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 March 26, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS 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 of (IRS Employer
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 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 5, 2000, 4,003,738 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 26, 2000
and December 26, 1999............................................ 1
Consolidated Condensed Statements of Operations - For the three
months ended March 26, 2000 and March 28, 1999................... 3
Consolidated Condensed Statements of Cash Flows - For the three
months ended March 26, 2000 and March 28, 1999................... 4
Notes to Consolidated Condensed Financial Statements............. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 11
SIGNATURES................................................................ 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
March 26, December 26,
2000 1999
----------- --------------
(unaudited)
Current assets:
Cash and cash equivalents $ 725,095 $ 352,453
Inventories 433,176 426,680
Receivables 826,890 738,757
Prepaid expenses & other current assets 121,136 294,251
---------- ----------
Total current assets 2,106,297 1,812,141
Furniture, equipment and improvements, net 9,076,043 8,272,509
Goodwill, net 219,341 221,437
Liquor licenses 651,441 646,647
Other assets 372,369 334,818
---------- ----------
Total assets $12,425,491 $11,287,552
========== ==========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
1
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Continued)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
<TABLE>
March 26, December 26,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Bank line of credit $ 823,400 $ 935,000
Accounts payable 1,911,164 1,881,908
Accrued expenses 1,972,322 1,663,590
Current portion of long term debt 510,479 463,853
Note payable - related parties 300,731 553,058
----------- -----------
Total current liabilities 5,518,096 5,497,409
Long-term debt 1,513,907 1,537,994
Notes payable - related parties 486,321 495,295
----------- -----------
Total liabilities 7,518,324 7,530,698
----------- -----------
Minority interest 1,172,359 295,478
Stockholders' equity:
Series I, Convertible Preferred Stock, $.001 par
value; 1,000,000 shares authorized, 1,000 shares
issued and outstanding in 2000 and 1999 1 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, 4,003,738 shares issued and outstanding
in 2000 and 1999 160 160
Additional paid-in capital 11,071,062 11,071,062
Accumulated deficit (7,336,416) (7,609,848)
----------- -----------
Total stockholders' equity 3,734,808 3,461,376
----------- -----------
Total liabilities, minority interest and stockholders' equity $ 12,425,491 $11,287,552
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
Three Months Ended
-----------------------------------
March 26, March 28,
2000 1999
----------- ------------
<S> <C> <C>
Revenues:
Sales $ 10,675,990 $10,163,195
Management and license fees 149,740 124,847
----------- -----------
Total revenues 10,825,730 10,288,042
Cost of sales 3,009,685 2,815,682
----------- -----------
Gross profit 7,816,045 7,472,360
----------- -----------
Costs and expenses
Restaurant operating expenses 6,304,113 6,002,125
General and administrative 801,295 804,429
Depreciation and amortization 286,684 287,820
Preopening costs 20,509 -
----------- -----------
Total operating expenses 7,412,601 7,094,374
----------- -----------
Income from operations 403,444 377,986
Interest expense, net (83,907) (95,556)
----------- -----------
Income before provision for income taxes,
minority interest and equity in loss of
joint venture 319,537 282,430
Provision for income taxes (4,000) (2,000)
Minority interest (32,636) (18,172)
Equity in loss of joint venture (9,469) -
----------- -----------
Net income $ 273,432 $ 262,258
=========== ===========
Preferred stock:
Preferred dividends (12,500) (12,500)
----------- -----------
Basic net income applicable to common stock $ 260,932 $ 249,758
=========== ===========
Net income per share:
Basic net income $0.07 $0.06
Preferred stock:
Dividends 0.00 0.00
----------- -----------
Basic net income applicable to common stock $0.07 $0.06
=========== ===========
Weighted average shares outstanding 4,003,738 4,003,738
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
<PAGE>
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months Ended
--------------------------------
March 26, March 28,
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 273,432 $ 262,258
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 286,684 287,870
Minority interest in earnings of subsidiary 32,636 18,172
Equity in loss of joint venture 9,469 -
Changes in operating assets and liabilities
Inventories (6,496) (2,788)
Receivables (88,133) (441,302)
Prepaid expenses 173,115 219,111
Other assets (42,345) 40,381
Accounts payable 29,256 (250,662)
Accrued expenses 308,732 204,625
------------ ------------
Net cash provided by operating activities 976,350 337,665
------------ ------------
Cash flows from investing activities:
Additions to furniture, equipment and improvements (1,115,114) (235,395)
------------ ------------
Net cash used in investing activities (1,115,114) (235,395)
------------ ------------
Cash flows from financing activities:
Proceeds from (payments on) line of credit (111,600) 9,974
Payments on related party debt (239,474) (153,950)
Payments on debt (129,013) -
Borrowings on notes payable 114,612 -
Proceeds from investment in Chicago Grill 876,881 -
------------ ------------
Net cash provided by (used in) financing activities 511,406 (143,976)
------------ ------------
Net increase (decrease) in cash and cash equivalents 372,642 (41,706)
Cash and cash equivalents, beginning of period 352,453 438,184
------------ ------------
Cash and cash equivalents, end of period $ 725,095 $ 396,478
============ ============
Supplemental cash flow information:
Cash paid during the period for:
Interest $84,629 $109,941
Income taxes $ 4,000 -
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<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. 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.
