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 September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 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 Number)
incorporation or organization)
11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
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(Address of principal executive offices)
(310) 820-5559
--------------------------
(Issuer's telephone number
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether 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 November 1, 1996, 14,087,742 shares of Common Stock of the issuer
were outstanding.
<PAGE>
GRILL CONCEPTS, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - September 29, 1996
and December 31, 1995............................................. 1
Consolidated Condensed Statements of Operations - For the
three months and nine months ended September 29, 1996 and
September 24, 1995................................................ 3
Consolidated Condensed Statements of Cash Flows - For
the nine months ended September 29, 1996 and
September 24, 1995................................................ 4
Notes to Unaudited Consolidated Condensed Financial
Statements........................................................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................11
SIGNATURES...............................................................12
</TABLE>
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September 29, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $856,452 $631,116
Receivables 41,999
Inventory 238,422 154,898
Prepaid expenses 853,515 742,419
--------- ---------
Total current assets 1,990,388 1,528,433
--------- ---------
Property and equipment, at cost 7,510,615 6,340,966
Less: accumulated depreciation (3,088,922) (2,603,443)
--------- ---------
Property and equipment, net 4,421,693 3,737,523
--------- ---------
Other assets:
Goodwill 2,110,110 2,003,144
Liquor License, net 690,050 658,569
Other 153,699 104,143
--------- ---------
Total others assets 2,953,859 2,765,856
--------- ---------
Total assets $9,365,940 $8,031,812
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
<PAGE>
<PAGE>
GRILL CONCEPTS, INC, AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $962,910 $1,038,440
Accrued expenses 774,758 988,258
Current portion of long-term debt 473,724 450,386
--------- ---------
Total current liabilities 2,211,392 2,477,084
--------- ---------
Long-term debt, net of current 1,076,251 1,325,926
--------- ---------
Shareholders' equity:
Preferred stock, $.001 par value
authorized 1,000,000 shares;
Shares issued and outstanding:
750 in 1996, none in 1995 1 -
Common stock, $.00001 par value:
20,000,000 shares authorized:
shares issued and outstanding:
14,087,742 in 1996, 12,999,230
in 1995 141 130
Capital in excess of par value 9,031,071 6,726,081
Accumulated deficit (2,952,916) (2,497,409)
--------- ---------
Shareholder's equity 6,078,297 4,228,802
--------- ---------
Total liabilities and shareholder's
equity $9,365,940 $8,031,812
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-2-
<PAGE>
<PAGE>
GRILL CONCEPTS INC, AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS ( UNAUDITED )
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29 September 24 September 29, September 24,
1996 1995 1996 1995
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $5,542,120 $4,950,978 $16,479,505 $14,856,970
Cost of Sales 1,583,740 1,329,953 4,476,052 3,999,292
----------- ----------- ------------ ------------
Gross profit 3,958,380 3,621,025 12,003,453 10,857,678
----------- ----------- ------------ ------------
Costs and expenses:
Restaurant operating
expenses 3,493,798 3,004,222 10,260,698 9,056,090
General and
administrative 423,443 411,322 1,334,594 1,103,280
Depreciation and
amortization 181,547 178,331 559,534 528,558
Amortization of pre-
opening expenses - - - 4,043
----------- ---------- ----------- -----------
Total operating
expenses 4,098,788 3,593,875 12,154,826 10,691,971
----------- ---------- ------------ -----------
Income (loss) from
operations (140,408) 27,150 (151,373) 165,707
----------- ---------- ------------ -----------
Nonsuccessful acquisition
costs 230,671 - 230,671 -
Interest expense, net 2,205 22,602 72,663 86,626
----------- ---------- ------------ -----------
Income (loss) before
taxes on income (373,284) 4,548 (454,707) 79,081
----------- ---------- ------------ ----------
Provisions for taxes on
income - - 800 800
----------- ---------- ------------ ----------
Net income (loss) ($373,284) $ 4,548 ($455,507) $78,281
=========== ========== ============ ==========
Net income (loss)
per share ($0.03) $0.00 $(0.03) $0.01
=========== ========== ============ ==========
Average weighted
shares outstanding 13,900,190 13,039,524 13,517,499 12,167,264
=========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-3-
<PAGE>
