UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 12, 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: 3,852,661 shares as of August
12, 1998
<PAGE>
HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
ITEM 1. Financial Statements
Consolidated Balance Sheets -
July 12, 1998 and December 28, 1997 3
Consolidated Statements of Operations -
Quarter and Two Quarters Ended
July 12,1998 and July 13, 1997 4
Consolidated Statements of Cash Flows -
Quarter and Two Quarters Ended
July 12, 1998 and July 13, 1997 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
SIGNATURES 14
2
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<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 12, December 28,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash $ 193 $ 774,674
Cash, restricted -- 300,000
Inventories -- 15,345
Subscription receivable 1,978,750 --
Other current assets 25,224 7,400
------------ -----------
Total Current Assets 2,004,167 1,107,419
Property and Equipment, net 675,339 2,039,052
Other Assets
Intangible property rights, net of accumulated
amortization of $237,750 in 1997 -- 161,750
Deposits 77,730 70,978
Other assets -- 110,406
------------ -----------
77,730 343,134
------------ -----------
$ 2,757,236 $ 3,489,605
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 374,345 $ 652,817
Accrued liabilities:
Real estate disposition costs 700,000 800,000
Other accrued liabilities 211,851 156,460
Current portion of long-term debt 225,000 211,779
------------ -----------
Total Current Liabilities 1,511,196 1,821,056
Long-term debt, less current portion -- 41,963
Stockholders' Equity
Preferred stock 636,225 515,150
Common stock - $.01 par value, authorized 20,000,000,
issued 3,740,287 in 1998 and 2,698,630 in 1997 37,403 26,986
Additional paid-in capital 13,861,731 11,902,073
Accumulated deficit (13,289,319) (10,817,623)
------------ -----------
Total Stockholders' Equity 1,246,040 1,626,586
------------ -----------
$ 2,757,236 $ 3,489,605
============ ===========
See notes to consolidated financial statements (unaudited).
3
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<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Quarter Ended Two Quarters Ended
-------------------------- --------------------------
July 12, July 13, July 12, July 13,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues
<S> <C> <C> <C> <C>
Restaurant operations $ 67,339 $ 469,370 $ 289,440 $ 916,364
Franchise fees -- 200,000 -- 200,000
----------- ----------- ----------- -----------
67,339 669,370 289,440 1,116,364
Costs and Expenses
Cost of food and paper 29,967 246,580 148,448 476,828
Salaries and benefits 45,352 176,754 152,572 411,438
Occupancy and related expenses 37,532 73,370 83,672 138,382
Operating expenses 31,164 210,989 109,839 350,416
Preopening expenses 30,469 94,013 72,625 181,120
General and administrative expenses 160,578 408,646 695,507 845,151
Depreciation and amortization 122,945 71,656 280,399 132,291
Loss on restaurant closures and other 1,204,489 -- 1,204,489 --
Loss provision for area developer notes receivable -- 286,023 -- 286,023
----------- ----------- ----------- -----------
Total costs and expenses 1,662,496 1,568,031 2,747,551 2,821,649
----------- ----------- ----------- -----------
Loss from operations (1,595,157) (898,661) (2,458,111) (1,705,285)
Other income (expense)
Interest income 333 3,504 5,069 20,387
Interest expense (11,250) (3,335) (18,654) (11,151)
----------- ----------- ----------- -----------
(10,917) 169 (13,585) 9,236
----------- ----------- ----------- -----------
Net Loss $(1,606,074) $ (898,492) $(2,471,696) $(1,696,049)
=========== =========== =========== ===========
Preferred stock dividends (190,768) -- (345,268) --
Net loss applicable to common shareholders (1,796,842) -- (2,816,964) --
Basic loss per common share $ (.57) $ (.38) $ (.97) $ (.73)
=========== =========== =========== ===========
Weighted average common shares outstanding 3,177,933 2,366,030 2,911,616 2,337,601
=========== =========== =========== ===========
See notes to consolidated financial statements (unaudited).
