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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-25886
GARDEN FRESH RESTAURANT CORP.
(Exact name of registrant as specified in its charter)
Delaware 33-0028786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17180 Bernardo Center Drive 92128
San Diego, CA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (619) 675-1600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any amendment to
this Form 10-K.
Approximate aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant (based on the closing sales price of such stock
as reported in the Nasdaq National Market) on December 2, 1996 was $27,454,300.
Excludes shares of Common Stock held by directors, officers and each person who
holds 5% or more.
Number of shares of Common Stock, $.01 par value, outstanding as of December 2,
1996 was 4,153,743.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
(1) Proxy Statement for the Annual Meeting of Stockholders scheduled for
February 26, 1997 Items 10, 11, 12 and 13
of Part III
GARDEN FRESH RESTAURANT CORP.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
No.
PART I 3
Item 1. BUSINESS 3
Item 2. PROPERTIES 14
Item 3. LEGAL PROCEEDINGS 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
PART II 15
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 15
Item 6. SELECTED FINANCIAL DATA 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 24
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 24
PART III 24
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24
Item 11. EXECUTIVE COMPENSATION 25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
PART IV 25
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K 25
SIGNATURES 26
PART I
Item 1. BUSINESS
This Form 10-K contains a number of forward-looking statements, including,
without limitation, statements about the Company's plans for expansion, which
statements reflect the Company's current views with respect to future events
that will have an effect on the Company's financial performance. The Company
cautions investors that any forward-looking statements made by the Company are
subject to various risks and uncertainties, including those set forth under
"Business Risk" and elsewhere herein, that could cause actual results to differ
materially from such forward-looking statements of from historical results.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
THE COMPANY
Garden Fresh Restaurant Corp. (the "Company") was founded in 1983 and
currently operates 45 salad buffet restaurants in California, Florida, Arizona
and New Mexico under the names Souplantation and Sweet Tomatoes. The Company's
restaurants feature fresh, great tasting salads and other complementary foods.
Due to its salad focus, the Company's concept falls within a niche of the
restaurant industry that is distinct from other buffet concepts and moderately
priced casual restaurants. The Company believes that it is a leader in the
salad buffet restaurant niche due, in part, to the number of its operating
restaurants, that it is well-positioned to further penetrate this niche and
that the opportunity for expansion within the salad buffet niche currently is
attractive relative to expansion opportunities in many other restaurant
segments.
The restaurants have, as their centerpiece, two approximately 55-foot long
salad bars that offer a broad selection of fresh cut greens, vegetables,
toppings and dressings, fresh tossed specialty salads and other prepared
salads. The restaurants also feature complementary menu offerings that are
presented in a scatter bar format. These offerings consist of a soup bar with
five to six soups made from scratch, an on-site bakery serving hot muffins,
breads and pizza foccacias, a hot pasta bar, a frozen yogurt bar and a fresh
fruit bar. The Company seeks to provide its guests with a level of service not
typically associated with a buffet restaurant.
The Company seeks to provide guests with an excellent value by offering
unlimited access to its entire menu of high quality fresh items at a fixed
price. Depending on the region and time of day, the price ranges from $5.59 to
$6.99 at lunch and from $6.99 to $7.49 at dinner. Discounts are provided to
children under 12 and senior citizens. The Company's restaurants are designed
to appeal to a broad range of guests of all ages, including the nutritionally
conscious.
Of the 45 restaurants, 24 are located in Southern California using the name
Souplantation, and 5, 7, 7 and 2 are located in Northern California, Florida,
Arizona and New Mexico respectively using the name Sweet Tomatoes. The Company
intends to expand in fiscal 1997, primarily new markets outside of California.
In fiscal 1996, the Company opened one mini-restaurant in California, four
additional restaurants in Arizona, two additional restaurants in the Florida
market and one in New Mexico. In fiscal 1997 the Company anticipates opening
approximately eight restaurants. The Company is also currently investigating
further expansion beyond fiscal 1997 in new markets outside of California.
The Company may experience delays in opening new restaurants or may not be
able to open new restaurants as a result of a variety of factors including the
Company's ability to locate suitable restaurant sites, construct new
restaurants in a timely manner and obtain additional funds. See "Business
Risks-Expansion Risks: Future Restaurant Financing Capital Needs."
The Company was incorporated in California in 1983 and reincorporated in
Delaware in 1987. The Company's executive offices are located at 17180
Bernardo Center Drive, San Diego, California 92128, and its telephone number is
(619) 675- 1600.
STRATEGY
The key elements of the Company's strategies are as follows:
Fresh, Great Tasting Salads and Other Complementary Foods. The Company's
menu offerings feature fresh, great tasting salads, and include other
complementary foods, such as soups, hot pastas and fresh baked goods. The
Company is committed to using fresh produce and high quality groceries in its
menu offerings. Certain menu items are prepared daily from scratch, and all
menu items are closely monitored on the food bars and frequently replenished.
The Company devotes a significant portion of its new recipe development efforts
to salad offerings.
Excellent Service. The Company seeks to provide its guests with a level of
service not typically associated with a buffet restaurant. The Company has
established several programs designed to maximize guest service and
satisfaction. For example, the Company has implemented a "zero defect" program
on certain popular food offerings in an effort to offer consistently high
quality food. In addition, the Company seeks to attract and retain friendly,
guest-oriented employees.
Cost Management. The Company seeks to carefully manage food and labor
costs. The core of this strategy is the Company's proprietary computer
information system that is fully integrated throughout the Company. The system
is used as a critical planning tool by corporate and restaurant managers in
three primary areas: production, labor and financial and accounting controls.
Corporate management, through daily information updates, has complete access to
restaurant data and can react quickly to changing trends. The Company's food
purchasing programs are designed to minimize and stabilize fluctuating food
costs through vendor discounts based upon volume purchases and, for some foods,
two month to one year fixed price supply contracts.
Expansion. The Company intends to expand in fiscal 1997 primarily in new
markets outside of California. In fiscal 1996, the Company opened one mini-
restaurant in California, four additional restaurants in Arizona, two
additional restaurants in the Florida market and two new restaurants in New
Mexico. In fiscal 1997, the Company anticipates opening approximately eight
restaurants. The Company is also currently investigating further expansion
beyond fiscal 1997 in new markets outside of California.
The Company's ability to implement an expansion strategy will depend on a
variety of factors, including the Company's ability to locate suitable
restaurant sites, construct new restaurants in a timely manner and obtain
additional funds. See "Business Risks - Expansion Risks: Future Restaurant
Financing Capital Needs."
Distinctive Appearance and Casual Atmosphere. The design and layout of the
restaurants are intended to emphasize the fresh, great tasting salads and other
complementary menu offerings and promote a casual, comfortable and inviting
atmosphere. Each Souplantation/Sweet Tomatoes restaurant generally has a
similar appearance. The restaurants have, as their centerpiece, two
approximately 55- foot long salad bars located near the entrance of the
restaurant. The remainder of the menu offerings are presented in a scatter bar
format designed to accommodate a high volume of the traffic while providing
guests with convenient access to the food items.
Excellent Price/Value Relationship. The Company seeks to provide guests
with an excellent value by offering unlimited access to its entire menu for a
fixed price, which ranges depending on region and time of day, from $5.59 to
$6.99 at lunch and from $6.99 to $7.49 at dinner, plus the price of a beverage.
Discounts are provided for children under 12 and senior citizens.
CONCEPT AND MENU
The Company seeks to differentiate itself from restaurants outside the salad
buffet niche, including non-salad buffet concepts and moderately-priced casual
dining restaurants, by focusing on fresh, great tasting salads. In addition,
the Company offers a number of complementary food items, including soups, hot
pasta, fresh baked goods, fresh fruit and frozen yogurt. The Company also
seeks to provide its guests with a level of customer service not typically
associated with a buffet restaurant.
The Company offers lunch and dinner with unlimited access to its entire menu
for a fixed price from approximately $5.59 to $7.49, depending on region and
time of day, plus the price of a beverage. Discounts are provided for children
under 12 and senior citizens. Restaurants are open seven days a week from
11:00 a.m. to 9:00 p.m., Sunday through Thursday, and 11:00 a.m. to 10:00
p.m. on Friday and Saturday. In fiscal 1996, net sales generated from lunch
and dinner represented approximately 44% and 56% of net sales, respectively.
