SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934
For the transition period from to .
Commission File No. 0-23226
GRILL CONCEPTS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3319172
------------------------------ --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11661 San Vicente Blvd., Suite 404, Los Angeles, California 90049
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 820-5559
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
As of May10, 2002, 5,537,071 shares of Common Stock of the issuer were
outstanding.
GRILL CONCEPTS, INC.
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets - March 31, 2002
and December 30, 2001........................................... 1
Consolidated Condensed Statements of Operations - For the three
months ended March 31, 2002 and April 1, 2001................... 3
Consolidated Condensed Statements of Cash Flows - For the three
months ended March 31, 2002 and April 1, 2001................... 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...... 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 12
SIGNATURES .............................................................. 13
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRILL CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
March 31, December 30,
2002 2001
----------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $1,509,000 $ 2,300,000
Inventories 536,000 590,000
Receivables 736,000 602,000
Prepaid expenses & other current assets 766,000 575,000
------------- -------------
Total current assets 3,547,000 4,067,000
Furniture, equipment and improvements, net 9,070,000 9,066,000
Goodwill, net 205,000 205,000
Liquor licenses 454,000 454,000
Advance to affiliate 250,000 -
Other assets 540,000 552,000
------------- -------------
Total assets $14,066,000 $14,344,000
============= =============
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
March 31, December 30,
2002 2001
--------------- ------------------
(unaudited)
Current liabilities:
Accounts payable $ 1,165,000 $ 1,179,000
Accrued expenses 2,618,000 2,919,000
Current portion of long term debt 375,000 369,000
Note payable - related parties 297,000 293,000
--------------- ------------------
Total current liabilities 4,455,000 4,760,000
Long-term debt 849,000 943,000
Notes payable - related parties 553,000 591,000
--------------- ------------------
Total liabilities 5,857,000 6,294,000
Minority interest 1,921,000 2,005,000
Stockholders' equity:
Series I, Convertible Preferred Stock, $.001 par
value; 1,000,000 shares authorized, none
issued and outstanding in 2002 and 2001 - -
Series II, 10% Convertible Preferred Stock,
$.001 par value; 1,000,000
shares authorized, 500 shares issued
and outstanding in 2002 and 2001 - -
Common stock, $.00004 par value; 12,000,000
shares
authorized in 2002 and 2001, 5,537,071 issued and
outstanding in 2002 and 2001 - -
Additional paid-in capital 13,152,000 13,152,000
Accumulated deficit (6,864,000) (7,107,000)
--------------- ------------------
Total stockholders' equity 6,288,000 6,045,000
Total liabilities, minority interest and stockholders' equity $14,066,000 $14,344,000
=============== ==================
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
------------------------------------
March 31, April 1,
2002 2001
----------------- -----------------
Revenues:
Sales $11,550,000 $12,279,000
Management and license fees 222,000 156,000
----------------- -----------------
Total revenues 11,772,000 12,435,000
Cost of sales 3,181,000 3,372, 000
----------------- -----------------
Gross Profit 8,591,000 9,063,000
----------------- -----------------
Operating expenses:
Restaurant operating expenses 7,033,000 7,327,000
General and administrative 929,000 1,023,000
Depreciation and amortization 371,000 310,000
----------------- -----------------
Total operating expenses 8,333,000 8,660,000
----------------- -----------------
Income from operations 258,000 403,000
Interest expense, net (45,000) (90,000)
----------------- -----------------
Income before provision for income taxes, equity
in
loss of joint venture and minority interest 213,000 313,000
Provision for income taxes (18,000) -
Minority interest 53,000 16,000
Equity in loss of joint venture (5,000) -
----------------- -----------------
Net income 243,000 329,000
----------------- -----------------
Preferred dividends accrued or paid (13,000) (13,000)
----------------- -----------------
Net income applicable to common stock $ 230,000 $ 316,000
================= =================
Net income per share applicable to common stock:
Basic net income $0.04 $0.08
================= =================
Diluted net income $0.04 $0.08
================= =================
Weighted average share outstanding:
Basic 5,537,071 4,203,738
================= =================
Diluted 5,537,071 4,325,799
================= =================
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
