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 April 1, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-23226
GRILL CONCEPTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3319172
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
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(Address of principal executive offices) (Zip Code)
(310) 820-5559
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(Registrant's telephone number, including area code)
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(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
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As of May 5, 2001, 4,203,838 shares of Common Stock of the issuer were
outstanding.
GRILL CONCEPTS, INC.
INDEX
Page Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - April 1, 2001
and December 31, 2000............................................. 1
Consolidated Condensed Statements of Operations - For the three
months ended April 1, 2001 and March 26, 2000..................... 3
Consolidated Condensed Statements of Cash Flows - For the three
months ended April 1, 2001 and March 26, 2000..................... 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........10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................10
SIGNATURES....................................................................11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
April 1, December 31,
2001 2000
-------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $423,506 $ 623,097
Inventories 534,284 541,579
Receivables 401,285 654,594
Prepaid expenses & other current assets 371,371 270,672
-------------- -------------
Total current assets 1,730,446 2,089,942
Furniture, equipment and improvements, net 9,018,653 9,300,548
Goodwill, net 210,957 213,053
Liquor licenses 587,494 587,614
Other assets 375,753 342,921
-------------- -------------
Total assets $11,923,303 $12,534,078
============== =============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
1
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Continued)
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
April 1, December 31,
2001 2000
--------------- -----------------
(unaudited)
Current liabilities:
Bank line of credit $100,000 $ 100,000
Accounts payable 1,096,959 1,420,591
Accrued expenses 2,135,839 2,358,699
Current portion of long term debt 743,564 737,881
Note payable - related parties 192,465 191,716
-------------- ---------------
Total current liabilities 4,268,827 4,808,887
Long-term debt 2,186,109 2,408,151
Notes payable - related parties 445,306 458,132
-------------- ---------------
Total liabilities 6,900,242 7,675,170
Minority interest 1,198,859 1,363,494
Stockholders' equity:
Series A, 10% Convertible Preferred Stock,
$.001 par value; 1,000,000 shares
authorized, none issued
and outstanding in 2001 and 2000 - -
Series B, 8% Convertible Preferred Stock, $.001
par value; 1,000,000 shares authorized, none issued
and outstanding in 2001 and 2000 - -
Series I, Convertible Preferred Stock, $.001 par
value; 1,000,000 shares authorized, none
issued and outstanding in 2001 and 2000 - -
Series II, 10% Convertible Preferred Stock,
$.001 par value; 1,000,000 shares
authorized, 500 shares issued
and outstanding in 2001 and 2000 1 1
Common stock, .00004 par value; 7,500,000 shares
Authorized, 4,203,888 shares issued and outstanding
in 2001 and 2000 168 168
Additional paid-in capital 11,071,055 11,071,055
Accumulated deficit (7,247,022) (7,575,810)
------------- ---------------
Total stockholders' equity 3,824,202 3,495,414
Total liabilities, minority interest and stockholders'
equity $ 11,923,303 $12,534,078
============= ===============
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
-------------------------------------
April 1, March 26,
2001 2000
----------------- ----------------
Revenues:
Sales $12,278,861 $10,675,990
Management and license fees 156,507 149,740
----------------- ----------------
Total revenues 12,435,368 10,825,730
Cost of sales 3,372,267 3,009,685
----------------- ----------------
Gross Profit 9,063,101 7,816,045
----------------- ----------------
Costs and expenses
Restaurant operating expenses 7,326,903 6,304,113
General and administrative 1,023,509 801,295
Depreciation and amortization 309,554 286,684
Preopening costs 20,509
----------------- ----------------
Total operating expenses 8,659,966 7,412,601
----------------- ----------------
Income from operations 403,135 403,444
Interest expense, net (90,252) (83,907)
----------------- ----------------
Income before provision for income
taxes, equity in loss of joint venture
and minority interest 312,883 319,537
Provision for income taxes (99) (4,000)
Minority interest 16,004 (32,636)
Equity in loss of joint venture - (9,469)
----------------- ----------------
Net income $328,788 $ 273,432
================= ================
Preferred stock:
Preferred dividends accrued or paid (12,500) (12,500)
----------------- ----------------
Basic net income applicable to common stock $ 316,288 $ 260,932
================= ================
Net income per share:
Basic net income $0.08 $0.07
Preferred stock:
Dividends 0.00 0.00
----------------- ----------------
Basic net income applicable to common stock $0.08 $0.07
================= ================
Weighted average share outstanding 4,203,738 4,003,738
================= ================
The accompanying notes are an integral part of these consolidated
financial statements.
