<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
ACT OF 1934
For quarter period ended June 30, 1996,
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-25886
GARDEN FRESH RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0028786
(State or other Jurisdiction of (I.R.S. Employee
Incorporation or Organization) Identification No.)
17180 Bernardo Center Drive, San Diego, CA 92128
(Address of principal executive offices)(Zip Code)
(619) 675-1600
(Registrant's Telephone Number, Including Area Code)
Indicate by a 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(D) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, $.01 par value, outstanding as of June
30, 1996 was 4,106,127. There are no other classes of common stock.
This form 10-Q consists of a total of 15 pages. The exhibit index is located
on page 15.
<PAGE>
GARDEN FRESH RESTAURANT CORP.
FORM 10-Q
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Balance Sheet at September 30, 1995
and June 30, 1996 3
Condensed Statement of Income for the three
months and nine months ended June 30, 1995
and June 30, 1996 4
Condensed Statement of Cash Flows for the
nine months ended June 30, 1995 and June 30,
1996 5
Notes to Unaudited Condensed Financial
Statements 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 12
Item 2: Changes in Securities 12
Item 3: Defaults Upon Senior Securities 12
Item 4: Submission of Matters to a Vote of
Security Holders 12
Item 5: Other Information 12
Item 6: Exhibits and Reports on Form 8-K 12
<PAGE>
<TABLE>
GARDEN FRESH RESTAURANT CORP.
CONDENSED BALANCE SHEET
(Dollars in thousands)
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENT
<CAPTION>
September 30, 1995 June 30, 1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 3,762 $ 303
Restricted certificates of deposit 125 63
Inventories 2,002 2,162
Other current assets 430 1,735
Deferred income taxes 1,124 852
---------- ----------
Total current assets 7,443 5,115
Property and equipment, net 27,257 36,686
Intangible and other assets 960 1,316
Deferred income taxes 1,049 964
---------- -----------
Total assets $ 36,709 $ 44,081
---------- -----------
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,752 $ 2,538
Current portion of long-term debt 1,762 2,815
Accrued liabilities 2,637 4,575
---------- -----------
Total current liabilities 7,151 9,928
Accrued rent 1,503 1,509
Long term debt, net of current portion 2,255 4,490
Shareholders' equity:
Common stock, $.01 par value; 12,000,000
shares authorized at September 30, 1995 and
June 30, 1996 respectively; 4,099,347 and
4,106,127 issued and outstanding at September
30, 1995 and June 30, 1996, respectively. 41 41
Paid in capital 37,643 37,696
Accumulated deficit (11,560) (9,583)
Common stock notes receivable (324)
---------- -----------
Total shareholders' equity 25,800 28,154
---------- -----------
Total liabilities and shareholders' equity $ 36,709 $ 44,081
---------- -----------
---------- -----------
<FN>
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 15,764 $ 18,712 $ 44,530 $ 51,245
COST AND EXPENSES:
Cost of sales 4,327 5,048 12,192 13,938
Restaurant operating expenses:
Labor 4,348 5,105 12,690 14,269
Occupancy and other 3,924 4,374 11,386 12,427
General and administrative expenses 1,098 1,308 2,949 3,804
Depreciation and amortization 853 1,148 2,522 3,179
-------- -------- --------- --------
Total costs and expenses 14,550 16,983 41,739 47,617
-------- -------- -------- --------
OPERATING INCOME 1,214 1,729 2,791 3,628
Interest income (expense) (312) (149) (1,207) (318)
Other income (expense) (96) (15) (120) (48)
-------- -------- --------- --------
INCOME BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM 806 1,565 1,464 3,262
Provision for income taxes 20 603 93 1,284
INCOME BEFORE EXTRAORDINARY ITEM 786 962 1,371 1,978
EXTRAORDINARY ITEM:
Early extinguishment of debt 690 690
-------- --------- --------- --------
NET INCOME 96 962 681 1,978
Stock dividend (8,298) (8,298)
-------- --------- --------- --------
Net income (loss) available to $ (8,202) $ 962 $ (7,617) $ 1,978
common shareholders -------- --------- --------- --------
-------- --------- --------- --------
Net income per share $ .23 $ .48
--------- --------
--------- --------
Proforma net income (loss)
per share $ (2.46) $ (2.68)
-------- ---------
-------- ---------
Shares used in computing
net income per share 4,230 4,155
--------- --------
--------- --------
Shares used in computing proforma
net income (loss) per share 3,340 2,845
-------- ---------
-------- ---------
<FN>
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
GARDEN FRESH RESTAURANT CORP.
CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
-------------------------------------------
June 30, 1995 June 30, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 681 $ 1,978
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,647 3,179
Loss on disposal of property 150 48
Non cash loss from extraordinary item 613
Changes in operating assets and liabilities
Inventories (20) (160)
Prepaid expenses and other current assets 721 (1,305)
Deferred tax assets 357
Accounts payable (529) (214)
Accrued liabilities (375) 1,938
Accrued rent 35 6
------------- -------------
Net cash provided by operating activities 3,923 5,827
------------- -------------
INVESTING ACTIVITIES:
Acquisition of property and equipment
New restaurants (4,448) (11,046)
Existing restaurant additions (1,449) (1,224)
Increase in intangible and other assets (233) (743)
------------- -------------
Net cash used in investing activities (6,130) (13,013)
------------- -------------
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long term debt and warrants 2,345 4,931
Change in certificates of deposit
restricted to secure debt 225 62
Repayment of long term debt (11,541) (1,644)
Net proceeds from issuance of common stock 11,699 53
Net proceeds from stock note 324
------------- -------------
Net cash provided by financing activities 2,728 3,726
------------- -------------
Net increase (decrease) in cash 521 (3,460)
Unrestricted cash at beginning of period 2,039 3,762
------------- -------------
Unrestricted cash at end of period $ 2,560 $ 302
------------- -------------
------------- -------------
<FN>
See notes to unaudited condensed financial statements.
</TABLE>
<PAGE>
GARDEN FRESH RESTAURANT CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared by
the Company without audit and reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of financial position and the
results of operations for the interim periods. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission and do not necessarily include certain information and footnote
disclosures necessary to present the statements in accordance with generally
accepted accounting principles. For further information, refer to the
financial statements and notes thereto for the fiscal year ended September 30,
1995 included in the Company's Form 10-K which was declared effective on
December 21, 1995.
2. NET INCOME PER SHARE
Pro forma net income per share is computed based on the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common share equivalents are common stock options converted using the
treasury stock method. Pro forma net income per share for the period ending
June 30, 1995 gives retroactive adjustment for the conversion of all serial
preferred stock into shares of common stock and the issuance of a preferential
dividend consisting of 921,935 shares of common stock to preferred shareholders
which occurred upon closing of the Company's initial public offering. Net
income per share is computed based on the weighted average number of common
shares and common stock equivalents, using the treasury stock method,
outstanding during the period ending June 30, 1996.
3. PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
4. DEBT
The Company incurred new debt of $4,931,000 during the first nine months
of fiscal 1996. Land, building and equipment for restaurants in Tempe, Arizona
and Tampa, Florida and various locations in California were used as collateral
for this debt. These funds will be used to finance the expansion currently
planned for fiscal 1996 and 1997.
<PAGE>
<TABLE>
GARDEN FRESH RESTAURANT CORP.
STATEMENT OF OPERATING DATA
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following table sets forth the percentage of net sales of certain items included in the
Company's statement of operating data for the periods indicated.
<CAPTION>
3 Months Ended 9 Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0% 100.0%
COST AND EXPENSES:
Cost of sales 27.4% 27.0% 27.4% 27.2%
Restaurant operating expenses:
Labor 27.6% 27.3% 28.5% 27.8%
Occupancy and other 24.9% 23.4% 25.5% 24.3%
General and administrative expenses 7.0% 7.0% 6.6% 7.4%
Depreciation and amortization 5.4% 6.1% 5.7% 6.2%
Total operating expenses 92.3% 90.8% 93.7% 92.9%
OPERATING INCOME 7.7% 9.2% 6.3% 7.1%
Interest expense 2.0% .8% 2.7% .6%
Other income (expense) .6% .1% .3% .1%
INCOME BEFORE INCOME TAXES
AND EXTRA-ORDINARY ITEM 5.1% 8.3% 3.3% 6.4%
Provision for income taxes .1% 3.2% .2% 2.5%
INCOME BEFORE EXTRAORDINARY ITEM 5.0% 5.1% 3.1% 3.9%
Extraordinary item - early
extinguishment of debt 4.4% .0% 1.5% .0%
NET INCOME .6% 5.1% 1.6% 3.9%
Stock dividend 52.6% .0% 18.6% .0%
Net income (loss) available to
common shareholders -52.0% 5.1% -17.0% 3.9%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales for the three months ended June 30, 1996 increased
18.4% to $18.7 million from $15.8 million for the comparable 1995 period. This
was due to the opening of six full size restaurants and one small, quick
service restaurant since the comparable 1995 period. Additionally, the Company
experienced a 2.2% increase in restaurant comparable sales which resulted from
an increase in guest volume.