-------------------------------------
March 31, April 1,
2002 2001
---------------- ----------------
Cash flows from operating activities:
Net income $243,000 $ 329,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 371,000 310,000
Minority interest in earnings (loss) of subsidiaries (53,000) (16,000)
Equity in loss of joint venture 5,000 -
Changes in operating assets and liabilities:
Inventories 54,000 7,000
Receivables (134,000) 253,000
Prepaid expenses and other current assets (195,000) (103,000)
Liquor licenses and other assets (3,000) (33,000)
Accounts payable (14,000) (324,000)
Accrued expenses (288,000) (223,000)
---------------- ----------------
Net cash (used in) provided by operating activities (14,000) 200,000
---------------- ----------------
Cash flows from investing activities:
Additions to furniture, equipment and improvements (360,000) (23,000)
Advance to affiliate (250,000) -
---------------- ----------------
Net cash used in investing activities (610,000) (23,000)
---------------- ----------------
Cash flows from financing activities:
Payments on related party debt (34,000) (12,000)
Payments on long term debt (89,000) (216,000)
Return of capital to minority shareholder - (90,000)
Preferred return to minority shareholder (44,000) (59,000)
---------------- ----------------
Net cash used in financing activities (167,000) (377,000)
---------------- ----------------
Net decrease in cash and cash equivalents (791,000) (200,000)
Cash and cash equivalents, beginning of period 2,300,000 623,000
---------------- ----------------
Cash and cash equivalents, end of period $ 1,509,000 $ 423,000
================ ================
Supplemental cash flow information: Cash paid during the period for:
Interest $ 50,000 $ 95,000
Income taxes $ 39,000 $9,000
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 30, 2001 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 30, 2001. 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 29, 2002.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. RECENTLY ISSUSED ACCOUNTING REQUIREMENTS
Accounting Pronouncements Adopted December 31, 2001
In July 2001, the FASB issued Statement of Financial Standards No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 142, which
changes the accounting for goodwill and indefinite-lived intangible assets
from an amortization method to an impairment-only approach, is effective
for the Company for fiscal year 2002. Adoption of SFAS No. 142 reduced
amortization expense by $2,000 for the first quarter of 2002. The Company
has until June 2002 to complete our transitional impairment of goodwill
associated with adopting SFAS No. 142. The amount of impairment losses
recognizable upon adoption, if any, is not expected to have a significant
impact on the Company's financial statements.
In August 2001, the FASB also issued Statement of Financial Standards No.
144, ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which replaces SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived to be Disposed Of'" and also replaces
and broadens the provisions of Accounting Principles Board Opinion No. 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 establishes one accounting
model, based on framework established in SFAS No. 121, for recognition,
measurement and reporting of impairment of long-lived assets to be held and
used and measurement of long-lived assets to be disposed of by sale. SFAS
No. 144 was required for our fiscal year beginning December 31, 2001 and
did not have a significant impact on our consolidated financial position,
results of operations and cash flows.
Future Accounting Requirements
In May 2002, the FASB issued Statement of Financial Standards No. 145,
("SFAS 145"), "Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13,
and Technical Corrections." Among other things, SFAS 145 rescinds various
pronouncements regarding early extinguishment of debt and allows
extraordinary accounting treatment for early extinguishment only when the
provisions of Accounting principles Board Opinion No. 30, "Reporting the
Results of Operations and Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions' are met. SFAS 145 provisions regarding early
extinguishment of debt are generally effective for fiscal years beginning
after May 15, 2002. Management does not believe that the adoption of this
statement will have a material impact on our consolidated financial
statements.
5
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,
distributions of distributable cash will be made first, 16 2/3% as an
incentive to the manager and the balance to the members in the ratio of
their percentage interests. A distribution of distributable cash was not
made in the first quarter of 2002. In January 2001 a distribution of
distributable cash in the amount of $90,000 was made to the minority member
that reduced the member's interest. The minority member's unrecovered
capital contribution at March 31, 2002 was $260,000.
