UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONPRIVATE
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended April 19, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____ to ____
Commission File Number: 33-95796
HARVEST RESTAURANT GROUP, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0406417
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
(Address of principal executive offices, including zip Code)
(210) 824-2496
(Registrant's telephone number)
- --------------------------------------------------------------------------------
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
3,014,030 shares as of May 31, 1998
<PAGE>
HARVEST RESTAURANT GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. Financial Statements
Consolidated Balance Sheets -
April 19, 1998 and December 28, 1997 3
Consolidated Statements of Operations -
16 Weeks Ended
April 19,1998 and April 20, 1997 4
Consolidated Statements of Cash Flows -
16 Weeks Ended
April 19, 1998 and April 20, 1997 5
Notes to Financial Statements 6
ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
NONE
SIGNATURES 10
<PAGE>
<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC.
Consolidated Balance Sheets
April 19, December 28,
1998 1997
------------ -------------
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash $ 69,405 $ 774,674
Cash, restricted 100,000 300,000
Inventories 3,967 15,345
Other current assets -- 17,400
------------ ------------
Total Current Assets 173,372 1,107,419
Property and Equipment, net 1,902,416 2,039,052
Other Assets
Intangible property rights, net of accumulated
amortization of $287,519 in 1998 and
$237,750 in 1997 111,981 161,750
Deposits 49,718 70,978
Other assets 60,389 110,406
------------ ------------
222,088 343,134
------------ ------------
$ 2,297,876 $ 3,489,605
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 362,077 $ 652,817
Accrued liabilities 950,716 956,460
Current portion of long-term debt 186,573 211,779
------------ ------------
Total Current Liabilities 1,499,366 1,821,056
Long-term debt, less current portion 37,546 41,963
Stockholders Equity
Preferred stock 515,150 515,150
Common stock - $.01 par value, authorized
20,000,000, issued 2,774,030 in 1998
and 2,698,630 in 1997 27,740 26,986
Additional paid-in capital 11,901,319 11,902,073
Accumulated deficit (11,683,245) (10,817,623)
------------ ------------
Total Stockholders Equity 760,964 1,626,586
------------ ------------
$ 2,297,876 $ 3,489,605
============ ============
See notes to financial statements (unaudited).
3
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<PAGE>
HARVEST RESTAURANT GROUP, INC.
Consolidated Statements of Operations (Unaudited)
16 Weeks Ended
--------------------------
April 19, April 20,
1998 1997
----------- -----------
Revenues $ 222,101 $ 446,994
Costs and Expenses
Cost of food and paper 118,481 230,248
Salaries and benefits 107,220 234,685
Occupancy and related expenses 46,140 65,012
Other operating expenses 78,675 140,219
Preopening expenses 42,156 86,314
General and administrative expenses 534,929 436,505
Depreciation and amortization 157,454 60,635
----------- -----------
Total costs and expenses 1,085,055 1,253,618
----------- -----------
Loss from operations (862,954) (806,624)
Other income (expense)
Interest income 4,736 16,882
Interest and debt discount expense (7,404) (7,816)
----------- -----------
(2,668) 9,066
----------- -----------
Net Loss $ (865,622) $ (797,558)
=========== ===========
Preferred stock dividends (154,500) --
Net loss applicable to common stock (1,020,122) --
Basic loss per common share $ (.38) $ (.34)
=========== ===========
Basic weighted average common shares outstanding 2,711,353 2,316,279
=========== ===========
See notes to financial statements (unaudited).