3
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
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April 1, March 26,
2001 2000
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Cash flows from operating activities:
Net income $328,788 $ 273,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 309,554 286,684
Minority interest in earnings (loss) of subsidiary (16,004) 32,636
Equity in loss of joint venture - 9,469
Changes in operating assets and liabilities
Inventories 7,295 (6,496)
Receivables 253,309 (88,133)
Prepaid expenses (103,342) 173,115
Liquor Licenses and other assets (32,713) (42,345)
Accounts payable (323,632) 29,256
Accrued expenses (222,860) 308,732
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Net cash provided by operating activities 200,395 976,350
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Cash flows from investing activities:
Additions to furniture, equipment and improvements (22,920) (1,115,114)
Return of capital to minority shareholder (89,910)
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Net cash used in investing activities (112,830) (1,115,114)
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Cash flows from financing activities
Payments on line of credit - (111,600)
Payments to related party (12,077) (239,474)
Payments on debt (216,358) (129,013)
Preferred return to minority shareholders (58,721) -
Borrowings on notes payable - 114,612
Proceeds from investment in Chicago Grill 876,881
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Net cash (used in) provided by financing activities (287,156) 511,406
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Net (decrease) increase in cash and cash equivalents (199,591) 372,642
Cash and cash equivalents, beginning of period 623,097 352,453
------------- ----------------
Cash and cash equivalents, end of period $ 423,506 $ 725,095
============= ================
Supplemental cash flow information: Cash paid during
the period for:
Interest $94,579 $84,629
Income taxes $8,900 $ 4,000
The accompanying notes are an integral part of these consolidated
financial statements.
4
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 31, 2000 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 31, 2000. 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 30, 2001.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. 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 were effective the
first quarter of 2001. The new standard did not have a material impact on
the Company's financial statements.
3. DISTRIBUTION OF CAPITAL AND PREFERRED RETURNS
The Operating Agreement for San Jose Grill LLC, stipulates that
distributions of distributable cash shall be made first, 10% to the Manager
and 90% to the Members in the ratio of their percentage interests until the
Members have received the amount of their initial capital contribution.
Second, to the payment of the preferred return of ten percent per annum on
the unpaid balance of the Member's adjusted capital contribution until the
entire accrued but unpaid preferred return has been paid. Third, to the
Members in the ratio of their percentage interests until the additional
capital contributions have been repaid. Thereafter, to the Manager and
Members in the ratio of their percentage interests.
The Operating Agreement and the Senior Promissory Note for Chicago - The
Grill on the Alley, LLC stipulates that the non-manager member of Chicago -
The Grill on the Alley, LLC is entitled to a cumulative preferred return of
eight percent annually of their converted capital contribution.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto included elsewhere in this Form
10-Q. Except for the historical information contained herein, the discussion in
this Form 10-Q contains certain forward looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Form 10-Q
should be read as being applicable to all related forward statements wherever
they appear in this Form 10-Q. The Company's actual results could differ
materially from those discussed here. For a discussion of certain factors that
could cause actual results to be materially different, refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of operations expressed as a
percentage of total operating revenues, except where otherwise noted.
