SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 24, 2000
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 registrant as specified in its charter)
Delaware 13-3319172
-------------------------------- ------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
------------------------------------------------------------------
(Address of principal executive offices)(Zip code)
(310) 820-5559
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(Registrant's telephone number, including area code)
---------------------------------------------------
(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 November 6, 2000, 4,203,888 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 -
September 24, 2000 and December 26, 1999......................... 3
Consolidated Condensed Statements of Operations -
For the three months and nine months ended September
24, 2000 and September 26, 1999.................................. 5
Consolidated Condensed Statements of Cash Flows -
For the nine months ended September 24, 2000 and
September 26, 1999............................................... 6
Notes to Consolidated Condensed Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 15
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
SIGNATURES....................................................... 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September 24, December 26,
2000 1999
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 212,307 $ 352,453
Inventories 533,178 426,680
Receivables 462,505 738,757
Prepaid expenses 177,142 294,251
---------- -----------
Total current assets 1,385,132 1,812,141
---------- -----------
Furniture, equipment, and improvements, net 9,546,899 8,272,509
Goodwill, net 215,149 221,437
Liquor licenses 678,284 646,647
Other assets 379,709 334,818
---------- -----------
Total assets $12,205,173 $ 11,287,552
========== ===========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Continued)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
<TABLE>
September 24, December 26,
2000 1999
------------- -------------
<S> <C> <C>
Current liabilities: (unaudited)
Bank line of credit $ 100,000 $ 935,000
Accounts payable 1,643,303 1,881,908
Accrued expenses 1,798,450 1,663,590
Current portion of long term debt 632,020 463,853
Note payable - related party 192,779 553,058
----------- -----------
Total current liabilities 4,366,552 5,497,409
Long-term debt 2,648,828 1,537,994
Notes payable - related parties 467,716 495,295
----------- -----------
Total liabilities 7,483,096 7,530,698
Minority interest 1,228,050 295,478
Stockholders' equity:
Series I, Convertible Preferred Stock, $.001 par
value; 1,000,000 shares authorized, 0 and 1,000 shares
issued and outstanding in 2000 and 1999, respectively 0 1
Series II, 10% Convertible Preferred Stock, $.001 par
value; 1,000,000 shares, authorized, 500 shares
issued and outstanding in 2000 and 1999 1 1
Common stock, $.00004 par value; 7,500,000 shares
authorized, 4,203,888 and 4,003,888 shares issued
and outstanding in 2000 and 1999, respectively 168 160
Additional paid-in capital 11,071,054 11,071,062
Accumulated deficit (7,577,196) (7,609,848)
----------- -----------
Stockholders' equity 3,494,027 3,461,376
----------- -----------
Total liabilities, minority interest
and stockholders' equity $12,205,173 $11,287,552
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 24, September 26, September 24, September 26,
-------------- -------------- ------------- --------------
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:Sales $10,761,965 $8,962,886 $31,632,970 $28,582,040
Management and license fees 170,754 138,811 466,844 375,122
------------ ----------- ------------ ------------
Total revenues 10,932,719 9,101,697 32,099,814 28,957,162
Cost of sales 3,261,674 2,551,507 9,209,956 7,981,154
------------ ----------- ------------ ------------
Gross profit 7,671,045 6,550,640 22,889,858 20,976,008
------------ ----------- ------------ ------------
Costs and expenses:
Restaurant operating expenses 6,456,468 5,431,627 18,777,825 17,072,853
General and administrative 912,490 762,552 2,588,453 2,364,454
Depreciation and amortization 344,606 348,251 927,974 919,116
Preopening costs - - 457,928 -
------------ ----------- ------------ ------------
Total operating expenses 7,713,564 6,542,430 22,752,180 20,356,423
------------ ----------- ------------ ------------
Income (loss) from operations (42,519) 8,210 137,678 619,585
Interest expense, net (152,638) (169,871) (333,295) (376,985)
Provision for income taxes (7,500) (2,000) (13,100) (6,000)
Equity in loss of joint venture (0) (80,379) (9,469) (80,379)
Minority interest in loss
of subsidiaries 82,472 32,572 250,838 4,383
------------ ----------- ------------ ------------
Net income (loss) $(120,185) $(211,468) $32,652 $160,604
------------ ----------- ------------ ------------
Preferred stock:
Preferred dividends accrued or paid (12,500) (12,500) (37,500) (37,500)
------------ ----------- ------------ ------------