Souplantation/Sweet Tomatoes restaurants generally have a similar
appearance, which are primarily defined by the two approximately 55-foot long
salad bars located near the entrance of the restaurants. The salad bars offer
specialty tossed salads, signature salads and various fresh cut salad
ingredients that allow guests to make their own salads. The remainder of the
complementary menu offerings, including soups, hot pasta, fresh baked goods,
fresh fruit and frozen yogurt, are presented in a scatter bar format designed
for convenient access by the guests. Employees frequently replenish the menu
offerings, maintain all areas of the restaurant in a clean, sanitary condition
and answer guest questions. The freedom of self-service allows rushed guests
to eat quickly, while those desiring a leisurely meal can take their time.
The following is a description of the Company's menu items in the order they
would appear to a guest walking along the various food bars in a typical
restaurant:
Salads. Upon entering the restaurant, guests are greeted at the door and
begin to walk along either of the two approximately 55-foot long salad bars.
The first featured selections along the salad bars are two to three specialty
salads that are tossed fresh approximately every 30 minutes. The selections
are changed periodically for variety. The following is a partial listing of
the Company's specialty salad recipes:
Antipasta Salad Greek Salad
Barbecue Chicken Chopped Salad Ranchero Taco Salad
Caesar Salad Shrimp & Krab Louie Salad
Caribbean Krab Salad Sonoma Artichoke Salad
Chinese Chicken Salad Spinach Salad with Mandarin
Oranges Chopped Salad with Smoked Turkey and Caramelized Walnuts
and Roasted Red Pepper
Following the specialty tossed salads on the salad bar, guests can make
their own salads by choosing from a broad assortment of fresh cut salad
ingredients. The salad bar offers three types of lettuce (romaine, iceberg and
one other rotational lettuce), an assortment of 11 seasonal fresh cut
vegetables (such as grated carrots, sliced mushrooms, chopped bell peppers and
diced jicama), 10 toppings (such as sunflower seeds, fresh bacon bits, grated
cheddar cheese and crumbled eggs), various condiments and 8 dressings.
Employees located between the two salad bars replenish the salad offerings
frequently and assist guests.
Next, the salad bar features five to six prepared signature salads. The
following is a partial list of the Company's signature salad recipes:
Aunt Doris' Red Pepper Slaw Poppyseed Coleslaw
Baja Bean with Cilantro Salad Roasted Potato Salad with
Basil Tortellini Salad Chipotle Vinaigrette
Chinese Krab Salad Shrimp Tarragon Salad
Mandarin Noodles with Soba Noodle with Chicken
Broccoli and Sesame Seeds Southern Dill Potato Salad
Mandarin Shells with Almonds Spinach Pasta with Raspberry
and Snow Peas Vinaigrette
Moroccan Marinated Vegetables Thai Noodle with Peanut Sauce
Pesto Kashi Tumbleweed Tortellini Salad
Picante Pasta Salad Tuna Tarragon Salad
Beverages. At the end of the salad bar, the Company offers an assortment of
beverages, including fresh juices, milk, soft drinks, sparkling waters,
lemonades, and where available, beer and wine. Refills of soft drinks, coffee
and tea are provided at no extra cost.
Soup Bar. The soup bar contains a selection of five to six soups made fresh
daily, featuring three regular offerings of chicken noodle soup, clam chowder
and chili. The Company seeks to offer only the highest quality soups. In
making one of its most popular dishes, chicken noodle soup, the Company cooks
its own chicken broilers, selecting only the white meat for use in the soup and
using some of the remaining portion to create a natural broth. The Company
offers additional soups that are selected from the Company's soup recipes,
including the following:
Albondigas Buenas Soup Irish Potato Leek Soup
Chesapeake Corn Chowder Lentil Beef Soup
Chicken Noodle Soup Navy Bean Soup
Chili Shrimp Bisque
Clam Chowder Turkey Cassoulet
Cream of Chicken Soup Vegetable Beef Stew
Cream of Mushroom Soup Vegetarian Harvest Soup
Pasta Bar. At the pasta bar, guests can select from two hot pasta dishes
with a choice of sauces that are alternated daily. The choice of pasta noodles
rotate between fettucine, basil garlic fettucine, radiatore, rotelle, small
shells, garlic fettucine and spinach fettucine. Pasta is prepared fresh to
order by employees located at the pasta station and served in individual
servings to ensure that both the pasta and the sauce remain hot. The Company's
pasta sauce recipes include the following:
Alfredo alla Gambretto Salsa alla Marinara
Alfredo alla Vongole Salsa alla Polpetta
Pesto Cream Sauce Sundried Tomato Cream
Salsa alla Bolognese Tomato Basil
Baked Goods. Each day, the bakery bar offers three different muffins, two
varieties of fresh dough pizza foccacias and a variety of freshly baked breads.
In addition, the Company offers baked potatoes and assorted toppings. All
muffins and other baked goods are baked on site and replenished frequently to
ensure warmth and freshness. The Company's muffin recipes include the
following:
Apple Nut Lemon Poppyseed Surprise
Carrot Pineapple Mandarin Almond
Chocolate Brownie Peanut Butter
Chocolate Chip Mandarin Pumpkin Raisin
Cornbread Wild Maine Blueberry
Desserts. Each restaurant offers several varieties of fresh fruit and other
dessert items. The most popular dessert offering is frozen yogurt. At the
yogurt bar, guests have the choice of two varieties of frozen yogurt assorted
toppings (such as oreo cookie crumbs, granola, sprinkles and nuts) and
chocolate sauce.
UNIT ECONOMICS
For the 52 weeks ended September 30, 1996, the 35 restaurants that were open
for the entire period had an average of approximately 292,000 guest visits
during the period, generated average net sales of approximately $1,902,000
average restaurant operating income (sales less cost of sales, restaurant
operating expenses, amortization and depreciation) of approximately $292,000 or
15.4% of net sales, and average cash flow (operating income plus depreciation
and amortization) of approximately $397,000. The Company's average cash
investment for the eight restaurants opened in fiscal 1996, excluding land
purchases and pre-opening costs, was approximately $1.26 million. Pre-opening
costs averaged approximately $132,000 for the eight restaurants opened in
fiscal 1996. The cash investment to open a new restaurant typically includes
the purchase or installation of furniture, fixtures, equipment and leasehold
improvements, and in the case of an owned site, the purchase of land and a
building.
RESTAURANT MANAGEMENT
Management. Each of the Company's senior corporate managers has an average
of more than 10 years restaurant management experience. The Company seeks to
attract and retain friendly, guest-oriented employees for its restaurant
management positions. Upon joining the Company and before assuming management
responsibility, each restaurant management employee completes a two month
"hands- on" technical training course in an existing restaurant that covers day
to day restaurant operations. The Company also selects restaurant management
employees for participation in ongoing management training programs that focus
on motivation techniques, performance reviews, team-building, interviewing and
other management skills.
General managers are responsible for managing their respective restaurants
and report to district managers. Each district manager is responsible for four
to eight restaurants. The management staff of a typical Souplantation/Sweet
Tomatoes restaurant consists of one general manager, two or three assistant
managers and several other key employees. The Company recruits most of its
assistant managers from outside the Company, the majority of whom have prior
restaurant management experience. Most of the Company's general managers have
been promoted from assistant manager. The general manager of each restaurant
is principally responsible for the day-to-day operation and profitability of
the restaurant. The Company grants monthly bonuses to restaurant managers
based on actual restaurant performance as compared to budget and guest
satisfaction. As an additional incentive, restaurant managers are eligible for
stock options.