Three Months Ended
--------------------------
April 1, March 26,
2001 2000
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% %
Revenues:
Company restaurant sales 98.7 98.6
Management and license fees 1.3 1.4
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Total revenues 100.0 100.0
Cost of sales 27.1 27.8
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Gross profit 72.9 72.2
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Restaurant operating expenses 58.9 58.2
General and administrative 8.2 7.4
Depreciation and amortization 2.5 2.7
Preopening costs 0.0 0.2
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Total operating expenses 69.6 68.5
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Operating income 3.3 3.7
Interest expense, net (1.0) (0.8)
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Income before taxes, equity in loss
of joint venture and minority
interest 2.6 2.9
Provision for income taxes 0.0 0.0
Minority interest 0.1 (0.3)
Equity in loss of joint venture (0.0) (0.1)
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Net income 2.7 2.5
============ ===========
6
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.
First Quarter Total open at
Openings End of Quarter
----------------------- -----------------------
FY 2001 FY 2000 FY 2001 FY 2000
Daily Grill Restaurants:
Company owned - - 10 10
Managed and/or licensed - - 4 3
Grill on the Alley restaurants:
Company owned - - 3 2
Pizza restaurants - - 2 3
Other restaurants
Managed and/or licensed - - 1 1
-------- ---------- ---------- ---------
Total 0 0 20 19
======== ========== ========== =========
Three Months Ended
------------------------------------
April 1, 2001 March 26, 2000
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Weighted average weekly sales per company
owned restaurant:
Daily Grill $67,050 $61,886
Grill on the Alley 89,920 83,939
Pizza restaurants 35,660 32,127
Change in comparable restaurants (1)
Daily Grill 7.8% 4.8%
Grill on the Alley 6.2% 11.6%
Pizza restaurants (2.8%) (3.5%)
Total Company revenues:
Daily Grill $ 7,844,833 $ 7,240,622
Grill on the Alley 3,506,863 2,182,405
Pizza restaurants 927,165 1,252,963
Management and license fees 156,507 149,740
-------------- ----------------
Total consolidated revenues $12,435,368 $10,825,730
-------------- ----------------
Managed restaurants 2,832,544 2,771,116
Licensed restaurants 1,943,411 1,247,371
Less management and license fees (156,507) (149,740)
-------------- ----------------
Total system sales $17,054,816 $14,694,477
============== ================
(1) When computing comparable restaurant sales, restaurants open for at least
12 months are compared from period to period.
7
Material Changes in Results of Operations for the Three Months Ended April 1,
2001 as Compared to the Three Months Ended March 26, 2000.
On July 11, 2000, the Company made a strategic decision to close, and closed,
its Pizzeria Uno restaurant in Media, Pennsylvania due to declining operations.
Additionally, the 2001 period includes the operations of the Company's Chicago -
The Grill on the Alley restaurant that opened on June 12, 2000 and license fees
from the Skokie Daily Grill restaurant that opened in September 2000.
The Company's revenues for the three-month period increased 14.9% to $12,435,000
from $10,826,00 for the same period in 2000. Total revenues included $12,279,000
of sales revenues and $157,000 of management and licensing fees in 2001 as
compared to $10,676,000 of sales revenues and $150,000 of management and
licensing fees in 2000. The increase of $1,603,000, or 15.0%, in sales revenues
is primarily attributable to the operation of Chicago - Grill on the Alley
($1,214,000) and increases in same store sales ($699,000), offset by the closure
of the Pizzeria Uno in Media ($319,000). Same store sales (for restaurants open
at least 12 months) increased 6.8% due to average ticket price increases at the
Daily Grill restaurants ($730,000) and the Grill restaurants ($182,000) offset
by a decrease in the number of guests at the Grill and Daily Grill restaurants
($199,000). Management and licensing fees increased 4.5% to $157,000 in 2001
from $150,000 for the same period in 2000. This resulted primarily from the
addition of fees from the Daily Grill in Skokie, which opened in September 2000.
Cost of sales increased 12.0% yet decreased as a percentage of sales from 27.8%
to 27.1%. This decrease in cost of sales as a percentage of sales during the
2001 period is principally attributable to a price increase effective in the
fourth quarter of 2000 for the Daily Grill restaurants. As a result, dollar
gross profit increased 16.0% from $7,816,000 (72.2% of sales) in 2000 to
$9,063,000 (72.9% of sales) in 2001.