Basic net income (loss) applicable to
common stock $(132,685) $(223,968) $(4,848) 123,104
============ =========== ============ ============
Net income (loss) per share
Basic net income (loss) $ (0.03) $(0.05) $ 0.01 $ 0.04
------------ ----------- ------------ ------------
Preferred stock
Dividends ($ -) ($0.01) ($ 0.01) ($0.01)
------------ ----------- ------------ ------------
Basic net income (loss) applicable to
common stock ($ 0.03) ($ 0.06) $ 0.00 ($ 0.03)
============ =========== ============ ============
Average weighted shares outstanding 4,171,823 4,003,888 4,061,402 4,003,888
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
5
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Ended
September 24, September 26,
-------------- ---------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $32,652 $ 160,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 927,974 919,116
Equity in loss of joint venture 9,469 80,379
Minority interest in net loss (250,838) (4,383)
Changes in operating assets and liabilities
Inventories (106,498) (91,503)
Receivables 276,252 (537,187)
Prepaid expenses 117,109 8,087
Liquor licenses and other assets (76,529) 49,894
Accounts payable (238,605) 207,403
Accrued liabilities 134,860 394,574
----------- -----------
Net cash provided by operating activities 825,846 1,186,984
----------- -----------
Cash flows from investing activities:
Investment in joint venture - (83,606)
Additions to furniture, equipment and improvements (2,196,076) (768,480)
----------- -----------
Net cash used in investing activities (2,196,076) (852,086)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of note payable 400,000 -
Proceeds from minority members' investment in L.L.C. 1,173,941 210,052
Proceeds from line of credit 100,000 234,974
Proceeds from bank term loan 1,200,000 -
Proceeds from equipment financing 1,003,535 -
Repayments on long term debt and bank loans (2,259,482) (365,384)
Repayments on related party debt (387,910) (603,509)
----------- -----------
Net cash provided by (used in) financing activities 1,230,084 (523,867)
----------- -----------
Net decrease in cash and cash equivalents (140,146) (188,969)
Cash and cash equivalents, beginning of period 352,453 438,184
----------- -----------
Cash and cash equivalents, end of period $ 212,307 $ 249,215
=========== ===========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 370,231 $ 316,293
Income taxes $ - 0 - $ -0 -
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM FINANCIAL PRESENTATION
The interim consolidated financial statements are prepared pursuant to the
requirements for reporting on Form 10-Q. These financial statements have
not been audited by independent accountants. The December 26, 1999 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-K dated December 26, 1999. 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 31, 2000.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. PREOPENING COSTS
In accordance with AICPA Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." The Company expenses all start-up and
preopening costs as they are incurred.
3. FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives will be recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. The new rules will be effective the
first quarter of 2001, as amended by SFAS No.137 issued in June 1999. The
new standard will not have a material impact on the Company's financial
statements.
4. REVERSE STOCK SPLIT
On August 9, 1999, the Company effected a 1-for-4 reverse stock split of
the Company's common stock. All share and per share data have been restated
to reflect the reverse stock split.
7
<PAGE>
5. LONG TERM DEBT
On August 1, 2000 the Company received a $400,000 loan from private
individuals. The loan bears interest at 9% and is payable in monthly
installments over the next four years. In connection with the loan, the
Company issued 40,000 warrants. The warrants are exercisable at the option
of the holder and have an exercise price equal to the fair market value of
the Company's common stock at the date of issuance.
On August 10, 2000 the Company obtained a new bank credit facility in the
amount of $1,500,000. The Credit Facility is comprised of a $1,200,000
long-term note payable and a $300,000 revolving line of credit. Interest is
payable at the Bank's reference rate, which was 9.25% at September 24,
2000. In connection with the Credit Facility the Company is required to
comply with certain debt service coverage and liquidity requirements. Two
of the Company's principal stockholders have guaranteed the Credit
Facility. In exchange for the guarantee, the Company issued 150,000
warrants and agreed to pay each of the stockholders interest at a rate of
2% per annum on the average annual balance of the note payable to the bank
for guaranteeing the note. The warrants are exercisable at the option of
the holder and have an exercise price equal to the fair market value of the
Company's common stock at the date of issuance.