RESTAURANT OPERATIONS
Computer Information System. The Company has developed a proprietary
computer accounting and management information system that is fully integrated
throughout the Company, including in each restaurant. The Company believes
that, as compared to off-the-shelf software applications, this system provides
significantly greater access to restaurant operating data and permits
significantly shorter management reaction time. The system is used as a
critical planning tool by corporate and restaurant managers in three primary
areas: production, labor and financial and accounting controls. The system
can generate forecasts of estimated guest volumes and other predictive data,
thereby assisting restaurant assistant managers in developing automated
production reports that detail the daily quantity and timing of batch
production of various menu offerings and food preparation requirements. The
computerized system also acts as a scheduling tool for the general managers, as
it produces automated daily labor reports outlining the restaurant's staffing
needs based on changing trends and guest volume forecasts. The Company's
information system also assists corporate and restaurant managers in producing
current financial and management reports, including full restaurant profit and
loss statements, on a daily basis.
Cost Management. The Company is very focused on cost management. The core
component of the Company's cost management program is the Company's computer
information system. Corporate management, through daily information updates,
has complete access to restaurant data and can react quickly to changing
trends. The Company can quickly analyze the cost of its menu and make
corporate-wide menu adjustments to minimize the impact of shifting food prices
and food waste. Weekly computer-generated profit and loss statements and
monthly accounting department-generated profit and loss statements are reviewed
at the corporate, regional and restaurant management levels. The Company also
seeks to manage costs through its food purchasing programs.
Food Purchasing. Most food items are contracted on a centralized basis in
an effort to achieve uniform quality, adequate supplies and competitive prices.
The Company's food purchasing programs are designed to assist the Company in
minimizing food costs through vendor discounts based upon volume purchases. In
order to minimize price fluctuations, to the extent practical, the Company
purchases certain food items pursuant to two month to one year fixed price
supply contracts that are not subject to minimum quantity requirements.
Although contracted directly by the Company, all produce and groceries are
delivered to the Company's regional distributors, who in turn deliver the
produce and groceries to the individual restaurants and central kitchen
restaurants approximately three to five times a week. At each restaurant, the
production assistant manager is responsible for ensuring that all deliveries
meet the Company's guidelines regarding freshness and quality.
Food Preparation and Quality Control. The Company is committed to using
fresh produce and high quality groceries in its menu offerings. The kitchen
and central kitchen staffs prepare certain food items from scratch daily. Menu
offerings are closely monitored on the food bars and frequently replenished to
assure constant food freshness. Items that are highly sensitive to freshness,
such as tossed salads, muffins and pizza foccacias, are made on-site in small
batches throughout the day in order to maintain high levels of freshness and
great taste. The Company has developed a wide assortment of recipes that are
used in each restaurant and commissary in an effort to achieve consistently
high quality. The Company's food development effort focuses on the creation of
new recipes within existing food product categories. A significant portion of
its recipe development effort is devoted to salad offerings. The Company's
computer system assists the restaurant managers in monitoring quality control
by providing a detailed analysis of the raw materials used in the creation of
each finished product.
Central Kitchens. In four geographic areas, the Company uses central
kitchens located in existing restaurants to prepare certain menu offerings on a
more efficient scale using the identical food preparation processes as the
restaurants. Each central kitchen currently services between two and seven
restaurants. Items prepared in the central kitchen are delivered daily to the
Company's local restaurants. The Company believes that, where economically
feasible, the use of central commissaries assists the Company in providing
consistently high quality, great tasting food, enhances the freshness of
certain menu offerings and allows the restaurant managers to devote more time
and attention to guests.
MARKETING AND PROMOTION
The Company's marketing efforts seek to develop loyal guests for repeat
business, attract new guests and create awareness of existing and new
restaurants. The Company has instituted several programs in an effort to
develop loyal guests for repeat business. Under the Company's "first-time
guest" program, guests are greeted at the door and asked if they have
previously eaten at a Souplantation/Sweet Tomatoes restaurant. Guests who
identify themselves as first-time guests receive an information sheet that
introduces them to the restaurant. After being seated, first-time guests are
typically welcomed by a restaurant manager who provides them with further
information about the restaurants. In addition, the Company has implemented a
"zero defect" program in its restaurants on certain popular food offerings in
an effort to provide consistently high quality products. The "zero defect"
program establishes highly detailed procedures describing the precise methods
under which these certain popular food offerings are prepared, presented and
replenished.
A significant portion of the Company's external marketing effort consists of
attracting new guests through the use of free standing inserts ("FSIs"). FSIs
contain descriptive information regarding the restaurants, as well as discount
coupons. FSIs are distributed by direct mail and through newspapers. In
addition, the Company recently initiated a "Business-to-Business" program under
which it mails discount cards to local businesses for distribution to their
employees. The discount cards entitle the employees to a certain price
discount on each repeat visit during a specified period.
In addition, the restaurants periodically co-sponsor fund-raising events in
the restaurants for local charitable and other community organizations. For
each new restaurant, the Company conducts a pre-opening awareness program
beginning approximately two to three weeks prior to, and ending four to six
weeks after, the opening of a restaurant. The program typically includes
special promotions, site signs, sponsorship of a fund-raising event for a local
charity to establish ties to local community leaders and increase awareness of
the new restaurant, and pre-opening trial operations, to which the family and
friends of new employees are invited.
In fiscal 1996, marketing and promotion expenses constituted approximately
2.1% of total net sales.
CUSTOMER SERVICE
One of the Company's fundamental strategies is to develop a strong core of
loyal, high frequency guests, in part by providing a level of customer service
not typically associated with a buffet. The Company seeks to attract and
retain friendly, customer-oriented employees. Employees are present at the
food bars and in the dining room to replenish food offerings, answer questions
and assist guests in serving themselves. The Company devotes substantial
attention and resources to maintaining cleanliness and fresh presentation of
the salad and other food bars in order to enhance the visual appeal of the menu
offerings.
The Company actively solicits guest input through the use of comment cards
and attempts to respond in writing to all guest suggestions and complaints.
Restaurant managers evaluate their respective restaurants approximately four
times per day for compliance with Company standards. In addition, the Company
conducts in-house market research through exit interviews and guest focus
groups on an ongoing basis in order to be responsive to changes in guest tastes
and expectations. Each restaurant receives independent evaluations of product
quality, cleanliness and service from secret shoppers approximately three times
per month. The results of these independent evaluations are taken into
consideration in determining each restaurant manager's monthly bonus.
RESTAURANT DESIGN
Each Souplantation/Sweet Tomatoes restaurant generally has a similar
appearance. The Company currently uses a standardized design in constructing
restaurants, with modifications for each particular site. The design and
layout of the restaurants are intended to emphasize the fresh, great tasting
salads and other complementary menu offerings and promote a casual, comfortable
and inviting atmosphere. The centerpiece of the restaurants are the two
approximately 55-foot long salad bars located near the entrance of the
restaurants. An aisle between the two salad bars allows employees easy access
for replenishment of fresh food items, preparation of specialty tossed salads
and ongoing clean-up without disturbing guests. The remainder of the menu
offerings are presented in a scatter bar format designed to accommodate a high
volume of traffic while providing guests with unlimited and convenient access
to the food items. The dining area, which seats approximately 200 guests,
emphasizes finished wood and plants. The Company's existing restaurants
average approximately 7,500 square feet (including the dining area, kitchen and
food preparation and storage areas), with new restaurants based on the
Company's latest prototype averaging approximately 6,700 square feet. Certain
of the Company's restaurants provide limited outdoor seating.