5
<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 26, 1999.
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.
Three Months Ended
March 26, March 28,
2000 1999
----------- ----------
% %
Revenues:
Company restaurant sales 98.6 98.8
Management and license fees 1.4 1.2
------- -------
Total revenues 100.0 100.0
Cost of sales 27.8 27.4
------- -------
Gross profit 72.2 72.6
------- -------
Restaurant operating expenses 58.2 58.3
General and administrative 7.4 7.8
Depreciation and amortization 2.7 2.8
Preopening costs 0.2 0.0
------- -------
Total operating expenses 68.5 68.9
Operating income 3.7 3.7
Interest expense, net (0.8) (0.9)
------- -------
Income before taxes, minority interest and equity
in loss of joint venture 2.9 2.8
Provision for income taxes 0.0 0.0
Minority interest 0.0 0.0
Equity in loss of joint venture (0.4) (0.2)
------- -------
Net income 2.5 2.6
======= =======
6
<PAGE>
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.
<TABLE>
First Quarter Total open at
Openings End of Quarter
FY 2000 FY 1999 FY 2000 FY 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Daily Grill Restaurants:
Company owned - 1 10 9
Managed and/or licensed - - 2 2
Grill on the Alley restaurants:
Company owned - - 2 2
Pizza restaurants - - 3 3
Other restaurants
Managed and/or licensed - - 2 2
------- ------ ------ -------
Total 0 1 19 18
======= ====== ====== =======
</TABLE>
Three Months Ended
-------------------------------
March 26, 2000 March 28, 1999
-------------- --------------
Weighted average weekly sales per company
owned restaurant:
Daily Grill $61,886 $59,048
Grill on the Alley 83,939 75,228
Pizza restaurants 32,127 33,299
Change in comparable restaurants
Daily Grill 4.8% 2.5%
Grill on the Alley 11.6% 1.6%
Pizza restaurants (3.5%) (1.3%)
Total system revenues:
Daily Grill $7,240,622 $6,908,617
Grill on the Alley 2,182,405 1,955,923
Pizza restaurants 1,252,963 1,298,655
Management and license fees 149,740 124,847
----------- -----------
Total revenue $10,825,730 $10,288,042
=========== ===========
(1) When computing comparable restaurant sales, restaurants open for at least
12 months are compared from period to period.
7
<PAGE>
Material Changes in Results of Operations for the Three Months Ended March 26,
2000 as Compared to the Three Months Ended March 28, 1999
The results of operations for the three month periods ended March 26, 2000 and
March 28, 1999 include the operations of nine Daily Grill restaurants; three
Pizzeria Uno units; The Grill restaurant and the San Jose Grill restaurant.
During the 2000 period, the Company, through its 50% partnership interest,
operated a Daily Grill Short Order at Universal Studios CityWalk. The results of
that restaurant are reported under the equity method and, therefore, are not
included in consolidated revenues or operating results, other than management
fees from that restaurant.
The Company's revenues for the three-month period increased 5.2% to $10,826,000
from $10,288,000 for the same period in 1999. Total revenues included
$10,676,000 of sales revenues and $150,000 of management and licensing fees in
2000 as compared to $10,163,000 of sales revenues and $125,000 of management and
licensing fees in 1999. The increase of $513,000, or 5.0%, in sales revenues is
the result of increased same store sales. Management and licensing fees
increased 20% to $150,000 in 2000 from $125,000 for the same period in 1999.
This resulted primarily from the addition of fees from the Universal CityWalk
Daily Grill, which opened in July 1999.
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 four other restaurants. Total revenues for all 19 restaurants
owned and managed by the Company were $13,465,000 and $11,664,000 for the three
months ended March 2000 and 1999 respectively. This represents an increase of
$1,801,000 or 15.4%.