6. PREFERRED STOCK
In July 2000, the holder of Series I Convertible Preferred Stock converted
1,000 shares of preferred stock into 200,000 shares of common stock.
7. SUBSEQUENT EVENTS
On October 23, 2000 the Company entered into an agreement to sell it's
Pizzeria Uno restaurant in South Plainfield, New Jersey for $700,000. The
net book value of the assets to be sold is $600,000. The sale of this
restaurant will not have a material impact on the future operating results
of the Company.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this Form
10-Q. Except for the historical information contained herein, the discussion in
this Form 10-Q contains certain forward looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward statements wherever
they appear in this Form 10-Q. The Company's actual results could differ
materially from those discussed here. For a discussion of certain factors that
could cause actual results to be materially different, refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of operations expressed as a
percentage of total operating revenues, except where otherwise noted.
Percentages may not add due to rounding.
<TABLE>
Three Months Ended Nine Months Ended
September September September September
--------- --------- --------- ---------
24, 2000 26, 1999 24, 2000 26, 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Company restaurant sales 98.4% 98.5 % 98.5 % 98.7%
Management and license fees 1.6 1.5 1.5 1.3
-------- -------- -------- --------
Total operating revenues 100.0% 100.0 % 100.0 % 100.0%
Cost of sales 29.8 28.0 28.7 27.6
-------- -------- -------- --------
Gross profit 70.2 72.0 71.3 72.4
-------- -------- -------- --------
Restaurant operating expense 59.1 59.7 58.5 59.7
General and administrative expense 8.3 8.4 8.1 7.4
Depreciation and amortization 3.2 3.8 2.9 3.2
Preopening costs 0.0 0.0 1.4 0.0
-------- -------- -------- --------
Total operating expenses 70.6 71.9 70.9 70.3
-------- -------- -------- --------
Operating income (loss) (0.4) 0.1 .4 2.1
Interest expense, net (1.4) (1.9) (1.0) (1.3)
-------- -------- -------- --------
Income (loss) before taxes (1.8) (2.3) (0.6) 0.6
Provision for taxes 0.0 0.0 0.0 0.0
Equity in loss of joint venture 0.0 0.9 0.0 0.3
Minority interest 0.8 0.4 0.7 0.0
-------- -------- -------- --------
Net income (loss) (1.0) % (2.3) % 0.1% 0.6 %
======== ======== ======== ========
</TABLE>
The following table sets forth certain unaudited financial information and other
restaurant data relating to Company owned restaurants and Company managed and/or
licensed restaurants.
9
<PAGE>
<TABLE>
Third Quarter Year-to-date Total open at
Openings Openings End of Quarter
FY 2000 FY 1999 FY 2000 FY 1999 FY 2000 FY 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Daily Grill restaurants:
Company owned - 1 - 1 10 10
Managed and/or licensed 1 - 1 3 4 4
Grill on the Alley restaurants:
Company owned - - 1 - 3 2
Pizza restaurants (1) - (1) - 2 3
Other restaurants(1)
Managed and/or licensed - - - - 1 1
------ ------ ------- ------ ------ --------
Total 0 1 1 4 20 20
====== ====== ======= ====== ====== ========
</TABLE>
(1) The Company's licensed Daily Grill restaurant at LAX has been moved from the
Other restaurant category and is now included as a Daily Grill restaurant. The
prior year information has been adjusted to reflect this change.
<TABLE>
Three Months Ended Nine Months Ended
September September September September
24, 2000 26, 1999 24, 2000 26, 1999
------------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
Weighted average weekly sales
per company owned restaurant:
Daily Grill $ 54,765 $ 52,655 $ 58,205 $ 55,466
Grill on the Alley $ 86,860 $ 63,484 $ 83,502 $ 68,542
Pizza restaurants $ 35,492 $ 32,261 $ 32,428 $ 32,735
Change in comparable restaurant
sales (1):
Daily Grill 5.9% (1.0) % 5.3 % 0.5 %
Grill on the Alley 17.0% (1.6) % 13.3 % 3.2 %
Pizza restaurants (4.5)% (1.7) % (4.2)% (2.7)%
Total Company revenues:
Daily Grill $ 6,407,463 $ 6,052,856 $20,429,973 $ 19,404,544
Grill on the Alley 3,387,526 1,651,844 7,765,645 5,347,549
Pizza restaurants 966,975 1,258,356 3,437,351 3,829,947
Management and license fees 170,754 138,811 466,844 375,122
------------ ------------ ------------- -------------
Total consolidated revenues $ 10,932,719 $ 9,101,697 $ 32,099,814 $ 28,957,162
============ ============ ============= =============
Total system sales $ 14,366,377 $ 12,032,100 $ 40,296,382 $ 35,047,084
============ ============ ============= =============
</TABLE>
(1) When computing comparable restaurant sales, restaurants open for at least 12
months are compared from period to period.