The following is a list of the Company's restaurants and their locations by
region:
APPROXIMATE
LOCATION DATE OPENED SQUARE FOOTAGE (1)
Region: Southern California (2)
Del Mar (San Diego) September 1993 6,760
Laguna Niguel July 1993 6,800
Rancho Bernardo (San Diego) January 1993 6,760
San Bernardino May 1992 6,500
Fountain Valley January 1990 7,500(3)
Brentwood (Los Angeles) January 1990 6,580
Beverly (Los Angeles) September 1989 8,097
Alhambra September 1989 7,500
Marina del Rey June 1989 8,490
Costa Mesa May 1989 10,142
Rancho Cucamonga April 1989 7,628
Brea October 1988 7,628
Arcadia October 1988 7,500
Torrance July 1988 8,084
Mira Mesa (San Diego) February 1988 8,208
Pasadena November 1987 7,936
Carlsbad July 1987 8,208
Lakewood July 1987 8,208
Garden Grove December 1986 8,208
Tustin August 1986 7,468
La Mesa February 1986 8,421(3)
Point Loma (San Diego) January 1982 7,002
Mission Gorge (San Diego) March 1978 7,568
Region: Northern California
N. Fresno Street (Fresno) October 1993 6,760
Fremont February 1993 6,860
Shaw Avenue (Fresno) September 1990 6,760
Sunnyvale May 1990 7,500
Pleasanton March 1990 7,907
Region: Florida
Brandon (Tampa) August 1995 8,110
Tampa July 1995 8,500
Carrollwood (Tampa) June 1993 7,022
Largo (Tampa) September 1992 6,800
Palm Harbor (Tampa) January 1990 8,000(3)
Plantation April 1996 8,030
Sarasota July 1996 8,500
Region: Arizona
Tempe (Phoenix) February 1995 6,320
Scottsdale (Phoenix) February 1994 9,000(3)
Phoenix May 1996 6,944
Ahwatukee (Phoenix) June 1996 6,962
Tucson I May 1996 7,420
Peoria (Phoenix) July 1996 6,455
Tucson II November 1996 6,962
Region: Albuquerque
Cottonwood Mall October 1996 6,300
San Mateo Avenue September 1996 7,240(3)
The restaurants listed below are under development and have lease or purchase
contracts signed.
ESTIMATED APPROXIMATE
LOCATION OPENING SQUARE FOOTAGE (1)
Region: Florida
Altamonte (Orlando) Q1 1997 8,740
Fort Myers Q1 1997 7,240
Fort Lauderdale Q2 1997 7,956
Hollywood Q2 1997 7,790
Coral Springs Q3 1997 7,240
Region: Utah
Salt Lake City Q3 1997 9,000(3)
Sandy Q4 1997 6,962
Region: Oregon
Beaverton Q2 1998 6,962
Vancouver (Washington) Q1 1998 9,000(3)
(1) Excludes outdoor patio space, but includes dining area, kitchen and food
preparation and storage areas
(2) Does not include mini-restaurant located in Los Angeles, California which
opened in fiscal 1996
(3) Includes commissary
SITE SELECTION AND CONSTRUCTION
The Company's site selection strategy is to open economically viable
restaurants that achieve an appropriate balance between lunch and dinner guest
volumes in each of its target markets. The Company considers the location of
each restaurant to be critical to its long-term success and management devotes
significant effort to the investigation and evaluation of potential sites. The
site selection process focuses on regional and trade area demographics, target
population density, household income and education levels, day-time traffic
patterns, as well as specific site characteristics such as visibility,
accessibility, traffic volume and the availability of adequate parking.
The Company also reviews potential competition and customer activity at
other restaurants operating in the area. To date, the Company has located a
majority of its restaurants in strip shopping centers and neighborhood shopping
centers located near business districts.
The Company generally engages outside general contractors for the required
construction or build-out of restaurant sites and expects to continue this
practice for the foreseeable future. The Company's experience to date has been
that obtaining construction permits has taken from one to six months. The
interior build-out of in-line restaurants and the construction of free-standing
restaurants takes approximately three months and four months, respectively.
EXPANSION STRATEGY
The Company intends to expand in fiscal 1997 and 1998 primarily in new
markets outside of California. In fiscal 1996, the Company opened one
mini-restaurant in Southern California, four restaurants in Arizona, two
restaurants in Florida and one restaurant in New Mexico. In fiscal 1997, the
Company anticipates opening approximately eight full size restaurants outside
of California. The Company has signed four leases, purchased three sites and
signed contracts to purchase one of the sites to be opened in fiscal 1997. The
Company has signed one lease and signed contracts to purchased two of the sites
in fiscal 1998. Expansion within existing markets will allow the Company in
certain circumstances to utilize a central kitchen to serve several restaurants
located within a particular region. The Company is also currently
investigating further expansion beyond fiscal 1997 in new markets outside of
California. In addition, as a part of its expansion strategy, the Company is
evaluating the possibility of developing its concept in alternative formats.
The Company currently has no plans to offer franchises.
The Company's ability to implement an expansion strategy will depend on a
variety of factors, including the Company's ability to locate suitable
restaurant sites, construct new restaurants in a timely manner and obtain
additional funds. See "Business Risks - Expansion Risks: Future Restaurant
Financing Capital Needs".
RESTAURANT CLOSINGS
As a result of the Company's review in early fiscal 1994 of the
profitability of its restaurant portfolio, the Company closed one restaurant
located in Santa Monica, California in fiscal 1994 and one restaurant located
in Encino, California in fiscal 1995. The Company also closed one additional
restaurant in Corona, California in fiscal 1994 as a result of the Company's
belief that the landlord breached the restaurant lease. The write-offs
relating to the restaurant closures equaled $815,000 in fiscal 1994.
INTERNATIONAL LICENSEE
In 1991, the Company entered into a fifteen year license arrangement with
Outset Investments (NZ) Limited ("Outset"), a company incorporated in New
Zealand, for the development, ownership and operation by Outset of restaurants
in Australia and New Zealand utilizing the Company's computer systems,
operating specifications and concepts. In exchange for the grant of an
exclusive license to use the Company's computer systems, operating
specifications and concepts in Australia and New Zealand, Outset agreed to pay
the Company an initial license fee, royalties based on gross sales and certain
consulting fees. Under the agreement, the economic effect of certain currency
fluctuations is absorbed equally by the Company and Outset. In fiscal 1996,
the Company did not receive any royalty payments and consulting fees from
Outset. Two Restaurants were opened under the agreement. Both restaurants
closed in 1996 and Outset is no longer in business and the contract has been
terminated. The Company does not currently intend to expand its licensing
arrangements to other foreign countries.
COMPETITION
The restaurant industry is highly competitive. Key competitive factors in
the industry include the quality and value of the food products offered,
quality of service, price, dining experience, restaurant location and the
ambiance of the facilities. The Company's competitors include mid-price,
full-service casual dining restaurants, traditional self-service buffet and
other soup and salad restaurants and healthful and nutrition-oriented
restaurants. The Company competes with national and regional chains, as well
as individually owned restaurants. The number of buffet restaurants with
operations generally similar to the Company's has grown substantially in the
last several years and the Company believes competition among buffet-style
restaurants, including restaurants in the salad buffet niche, is increasing.
As the Company's competitors expand operations in various geographic areas,
competition, including competition among buffet-style restaurants with concepts
similar to the Company's, can be expected to intensify. Such increased
competition could increase the Company's operating costs or adversely affect
its revenues. The Company believes it competes favorably with respect to many
of the competitive factors in the industry, although many of the Company's
competitors have been in existence longer than the Company, have a more
established market presence and have substantially greater financial, marketing
and other resources than the Company, which may give them certain competitive
advantages. In addition, the restaurant industry has few non-economic barriers
to entry. Therefore, there can be no assurance that third parties will not be
able to successfully imitate and implement the Company's concept. The Company
has encountered intense competition for restaurant sites, and in many cases has
had difficulty buying or leasing desirable sites on terms that are acceptable
to the Company. In many cases, the Company's competitors are willing and able
to pay more than the Company for sites. The Company expects these difficulties
in obtaining desirable sites to continue for the foreseeable future.
GOVERNMENT REGULATION
The Company's business is subject to and affected by various federal, state
and local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety, sanitation,
building construction and fire prevention. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of additional restaurants. The Company has not experienced
significant difficulties in obtaining licenses and approvals to date. However,
beer and wine licenses are not always available to the Company.
The Company's restaurants are subject to federal and state laws governing
wages, working conditions, citizenship requirements and overtime. In 1996
Congress and various states (including California) passed proposals that will
impose increases in state or federal minimum wages in 1996, 1997, 1998. There
is no assurance that the Company will be able to pass such increased costs on
to its guests. The Company is subject to the Americans with Disabilities Act
of 1990, which requires certain accommodations to the Company's restaurant
designs to allow access for people with disabilities. Additionally,
legislative proposals are currently under consideration by Congress and state
legislators to require employers to pay for health insurance for all employees.
See "Business Risks: Cost Sensitivity".