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 29, September 24
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) (455,507) 78,281
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 559,534 532,601
Changes in operating assets and liabilities
Inventories (32,823) (52,370)
Prepaid expenses (59,573) (207,117)
Other assets (11,128) 164,036
Accounts payable (117,321) 70,830
Accrued liabilities (54,013) (485,721)
--------- ---------
Net cash provided by (used in) operations 170,831 100,540
--------- ---------
Cash flows from investing activities:
Additions to furniture, equipment and
improvements (1,169,649) (134,421)
Net cash acquired through purchase of business 337,153 1,105,707
--------- ---------
Net cash provided by (used in) investing
activities (832,496) 971,286
--------- ---------
Cash flows from financing activities:
Proceeds from issue of Preferred Stock 1,455,000 -
Proceeds from issue of long-term debt - 178,700
Payments of long-term debt (226,337) (286,328)
Payments of shareholder's loan - (150,000)
--------- ---------
Net cash provided by (used ) in financing
activities 1,228,663 (257,628)
--------- ---------
Net increase in cash and cash equivalents 225,336 814,198
Cash and cash equivalents, beginning of period 631,116 191,242
--------- ---------
Cash and cash equivalents, end of period $856,452 $1,005,440
========= =========
*Net cash acquired through purchase of business:
Working capital, other than cash 22,778 $ 505,591
Furniture, equipment and improvements (321,880) (1,348,853)
Excess of cost over net assets acquired (157,969) (1,895,814)
Other assets (55,776) (519,217)
Long-term debt 15,000
Fair value of stock exchanged 850,000 4,349,000
--------- ---------
Net cash acquired $ 337,153 $1,105,707
========== ==========
Supplemental cash flow information:
Cash paid during the year for
Interest $122,294 138,912
Income taxes 2,650 11,800
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
-4-
<PAGE>
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL PRESENTATION
The unaudited interim consolidated financial statements as of September 29,
1996 and for the nine months ended September 29, 1996 and September 24,
1995 have been prepared in accordance with generally accepted accounting
principles and include all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of the results of operations for such interim periods presented
and the financial position at such date. 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.
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.
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 acquirer. The transaction was
therefore accounted for as a purchase under the "reverse acquisition"
method. The resulting excess of cost over net assets acquired will be
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 39 week
period and the operations of Magellan for only the 29 week period between
March 3, 1995 and June 25, 1995.
The operations of Tailgators are not included in 1996 since it was closed.
The third quarter of 1996 includes the accounts of "The Grill". (See note
4 below ) and the nine months results in 1996 include "The Grill" from
April 1, 1996.
-5-
<PAGE>
<PAGE>
3. SHAREHOLDER'S EQUITY
During the quarter ended June 30, 1996, the Company completed an offering
of $1.5 million of Series A 10% Convertible Preferred Stock to an offshore
invertor pursuant to Regulation S under the Securities Act of 1933, as
amended. The preferred shares are convertible at the option of the holder
in 25% increments commencing 60, 90, 120 and 150 days after June 17, 1996.
The conversion price of the preferred shares is equal to the lesser of
$2.25 per share or 85% of the average closing bid price of the common stock
for the five trading days preceding notice of conversion; provided,
however, that conversion shall be prohibited during periods where the
reported short interest in the Company's common stock exceeds 200% of the
average daily trading volume and provided, further, that the conversion
price shall in no event be less than $1.125 per share.
In the event conversion is precluded for a period of 30 days as a result of
the fixed floor on conversion price, the Company will have 15 days to
redeem the preferred shares at 110% of their offering price or, in
the alternative, permit conversion at the then applicable price without
regard to the floor on conversion price. The preferred shares are entitled
to receive a 10% cumulative dividend payable semi-annually until the
preferred shares are either redeemed or converted. The Company may, at its
option, redeem the preferred shares at their initial offering price or
force conversion of the preferred shares at the then applicable
conversion price commencing June 17, 1998. The holder of the preferred
shares may, at its option, cause any preferred shares remaining
outstanding at June 17, 2000 to be redeemed at their initial offering
price.