4
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<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
16 Weeks Ended
--------------------------
April 19, April 20,
1998 1997
----------- -----------
Operating Activities:
<S> <C> <C>
Net loss for the period $ (865,622) $ (797,558)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 157,454 60,635
Write-off of deposits 93,678
Changes in operating assets and liabilities:
Inventories 11,378 (15,125)
Other current assets 17,400 (29,056)
Accounts payable and accrued expenses (296,484) 209,651
----------- -----------
Net cash (used) in operating activities (882,196) (571,453)
Investing Activities:
Purchase of property and equipment (555,021)
Additions to deposits (18,450) (212,522)
Refunds of deposits 25,000 --
----------- -----------
Net cash provided (used) in investing activities 6,550 (767,543)
Financing Activities:
Proceeds from sale of common stock and warrants 568,875
Proceeds from borrowings 173,686 --
Cash restricted for bank obligations 200,000 20,000
Repayments of bank borrowings (203,309) (4,136)
----------- -----------
Net cash provided by financing activities 170,377 584,739
----------- -----------
Net increase (decrease) in cash (705,269) (754,257)
Cash at beginning of year 774,674 1,271,443
----------- -----------
Cash at end of period $ 69,405 $ 517,186
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 7,404 $ 130,243
=========== ===========
Federal income taxes paid $ -- $ --
=========== ===========
See notes to financial statements (unaudited).
5
</TABLE>
<PAGE>
HARVEST RESTAURANT GROUP, INC.
Notes to Financial Statements (Unaudited)
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Harvest Restaurant Group, Inc. ("Harvest or the "Company") is an operator and
developer of quick service restaurant concepts operated under the name Harvest
Rotisserie and most recently Harvest Food Court. At December 28, 1997, there
were fourteen Harvest Rotisserie restaurants in operation, consisting of four
company-owned restaurants and ten franchised restaurants. In January 1998, the
Company began to concentrate its efforts on the development, operations and
franchising of Harvest Food Court restaurants in Texas. In the first quarter of
1998, the Company significantly curtailed its operations and closed one
company-owned Harvest Rotisserie restaurant and the Companys area developers
closed nine franchised Harvest Rotisserie restaurants. Subsequently, two
additional company-owned restaurants have closed and the Company opened its
first Harvest Food Court restaurant in May 1998.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with the instructions to Form 10-QSB. Accordingly,
certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. In the opinion of management, all adjustments
(consisting of normal recurring accruals and adjustments) considered necessary
for a fair presentation have been made. The statements are subject to year-end
adjustment. The consolidated results of operations for the 16 weeks ended April
19, 1998 may not be indicative of the results for the full fiscal year. For
further information, refer to the Companys audited financial statements as filed
with the Securities and Exchange Commission in the Companys Form 10-KSB for the
year ended December 28, 1997.
The accompanying unaudited consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has incurred
operating losses since inception, and as of April 19, 1998 had an accumulated
deficit of $11,683,245 and a working capital deficit of $1,325,994. In addition,
the Company lacks the financial resources to develop additional restaurants or
maintain its existing operations. These factors raise substantial doubt about
the Companys ability to continue as a going concern. In order to continue as a
going concern, the Company will have to obtain additional funds through debt or
equity offerings to maintain its operations, pay its existing obligations, and
fund the development of additional restaurants and a franchising program until
profitable operations are achieved. The Company estimates that such financing
will be required to be received within the next two months or the Company will
be forced to further curtail or terminate its operations.
.
For a further discussion of the Companys liquidity and capital resources see
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
6
<PAGE>
NOTE B - FISCAL YEAR
The Company has adopted a 52/53-week fiscal year ending on the last Sunday in
December. The fiscal year is divided into thirteen four-week periods. The first
quarter consists of four periods and each of the remaining three quarters
consists of three periods, with the first, second and third quarters ending 16
weeks, 28 weeks and 40 weeks respectively, into the fiscal year.
NOTE C - CONTINGENCIES
The Company is in default under certain long-term real estate leases for closed
company-owned restaurants and as guarantor for similar leases for its closed
franchised locations. The Company is also in default as guarantor for certain
promissory notes and equipment leases associated with franchised locations and
has been named as a defendant in four separate lawsuits in Florida seeking to
foreclose on these promissory notes and a mortgage note. The Company continues
to negotiate with each of the lessors and lenders in order to obtain settlement
agreements. The Company has estimated a net real estate disposition liability of
$747,048 as of April 19, 1998 which is included in other accrued liabilities.