4
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<TABLE>
<CAPTION>
HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Two Quarters Ended
--------------------------
July 12, July 13,
1998 1997
----------- -----------
Operating Activities:
<S> <C> <C>
Net loss for the period $(2,471,696) $(1,696,049)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 280,399 132,291
Loss on restaurant closures and other 1,204,489 --
Forfeitures of deposits 41,178 --
Loss provision for area developer notes receivable -- 286,023
Changes in operating assets and liabilities:
Inventories 15,345 (7,092)
Other current assets and other assets 71,064 79,333
Accounts payable and accrued liabilities (223,081) 331,266
----------- -----------
Net cash used in operating activities (1,082,302) (874,228)
Investing Activities:
Purchase of property and equipment (22,814) (690,690)
Increase in deposits (3,055) (10,562)
Issuance of notes receivable -- (1,963,340)
----------- -----------
Net cash used in investing activities (25,869) (2,664,592)
Financing Activities:
Net proceeds from sale of preferred stock and warrants 112,000 4,374,806
Net proceeds from sale of common stock and warrants -- 568,875
Proceeds from borrowings 225,000 --
Decrease in cash restricted for bank obligations 200,000 220,000
Repayments of bank borrowings (203,310) (5,790)
----------- -----------
Net cash provided by financing activities 333,690 5,157,891
----------- -----------
Net increase (decrease) in cash (774,481) 1,619,071
Cash at beginning of year 774,674 1,271,443
----------- -----------
Cash at end of period $ 193 $ 2,890,514
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 7,404 $ 130,243
Income taxes paid -- --
Assumption of notes payable for assets -- 65,000
Payment of preferred stock dividend in common stock 345,268 --
See notes to consolidated financial statements (unaudited).
5
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<PAGE>
HARVEST RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements (Unaudited)
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Harvest Restaurant Group, Inc. and its wholly-owned subsidiaries ("Harvest" or
the "Company") is an operator and developer of quick service restaurant concepts
operated under the name Harvest Rotisserie and Harvest Food Court. At the end of
fiscal year 1997, there were fourteen Harvest Rotisserie restaurants in
operation, consisting of four company-owned restaurants and ten franchised
restaurants. During 1998, the Company significantly curtailed its operations and
all of the Harvest Rotisserie restaurants were closed. The Company opened two
Harvest Food Court restaurants in 1998, which were also closed. The Company
currently has no restaurants in operation.
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 two quarters ended
July 12, 1998 may not be indicative of the results for the full fiscal year. For
further information, refer to the Company's audited financial statements as
filed with the Securities and Exchange Commission in the Company's 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 July 12, 1998 had an accumulated
deficit of $13,289,319 and currently has no restaurants in operation. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. In order to continue as a going concern, the Company will need to
develop or acquire a successful restaurant concept and will need to obtain
additional funds through debt or equity offerings to fund the growth of this
concept. Additional funding will also be required to pay the Company's existing
obligations. In July 1998, the Company entered into a definitive agreement for a
merger with TRC Acquisition Corporation, a company which operates a chain of
thirteen "Rick Tanner"s Original Grill" restaurants ("Tanner's"). In connection
with the merger, the Company has obtained a financing commitment for $6 million
to be used primarily for the expansion of Tanner's restaurants. The Company
intends to focus its future operations on the development of Tanner's
restaurants.
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 - MERGER WITH TRC ACQUISITION CORPORATION
On July 9, 1998, the Company signed a definitive share exchange agreement to
merge (the "Merger") with TRC Acquisition Corporation ("TRC"), the operator of
"Rick Tanner's Original Grill" restaurants ("Tanner's"), a twelve-year-old chain
of full service, casual dining restaurants in Georgia and Alabama. TRC owns and
operates eleven Tanner's restaurants in the Atlanta metropolitan area, and
franchisees two additional Tanner's restaurants. The Merger is subject to
shareholder approval and certain other contingencies, including the Company
obtaining satisfactory settlement agreements for a majority of its obligations.