INSURANCE
The Company carries property, liability, business interruption, crime,
employee benefits, liability, earthquake, directors and officers liability and
workers' compensation insurance policies. However, there can be no assurance
that the Company's insurance coverage will be adequate or that insurance will
continue to be available to the Company at reasonable rates, if at all. In the
event coverage is inadequate or becomes unavailable, the Company could be
materially adversely affected.
TRADE NAMES AND SERVICE MARKS
The Company and its predecessor have used the trade names and service marks
Souplantation since 1978 and Sweet Tomatoes since 1990. The Souplantation
trade name is used in the Southern California market, while the Sweet Tomatoes
trade name is used in the Northern California, Florida, Arizona and New Mexico
markets. The Company has registered both Souplantation and Sweet Tomatoes
trade names with the United States Patent and Trademark Office and in
California, and the Sweet Tomatoes trade name is also registered in Florida and
Arizona.
EMPLOYEES
As of September 30, 1996, the Company had approximately 2,801 employees
including 2,571 hourly restaurant employees (of whom 2,216 were part-time
employees), 185 full-time restaurant management employees and 43 full-time
corporate management and staff employees and 2 part time corporate employees.
None of the Company's employees is represented by a labor union. The Company
believes that its relationship with its employees is good.
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Age Position
Michael P. Mack 45 President, Chief Executive Officer and Director
David W. Qualls 51 Executive Vice President -- Finance and
Real Estate, Chief Financial Officer, Secretary
R. Gregory Keller 48 Vice President of Operations
Michael P. Mack co-founded the Company in 1983 and was the President and
Chief Operating Officer from the Company's inception until April 1991 and the
Chief Executive Officer from September 1990 to April 1991. Mr. Mack has also
been a director of the Company since its inception. Since February 1994, Mr.
Mack has been the Company's President and Chief Executive Officer. From April
1991 to February 1994, Mr. Mack served as the President of MPM Management,
Inc., a consulting firm. Prior to joining the Company, Mr. Mack worked for
Bain & Company, a management consulting firm, from 1977 to 1983, where he
specialized in the development and implementation of business strategies. Mr.
Mack received a B.A. from Brown University and an M.B.A. from Harvard
University.
David W. Qualls joined the Company in November 1985 as Chief Financial
Officer and Secretary. Since 1990, Mr. Qualls has also served as the
Company's Executive Vice President in charge of Finance and Real Estate. Prior
to joining the Company, Mr. Qualls served as Vice President of Finance and
Administration and Chief Financial Officer of Diatek, Inc. from 1982 to 1985.
Mr. Qualls received a B.A. from California State University at Fresno and an
M.B.A. from the University of Virginia.
R. Gregory Keller joined the Company in June 1991 as Vice President of
Operations. Prior to joining the Company, Mr. Keller served as a consultant to
the Company from January 1991 to June 1991. From June 1990 to January 1991,
Mr. Keller served as an independent consultant. Prior to that, from June 1971
to June 1990, Mr. Keller served as a divisional Vice President of Operations
of Paragon, Inc., a restaurant company, where he managed operations for 33
restaurants. Mr. Keller received a B.S. from Northern Illinois University.
Item 2. PROPERTIES
The Company currently operates 45 restaurants in California, Florida,
Arizona and New Mexico. Two restaurants were opened in fiscal 1994, three in
1995, one mini-restaurant and seven full size restaurants in 1996. The Company
currently leases the sites for most of its restaurants, mixed between
stand-alone sites and in-line locations. The Company operates 30 free-standing
restaurants and 15 restaurants located within larger buildings. The Company
owns five properties located in Florida and one in Arizona. Current restaurant
ground and building leases vary as to rental provisions, expiration dates and
renewal options. The majority of the leases provide for minimum annual rentals
and contain percentage- of-sales rent provisions against which the minimum
rental is applied. A significant majority of the leases also provide for
periodic escalation of minimum annual rentals based upon increases in the
Consumer Price Index. Typically, the Company's leases are 20 years in length
with two 10-year extension options. Restaurants leased by the Company are
typically leased under "triple net" leases that require the Company to pay real
estate taxes, insurance and maintenance expenses. While the Company expects to
continue to lease the majority of its sites in the future, the Company has from
time to time purchased, and expects in the future it may purchase the land
and/or buildings in appropriate circumstances. The Company's executive
offices, a test kitchen and a training facility are located in an approximately
11,000 square foot leased facility near one of the Company's restaurants in San
Diego, California under a lease expiring in August 1998.
In January 1995, the Company opened an experimental "Souplantation To Go!"
mini-restaurant next to one of its restaurants located in San Diego. The mini-
restaurant was a limited menu, quick-service concept which closed in June 1995.
The Company has also opened a mini-restaurant in a hospital business complex
located in Los Angeles. The Company is evaluating the mini-restaurant concept
and there can be no assurance that further expansion of this concept will occur
or that the mini-restaurants will be successful.
Item 3. LEGAL PROCEEDINGS
The Company is from time to time the subject of complaints, threat letters
or litigation from guests alleging illness, injuries or other food quality,
health or operational concerns. Adverse publicity resulting from such
allegations may materially adversely affect the Company and its restaurants,
regardless of whether such allegations are valid or whether the Company is
liable. The Company also is the subject of complaints or allegations from
former or prospective employees from time to time. The Company has closed a
leased restaurant and filed a lawsuit against the landlord for breach of
contract, and the landlord has countersued the Company for damages. The
Company believes that it has valid defenses to the landlord's countersuit. The
Company believes that the lawsuits, claims and other legal matters to which it
has become subject in the course of its business are not material to the
Company's financial position or results of operations. Nevertheless, an
existing or future lawsuit or claim could result in an adverse decision against
the Company that could materially and adversely affect the Company or its
business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Garden Fresh Restaurant Corp. common stock (Symbol: LTUS) is traded over
the counter via Nasdaq National Market. As of September 30, 1996, 4,117,227
shares were owned by 164 shareholders of record. The following is a summary of
market activity for the year 1995 and 1996.
1995 High Low
Third Quarter 9 1/4 7 3/8
Fourth Quarter 8 5/8 6 3/4
1996
First Quarter 8 1/8 6 3/8
Second Quarter 8 3/8 6 3/8
Third Quarter 11 8 1/8
Fourth Quarter 10 7/8 9
Garden Fresh Restaurant Corp. had its initial public offering (IPO) on May
16, 1995 at a price of $9.00.
To date, the Company has not paid any cash dividends. The Company intends
to retain future earnings for use in its business and does not anticipate
paying cash dividends in the foreseeable future.
Item 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts and average price per guest)
Year Ended September 30,
1992 1993 1994 1995 1996
Statement of Operations Data:
Net sales $47,169 $51,380 $59,658 $61,320 $71,373
Costs and expenses:
Cost of sales 14,059 14,953 16,277 16,721 19,318
Restaurant operating expenses 25,389 27,927 32,939 32,898 36,851
General and administrative 3,951 4,008 4,446 4,098 5,142
expense(1)
Depreciation and amortization 2,155 2,711 3,633 3,604 4,518
Restaurant closure costs 815
Total costs and expenses 45,554 49,599 58,110 52,321 65,829
Operating income (loss) 1,615 1,781 1,548 3,999 5,544
Interest expense (694) (1,495) (1,805) (1,092) (529)
Other income (expense) 100 (60) (210) (66)
Income (loss) before income
tax expense 1,021 286 (317) 2,697 4,949
Benefit (provision) for (83) (77) (18) 1,646 (1,945)
income taxes (6)
Income (loss) before extraordinary 938 209 (335) 4,343 3,004
item
Extraordinary item -
early extinguishment of debt (7) (518)
Net income (loss) 938 209 (335) 3,825 3,004
Stock dividend (8,298)
Net income (loss) available to $938 $209 $ (335) $(4,473) $3,004
common stockholders
Unaudited pro forma net (loss) $ (.13) $ (1.42)
per share available to common
stockholders (2) (3)
Net income per share available to common $ .72
stockholders.
