------------
At March 31, 1996 the Company had negative working capital of $844,000 and
a cash balance of $335,000 as compared to negative working capital of $949,000
and a cash balance of $631,000 at December 31, 1995. The increase in working
capital and decrease in cash was primarily attributable to reducing payables and
accrued liabilities.
Historically, the Company funded its day-to-day operations through its
operating cash flow, while funding growth through a combination of bank
borrowing, loans from stockholders/officers, the sale of Debentures, the
issuance of warrants and loans/advances from certain of its landlords. At March
31, 1996, GCI had existing bank borrowing of $1,280,000, an SBA Loan of
$168,000, loans from stockholders/officers of $84,000, loans/advances from
landlords and others of $160,000.
On April 30, 1995, $1,600,000 of the Company's bank borrowing was termed
out over a 5 year period payable in 60 equal monthly installments beginning
April 30, 1995, with all remaining principal amounts due on March 31, 2000.
Interest is payable monthly at a variable rate equal to the lender's reference
rate plus 0.625% (8.87% at March 31, 1996). There is an additional $500,000 line
of credit available through November 30, 1996.
During the current year, the Company expects to utilize a minimum of
$1,900,000 to open three additional restaurants.
While the Company does not expect to incur any costs in connection with the
opening of the proposed Daily Grill at LAX, which costs are being funded by CA
One, a joint venture partner, and expects to incur limited costs in connection
with the acquisition of The Grill, opening of the Irvine, California Daily Grill
is anticipated to cost approximately $600,000 and opening of a Daily Grill in
Washington, D.C. is anticipated to cost approximately $1.3 million.
Management believes that the Company has adequate resources on hand and
through cash flow to sustain operations for at least the following 12 months and
to open the LAX and Irvine restaurants. In order to fund the opening of the
Washington, D.C. Daily Grill the Company will require, and intends to raise,
additional capital through the issuance of debt or equity securities. The
Company presently has no commitments in that regard.
Impact of Inflation
- - -------------------
To date, inflation has not been a major factor in the Company's business.
There can be no assurances, however, that this will continue to be the case. To
the extent that it is commercially feasible, menu prices will be adjusted for
increases in food and labor costs when appropriate.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM. 5. OTHER INFORMATION
On April 1, 1996, the Company consummated the acquisition of 100% of the
common stock of EMNDEE, Inc. ("EMNDEE") pursuant to a share exchange. The
Company issued an aggregate of 432,735 shares of common stock in exchange for
the stock of EMNDEE. EMNDEE is the general partner of, and holds a 50.91%
interest in, The Grill Limited Partnership, a California limited partnership
(the "Grill Partnership"), which owns and operates The Grill on the Alley ("The
Grill").
Subsequently, the Company consummated the acquisition of 100% of the common
stock of The Grill on the Alley, Inc. ("Grill, Inc."). Grill, Inc. is a partner,
and holds the remaining 49.09% interest, in the Grill Partnership. The Company
issued an aggregate of 417,265 shares of common stock in exchange for the stock
of Grill, Inc.
The Grill is an upscale Beverly Hills restaurant which opened in 1984 and
served as the model for the Company's Daily Grill restaurants.
The Company's principal shareholders and directors (Robert Spivak, Michael
Weinstock, and Richard Shapiro) controlled and were the principal stockholders
of EMNDEE. Commencing in 1995, the Company has provided management services to
The Grill in exchange for a management fee in an amount equal to 5% of the
revenues of The Grill. Previously, Robert Spivak, the Company's president,
provided management services on his own behalf to The Grill and received a
salary from The Grill.
The Company's outside directors negotiated the terms of the acquisition of
EMNDEE as well as the terms of the acquisition of the remaining partnership
interests in the Grill Partnership. Messrs. Spivak, Weinstock, and Shapiro
abstained from voting with respect to approval of the acquisition of The Grill.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GRILL CONCEPTS, INC.
Dated: May 8, 1996 By: /s/ Robert Spivak
Robert Spivak, President and C.E.O.
Dated: May 8, 1996 By: /s/ Ben Sumner
Ben Sumner, Chief Financial Officer
and Accounting Officer
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 334,710
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 161,732
<CURRENT-ASSETS> 1,265,690
<PP&E> 6,378,626
<DEPRECIATION> (2,777,702)
<TOTAL-ASSETS> 7,594,058
<CURRENT-LIABILITIES> 2,109,581
<BONDS> 1,243,890
0
0
<COMMON> 130
<OTHER-SE> 4,240,457
<TOTAL-LIABILITY-AND-EQUITY> 7,594,058
<SALES> 5,245,779
<TOTAL-REVENUES> 5,245,779
<CGS> 1,346,127
<TOTAL-COSTS> 5,195,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,897
<INCOME-PRETAX> 12,585
<INCOME-TAX> 800
<INCOME-CONTINUING> 11,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,785
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0
</TABLE>