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 capital contribution.
Preferred return payments of $44,000 were paid to the non-manager member
during the first quarter of 2002. These payments are treated as a reduction
of equity. Payments returning $10,000 of converted capital contribution
were made in the first quarter of 2002.
The Operating Agreement for The Grill on Hollywood, LLC stipulates that
distributions of distributable cash shall be made first, 90% to the
non-manager member and 10% to the manager member until non-manager member's
preferred return, unrecovered contribution account and additional
contribution account are reduced to zero. Second, 90% to the manager member
and 10% to the non-manager member until the manager member's preferred
return and unrecovered contribution account have been reduced to zero.
Thereafter, distributions of distributable cash shall be made to the
members in proportion to their respective percentage interests. No
distribution of distributable cash has been made.
4. PER SHARE DATA
Basic earnings per share data is based upon weighted average number of
common shares outstanding. Diluted earnings per share data is based upon
the weighted average number of common shares outstanding plus the number of
common shares potentially issuable for dilutive securities such as stock
options and warrants.
6
2002 2001
Earnings Shares Earnings Shares
------------ ----------- ------------- -----------
Net income $243,000 $ 329,000
Less: preferred stock dividend (13,000) (13,000)
--------- ---------
Earnings available for common
stockholders 230,000 5,537,071 316,000 4,203,738
Dilutive securities:
Stock options - - - 33,750
Warrants - - - 88,311
----------- ---------- ---------- ------------
Dilutive earnings available to common
stockholders $ 230,000 5,537,071 $316,000 4,325,799
============ ========== ========== ============
5. ADVANCE TO AFFILIATE
On February 25, 2002 the Company began management of a San Francisco
hotel-based Daily Grill restaurant. The Company advanced approximately
$250,000 to the restaurant which will be reimbursed through future
operations.
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 30, 2001.
7
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of operations expressed as a
percentage of total operating revenues, except where otherwise noted.
Three Months Ended
-------------------------------
March 31, April 1,
2002 2001
-------------- -------------
% %
Revenues:
Company restaurant sales 98.1 98.7
Management and license fees 1.9 1.3
-------------- -------------
Total revenues 100.0 100.0
Cost of sales 27.0 27.1
-------------- -------------
Gross profit 73.0 72.9
-------------- -------------
Restaurant operating expenses 59.7 58.9
General and administrative 7.9 8.2
Depreciation and amortization 3.2 2.5
Preopening costs 0.0 0.0
-------------- -------------
Total operating expenses 70.8 69.6
-------------- -------------
Operating income 2.2 3.3
Interest expense, net (0.4) (0.7)
-------------- -------------
Income before taxes, equity in loss of joint
Venture and minority interest 1.8 2.6
Provision for income taxes (0.2) 0.0
Minority interest 0.5 0.1
Equity in loss of joint venture 0.0 0.0
-------------- -------------
Net income 2.1 2.7
============== =============
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 2002 FY 2001 FY 2002 FY 2001
Daily Grill Restaurants:
Company owned - - 10 10
Managed and/or licensed 1 - 5 4
Grill on the Alley restaurants:
Company owned - - 4 3
Pizza restaurants - - 1 2
Other restaurants
Managed and/or licensed - - 1 1
------------ ------------- ------------ -------------
Total 1 - 21 20
============ ============= ============ =============
8
Three Months Ended
------------------------------------
March 31, 2002 April 1, 2001
---------------- ----------------
Weighted average weekly sales per company owned restaurant:
Daily Grill $61,200 $67,100
Grill on the Alley 76,500 89,900
Pizza restaurants 31,100 35,700
Change in comparable restaurants (1)
Daily Grill (8.7)% 7.8%
Grill on the Alley (8.3)% 6.2%
Pizza restaurants (11.9)% (2.8)%
Total Company revenues:
Daily Grill $ 7,166,000 $ 7,845,000
Grill on the Alley 3,980,000 3,507,000
Pizza restaurants 404,000 927,000
Management and license fees 222,000 156,000
---------------- ----------------
Total consolidated revenues 11,772,000 12,435,000
---------------- ----------------
Managed restaurants sales 2,795,000 2,833,000
Licensed restaurants sales 1,447,000 1,943,000
Less management and license fees (222,000) (156,000)
---------------- ----------------
Total system sales $15,792,000 $17,055,000
================ ================
(1) When computing comparable restaurant sales, restaurants open for at least
12 months are compared from period to period.