In connection with the offshore placement of the Series A Convertible
Preferred Shares, the Company issued warrants to acquire an aggregate of
250,000 shares of the Company's common stock at a price of $3.00 per share
for a period expiring June 17, 2001. The warrants are redeemable at the
Company's option commencing June 17, 1999 at a price of $.01 per warrant
provided that the closing bid price of the Company's common stock has
equaled or exceeded $4.50 per share for 20 trading days.
During the quarter ended September 29, 1996, 400 of the Series A
Convertible Preferred Shares were converted resulting in the issuance of an
aggregate of 194,776 shares of common stock at an average price of $2.05
per share.
4. ACQUISITION OF THE GRILL
On April 1, 1996, The Company acquired 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"), an upscale Beverly Hills restaurant which opened in 1994 and
served as the model for the Company's Daily Grill restaurants.
On April 22, 1996, the Company consummated the acquisition of 100% of the
common stock of The Grill on the Alley, Inc. ("Grill, Inc."). Grill, Inc.,
is partner, and holds the remaining 49.09% interest, in the Grill
Partnership. The Company issued an aggregate of 417,265 shares in common
stock in exchange for the stock of Grill, Inc.
The Company's principal shareholders and directors ( Robert Spivak, Michael
Weistock and Richard Shapiro) controlled and were the principal
shareholders of EMNDEE. From 1995 through the date of acquisition, the
Company provided management services to The Grill in exchange for a
management fee in an amount equal to 5% of the revenues of The Grill.
-6-
<PAGE>
<PAGE>
In connection with the acquisition of The Grill, the Company filed a
registration statement with the Securities and Exchange Commission relating
to the resale of shares issued by the Company in the acquisition. The
registration statement was declared effective by the Securities and
Exchange Commission in October, 1996.
5. PROPOSED ACQUISITION OF HAMBURGER HAMLET
In July of 1996, the Company submitted a proposal to acquire selected
assets constituting up to all of the remaining operations of Hamburger
Hamlet Restaurants, Inc. ("Hamburger Hamlet"). Hamburger Hamlet, and its
predecessors, has operated high end casual dining restaurants since 1950.
The operations of Hamburger Hamlet were acquired by the then management of
the company in a leveraged buyout in 1988 and in 1991 Hamburger Hamlet
completed an initial public offering. In 1996, Hamburger Hamlet filed
bankruptcy and closed 12 unprofitable restaurants, all of which had been
opened since the leverage buy out.
Pursuant to the Company's proposal, the Company offered to acquire the
remaining 19 Hamburger Hamlet restaurants for (i) $8.5 million in cash (ii)
500,000 warrants excisable for three years at a price equal to 105% of the
price of the Company's common stock at the closing of the acquisition, and
(iii) a non-interest bearing performance note (the "Performance Note") in
the amount of $ 3.2 million payable solely from 50% of annual earnings
before interest, taxes, depreciation and amortization ("EBITDA")
attributable to the acquired restaurants to the extent EBITDA exceeds
$2.5 million, not to exceed $750,000 per year (or, at the option of
Hamburger Hamlet, $3.0 million form 50% of annual EBITDA in excess of $2.5
million without the $750,000 annual cap.)
Management of Hamburger Hamlet submitted a plan of reorganization based on
acceptance of the Company's offer. Additionally, the secured creditors of
Hamburger Hamlet agreed in principal to approve the Company's offer.
In September of 1996, the Company, pursuant to rights reserved in the
offer, notified Hamburger Hamlet that the Company would not proceed with
the acquisition of the Hamburger Hamlet assets on the terms originally
proposed. While the Company continues to be interested in acquiring assets
of Hamburger Hamlet, no agreement or proposal presently exists pursuant to
which the Company will acquire assets of Hamburger Hamlet and there can be
no assurance that any such acquisition will occur. As a result of the
Company's determination to not precede with the Hamburger Hamlet
acquisition on the terms of the original offer, the Company, during the
quarter ended September 29, 1996 wrote off costs incurred in connection
with the proposed acquisition in the amount of $230,671.