7
<PAGE>
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
Except for the historical information contained herein, the matters set forth in
this report are forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially. These risks are detailed in the
Company's various reports filed with the Securities and Exchange Commission.
These forward-looking statements speak only as of the date hereof. The Company
disclaims any intent or obligation to update these forward-looking statements.
General
At the end of the Companys fiscal year on December 28, 1997, the Company had
fourteen Harvest Rotisserie restaurants in operation, four of which were
company-owned restaurants and ten operated as franchised stores. In January
1998, the Company began to concentrate its efforts on the development,
operations and franchising of Harvest Food Court restaurant in Texas. This
decision was made in part due to the trend of declining sales experienced in the
home-meal segment of the market and Harvest Rotisserie restaurants, and the
Companys limited financial resources and the lower per unit development and
operating costs for a Harvest Food Court restaurant. Consistent with the change
in strategy, the Company streamlined its overhead structure and significantly
curtailed its operations and closed one company-owned Harvest Rotisserie
restaurant and nine franchised Harvest Rotisserie restaurants were closed during
the first quarter of 1998. Subsequently, two additional company-owned Harvest
Rotisserie restaurants have closed and the Company intends to close the one
remaining company-owned Harvest Rotisserie restaurant during the second quarter
of 1998, which would leave only one franchised Harvest Rotisserie restaurant in
operation. In May 1998, the Company began initial operation of its first Harvest
Food Court restaurant with a second restaurant expected to open in June 1998.
Results of Operations - For the 16-week period ended April 19, 1998 compared to
the 16-week period ended April 20, 1997.
Revenues. Total revenues for the 16 weeks ended April 19, 1998 decreased
$224,893 or approximately 50.3% as compared to same period in 1997.
Approximately 30% of the decline was due to the closing of one Company-owned
restaurant during the period and the remainder due to a decline in same store
sales during the period.
Costs and Expenses. Cost of food and paper was 53.3% of restaurant revenues
for the 16-week period ended April 19, 1998 as compared to 51.5% for the same
period in 1997, which were higher than average for both periods. Food and paper
cost for the first quarter of 1998 was negatively affected by higher amounts of
wasted food caused by the lower sales volumes. The high food and paper costs in
the prior period was due to the opening of new restaurants in the first quarter
of 1997, which generally have higher costs due to increased food usage for
opening promotions and inefficiencies caused by less experience employees.
Salaries, benefits, occupancy and operating expenses include all other
restaurant level operating expenses, the major components of which are direct
and indirect labor, payroll taxes and benefits, operating supplies, rent,
advertising, repairs and maintenance, utilities, and other occupancy costs. The
combined total of these expenses was 104% restaurant revenues for the 16-week
period ended April 19, 1998, as compared to 98% for the same comparable period
in 1997. Substantial portions of these costs are fixed or indirectly variable.
These costs were disproportionate to revenues for both periods due to low sales
volumes.
8
<PAGE>
General and administrative expenses increased $98,424 or 22% for the 16-week
period ended April 19, 1998 as compared to the same period in 1997. Although the
Company reduced its ongoing general and administrative expenses during the
quarter, the increase was primarily due to higher non-recurring legal expenses
incurred in responding to allegations made by Business Week concerning an
article which appeared in December 1997 and for professional fees related to
proposed acquisitions and financing efforts, which offset reductions made in
other corporate expenses during the period. In the first quarter of 1998, these
expenses included: salaries and benefits (43%); professional fees (37%); travel
related expenses (3%), advertising and promotion (2%); and other general and
administrative expenses (15%).
Preopening expenses in 1998 relate to lease costs associated with maintaining
one leased site for a future restaurant, while preopening expenses in 1997
related primarily to two new restaurants opened during that period.
Depreciation and amortization increased $96,819 for the 16-week period ended
April 19, 1998 as compared to the same period in 1997. The increase was due to
the additional restaurants opened in 1997 and a reduction in the recovery
periods for some of the Companys assets.