10
<PAGE>
Material Changes in Results of Operations for the Three and Nine Months Ended
September 24, 2000 as compared to the Three and Nine Months Ended September 26,
1999
On July 11, 2000, the Company made a strategic decision to close, and closed,
its Pizzeria Uno restaurant in Media, Pennsylvania due to declining operations.
Management does not anticipate significant losses due to the closure.
Additionally, the 2000 period includes the operations of the Company's Chicago
-The Grill on the Alley restaurant which opened on June 12, 2000.
Revenues
Revenues for the third quarter of fiscal 2000 increased to $10.9 million, 19.8 %
over the $9.1 million generated for the same quarter of fiscal 1999. Revenues
for the nine months ended September 24, 2000 rose 11.1% to $32.1 million from
the $28.9 million generated for the same period of fiscal 1999. Total revenues
included $10.7 million of sales revenues and $0.2 million of management and
licensing fees for the 2000 quarter and $31.6 million of sales revenues and $0.5
million of management and licensing fees for the first nine months of 2000. This
compares to $9.0 million of sales revenues and $0.1 million of management and
licensing fees for the 1999 quarter and $28.6 million of sales revenues and $0.4
million of management and licensing fees for the first nine months of 1999. The
increase in sales revenues for both the quarter ($1.8 million, or 19.8%) and the
nine months ($3.2 million, or 11.1%) was primarily attributable to the opening
of the Chicago Grill restaurant in June 2000.
Same store sales (for restaurants open at least 12 months) increased 6.9% for
the quarter and increased 5.8% for the nine month period. Management and license
fees increased for both the quarter ($32,000, or 23%) and the nine months
($92,000, or 24.5%). For the quarter, fees from managed restaurants were higher
due to higher sales at managed and licensed restaurants.
In addition to the restaurants owned by the Company, which sales are
consolidated and included in the results of operations for the Company, the
Company manages or licenses four other restaurants. Total restaurant revenues
for all 20 restaurants owned, managed or licensed by the Company were $14.4
million and $12.0 million for the three months, and $40.3 million and $35.0
million for the nine months, ended September 2000 and 1999, respectively. This
represents an increase of $2.4 million or 20.0% for the quarter, and $5.4
million or 15.0% for the nine months, ended September 24, 2000 as compared to
the 1999 periods.
Cost of Sales
Cost of sales increased by 27.8 % for the quarter and 15.4 % for the nine months
ended September 24, 2000 as compared to the same periods in 1999. As a
percentage of total revenues cost of sales was 29.8 % for the quarter and 28.7 %
for the nine months as compared to 28.0 % for the third quarter of 1999 and 27.6
% for the year-to-date period in 1999. The increase in cost of sales as a
percentage of sales during the three and nine month periods was primarily
attributable to the opening of the Chicago - Grill, which has a higher cost of
sales percentage.
11
<PAGE>
Restaurant Operating Expenses
Restaurant operating expenses increased by 18.9 % for the quarter and 10.0 % for
the nine months as compared to the same periods in 1999. The increase in
restaurant operating expenses was primarily attributable to the opening of the
Chicago Grill. As a percentage of total revenues, restaurant operating expenses
totaled 59.1% for the quarter and 58.5% for the nine months of 2000 as compared
to 59.7 % for the quarter and 59.7% for the nine month periods in 1999. The
increase in restaurant operating expenses as a percentage of total revenues was
primarily attributable the opening of the Chicago Grill restaurant.