-7-
<PAGE>
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
Grill Proforma Proforma
Concepts, Inc. The Grill Adjustments Combined
<S> <C> <C> <C> <C>
Sales $14,941,156 $2,393,644 - $17,334,800
Cost of sales 3,994,738 749,361 - 4,744,099
----------- ---------- ---------- -----------
Gross profit 10,946,418 1,644,283 - 12,590,701
----------- ---------- ---------- -----------
Restaurant operating expenses 9,441,135 1,230,712 - 10,671,847
General and administration 1,308,975 85,546 (38,603)<F2>
38,603<F2> 1,394,521
Depreciation and amortization 553,054 28,254 10,806<F1> 592,114
----------- ---------- ---------- -----------
Total operating expenses 11,303,164 1,344,512 10,806 12,658,482
----------- ---------- ---------- -----------
Income (loss) from operations (356,746) 299,771 10,806 (67,781)
Nonsuccessful acquisition costs 230,671 - - 230,671
Interest (income)/expense 82,030 (12,800) - 69,230
----------- ---------- ---------- -----------
Income (loss) before income taxes (669,447) 312,571 10,806 (367,682)
Taxes on income 800 - - 800
----------- ---------- ---------- -----------
Net income (loss) $(670,247) $ 312,571 10,806 $ (368,482)
=========== ========== ========== ===========
Net income (loss) per share ($0.03)
===========
Weighted average shares outstanding 13,517,499
===========
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 24, 1995
Grill Proforma Proforma
Concepts, Inc. The Grill Adjustments Combined
<S> <C> <C> <C>
Sales $14,856,970 $1,955,564 - $16,812,534
Cost of sales 3,999,292 602,131 - 4,601,423
----------- ---------- -------- -----------
Gross profit 10,857,678 1,353,433 - 12,211,111
----------- ---------- -------- -----------
Restaurant operating expenses 9,056,090 1,127,147 - -
<PAGE>
<PAGE>
General and administration 1,103,280 136,352 (41,538)<F2> -
- - 41,538<F2> 1,239,632
Depreciation and amortization 532,601 8,530 32,418<F1> 573,549
----------- ---------- -------- -----------
Total operating expenses 10,691,971 1,272,029 32,418 11,996,418
----------- ---------- -------- -----------
Income from operations 165,707 81,404 32,418 214,693
Interest expense, net 86,626 (4,523) - 82,103
----------- ---------- -------- -----------
Income before income taxes 79,081 85,927 32,418 132,590
Taxes on income 800 4,000 - 4,800
----------- ---------- -------- -----------
Net income/(loss) $ 78,281 $ 81,927 $ 32,418 $ 127,790
============ ========== ======== ===========
Net income per share - - - 0.01
-----------
Weighted average shares outstanding - - - 13,889,524
===========
<FN>
<F1>
To record depreciation on increased value of property and equipment due to
purchase price accounting.
</FN>
<FN>
<F2>
To eliminate inter-company management fee to Grill Concepts.
</FN>
</TABLE>
-8-
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 29, 1996 AS COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 24, 1995.
Due to the Exchange explained in the Notes to Unaudited Consolidated
Condensed Financial Statements the results of operations for the 39
week period ended September 29, 1996 included the operations of six Daily
Grill Restaurants and three Pizzeria Uno units of the Magellan group. Also
included is "The Grill" restaurant for the second and third quarters of
1996, and the new Irvine Daily Grill opened September 23, 1996.
The Company's revenues for the nine month period increased 10.9% to
$16,480,000 from $14,857,000 for the same period in 1995. The increase of
$1,623,000 is primarily a result of added sales by the inclusion of the
Pizzeria Uno restaurants for the entire nine months this year and
the addition of The Grill restaurant in the second and third
quarter this year, offset by the elimination of the Tailgator
restaurant. Comparable store sales year to year decreased 3.0%.