Net Loss. The Company incurred a net loss of $865,622 for the 16-week period
ended April 19, 1998 as compared to $797,558 for the same period in 1997. The
increase in net loss was primarily due to non-recurring professional fees and
higher depreciation and amortization expenses. The Company expects to incur
losses in future periods until it generates sufficient revenues from an expanded
base of restaurants to offset ongoing operating, financing and expansion costs.
The Company lacks the funds necessary to develop additional restaurants and
maintain its operations and requires additional financing to continue as a going
concern.
Liquidity and Capital Resources
Operating Activities. The Company has incurred losses from operations since
inception and as of April 19,1998 has an accumulated deficit of $11,683,245 and
a working capital deficit of $1,325,994. In addition the Company is not
generating sufficient revenues from its operations to meet its cash
requirements. These factors raise substantial doubt about the Companys ability
to continue as a going concern.
During the first quarter of 1998, the Company significantly curtailed its
operations and streamlined its overhead structure. By the end of the second
quarter of 1998, the company expects to have only one franchised Harvest
Rotisserie restaurant in operation and two Harvest Food Court restaurants.
During the first quarter net cash used in operating activities was $882,196,
related primarily to general and administrative expenses, most of which were
nonrecurring, and for reductions in liabilities during the period. The Company
made no investment in property and equipment during the quarter and is utilizing
renovation allowances provided by landlords for a majority of the development
costs for the first two Harvest Food Courts. During the first quarter of 1998,
the Company also borrowed $173,686 on a short-term basis secured by a
company-owned restaurant property.
Capital Requirements. In order to continue as a going concern, the Company
will have to obtain additional funds through debt or equity offerings in order
to settle its existing obligations and fund the development of additional
restaurants and a franchising program until profitable operations are achieved.
The Company estimates that such financing must be received within the next two
months or the Company will be forced to further curtail or terminate its
operations.
9
<PAGE>
In May 1998, the Company entered into a non-binding letter of intent for a
merger with TRC Acquisition Corp, a company which operates a twelve year old
casual dining chain of twelve Tanner's restaurants in Georgia and Alabama.
Tanner's features rotisserie chicken, fresh vegetables, steaks, ribs and salads
as part of their full menu, which also includes beer and wine. As part of the
merger, Tanner's is considering expanding its restaurants into Texas and opening
two units in San Antonio in locations currently owned by the Company. The
Company is seeking to raise approximately $4 to $6 million of additional
financing for the expansion of the Tanner's and Harvest Food Court restaurants
as well for working capital purposes. The Company has already identified a
financing source that has given verbal indication they will provide the
necessary financing. Based on the proposed terms, the Company's current security
holders would retain approximately a 30% interest in the merged company on a
fully diluted basis after the completion of financing. The completion of the
merger is subject to the signing of a definitive agreement, closing of the
financing, customary due diligence, and ratification by the shareholders of both
companies.
PART II - OTHER INFORMATION
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEST RESTAURANT GROUP, INC.
Date: June 10, 1998 By: /s/ William J. Gallagher
--------------- ----------------------------------------
William J. Gallagher,
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Signatory)
Date: June 10, 1998 By: /s/ Joseph Fazzone
--------------- ----------------------------------------
Joseph Fazzone
Chief Financial Officer
(Duly Authorized Signatory)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> APR-19-1998
<CASH> 69,405
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3,967
<CURRENT-ASSETS> 173,372
<PP&E> 2,252,306
<DEPRECIATION> 349,890
<TOTAL-ASSETS> 2,297,876
<CURRENT-LIABILITIES> 1,499,366
<BONDS> 0
0
515,150
<COMMON> 27,740
<OTHER-SE> 218,074
<TOTAL-LIABILITY-AND-EQUITY> 2,297,876
<SALES> 222,101
<TOTAL-REVENUES> 222,101
<CGS> 118,481
<TOTAL-COSTS> 350,516
<OTHER-EXPENSES> 42,156
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,404
<INCOME-PRETAX> (865,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (865,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (865,622)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