Shares used in computing pro forma 2,526 3,161
net income (loss) per share (2) (3)
Shares used in computing net income per share 4,176
Selected Operating Data:
Percentage change in comparable .9% (4.2)% (1.2)% 2.0% 2.5%
restaurant sales (4)
Average price per guest (5) $ 6.68 $ 6.64 $ 6.66 $ 6.56 $ 6.57
Average sales for restaurants open
for full period $1,858 $1,748 $1,779 $1,835 $1,902
Number of restaurants open for
full period 25 27 31 32 35
Number of restaurants open at
end of period 27 33 33 33 43
Balance Sheet Data:
Total assets 19,175 $27,932 $29,713 $34,651 $48,062
Long-term debt and capital lease
obligations, current portion $5,315 $11,117 $13,263 $ 4,017 $ 9,934
Shareholders' equity $9,341 $10,522 $10,209 $23,768 $29,257
*Footnotes are on the next page.
(1)General and administrative expenses fiscal 1992 included an additional
impairment charge of $125,000 related to one of the two restaurants.
(2)Unaudited pro forma net loss per share is computed based on the weighted
average number of common shares outstanding during the respective periods after
giving retroactive adjustment for the conversion of all preferred stock into
shares of common stock, the net exercise of warrants in exchange for
approximately 138,000 shares of common stock, and the issuance of a
preferential stock dividend of approximately 922,000 shares of common stock to
the holders of Series B, Series C and Series D preferred stock, which occurred
upon completion of the initial public offering.
(3)Historical earnings per share is not presented because such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure that occurred in connection with the initial public offering.
(4)Includes all restaurants open for at least 15 months at the end of such
period, and compares results for those restaurants with the results for the
same period in the prior year.
(5)Average price per guest is derived from the Company's net sales, which
reflects discounts and coupons.
(6)Fiscal 1995 results include a benefit related to recognition of deferred tax
assets of $2,173,000.
(7)Represents a charge for previously unamortized issue costs, debt discount,
and prepayment penalty, net of $192,000 income tax benefit.
Percentage of Net Sales
(Dollar amounts in thousands)
Year Ended September 30,
1994 1995 1996
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales 27.3 27.3 27.1
Restaurant operating expenses:
Labor 28.9 28.4 27.8
Occupancy and other 26.3 25.2 23.8
Total restaurant operating expenses 55.2 53.6 51.6
General and administrative expenses 7.5 6.7 7.2
Depreciation and amortization 6.0 5.9 6.3
Restaurant closure costs 1.4
Total costs and expenses 97.4 93.5 92.2
Operating income 2.6 6.5 7.8
Interest expense (3.0) (1.8) (.8)
Other income (expense) (.1) (.3) (.1)
Income (loss) before income tax expense
and extraordinary item (.5) (4.4) 6.9
Benefit (provision) for income taxes (.1) (2.7) (2.7)
Income (loss) before
extraordinary item (.6) 7.1 4.2
Extraordinary item -
early extinguishment of debt (.9)
Net income (loss) (.6) (6.2) 4.2
Stock dividend (13.5)
Net income (loss) available
to common shareholders (.6) (7.3) 4.2
Selected Operating Data:
Percentage change in comparable
restaurant sales 1.2% 2.0% 2.5%
Average net sales for restaurants
open for full fiscal period $1,779 $1,835 $1,902
Number of restaurants open for
full period 31 32 35
Number of restaurants open
at end of period 33 35 43
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fiscal 1996 versus Fiscal 1995
Net Sales. Net sales for the fiscal year ended September 30, 1996 increased
16.5% to $71.4 million from $61.3 million for the comparable 1995 period. The
increase was due to a 2.5% increase in comparable restaurant sales which
resulted from an increase in guest volume and the addition of eight new stores
opened in the second half of fiscal 1996.
Cost of Sales. Cost of sales increased 15.6% to $19.3 million in the year
ended September 30, 1996 from $16.7 million in the comparable 1996 period. As
a percent of sales, cost of sales decreased .2% to 27.1% for the fiscal year
ended September 30, 1996. This decrease was primarily due to better cost
management and improved purchasing.
Labor Expense. Labor expense for the fiscal year ended September 30, 1996
increased 14.4% to $19.9 million from $17.4 million for the comparable 1995
period. This increase was due to increased staffing requirements resulting
from the increase in guest volume during the period. As a percentage of net
sales, labor expense for the fiscal year ended September 30, 1996 decreased to
27.8% from 28.4% in the comparable 1995 period. This decrease was primarily
due to a reduction in workers' compensation insurance premiums.
Occupancy and Other Operating Costs. Occupancy and other operating costs
for the fiscal year ended September 30, 1996 increased 10.4% to $17.0 million
from $15.4 in the comparable 1995 period. As a percentage of net sales,
occupancy and other operating costs for the fiscal year ended September 30,
1996 decreased to 23.8% from 25.2% in the comparable 1995 period. The decrease
was due to primarily lower occupancy costs in the newer regions, better managed
supplies and services, and lower marketing expense relative to sales.
General and Administrative Expenses. General and administrative expenses for
the fiscal year ended September 30, 1996 increased 24.4% to $5.1 million from
$4.1 million for the comparable 1995 period. This increase was primarily due to
the increased cost associated with being a public company and personnel costs
required to support the increased sales volume. As a percentage of net sales,
general and administrative expenses for the fiscal year ended September 30,
1996 increased to 7.1% from 6.7% in the comparable 1995 period.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the fiscal year ended September 30, 1996 and 1995 was approximately
$4.5 million and $3.6 million, respectively. As a percentage of net sales,
depreciation and amortization expense for the fiscal year ended September 30,
1996 increased to 6.4% from 5.9% in the comparable 1995 period. This increase
was attributable to the increased amortization of start up costs associated
with the opening of eight new restaurants.
Interest Expense. Total interest expense for the fiscal year ended
September 30, 1996 decreased 54.5% to $.5 million from $1.1 million for the
fiscal year ended September 30, 1995. This was attributable to the reduction
of debt due to payoff thereof with the proceeds from the Company's initial
public offering in May 1995.
Benefit (Provision) for Income Taxes. Provision for income taxes increased
to $1.9 million in 1996 from a benefit of $1.6 million in 1995 principally due
to the recognition of $2,173,000 in deferred tax assets during the fourth
quarter of fiscal year 1995.
Extraordinary Item - Early Extinguishment of Debt. During fiscal year 1995
the Company recognized an extraordinary loss of $518,000, net of an income tax
benefit of $192,000, representing a charge for previously unamortized debt
issue costs, unamortized debt discount, and a prepayment penalty associated
with early extinguishment of debt. There were no extraordinary items in fiscal
year 1996.
Net Operating Loss Carryforwards. At September 30, 1996, the Company had
available net operating loss carryforwards for federal income tax purposes of
approximately $1.4 million. The loss carryforwards expire at various dates
through 2009. The utilization of the Company's net operating loss
carryforwards against taxable income in future periods will be subject to an
annual limitation in the event of a cumulative change in ownership of more than
50% of the Company.
Fiscal 1995 versus Fiscal 1994
Net Sales. Net sales for the fiscal year ended September 30, 1995 increased
2.8% to $61.3 million from $59.7 million for the comparable 1994 period. The
increase was primarily due to a 1.9% increase in comparable restaurant sales
which resulted from an increase in guest volume. The Company believes that
this increase resulted in part from a targeted marketing program developed to
achieve an improvement in restaurant sales and improved economic conditions in
Southern California. Additionally, three new stores were opened which
accounted for the remainder of the increase.
Cost of Sales. Cost of sales remained flat at 27.3% for the fiscal year
ended September 30, 1995, although average price per guest decreased from $6.66
in fiscal 1994 to $6.56 in fiscal 1995. Cost of sales for the fiscal year
ended September 30, 1995 increased 2.7% compared to the comparable 1994 period.
This increase, in fiscal 1995, was primarily due to higher sales volumes.
Labor Expense. Labor expense for the fiscal year ended September 30, 1995
increased 1.1% to $17.4 million from $17.2 million for the comparable 1994
period. This increase was due to increased staffing requirements resulting
from the increase in guest volume during the period. As a percentage of net
sales, labor expense for the fiscal year ended September 30, 1995 decreased to
28.4% from 28.9% in the comparable 1994 period. This decrease was primarily
due to a reduction in workers' compensation insurance premiums.