COST OF SALES. Cost of sales for the three months ended June 30,1996
increased 16.3% to $5.0 million from $4.3 million for the comparable 1995
period. As a percent of sales, cost of sales for the three months ended June
30, 1996 decreased to 27.0% from 27.6% for the comparable 1995 period. The
decrease was primarily due to better cost management.
LABOR EXPENSE. Labor expense for the three months ended June 30, 1996
increased 18.6% to $5.1 million from $4.3 million for the comparable 1995
period. This increase was due to the new restaurants opened since the
comparable 1995 period. As a percentage of sales the labor expense for the
three months ended June 30, 1996 decreased to 27.3% from 27.6% in the
comparable 1995 period due to the (i) leveraging of the higher sales volume on
the fixed component of labor and (ii) lower benefits cost.
OCCUPANCY AND OTHER OPERATING COSTS. Occupancy and other operating costs
for the three months ended June 30, 1996 increased 12.8% to $4.4 million from
$3.9 million for the comparable 1995 period. This was due to the addition of
six full size restaurants and one small, quick service restaurant since the
comparable 1995 period. As a percent of net sales, occupancy and other
operating costs for the three months ended June 30, 1996 decreased to 23.4%
from 24.9% in the comparable 1995 period. This percentage decrease was due to
less occupancy cost associated with the six new restaurants and higher sales
volume per restaurant leveraging fixed occupancy costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three months ended June 30, 1996 increased 18.2% to $1.3 million from
$1.1 million for the comparable 1995 period. As a percent of net sales,
general and administrative expenses for the three months ended June 30, 1996
approximated the comparable 1995 period.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses for the three months ended June 30, 1996 increased 22.2% to $1.1
million from $.9 million for the comparable 1995 period. This increase was due
to depreciation and amortization for the new restaurants opened since the
comparable 1995 period. Depreciation and amortization as a percent of net
sales was 6.1% up from 5.4% for the comparable 1995 period.
INTEREST EXPENSE. Total interest expense for the three months ended June
30, 1996 decreased 66.7% to $.1 million from $.3 million for the comparable
1995 period. Interest expense was reduced due to the payment of subordinated
debt from the proceeds of the initial public offering completed in May 1995.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales for the nine months ended June 30, 1996 increased
15.1% to $51.2 million from $44.5 million for the comparable 1995 period. This
was due to the opening of four full size restaurants and one small, quick
service restaurant since the comparable 1995 period and the increase in
comparable restaurant sales of 3.1%.
<PAGE>
COST OF SALES. Cost of sales for the nine months ended June 30, 1996 as a
percent of sales decreased .2% from the comparable 1995 period, but was higher
in total dollars by $1.7 million at $13.9 million due to higher sales volume.
LABOR EXPENSE. Labor expense for the nine months ended June 30, 1996
increased 12.6% to $14.3 million from $12.7 million for the comparable 1995
period. This increase was due to the new restaurants opened since the
comparable 1995 period. As a percentage of sales the labor expense for the
nine months ended June 30, 1996 decreased .7% from 28.5% in the comparable 1995
period due to lower benefits costs and leveraging of higher sales volume per
unit on the fixed components of labor.