Upon completion of the Merger, the TRC shareholders including holders of all
options and warrants, will own approximately 70% of the total outstanding equity
of the Company on a fully diluted basis. Since the TRC shareholders will receive
a substantial majority of the shares of stock of the Company, the transaction
will be treated as a reverse acquisition of the Company by TRC for accounting
purposes. The board of directors of the Company will be increased to seven
members, with three of the Company's five present directors resigning. The
Company's corporate offices will also be relocated to Atlanta, Georgia to be in
closer proximity with the core Tanner's restaurant operations.
Pending completion of the Merger, the Company has entered into a development
agreement with TRC to open up to five Tanner's restaurants under a franchise
relationship. The Tanner's restaurant development and operations will be managed
by TRC under a separate management agreement with the Company. Upon the
completion of the Merger, the development and management agreements would be
terminated and any franchised restaurants operated under these agreements would
revert to company-owned restaurants.
NOTE D - STOCKHOLDERS' EQUITY
On July 9, 1998, in connection with the Merger with TRC, the Company entered
into a securities purchase agreement with a private investor group. The
securities purchase agreement provides for the sale of 600 shares of the
Company's newly designated series C convertible preferred stock, ("series C
Preferred Stock") at face value of $10,000 per share, for a total of $6,000,000
of equity funding, of which $4,000,000 was deposited into escrow. The 600 shares
of Series C Preferred Stock are to be issued in three separate closings of 200
shares each, with the first closing to occur within 14 days of the agreement,
the second closing to occur upon the effective date of the Merger, and the third
closing within thirty days thereafter. As of July 12, 1998, Company recorded a
subscription receivable of $1,978,750 for the net proceeds from the first
closing, as there were no unresolved contingencies in connection with the
closing as of that date. This subscription was subsequently collected on July
23, 1998.
7
<PAGE>
The Series C Preferred Stock is convertible at the option of the holder into the
Company's common stock. The conversion rate per share is equal to $10,000
divided by 80% of the average bid price of the common stock at the time of
conversion. Dividends on the Series C Preferred Stock accrue at rate of 7%
annually, payable in cash or stock at the time of conversion. The Series C
Preferred stock is non-voting, and is ranked junior to the Company's series A
redeemable convertible preferred stock and on parity with the Company's series B
convertible preferred stock. Each share of Series C Preferred Stock has a
liquidation preference of $10,000 per share.
In May 1998, the Company sold 112 shares of its series B convertible preferred
stock in a private transaction in which the Company realized net proceeds of
$112,000. During May and June of 1998, holders of the series B convertible
preferred stock converted 28 shares of their series B preferred stock into
688,980 and 120,892 shares of the Company's common stock and series A redeemable
convertible preferred stock, respectively.
NOTE E - RESTAURANT CLOSURES AND OTHER
In the second quarter of 1998, the Company closed its three remaining
company-owned Harvest Rotisserie restaurants and its two Harvest Food Court
restaurants. Subsequently, the Company also canceled plans to pursue the
development of Harvest Food Court restaurants and abandoned development plans
for an additional leased restaurant property. The Company will focus its future
operations on the development of Tanner's restaurants and will no longer utilize
its existing restaurant properties within its future operations. In light of
these decisions, management has reviewed the carrying amount of certain
long-lived assets and concluded that their costs will not be recoverable. As a
result, certain charges totaling $1,204,489 have been aggregated and are
reported separately in the operating statement as "Loss on Restaurant Closures
and Other". Included in these charges are write-downs of property, equipment and
other assets of $1,212,391 and write-offs of intangible assets of $92,098,
offset by reductions in the accrued liability for real estate disposition costs
of $100,000.