Restaurant operating expenses increased 16.2% to $7,327,000 in 2001 from
$6,304,000 in 2000. The dollar increase in restaurant operating expenses was
primarily attributable to increased payroll and employee benefits. Restaurant
operating expenses as a percentage of sales increased from 58.2% in 2000 to
58.9% in 2001.
General and administrative expenses increased 27.7% to represent 8.2% of sales
in the 2001 three month period while amounting to 7.4% of sales in the 2000
three month period. Corporate payroll and related benefits increased $147,000
and represent 66.2% of the increase while professional services increased
$42,000 and represent 19.4% of the increase.
Depreciation and amortization expense increased 8.0% for the 2001 three month
period representing 2.5% of sales in 2001 and 2.6% of sales in 2000 due to the
Chicago Grill assets being in service for the full quarter.
All preopening costs incurred during the 2000 three month period relate to the
opening of Chicago Grill on the Alley, L.L.C. and were fully funded through
landlord contributions, partnerships or a combination thereof and were expensed
as incurred.
The 2001 three month operations also reflect income due to a minority interest
in the net loss of subsidiaries of $16,000 from San Jose Grill, L.L.C. and the
Chicago Grill on the Alley, L.L.C. compared to a loss in 2000 of $33,000 due to
the allocation of minority interest in the net income of the San Jose Grill
L.L.C. for the 2000 three month period.
8
The Company incurred a charge in 2000 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. As generally accepted accounting
principles limit the loss the Company can record to the amount invested in the
joint venture and losses in the amount of the Company's investment in the joint
venture had previously been charged, the Company recorded no charge with respect
to the joint venture during the 2001 period.
The Company recorded only minimal income taxes for the three month period due to
the available federal and state net operating loss carry forwards that can be
utilized to offset federal and state taxable earnings.
The Company reported accrued dividends on preferred stock of $12,500 in each of
the three-month periods ending April 1, 2001 and March 26, 2000.
Material Changes in Financial Condition, Liquidity and Capital Resources.
At April 1, 2001 the Company had negative working capital of $ 2.5 million and a
cash balance of $ 0.4 million compared to negative working capital of $ 2.7
million and a cash balance of $ 0.6 million at December 31, 2000.
The favorable change in working capital was primarily attributable to the
operating profit during the period along with a decrease in receivables
partially offset by decreases in accounts payable and accrued 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 April 1, 2001, the Company had existing bank borrowing of $1.1
million, an SBA loan of $0.1 million, loans from stockholders/officers of $0.6
million, equipment loans of $1.3 million and loans/advances from a landlord and
others of $0.5 million.
As of May 1, 2001 the Company had opened no new restaurants in 2001. The Company
is scheduled to begin management of a San Francisco hotel-based Daily Grill
restaurant in November 2001. The Company will be responsible for approximately
$250,000 of pre-opening costs in San Francisco. 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
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 were effective the first quarter of 2001. The new standard did not 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 2001, as described above,
and the various factors described in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, the following developments during the
first half of this year may impact future operating results.
In October 2000, the Company entered into an agreement to sell its South
Plainfield, New Jersey Pizza Restaurant for $700,000. Sale of the South
Plainfield Restaurant is subject to certain contingencies.
There can be no assurance that the Company will be successful in opening new
restaurants in accordance with its anticipated opening schedule; that sufficient
capital resources will be available to fund scheduled restaurant openings and
start-up costs; that new restaurants can be operated profitably; that hotel
restaurant management services will produce satisfactory cash flow and operating
results to support such operations; 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.
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 $1,125,000 at April 1, 2001. 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
10.1 Employment Agreement with Robert Spivak, amended effective January 1,
2001
(b) Reports on Form 8-K
None
10
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.
May 11, 2001 By: /s/ Robert Spivak
-----------------------------
Robert Spivak
President and Chief
Executive Officer
By: /s/ Daryl Ansel
-----------------------------
Daryl Ansel
Chief Financial Officer
11