OCCUPANCY AND OTHER OPERATING COSTS. Occupancy and other operating costs
for the nine months ended June 30, 1996 increased 8.8% to $12.4 million from
$11.4 million for the comparable 1995 period. This was due to the addition of
four full size restaurants and one small, quick service restaurant since the
comparable 1995 period. As a percent of net sales, occupancy and other
operating costs for the nine months ended June 30, 1996 decreased to 24.3% from
25.5% in the comparable 1995 period. This percentage decrease was due to lower
occupancy cost associated with the four new restaurants and higher sales volume
per unit leveraging fixed occupancy costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the nine months ended June 30, 1996 increased 31.0% to $3.8 million from
$2.9 million for the comparable 1995 period. As a percent of net sales,
general and administrative expenses for the nine months ended June 30, 1996
increased to 7.4% from 6.6% for the comparable 1995 period. This was due
primarily to the increased training costs for managers required to open seven
new stores in fiscal 1996, the increased costs associated with being a public
company and personnel costs required to support the increased sales volume.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expenses for the nine months ended June 30, 1996 increased 28.0% to $3.2
million from $2.5 million for the comparable 1995 period. This increase was
due to depreciation and amortization for the new restaurants opened since the
comparable 1995 period. Depreciation and amortization as a percent of net
sales was 6.2% up from 5.7% for the comparable 1995 period.
INTEREST EXPENSE. Total interest expense for the nine months ended June
30, 1996 decreased 75% to $.3 million from $1.2 million for the comparable 1995
period. Interest expense was reduced due to the reduction of debt from the
proceeds of the initial public offering completed in May 1995.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its cash requirements principally from
operating activities, the private placement of preferred stock, external debt
and capital leases and a public stock offering. The Company does not have
significant receivables or inventory, and receives trade credit based upon
negotiated terms when purchasing food and supplies. For the nine months ended
June 30, 1996 the Company generated $5.8 million in cash flow from operating
activities. During this period the Company acquired property and equipment
totalling $12.2 million, and paid down existing debt of $1.6 million, added
additional debt of $4.9 million and received $.3 million on payment from a
promissory note tendered by a former employee to purchase common stock, all of
which resulted in a negative $3.5 million in total cash flow.
The Company's principal capital requirement has been for funding the
development of restaurants. Historically the Company has primarily leased the
land and buildings for its restaurant operations. The Company does purchase
land and/or buildings when favorable conditions are available. The Company
currently owns the land and buildings for nine restaurants, including the land
for four sites the Company expects to open in fiscal 1996 and 1997. During the
first nine months of fiscal 1996, the Company opened one small, quick service
restaurant and four full size restaurants. As of June 30, 1996 the Company
operated 40 restaurants. Capital expenditures totalled $12.2 million during
the first nine months of fiscal 1996 and $5.9 million for the comparable period
in fiscal 1995, which directly caused the negative cash flow in fiscal year
1996.
The cash investment to open the one small, quick service and four full
size restaurants as of June 30, 1996 was $6.4 million excluding pre-opening
costs. The pre-opening costs for the one small, quick service and four full
size restaurants opened in fiscal year 1996 were $661,000. The Company has
closed two escrows for sites expected to open in the fourth quarter of fiscal
1996. The Company has signed four leases and opened one escrow and closed two
escrow for sites expected to open in fiscal 1997. The cash investment to open
a new restaurant typically includes the purchase or installation of furniture,
fixtures, equipment and leasehold improvements, and in the case of an owned
site, the purchase of land and a building. In addition to budgeted capital
expenditures for fiscal 1996 of $9.6 million for new restaurant openings, the
Company has budgeted $1.2 million in expenditures for fiscal 1996 for capital
improvements at existing sites.
The Company will need to rely on funds generated from revenues as well as
additional outside capital to finance a portion of the expansion currently
planned for the fourth quarter of fiscal 1996, as well as any expansion taking
place after fiscal 1996. Should the Company's results of operations or its
rate of growth fail to be adequate to finance expansion or should costs or
capital expenditures rise, the Company may not have the ability to open new
restaurants at its desired pace or at all, and could be required to seek
additional financing in the future. While the Company believes that it has
adequate outside resources to attract capital, there can be no assurance that
the Company will be able to raise such capital when needed on satisfactory
terms or at all.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and beverage and labor costs. The Company does not believe that
inflation has materially affected earnings during the past three years.
Substantial increases in costs and expenses, particularly food, supplies, labor
and operating expenses, could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
guests.
BUSINESS RISKS
This form 10-Q includes some forward-looking statements which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
The Company's business is subject to a number of risks. A comprehensive
summary of such risks can be found in the Company's Form S-1 registration
statement which was declared effective on May 16, 1995.