All the assets related to the closed restaurants are to be disposed of, with the
exception of one restaurant property that the Company will sublease. Assets to
be disposed of and held for sale consist of land, building and restaurant
equipment which has been written down to net realizable value of $591,409, based
on estimated market prices less cost to sell. The assets held for sublease have
been written down to the net present value of the discontinued future cash flows
expected from the sublease.
8
<PAGE>
NOTE F - CONTINGENCIES
At the end of the Company's 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 1998, area
developers closed all ten of the Company's franchised Harvest Rotisserie
restaurants located in Florida, Indiana, North Carolina, and Northern
California. The Company also closed all four of its Company-owned Harvest
Rotisserie restaurants and its two Harvest Food Court restaurants, and
development plans were ceased at five other locations. The Company had entered
into long-term real estate leases for most of its Company-owned locations, and
guaranteed similar real estate leases for the franchised locations, as well as
guaranteeing certain promissory notes and equipment leases connected with three
of the franchised locations.
Subsequent to the closing of the restaurants and ceasing of development efforts
at the other locations, the Company has contacted each of the lessors and
lenders in order to obtain settlement agreements on the related obligations, and
generally has been successful in reaching settlement agreements. The Company has
evaluated the potential costs for the full settlement of the real estate leases
and other liabilities and recorded a liability for real estate disposition cost
of $800,000 as of December 27, 1998, and $700,000 of the liability remains
outstanding as of July 12, 1998. Management believes the liability accrual will
be sufficient to settle all obligations related to the closing of restaurant
locations.
9
<PAGE>
ITEM 2. Management's 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.
Overview
At the end of the Company's 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, due to insufficient capital and an industry wide decline in consumer
acceptance of the market segment in which the Harvest Rotisserie concept was
positioned, the Company canceled plans to further expand the Harvest Rotisserie
restaurants and began to significantly curtail its operations. In the first
quarter of 1998, the Company closed one restaurant and area developers closed
all nine franchised restaurants in Florida, Indiana and North Carolina. The
Company recorded a liability for a real estate disposition costs of $800,000 as
of December 28, 1997 with respect to the closure of these restaurants.
The Company completed the initial development of a smaller multi-branded
restaurant concept under the Harvest Food Court and open two units on a
test-marketing basis in May and June 1998. However, due to insufficient working
capital to sustain operations, the Company closed its three remaining Harvest
Rotisserie restaurants and its two Harvest Food Court restaurants during the
second quarter 1998. The Company's last franchise restaurant in Northern
California also subsequently closed in August 1998.
In July 1998, the Company signed a definitive share exchange agreement with TRC
Acquisition Corporation ("TRC") the operator of a thirteen unit chain of
Tanner's restaruants. Completion of the Merger is subject to shareholder
approval and certain other contingencies, including the Company obtaining
satisfactory settlement agreements for a majority of its obligations. In
connection with the Merger, the Company has obtained a $6 million financing
commitment to be used primarily for the development of Tanner's restaruants. The
Company intends to focus all its available resources on the development of
Tanner's restaurants and will no longer purse the development of Harvest Food
Courts.
Results of Operations - For the Quarter and Two Quarters ended July 12, 1998
compared to the Quarter and Two Quarters ended July 13, 1997.
Revenues. Total revenues for the quarter and two quarters ended July 12,
1998 decreased 90% and 74%, respectively as compared to the same periods in
1997. The decrease was due to the closing of the Company's restaurants during
the first and second quarters 1998.
10
<PAGE>
Costs and Expenses. Cost of food and paper was 44.5% and 52.5% of
restaurant revenues for the quarter and two quarters ended July 12, 1998 as
compared to 51.3% and 52.0% for the same periods in 1997, which is higher than
industry averages all periods. Food and paper costs were negatively affected by
higher amounts of wasted food caused by the lower sales volumes, and the opening
of new restaurants in 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 169% and 98% of restaurant revenues for the
quarter and two quarters ended July 12, 1998, as compared to 120% and 98% for
the same comparable periods in 1997. Substantial portions of these costs are
fixed or indirectly variable. These costs were disproportionate to revenues for
all periods due to low sales volumes.