General and Administrative Expense
General and administrative expense increased 19.7 % for the quarter and 9.5 %
for the nine month period as compared to the same periods in 1999. As a
percentage of total revenues, general and administrative expense totaled 8.3 %
for the quarter and 8.1 % for the nine month period as compared to 8.4 % for the
quarter and 7.4 % for the nine month period in 1999. The increase in total
general and administrative expense during 2000 was primarily attributable to an
increase of approximately $150,000 in legal, accounting and consulting expenses
relating primarily to establishment of new credit facilities, efforts to sell
the Pizza Restaurants and certain litigation.
Depreciation and Amortization
Depreciation and amortization expense decreased by 1.0 % for the quarter and
increased by 1 % for the nine month period as compared to 1999. The change in
depreciation and amortization expense was primarily attributable to the opening
of the Chicago Grill in June 2000 offset in part by some restaurants reaching
their estimated useful lives.
Preopening Costs
All preopening costs incurred during the 2000 period relate to the opening of
Chicago - The Grill on the Alley in June 2000 and were expensed as incurred.
Interest Expense, Net
Interest expense, net, decreased by 10.1 % during the quarter and 11.6% during
the nine month periods compared to the same periods in 1999. The decrease in
interest expense was primarily attributable to decreased borrowing during 2000.
Minority Interest and Equity in Loss of Joint Venture
The three and nine month expenses also reflect a net minority interest in losses
of subsidiaries of $ 82,000 and $251,000 respectively, compared with $33,000 and
$4,000 in the same periods in 1999. This resulted from losses at the Chicago -
Grill on the Alley partially offset by income at the San Jose Grill.
The Company incurred a charge of $0 and $9,000 for its equity in loss of joint
venture during the three and nine month periods respectively, compared with
$80,000 and $80,000 in the same periods in 1999. The equity in loss of joint
venture reflects the Company's 50% interest in the Daily Grill Short Order at
Universal Studios CityWalk.
12
<PAGE>
Net Income
Net income for the nine month period was negatively impacted by the one time
preopening costs incurred at Chicago - The Grill on the Alley. Without such a
one time charge, net income would have been $490,580 for the nine month period
ended September 24, 2000 as compared to $160,604 for the nine months ended
September 26, 1999.
Preferred Stock Dividends
The Company reported accrued or paid dividends on preferred stock of $12,500
during the quarter and $37,500 for the nine month period for both the 2000 and
1999 periods.
Material Changes in Financial Condition, Liquidity and Capital Resources
At September 24, 2000 the Company had negative working capital of $3.0 million
and a cash balance of $0.2 million compared to negative working capital of $3.7
million and a cash balance of $0.4 million at December 26, 1999. The change in
working capital was primarily attributable to the repayment of debt during the
nine months ended September 24, 2000.
The Company's need for capital resources has resulted from, and for the
foreseeable future is expected to relate primarily to, the construction of
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
sale of Preferred Stock, the issuance of warrants, loans and tenant allowances
from certain of its landlords and, beginning in 1998, through joint venture
arrangements. At September 24, 2000, the Company had existing bank borrowing of
$1.3 million, a loan from a Chicago - The Grill on the Alley L.L.C. member of
$0.5 million, loans from private investors of $0.4 million, an SBA loan of $0.1
million, loans from stockholders/officers of $0.2 million, equipment loans of
$1.5 million, and loans/advances from a landlord of $0.1 million.
On August 1, 2000 the Company received a $400,000 loan from private individuals.
The loan bears interest at 9% and is payable in monthly installments over the
next four years. In connection with the loan, the Company issued 40,000
warrants.
On August 10, 2000 the Company obtained a new bank credit facility in the amount
of $1,500,000. The Credit Facility is comprised of a $1,200,000 long term note
payable and a $300,000 revolving line of credit. Interest is payable at the
Bank's reference rate. In connection with the Credit Facility, the Company is
required to comply with certain debt service coverage and liquidity
requirements. Two of the Company's principal stockholders have guaranteed the
Credit Facility. In exchange for the guarantee, the Company issued 150,000
warrants and agreed to pay each of the stockholders interest at a rate of 2% per
annum on the average annual balance of the note payable to the bank for
guaranteeing the note.
In July 2000, the holder of Series I Convertible Preferred Stock converted 1,000
shares of preferred stock into 200,000 shares of common stock.
13
<PAGE>
As of September 24, 2000, the Company had opened a majority owned hotel-based
The Grill restaurant in the Chicago Westin Hotel. The cost to construct the
Chicago Grill was $3.4 million.