CERTAIN OPERATING RESULTS AND CONSIDERATION
In fiscal 1994 and 1995, respectively, the Company experienced an increase
of 1.2% and an increase of 2.0% in comparable restaurant sales. In the first
nine months of fiscal 1995 and 1996, respectively, the Company's comparable
restaurant sales increased by approximately 1.3% and 3.1%, respectively. The
Company's newer restaurants have not historically experienced significant
increases in guest volume following their initial opening period. In addition,
the Company does not believe it has significant latitude to achieve comparable
<PAGE>
restaurant sales growth through price increases. The Company believes that it
may from time to time in the future experience declines in comparable
restaurant sales, and that any future increases in comparable restaurant sales
would be modest.
EXPANSION RISKS: FUTURE RESTAURANT FINANCING CAPITAL NEEDS
The Company opened three restaurants in fiscal 1995 and has opened one
small, quick service and four full size restaurants in fiscal 1996. Since June
30, 1996, the Company has opened two new restaurants and currently intends to
open one additional restaurant in the fourth quarter of fiscal 1996. The
Company's ability to achieve its expansion plans will depend on a variety of
factors, many of which may be beyond the Company's control, including the
Company's ability to locate suitable restaurant sites, negotiate acceptable
lease or purchase terms, obtain required governmental approvals and construct
new restaurants in a timely manner, attract, train and retain qualified and
experienced personnel and management, operate its restaurants profitably and
obtain additional capital, as well as general economic conditions and the
degree of competition in the particular region of expansion. The Company has
experienced, and expects to continue to experience, delays in restaurant
openings from time to time. The Company incurs substantial costs in opening a
new restaurant and, in the Company's experience, new restaurants experience
fluctuating operational levels for some time after opening. There can be no
assurance that the Company will successfully expand or that the Company's
existing or new restaurant will be profitable. The Company has encountered
intense competition for restaurant sites, and in many cases has had difficulty
buying or leasing desirable sites on terms that are acceptable to the Company.
In many cases, the Company's competitors are willing and able to pay more than
the Company for sites. The Company expects these difficulties in obtaining
desirable sites to continue for the foreseeable future.
COST SENSITIVITY
The Company's profitability is highly sensitive to increases in food, labor
and other operating costs. The Company's dependence on frequent deliveries of
fresh produce and groceries subjects it to the risk that shortages or
interruptions in supply caused by adverse weather or other conditions could
materially adversely affect the availability, quality and cost of ingredients.
In addition, unfavorable trends or developments concerning factors such as
inflation, food, labor and employee benefit costs (including increases in
hourly wage and minimum unemployment tax rates), rent increases resulting from
the rent escalation provisions in the Company's leases, and the availability of
experienced management and hourly employees may also adversely affect the
Company. The Company believes recent relatively favorable inflation rates and
part-time labor supplies in its principal market area have contributed to
relatively stable food and labor costs in recent years. However, there can be
no assurance that these conditions will continue or that the Company will have
the ability to control costs in the future.
IMPORTANCE OF KEY EMPLOYEES
The Company is heavily dependent upon the services of its officers and key
management personnel involved in restaurant operations, purchasing, expansion
and administration. In particular, the Company is dependent upon the
management and leadership of its three executive officers, Michael P. Mack,
David W. Qualls and R. Gregory Keller. The loss of any of these three
individuals could have a material adverse effect on the Company's business and
its financial results of operations. The success of the Company and its
individual restaurants depends upon the Company's ability to attract and retain
highly motivated, well-qualified restaurant operations and other management
personnel. The Company faces significant competition in the recruitment of
qualified employees.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business experiences seasonal fluctuations, as a
disproportionate amount of the Company's net income is generally realized in
the second, third and fourth fiscal quarters due to higher average sales and
lower average costs. Quarterly results have been and are expected to continue
to fluctuate as a result of a number of factors, including the timing of new
restaurant openings. As a result of these factors, net sales and net income on
a quarterly basis may fluctuate and are not necessarily indicative of the
results that may be achieved for a full fiscal year.