Occupancy and Other Operating Costs. Occupancy and other operating costs
for the fiscal year September 30, 1995 decreased 1.5% to $15.4 million from
$15.7 in the comparable 1994 period. As a percentage of net sales, occupancy
and other operating costs for the fiscal year ended September 30, 1995
decreased to 25.2% from 26.3% in the comparable 1994 period. The decrease was
due to primarily lower occupancy costs associated with stores closed in fiscal
year 1994 and early fiscal year 1995 which had much higher rental costs
relative to their sales performance.
General and Administrative Expenses. General and administrative expenses
for the fiscal year ended September 30, 1995 decreased 7.8% to $4.1 million
from $4.4 million for the comparable 1994 period. As a percentage of net
sales, general and administrative expenses for the fiscal year ended September
30, 1995 decreased to 6.7% from 7.5% in the comparable 1994 period. This
decrease was primarily due to reduced corporate salaries associated with a
reduction in staff that occurred in fiscal 1994.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the fiscal year ended September 30, 1995 and 1994 was approximately
$3.6 million. As a percentage of net sales, depreciation and amortization
expense for the fiscal year ended September 30, 1995 decreased to 5.9% from
6.0% in the comparable 1994 period. This decrease was attributable to the
reduction in the number of restaurants open less than one year during 1995 and
the corresponding reduction in amortization expense associated with pre-opening
costs.
Interest Expense. Total interest expense for the fiscal year ended
September 30, 1995 decreased 39.5% to $1.1 million from $1.8 million for the
fiscal year ended September 30, 1994. This was attributable to the reduction
of debt due to payoff thereof with the proceeds from the Company's initial
public offering in May 1995.
Benefit (Provision) for Income Taxes. Benefit for income taxes increased to
2.7% of sales from a provision of (.1)% of sales principally due to the
recognition of $2,173,000 in deferred tax assets during the fourth quarter of
fiscal year 1995.
Extraordinary Item - Early Extinguishment of Debt. During fiscal year 1995
the Company recognized an extraordinary loss of $518,000, net of an income tax
benefit of $192,000, representing a charge for previously unamortized debt
issue costs, unamortized debt discount, and a prepayment penalty associated
with early extinguishment of debt.
Net Operating Loss Carryforwards. At September 30, 1995, the Company had
available net operating loss carryforwards for federal and state income tax
purposes of approximately $6.3 million and $1.3 million respectively. The loss
carryforwards expire at various dates through 2009. The utilization of the
Company's net operating loss carryforwards against taxable income in future
periods will be subject to an annual limitation when a cumulative change in
ownership of more than 50% of the Company occurs.
Fiscal 1994 Versus Fiscal 1993
Net Sales. Net sales for fiscal 1994 increased 16.1% to $59.7 million from
$51.4 million for fiscal 1993. The increase was primarily due to $4.9 million
of additional sales from six new restaurants that were opened during fiscal
1993 and $2.9 million of additional sales from the two restaurants opened in
fiscal 1994. All of the six new restaurants opened in fiscal 1993 were
operating for only part of fiscal 1993, but for all of fiscal 1994. The
increase was also due to a 1.2% increase in comparable restaurant sales that
resulted from an increase in guest volume.
Cost of Sales. Cost of sales for fiscal 1994 increased 8.9% to $16.3
million from $15.0 million for fiscal 1993. As a percentage of net sales, cost
of sales for fiscal 1994 decreased to 27.3% from 29.1% in fiscal 1993. This
decrease was primarily due to the expansion of the Company's volume discount
food purchasing program and food usage and menu cost management programs that
were implemented to manage food costs.
Labor Expense. Labor expense for fiscal 1994 increased 18.1% to $17.2
million from $14.6 million for fiscal 1993. This increase was primarily due to
an increase in workers' compensation insurance premiums and, to a lesser
degree, an increase in personnel associated with the opening of two
restaurants. As a percentage of net sales, labor expense for fiscal 1994
increased to 28.9% from 28.4% in fiscal 1993. This percentage increase was
primarily due to an increase in workers' compensation insurance premiums.
Occupancy and Other Operating Costs. Occupancy and other operating costs
for fiscal 1994 increased 17.8% to $15.7 million from $13.3 million for fiscal
1993. As a percentage of net sales, occupancy and other operating costs for
fiscal 1994 increased to 26.3% from 26.0% in fiscal 1993. This increase was
primarily due to increased utility rates and increased repair and maintenance
costs associated with a restaurant improvement program implemented in fiscal
1994.
General and Administrative Expenses. General and administrative expenses
for fiscal 1994 increased 10.9% to $4.4 million from $4.0 million for fiscal
1993. This increase was primarily due to severance costs associated with
layoffs during fiscal 1994 as a result of the Company's strategic review. As a
percentage of net sales, general and administrative expenses for fiscal 1994
decreased to 7.5% from 7.8% in fiscal 1993. This percentage decrease was
primarily due to higher sales volumes.
Depreciation and Amortization Expenses. Depreciation and amortization
expense for fiscal 1994 increased 34.0% to $3.6 million from $2.7 million for
fiscal 1993. As a percentage of net sales, depreciation and amortization
expense for fiscal 1994 increased to 6.0% from 5.2% in fiscal 1993. This
increase was due to increased depreciation and amortization expense associated
with the six restaurants opened in fiscal 1993 being open the entire year in
fiscal 1994.
Restaurant Closure Costs. Restaurant closure costs were $815,000 for fiscal
1994. This was attributable to the write-off of leasehold improvements and
costs associated with lease termination for the two restaurants closed in
fiscal 1994.
Interest Expense. Total interest expense for fiscal 1994 increased 20.7% to
$1.8 million from $1.5 million in fiscal 1993. Interest expense was higher in
fiscal 1994 versus fiscal 1993 because of increased borrowings in fiscal 1994.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly results and the
percentage that certain items in the Company's statements of operations bear to
net sales for the four fiscal quarters of fiscal 1995 and the four fiscal
quarters of fiscal 1996. The Company believes that this unaudited quarterly
information includes all adjustments, consisting only of normal recurring
adjustments and accruals, necessary for a fair presentation of the information
shown. The operating results for any quarter are not necessarily indicative of
results for any future period.
Fiscal 1995 Fiscal 1996
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Statement of Operations Data:
Net Sales $13,660 $15,106 $15,764 $16,790 $14,935 $17,597 $18,712 $20,129
Operating income $ 469 $ 1,108 $ 1,214 $ 1,208 $ 515 $ 1,384 $ 1,729 $ 1,916
Net income (loss) 9 $ 576 $ 96(2) $3,144(3)$ 245 $ 771 $ 962 $ 1,026
As a Percentage of Net Sales:
Operating income 3.4% 7.3% 7.7% 7.2% 3.4% 7.9% 9.2% 9.5%
Net income (loss) .1% 3.8% .6% 18.7% 1.6% 4.4% 5.1% 5.1%
Selected Operating Data:
Number of restaurants open at end
of period 32 33 34 35 36 36 40 43
Percentage change in 3.8% 3.1% 1.0% .8% (.2%) 6.7% 2.2% .9%
comparable restaurant sales (1)
(1) Includes all restaurants open for at least 15 months at the end of such
quarter, and compares results for those restaurants with the results for
the same period in the prior year.
(2) Includes an extraordinary charge of approximately $518,000 (net of tax)
associated with prepayment of debt from proceeds of the Company's
initial public offering.
(3) Includes a benefit related to recognition of deferred tax assets of
$2,173,000.
The Company's restaurants experience seasonal influences, as a
disproportionate amount of the Company's net income is realized during the
second, third and fourth fiscal quarters due to higher average sales and lower
average costs. Quarterly results have been and are expected to continue to
fluctuate as a result of a number of factors, including the timing of new
restaurant openings. As a result of these factors, net sales and net income on
a quarterly basis may fluctuate and are not necessarily indicative of the
results that may be achieved for a full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its cash requirements principally from
cash flow from operating activities, the private placement of preferred stock
and subordinated debt and an initial public offering of common stock. The
Company does not have significant receivables or inventory, and receives trade
credit based upon negotiated terms when purchasing food and supplies. For
October 1, 1991 through September 30, 1996, the Company generated $26.4 million
in cash flow from operating activities, received $17.5 million from bank debt
and capital lease financing and $7.6 million from subordinated debt financing
and $11.6 million from the Company's initial public offering.