Material Changes in Results of Operations for the Three Months Ended March 31,
2002 as Compared to the Three Months Ended April 1, 2001.
The 2002 period includes the operations of the Company's Grill on Hollywood
restaurant that opened in November 2001 and management fees for the San
Francisco Daily Grill that opened February 25, 2002. The 2001 period includes
the operations of the South Plainfield, New Jersey Pizzeria Uno restaurant that
was sold in July 2001.
The Company's revenues for the three-month period decreased 5.3% to $11,772,000
from $12,435,000 for the same period in 2001. Total revenues included
$11,550,000 of sales revenues and $222,000 of management and licensing fees in
2002 as compared to $12,279,000 of sales revenues and $156,000 of management and
licensing fees in 2001. The decrease of $729,000, or 5.9%, in sales revenues is
primarily attributable to lower sales at the Daily Grill and Grill restaurants
opened for both periods ($968,000) and the closure of the Pizzeria Uno in South
Plainfield ($469,000), partially offset by the opening of the Grill on Hollywood
($763,000). Same store sales (for restaurants open at least 12 months) decreased
8.7% due to a decrease in the number of guests at the Grill and Daily Grill
restaurants ($1,341,000) and lower sales at the
Cherry Hill Pizzeria Uno ($54,000) partially offset by average ticket price
increases at the Daily Grill restaurants ($349,000).
9
Cost of sales decreased 5.7% and decreased as a percentage of sales from 27.1%
to 27.0%. This decrease in cost of sales as a percentage of sales during the
2002 period is principally attributable to menu refinements and related sales
mix as well as cost reductions resulting from improved purchasing. As a result,
dollar gross profit decreased 5.2% from $9,063,000 (72.9% of sales) in 2001 to
$8,591,000 (73.0% of sales) in 2002.
Restaurant operating expenses decreased 4.0% to $7,033,000 in 2002 from
$7,327,000 in 2001. The dollar decrease in restaurant operating expenses was
primarily attributable to the closure of the South Plainfield Pizzeria Uno
($348,000), reduction in payroll ($272,000) and variable costs ($175,000) for
comparable restaurants, partially offset by the opening of the Grill on
Hollywood ($512,000). Restaurant operating expenses as a percentage of sales
increased from 58.9% in 2001 to 59.7% in 2002 due to an increase in fringe
benefit and general liability insurance costs.
General and administrative expenses decreased 9.2% to represent 7.9% of sales in
the 2002 three month period while amounting to 8.2% of sales in the 2001 three
month period. Decreased spending in many expense categories resulted from cost
savings initiatives partially offset by increases in payroll and related
benefits.
Depreciation and amortization expense increased 19.7% for the 2002 three month
period representing 3.2% of sales in 2002 and 2.5% of sales in 2001 primarily
due to the opening of Hollywood ($43,000).
The 2001 three month operations also reflect income due to a minority interest
in the net loss of subsidiaries of $53,000 from San Jose Grill, L.L.C., the
Chicago Grill on the Alley, L.L.C. and The Grill on Hollywood, L.L.C. compared
to a loss in 2001 of $16,000 from the San Jose Grill L.L.C. and the Chicago
Grill on the Alley, L.L.C.
The Company incurred a charge in 2002 of $5,000 for its equity in the loss of
joint venture, which reflects the Company's proportionate share of contributed
capital in the Daily Grill Short Order at Universal Studios CityWalk. The
Company recorded no charge with respect to the joint venture during the 2001
period.
The Company recorded $18,000 of income tax provision for the three month period
in 2002 compared to no provision in 2001 due to the profitable operation
utilizing available federal and state net operating loss carryforwards.