GEOGRAPHIC CONCENTRATION IN CALIFORNIA; RESTAURANT BASE
As of June 30, 1996, twenty-nine of the Company's forty existing
restaurants are located in California. Accordingly, the Company is susceptible
to fluctuations in its business caused by adverse economic or other conditions
in this region, including natural disasters or other acts of God. California
and much of the rest of the United States recently experienced an economic
recession. As a result of the Company's continued concentration in California,
adverse economic or other conditions in California could have a material
adverse effect on the Company's business. The Company's significant investment
in, and long- term commitment to, each of its restaurant sites limits its
ability to respond quickly or effectively to changes in local competitive
conditions or other changes that could affect the Company's operations. In
addition, the Company has a small number of restaurants relative to some of its
competitors. Consequently, a decline in the profitability of an existing
restaurant or the introduction of an unsuccessful new restaurant could have a
more significant effect on the Company's results of operations than would be
the case in a company with a larger number of restaurants.
VOLATILITY OF STOCK PRICE
The market price of the Company's common stock has fluctuated since the
initial public offering of the common stock in May 1995. Quarterly operating
results of the Company and other restaurant companies, changes in general
conditions in the economy, the financial markets or the restaurant industry,
natural disasters or other developments affecting the Company or its
competitors could cause the market price of the common stock to fluctuate
substantially. In addition, in recent years the stock market has experienced
extreme price and volume fluctuations. This volatility has had a significant
effect on the market price of securities issued by many companies for reasons
unrelated to the operating performance of these companies.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities Not Applicable
Item 3. Default upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
The Exhibits required by Item 6(a) of this report are listed in
the Exhibit Index on page 15 herewith.
b. Report on Form 8-K:
No reports on Form 8-K have been filed by the Company during
the fiscal quarter ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GARDEN FRESH RESTAURANT CORP.
(Registrant)
Michael P. Mack
Michael P. Mack
Chief Executive Officer/President
(Principal Executive Officer)
David W. Qualls
David W. Qualls
Chief Financial Officer
(Principal Accounting and Financial Officer)
DATED: August 13, 1996
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NUMBER
3.1* Restated Certificate of Incorporation of
Garden Fresh Restaurant Corp. ---
3.2** Bylaws of Garden Fresh Restaurant Corp., as amended. ---
10.1** Form of Indemnity Agreement for executive
officers and directors. ---
10.2** The Company's Restaurant Management Stock
Option Plan, as amended. ---
10.3** The Company's Key Employee Stock Option
Plan, as amended. ---
10.4** The Company's 1995 Outside Director
Stock Option Plan. ---
10.5** The Company's 1995 Key Employee Stock
Option Plan, as amended. ---
10.6** Series B Preferred Stock Purchase Agreement
dated as of November 15, 1985 among the
Company and the other signatories thereto. ---
10.7** Series C Preferred Stock Purchase Agreement
dated as of April 13, 1987 among the Company
and the other signatories thereto. ---
10.8** Series D Preferred Stock Purchase Agreement
dated as of January 12, 1988 among the
Company and the other signatories thereto. ---
10.9** Fifth Modification Agreement dated as of
November 10, 1992 among the Company and
the other signatories thereto, as amended. ---
10.12** License Agreement for New Zealand/Australia
dated as of March 8, 1991 between the
Company and Outset Investments (NZ) Limited,
as amended on June 7, 1991, September 10, 1993
and March 4, 1994. ---
10.13** Park Terrace Office Park Lease between the
Company and Park Terrace Partners dated
November 1, 1991. ---
- - --------------------------------
* Incorporated by reference from Exhibit 4.1 filed with the Company's
Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
** Incorporated by reference from the Exhibits with corresponding numbers
filed with the Company's Registration Statement on Form S-1 (No. 33-90404), as
amended by Amendment No. 1 to Form S-1 filed on April 19, 1995, Amendment No.
2 to Form S-1 filed May 8, 1995, Amendment No. 3 to Form S-1 filed May 15,
1995, except that Exhibit 3.4 is incorporated from Exhibits 3.4 and 3.4A,
Exhibit 10.2 is incorporated by reference from Exhibits 10.2 and 10.2A, Exhibit
10.3 is incorporated by reference from Exhibits 10.3 and 10.3A, Exhibit 10.5 is
incorporated by reference from Exhibits 10.5 and 10.5A, and Exhibit 10.9 is
incorporated by reference from Exhibits 10.9 and 10.9A.
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE
ANNUAL REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ANNUAL REPORT ON FORM 10-Q
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