In September 2000, the Company opened a hotel-based licensed Daily Grill
restaurant at the Double Tree in Skokie, Illinois. All costs to build and open
the restaurant were incurred by the hotel
Management anticipates that new non-hotel based restaurants will cost between $1
million and $2 million per restaurant to build and open depending upon the
location and available tenant allowances. Hotel based restaurants may involve
remodeling existing facilities, substantial capital contributions from the hotel
operators and other factors which will cause the cost to the Company of opening
such restaurants to be substantially less than the Company's cost to build and
open non-hotel based restaurants.
The Company may enter into investment/loan arrangements in the future on terms
similar to the San Jose Fairmont Grill and Chicago Westin Grill arrangements to
provide for the funding of selected restaurants. Management believes that the
Company has adequate resources on hand and operating cash flow to sustain
operations for at least the following 12 months. In order to fund the opening of
additional restaurants, the Company will require, and intends to raise,
additional capital through additional bank borrowings, the issuance of debt or
equity securities, or the formation of additional investment/loan arrangements,
or a combination thereof. The Company presently has no commitments in that
regard.
Future Accounting Requirements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives will be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
new rules will be effective the first quarter of 2001, as amended by SFAS No.
137 in June 1999. The Company does not believe that the new standard will have a
material impact on the Company's financial statements.
Certain Factors Affecting Future Operating Results
In addition to the opening of new restaurants during 2000, as described above,
and the various factors described in the Company's Annual Report on Form 10-K
for the year ended December 26, 1999, the following developments during the
first nine months of this year may impact future operating results:
The Company continues its efforts to sell its Pizza Restaurants and, in October
2000, entered into an agreement to sell its South Plainfield restaurant for
$700,000. Sale of the South Plainfield restaurant is subject to certain
contingencies.
There can be no assurance that the Company will be successful in opening new
restaurants in accordance with its anticipated opening schedule; that sufficient
capital resources will be available to fund scheduled restaurant openings and
start-up costs; that new restaurants can be operated profitably; that hotel
restaurant management services will produce satisfactory cash flow and operating
results to support such operations; or that additional hotels will elect to
retain the Company's hotel restaurant management services.
14
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates on funded
debt. This exposure relates to its $1,500,000 revolving credit and term loan
facility (the "Credit Facility"). Borrowings outstanding under the Credit
Facility totaled $1,250,000 at September 24, 2000. Borrowings under the Credit
Facility bear interest at the lender's reference rate plus 0.25%. A hypothetical
1% interest rate change would not have a material impact on the Company's
results of operations.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In connection with a $400,000 loan to the Company, the Company issued
40,000 warrants to two accredited investors. The warrants are exercisable for a
period of four years at a price of $1.406 per share. The warrants were issued
pursuant to a privately negotiated lending arrangement with two accredited
investors pursuant to the exemption from registration in Section 4(2) of the
Securities Act of 1933, as amended.
In connection with a guaranty of the Company's bank lending facility, the
Company issued 150,000 warrants to two directors of the Company. The warrants
are exercisable for a period of four years at a price of $1.406 per share. The
warrants were issued pursuant to a privately negotiated guarantee of the
Company's loan facility by two directors of the Company pursuant to the
exemption from registration in Section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
------------- --------------
10.1 Letter Agreement dated July 19, 2000 with Wells Fargo Bank
10.2 Indemnification Agreement between Grill Concepts, Inc.,
Lewis N. Wolff and the Lewis N. Wolff Revocable Trust of 1993
and Michael S. Weinstock and Michael S. Weinstock Trustee
of the Michael S. Weinstock Living Trust
10.3 Form of Letter Agreement regarding Loan Facility
10.4 Form of four year 9% Promissory Note
10.5 Form of Warrant issued in connection with Promissory Notes
10.6 Guarantee Agreement dated July 11, 2000 with Michael Weinstock
and Lewis Wolff
10.7 Form of Warrant issued in connection with Loan Guaranty
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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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: November 7, 2000 By: /s/ Robert Spivak
---------------------------------
Robert Spivak, President
and Chief Executive Officer
Dated: November 7, 2000 By: /s/ Margaret L. Debevec
---------------------------------
Margaret L. Debevec,
Principal Accounting Officer
16