While revenues increased by 10.9% in the 1996 nine month period when
compared with the similar period in 1995, cost of sales increased 11.9%
and increased as a percentage of sales from 26.9% to 27.2%. The
consolidated cost of sales percentage increased during the third quarter
to 28.6% as compared with 26.9% in the third quarter of 1995. The
increase in cost of sales as a percentage of sales during the third
quarter was attributable to increased food costs, which have now returned
to previous levels, plus the acquisition of The Grill which has
historically experienced a 31% cost of sales as compared to approximately
27% cost of sales for Daily Grill. This higher cost of sales at The Grill
is offset by lower labor cost at The Grill.
As a result, gross profit increased 10.6% from $10,858,000 (73.1% of
sales) in 1995 to $12,003,000 (72.8 % of sales) in 1996.
Restaurant operating expenses increased to $10,355,000 (62.8% of sales)
in 1996 from $9,056,000 (61.0% of sales) in 1995. This percentage
increase primarily results from the inclusion of the Pizzeria Uno
restaurants for the full nine months in 1996 since they typically produce
a higher restaurant expense percentage. Also during the third quarter of
1996 restaurant operating expenses increased from $3,004,000 (60.7% of
sales ) to $3,494,000 (63.0% of sales ) in 1995 for the same reason plus
the fact that the third quarter of 1995 benefitted from a $150,000
workers' compensation insurance dividend which did not occur in the
current year due to California instituting an "open rating" system for
such insurance.
General and administrative expenses increased 21.0% to represent 7.6% of
sales in the 1996 nine month period while amounting to 8.3% of sales in
the 1995 nine month period. This increase occurred as a result of and at
the time of the Exchange in March 1995 and represents increased executive
and office salaries and increased insurance costs. For the third quarter,
general and administrative expenses increased only 2.9%.
The 1996 quarter and nine month periods include a one time nonrecurring
charge of $231,000 for the costs associated with the attempted acquisition
of certain assets from Hamburger Hamlet Restaurants, Inc.
-9-
<PAGE>
<PAGE>
Net interest expense decreased in the 1996 nine month period due to
interest earnings from cash on hand in 1996.
The acquisition of The Grill in April, 1996 is expected to contribute both
sales and store level income to the Company helping to absorb part of
existing corporate overhead. On a pro forma basis, assuming consummation
of the The Grill purchase at December 26, 1994, the combined operations of
Grill Concepts and The Grill produced a net loss of $347,000 during the
first nine months of 1996 as compared to net income of $128,000 for the
first nine months of 1995. During such periods, The Grill on a stand
alone basis, reported a 22% increase in revenues from $1,956,000 in 1995
to $2,394,000 in 1996 and, a 21% increase in gross profit from $1,353,000
in 1995 to $1,644,000 in 1996.
The increase in sales of The Grill is attributable, in part, to the fact
that in July of 1995, The Grill began opening for Sunday evening business.
Additionally, in the past year, The Grill has been featured in several
magazines and was inducted into the "Fine Dining Hall of Fame" which has
increased guest counts and resulting sales. The Grill operating expenses
increased from $1,272,000 (65.0% of sales in 1995) to $1,345,000 (56.2% of
sales in 1996). This decreased expense percentage resulted from the
spreading of fixed costs over significantly higher sales volume. As a
result of the foregoing, The Grill, on a stand-alone basis, reported a net
income of $230,000 for the first nine months of 1996 as compared to a net
income of $82,000 for the first nine months of 1995.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At September 29, 1996 the Company had negative working capital of $540,000
and a cash balance of $856,000 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 cash was primarily attributable to the
cash received from the sale of preferred stock offset by funds expended
on new restaurants.
Historically, the Company has 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 and tenant allowances from certain of
its landlords. At September 29,1996, GCI had existing bank borrowing of
$1,147,000, an SBA loan of $161,000, loans from stockholders/officers of
$84,000, and loans/advances from landlords and others of $158,000.
During the quarter ended June 30, 1996, the Company completed an offering
of $1.5 million of Series A 10% Convertible Preferred Stock. The
preferred shares are convertible at the option of the holder in 25%
increments commencing 60, 90, 120 and 150 days after June 17, 1996. The
conversion price of the preferred shares is equal to the lesser of $2.25
per share or 85% of the average closing bid price of the common stock for
the five trading days preceding notice of conversion, subject to certain
floors and limitations on conversion. The preferred shares are entitled
to receive a 10% cumulative dividend payable semi-annually until the
preferred shares are either redeemed or converted. The Company may, at
its option, redeem the preferred shares at their initial offering price
or force conversion of the preferred shares at the then applicable
conversion price commencing June 17, 1998. The holder of the preferred
shares may, at its option, cause any preferred shares remaining
outstanding at June 17, 2000 to be redeemed at their initial offering
price.