The Company reported accrued dividends on preferred stock of $13,000 in each of
the three-month periods ending March 31, 2002 and April 1, 2001.
Material Changes in Financial Condition, Liquidity and Capital Resources.
At March 31, 2002 the Company had negative working capital of $0.9 million and a
cash balance of $1.5 million compared to negative working capital of $0.7
million and a cash balance of $2.3 million at December 30, 2001.
The unfavorable change in working capital was primarily attributable to an
advance to the San Francisco hotel-based Daily Grill restaurant. The Company
will be reimbursed through future operations.
10
Net cash used in operations during the quarter ended March 31, 2002 totaled
$14,000 compared to cash provided by operations of $200,000 during the quarter
ended April1, 2001. The adverse change in operating cash flow during the current
period related primarily to reduced income during the current period.
Net cash used in investing activities during the quarter ended March 31, 2002
totaled $610,000 as compared to $23,000 during the quarter ended April 1, 2001.
Cash used in investing activities during the current period related to purchases
of furniture, equipment and improvements at The Grill on Hollywood, the remodel
of the Newport Daily Grill and advances made in connection with the opening of
the San Francisco hotel-based Daily Grill restaurant.
Net cash used in financing activities during the quarter ended March 31, 2002
totaled $167,000 as compared to $377,000 during the quarter ended April 1, 2001.
Cash used in financing activities during the current period related to
reductions in debt ($123,000) and payment of preferred returns to minority
investors in Chicago - the Grill on the Alley, LLC ($44,000).
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 stock, the issuance of warrants, loans and tenant allowances from
certain of its landlords and, beginning in 1998, through joint venture
arrangements. At March 31, 2002, the Company had a bank credit facility with
nothing owing, a loan from a member of Chicago - The Grill on the Alley, LLC of
$0.4 million, an SBA loan of $0.1 million, loans from stockholders/officers of
$0.5 million, equipment loans of $1.0 million and loans/advances from a landlord
and others of $0.1 million.
On February 25, 2002 the Company began management of a San Francisco hotel-based
Daily Grill restaurant. The Company advanced approximately $250,000 to the
restaurant which will be reimbursed through future operations. 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 and to open at least one
restaurant. In order to fund the opening of additional restaurants, the Company
may require additional capital that may be raised 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.
Future Accounting Requirements
In May 2002, the FASB issued SFAS 145, "Rescission of FAS 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections." Among other things, SFAS 145
rescinds various pronouncements regarding early extinguishment of debt and
allows extraordinary accounting treatment for early extinguishment only when the
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions" are
met. SFAS 145 provisions regarding early extinguishment of debt
11
are generally effective for fiscal years beginning after May 15, 2002.
Management does not believe that the adoption of this statement will have a
material impact on our consolidated financial statements.
Certain Factors Affecting Future Operating Results
In addition to the opening of new restaurants during 2002, as described above,
and the various factors described in the Company's Annual Report on Form 10-K
for the year ended December 30, 2001, the following developments during the
first half of this year may impact future operating results.
The Company entered into an agreement to sell its Cherry Hill, New Jersey Pizza
Restaurant for $325,000. Sale of the Cherry Hill restaurant was completed on
April 23, 2002.
On April 21, 2002 the Company closed its Daily Grill restaurant in Encino due to
expiration of the lease.
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 proceeds from the sale
of the Pizza Restaurant can be deployed in a manner so as to replace the cash
flows, revenues and operating profit from the Pizza Restaurant.
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 $1.1 million revolving credit line and
reducing credit line facility (the "Credit Facility"). There were no borrowings
outstanding under the Credit Facility at March 31, 2002. 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
None
(b) Reports on Form 8-K
None
12
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.
Signature Title Date
--------- ----- -----
/s/ Robert Spivak President and Chief May 13, 2002
----------------------
Robert Spivak Executive Officer
/s/ Daryl Ansel Principal Accounting May 13, 2002
----------------------
Daryl Ansel Officer
13