General and administrative expenses decreased $248,068 or 61% and $149,644 or
18% for the quarter and two quarters ended July 12, 1998, respectively as
compared to the same periods in 1997. The decreased reflects the closing of the
Company's operations during 1998 and the corresponding reduction in its
corporate overhead.
Depreciation and amortization increased $51,289 and $148,108 for the quarter and
two quarters ended July 12, 1998 as compared to the same periods in 1997. The
increase was due to the additional restaurants opened in 1997 and a reduction in
the recovery periods for some of the Company's assets in 1998.
Loss on restaurant closures and other of $1,204,489 for the quarter ended July
12, 1998, relate to charges recognized by the Company in connection with the
closure of its remaining restaurants in the second quarter of 1998. Included in
this caption is $1,212,391 of charges for the write-down of property, equipment
and other assets to their net realizable values, write-offs of intangible assets
of $92,098, offset by reductions in the accrued liability for real estate
disposition costs of $100,000.
The Company recorded a loss provision for area developer notes receivable of
$286,023 for the quarter ended July 13, 1997 for estimated future loan losses.
The amount of the loss provision was based on management's evaluation of the
operating results of the franchised restaurants, financial position of the area
developers, and the sufficiency of the underlying assets securing the loan.
Net Loss. The Company incurred a net loss of $1,606,074 and $2,471,696 for the
quarter and two quarters ended July 12, 1998 as compared to $898,492 and
$1,696,049 for the same periods in 1997. The increase in net loss for the
quarter ended July 12, 1998 was primarily due to charges of $1,204,489
associated with the loss on restaurant closures during the second quarter of
1998. As of the July 12, 1998 all company-owed restaurants were closed and the
last franchised restaurant has subsequently closed in August 1998.
11
<PAGE>
Preferred Stock Dividends. Dividends were declared on the Company's series A
redeemable preferred stock at the end of the first and second quarters of 1998,
and were payable in the cash equivalent value of the Company's common stock.
Liquidity and Capital Resources
The Company has incurred losses from operations since inception and as of July
12, 1998 the Company had an accumulated deficit of $13,289,319. During 1998, all
of the Company's restaurants were closed, which raise substantial doubt about
the Company's ability to continue as a going concern. In order to continue as a
going concern, the Company will need to develop or acquire a successful
restaurant concept and will need to obtain additional funds through debt or
equity offerings to fund the growth of this concept and settled its outstanding
obligations.
For the fist two quarters of 1998, cash used in operating activities was
$1,082,302, related primarily to general and administrative expenses, store
level operating losses and for reductions in liabilities during the period. The
Company made minimal investments in property and equipment during 1998,
utilizing renovation allowances provided by landlords for a majority of the
development costs for the two Harvest Food Courts restaurants opened during the
second quarter. During 1998, the Company borrowed $225,000 on a short-term basis
under a sales/leaseback arrangement with a company-owned restaurant property
that included repurchase option, and the Company also received $112,000 from the
sale of 112 shares its series B preferred stock in a private transaction.
Sources of capital are limited to the Company's ability to raise additional
capital from investors, and ultimately achieving profitable operations. Without
a proven viable restaurant concept, additional financing is difficult to obtain.