Cost of sales increased 6.9% and increased as a percentage of sales from 27.4%
to 27.8%. This increase in cost of sales as a percentage of sales during the
2000 period is attributable principally to higher food costs associated with the
San Jose Grill and Beverly Hills Grill restaurants. As a result, dollar gross
profit increased 4.6% from $7,472,000 (72.6% of sales) in 1999 to $7,816,000
(72.2% of sales) in 2000.
Restaurant operating expenses increased 5.0% to $6,304,000 in 2000 from
$6,002,000 in 1999. The dollar increase in restaurant operating expenses was
primarily attributable to additional sales in same stores. However, restaurant
operating expenses as a percentage of sales decreased from 58.3% in 1999 to
58.2% in 2000.
General and administrative expenses decreased 0.4% to represent 7.4% of sales in
the 2000 three month period while amounting to 7.8% of sales in the 1999 three
month period.
Depreciation and amortization expense remained constant during the 2000 three
month period representing 2.7% of sales in 2000 and 2.8% of sales in 1999.
All preopening costs incurred during this period relate to the opening of
Chicago Grill on the Alley, scheduled for June 2000 and were fully funded
through landlord contributions, and LLC member contributions and were expensed
as incurred.
The three month operations also reflect a net minority interest in the earnings
of subsidiaries of $33,000 in 2000 and $18,000 in 1999 from the inclusion of the
results of the San Jose Grill L.L.C. in the 1999 and 2000 periods and the
Chicago Grill on the Alley for the 2000 three month period.
8
<PAGE>
The Company incurred a charge of $9,000 for its equity in the loss of joint
venture, which reflects the Company's 50% interest in the Daily Grill Short
Order at Universal Studios CityWalk.
The Company reported dividends on preferred stock of $12,500 in each of the
three-month periods ending March 26, 2000 and March 28, 1999.
Material Changes in Financial Condition, Liquidity and Capital Resources
At March 26, 2000 the Company had negative working capital of $3.4 million and a
cash balance of $0.7 million compared to negative working capital of $3.7
million and a cash balance of $0.4 million at December 26, 1999.
The favorable change in working capital was primarily attributable to the
operating profit during the period along with an increase in receivables,
accounts payable and accrued expenses and a decrease in prepaid expenses.
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 March 26, 2000, the Company had existing bank borrowing of $1.9
million, a loan from a San Jose Grill L.L.C. member of $0.1 million, an SBA loan
of $0.1 million, loans from stockholders/officers of $0.7 million, equipment
loans of $0.8 million and loans/advances from a landlord and others of $0.1
million.
As of May 1, the Company had opened no Daily Grill restaurants in 2000. The
Company will open a majority owned hotel-based the Grill restaurant in June 2000
in the Chicago Westin 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 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.
9
<PAGE>
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. 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 half of this year may impact future operating results.
The Company's operations during the last two quarters of 2000 are expected to
reflect the opening of a 60% owned The Grill restaurant in Chicago, Illinois.
The Company continues in its efforts to sell its Pizza Restaurants.
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; that additional hotels will elect to retain
the Company's hotel restaurant management services; that the Pizza Restaurants
can be sold on terms satisfactory to the Company; that proceeds, if any, from
the sale of the Pizza Restaurants can be deployed in a manner so as to replace
the cash flows, revenues and operating profits from the Pizza Restaurants.
10
<PAGE>
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 non-revolving credit and term loan facility
(the "Credit Facility"). Borrowings outstanding under the Credit Facility
totaled $1,848,000 at March 26, 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<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 10, 2000 By: /s/ Robert Spivak
-------------------------
President and Chief
Executive Officer
Dated: May 10, 2000 By:/s/ Margaret L. Debevec
-------------------------
Principal Accounting
Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 725,095
<SECURITIES> 0
<RECEIVABLES> 826,890
<ALLOWANCES> 0
<INVENTORY> 433,176
<CURRENT-ASSETS> 2,106,297
<PP&E> 15,048,492
<DEPRECIATION> 5,972,449
<TOTAL-ASSETS> 12,425,491
<CURRENT-LIABILITIES> 5,518,096
<BONDS> 2,000,228
0
2
<COMMON> 160
<OTHER-SE> 3,734,808
<TOTAL-LIABILITY-AND-EQUITY> 12,425,491
<SALES> 10,675,990
<TOTAL-REVENUES> 10,825,730
<CGS> 3,009,685
<TOTAL-COSTS> 3,009,685
<OTHER-EXPENSES> 7,412,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,907
<INCOME-PRETAX> 319,537
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 273,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273,432
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