In connection with the placement of the Series A Convertible Preferred
Shares, the Company issued warrants to acquire an aggregate of 250,000
shares of the Company's common stock at a price of $3.00 per share for a
period expiring June 17, 2001. The warrants are redeemable at the
Company's option commencing June 17, 1999 at a price of $.01 per warrant
provided that the closing bid price of the Company's common stock has
equaled or exceeded $4.50 per share for 20 trading days.
-10-
<PAGE>
<PAGE>
In July of 1996, the Company submitted a proposal to acquire out of
bankruptcy selected assets constituting all of the operations of Hamburger
Hamlet Restaurants, Inc. ("Hamburger Hamlet"). Hamburger Hamlet, and
its predecessors, has operated high end casual dining restaurants since
1950.
Pursuant to the Company's proposal, the Company offered to acquire up to
19 Hamburger Hamlet restaurants for (i) $8.5 million in cash (ii) 500,000
warrants exercisable for three years at a price equal to 105% of the
price of the Company's common stock at the closing of the acquisition,
and (iii) a non-interest bearing performance note (the "Performance Note")
in the amount of $3.2 million payable solely from 50% of annual earnings
before interest, taxes, depreciation and amortization ("EBITDA")
attributable to the acquired restaurants to the extent EBITDA exceeds $2.5
million, not to exceed $750,000 per year (or, at the option of Hamburger
Hamlet, $3.0 million from 50% of annual EBITDA in excess of $2.5 million
without the $750,000 annual cap).
Management of Hamburger Hamlet submitted a plan of reorganization based on
acceptance of the Company's offer. Additionally, the secured creditors of
Hamburger Hamlet agreed in principal to approve the Company's offer. In
September of 1996, the Company, pursuant to rights reserved in the offer,
notified Hamburger Hamlet that the company would not proceed with the
acquisition of the Hamburger Hamlet assets on terms originally proposed.
While the Company continued to be interested in acquiring assets of
Hamburger Hamlet, no agreement or proposal presently exists pursuant to
which the Company will acquire assets of Hamburger Hamlet and there can be
no assurance that any such acquisition will occur.
Management believes that the Company has adequate resources to sustain
operations for at least the following 12 months and to open the LAX and
Washington, D.C. restaurants.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
None
b. Reports on Form 8-K
None
-11-
<PAGE>
<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.
<TABLE>
<S> <C>
(REGISTRANT) GRILL CONCEPTS, INC.
BY (SIGNATURE) /S/ Robert Spivak
(NAME AND TITLE) Robert Spivak, President and C.E.O.
(DATE) November 15, 1996
BY (SIGNATURE) /S/ Ben Sumner
(NAME AND TITLE) Ben Sumner, Chief Financial Officer
and Accounting Officer
(DATE) November 15, 1996
</TABLE>
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 856,452
<SECURITIES> 0
<RECEIVABLES> 41,999
<ALLOWANCES> 0
<INVENTORY> 238,422
<CURRENT-ASSETS> 1,990,388
<PP&E> 7,510,615
<DEPRECIATION> 3,088,922
<TOTAL-ASSETS> 9,365,940
<CURRENT-LIABILITIES> 2,211,392
<BONDS> 1,076,251
1
0
<COMMON> 141
<OTHER-SE> 6,078,155
<TOTAL-LIABILITY-AND-EQUITY> 6,078,297
<SALES> 16,479,505
<TOTAL-REVENUES> 16,479,505
<CGS> 4,476,052
<TOTAL-COSTS> 4,476,052
<OTHER-EXPENSES> 12,385,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,663
<INCOME-PRETAX> (454,707)
<INCOME-TAX> 800
<INCOME-CONTINUING> (455,507)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (455,507)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
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