Management considers the Merger with TRC as a viable plan to move the Company to
profitability. In connection with the Merger with TRC, the Company has obtained
a financing commitment from a private investor group for the purchase of 600
shares of the Company's Series C Preferred Stock for a total of $6,000,000 of
equity funding, of which $4,000,000 was deposited into escrow. The 600 shares of
Series C Preferred Stock are to be issued in three separate closings of 200
shares each. On July 23, 1998, Company received the net proceeds of $1,978,750
from the first closing, with the second closing to occur upon the effective date
of the Merger, and the third closing within thirty days thereafter. Proceeds
from the equity financing will be used primarily for the development of
additional Tanner's restaurants. The Company believes the proceeds from first
closing will be sufficient to develop three to five Tanners restaurants,
depending on availability of lease financing and landlord contribution. The
restaurants will operate under a franchise relationship with TRC until
completion of the Merger. The restaurant development and operation will be
managed by TRC under separate agreements with the Company. Upon the completion
of the Merger, the franchise relationship will be terminated and the restaurants
would become company-owned restaurants. Should the Merger not be completed, the
Tanner's restaurants developed by the Company would continue to operate as
franchised restaurants under an operating agreement with TRC, or the Company has
the option to have TRC repurchase the restaurants from the Company at the
development cost.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In January 1998, the Company and Florida Harvest, Inc. (the Company's Florida
area developer) were named as defendants in three separate lawsuits filed in
Florida in Broward County Circuit Court by K.R. Chicken Associates, K.R.
Sarasota Associates, Ltd., and K.R. Memphis-Florida Associates Limited
Partnership (case numbers 98-01090, 98-01092, and 98-01093). The plaintiffs are
seeking to foreclose a security interest on promissory notes of Florida Harvest,
Inc., which are guaranteed by the Company in the aggregate principal amount of
$455,244. No further legal action has taken place and the parties are continuing
to negotiate a settlement.
In July 1998, the Company received a full release related to a lawsiut
originally filed in January 1998. The Company and Florida Harvest, Inc. were
named as defendants in the lawsuit filed in Florida in Hillsborough County
Circuit Court by Pollo Operations, Inc. (case number 98-00604). The plaintiff's
were seeking to foreclose a mortgage lien and security interest in real
property, which the Company was guarantor of a $868,000 mortgage note payable to
Pollo Operations, Inc. In July 1998, the underlying real property was sold in
full satisfaction of the note and the Company was released of all claims.
On May 20, 1998, the Company was named as a defendant in a lawsuit filed in
Texas in Bexar County District Court by Captec Financial Group (case number
98-CI-07356). The plaintiffs are seeking damages related to defaults on three
equipment leases amounting to $277,658. The Company assumed the leases in
connection with the acquisition of restaurant properties in Florida and Indiana,
which were assigned to area developers of the Company. The parties are
negotiating a settlement to the claims.
To date, the Company has executed settlement agreements for twelve of the
eighteen real estate leases the Company is obligated under. These settlements
call for total payments of $112,668, of which $37,500 was been paid to date. The
balance of the settlement payments are to be paid within 14 days of the closing
of the Merger between the Company and TRC Acquisition Corporation using proceeds
provided by new equity financing. The Company continues to negotiate settlements
for the six remaining real estate leases it is obligated under. At July 12,
1998, the Company has estimated its liability related to real estate disposition
costs to be $700,000, and believes this amount to be sufficient to settle all
obligations related to the closing of all locations.
13
<PAGE>
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: August 26, 1998 By: /s/ William J. Gallagher
-------------------- -----------------------------
William J. Gallagher,
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Signatory)
Date: August 26, 1998 By: /s/ Joseph Fazzone
--------------------- -----------------------------
Joseph Fazzone
Chief Financial Officer
(Duly Authorized Signatory)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUL-12-1998
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,004,167
<PP&E> 713,027
<DEPRECIATION> 37,688
<TOTAL-ASSETS> 2,757,263
<CURRENT-LIABILITIES> 1,511,196
<BONDS> 0
0
636,225
<COMMON> 37,403
<OTHER-SE> 572,412
<TOTAL-LIABILITY-AND-EQUITY> 2,757,263
<SALES> 67,339
<TOTAL-REVENUES> 67,339
<CGS> 29,967
<TOTAL-COSTS> 144,015
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