The Company's principal capital requirement has been funding the development
of restaurants. Historically, the Company has primarily leased the land and
buildings for its restaurant operations. The Company does purchase land and/or
buildings when favorable conditions are available. The Company currently owns
the land and buildings for eight restaurants. During fiscal 1994, 1995 and
fiscal 1996, the Company opened 2, 3 and 8 restaurants, respectively,
resulting in a net increase in the Company's restaurants from 33 to 43 at
September 30, 1996 (a total of 3 Southern California restaurants were closed
during fiscal 1994 and 1995). Capital expenditures totalled $4.2 million and
$8.2 million, respectively, during fiscal 1994 and 1995 and $18.2 million
during fiscal 1996.
The Company currently operates 45 restaurants. Additionally, The Company has
signed four leases, purchased land for three restaurants and opened escrow for
one of the eight sites expected to open in fiscal 1997. The Company opened one
mini-restaurant in California, four additional restaurants in Arizona, two
additional restaurants in Florida and one new restaurant in New Mexico during
fiscal 1996. The Company's average cash investment for the two restaurants
opened in fiscal 1994, excluding regional restaurant central kitchen
expenditures associated with the central kitchen located at the Scottsdale,
Arizona restaurant of approximately $600,000 and pre- opening costs, was
approximately $1.1 million. The Company's average cash investment for the
three restaurants opened in fiscal year 1995 excluding land purchases was $1.44
million. The Company's average cash investment for the eight restaurants
opened in fiscal 1996, excluding land purchases was $1.26 million. Pre-opening
costs averaged approximately $132,000 for the eight restaurants opened in
fiscal year 1996. The cash investment to open a new restaurant typically
includes the purchase or installation of furniture, fixtures, equipment and
leasehold improvements, and in the case of an owned site, the purchase of land
and a building. In addition to budgeted capital expenditures for fiscal 1997
of $14.4 million for new restaurant openings, the Company has budgeted $1.8
million in expenditures for fiscal 1997 for capital improvements at existing
sites.
The Company will need to rely on funds generated from revenues to finance a
portion of the expansion currently planned for fiscal 1997, as well as any
expansion taking place after fiscal 1997. Should the Company's results of
operations or its rate of growth fail to be adequate to finance expansion or
should costs or capital expenditures rise, the Company may not have the ability
to open new restaurants at its desired pace or at all, and could be required to
seek additional financing in the future. There can be no assurance that the
Company will be able to raise such capital when needed on satisfactory terms or
at all.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations include
food and beverage and labor costs. The Company does not believe that inflation
has materially affected earnings during the past three years. Substantial
increases in costs and expenses, particularly food, supplies, labor and
operating expenses, could have a significant impact on the Company's operating
results to the extent that such increases cannot be passed along to guests.
BUSINESS RISKS
The Company's business is subject to a number of risks. A comprehensive
summary of such risks can be found in the Company's Form S-1 registration
statement which was declared effective on May 16, 1995.
Certain Operating Results and Consideration. In fiscal 1994, 1995 and 1996,
respectively, the Company experienced an increase of 1.2%, an increase of 2.0%,
and an increase of 2.5%, respectively in comparable restaurant sales. The
Company's newer restaurants have not historically experienced significant
increases in guest volume following their initial opening period. In addition,
the Company does not believe it has significant latitude to achieve comparable
restaurant sales growth through price increases. As a result, the Company does
not believe that the 2.5% comparable restaurant sales growth in fiscal 1996 is
indicative of future trends in comparable restaurant sales. The Company
believes that it may from time to time in the future experience declines in
comparable restaurant sales, and that any future increases in comparable
restaurant sales would be modest.
Expansion Risks: Future Restaurant Financing Capital Needs. The Company
opened three restaurants in fiscal 1995 and has opened eight in fiscal 1996,
and currently intends to open eight restaurants in Fiscal 1997. The Company's
ability to achieve its expansion plans will depend on a variety of factors,
many of which may be beyond the Company's control, including the Company's
ability to locate suitable restaurant sites, negotiate acceptable leases or
purchase terms, obtain required governmental approvals and construct new
restaurants in a timely manner, attract, train and retain qualified and
experienced personnel and management, operate its restaurants profitably and
obtain additional capital, as well as general economic conditions and the
degree of competition in the particular region of expansion. The Company has
experienced, and expects to continue to experience, delays in restaurant
openings from time to time. The Company incurs substantial costs in opening a
new restaurant and, in the Company's experience, new restaurants experience
fluctuating operational levels for some time after opening. There can be no
assurance that the Company will successfully expand into new regions or that
the Company's existing or new restaurants will be profitable. The Company has
encountered intense competition for restaurant sites, and in many cases has had
difficulty buying or leasing desirable sites on terms that are acceptable to
the Company. In many cases, the Company's competitors are willing and able to
pay more than the Company for sites. The Company expects these difficulties in
obtaining desirable sites to continue for the foreseeable future.
Cost Sensitivity. The Company's profitability is highly sensitive to
increases in food, labor and other operating costs. The Company's dependence
on frequent deliveries of fresh produce and groceries subjects it to the risk
that shortages or interruptions in supply caused by adverse weather or other
conditions could materially adversely affect the availability, quality and cost
of ingredients. In addition, unfavorable trends or developments concerning
factors such as inflation, food, labor and employee benefit costs (including
increases in hourly wage and minimum unemployment tax rates), rent increases
resulting from the rent escalation provisions in the Company's leases, and the
availability of experienced management and hourly employees may also adversely
affect the Company. The Company believes recent relatively favorable inflation
rates and part-time labor supplies in its principal market area have
contributed to relatively stable food and labor costs in recent years.
However, there can be no assurance that these conditions will continue or that
the Company will have the ability to control costs in the future.
Importance of Key Employees. The Company is heavily dependent upon the
services of its officers and key management personnel involved in restaurant
operations, purchasing, expansion and administration. In particular, the
Company is dependent upon the management and leadership of its three executive
officers, Michael Mack, Dave Qualls and Greg Keller. The loss of any of these
three individuals could have a material adverse effect on the Company's
business and its financial results of operations. The success of the company
and its individual restaurants depends upon the Company's ability to attract
and retain highly motivated, well-qualified restaurant operations and other
management personnel. The company faces significant competition in the
recruitment of qualified employees.
Seasonality and Quarterly Fluctuations. The Company's business experiences
seasonal fluctuations as a disproportionate amount of the Company's net income
is generally realized in the second, third and fourth fiscal quarters due to
higher average sales and lower average costs. Quarterly results have been and
are expected to continue to fluctuate as a result of a number of factors,
including the timing of new restaurant openings. As a result of these factors,
net sales and net income on a quarterly basis may fluctuate and are not
necessarily indicative of the results that may be achieved for a full fiscal
year.
Geographic Concentration in California; Restaurant Base. Twenty-nine of the
Company's 45 existing restaurants are located in California. Accordingly, the
Company is susceptible to fluctuations in its business caused by adverse
economic or other conditions in this region, including natural disasters or
other acts of God could have a material adverse effect on the Company's
business. The Company's significant investment in, and long-term commitment
to, each of its restaurant sites limits its ability to respond quickly or
effectively to changes in local competitive conditions or other changes that
could affect the Company's operations. In addition, the Company has a small
number of restaurants relative to some of its competitors. Consequently, a
decline in the profitability of an existing restaurant or the introduction of
an unsuccessful new restaurant could have a more significant effect on the
Company's result of operations than would be the case in a company with a
larger number of restaurants.
Volatility of Stock Price. The market price of the Company's common stock
has fluctuated since the initial public offering of the common stock in May
1995. Quarterly operating results of the Company and other restaurant
companies, changes in general conditions in the economy, the financial markets
or the restaurant industry, natural disasters or other developments affecting
the Company or its competitors could cause the market price of the common stock
to fluctuate substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market price of securities issued by many companies
for reasons unrelated to the operating performance of these companies.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements as of September 30, 1996 and 1995, and
for each of the three fiscal years in the period ended September 30, 1996 and
the report of independent accountants, are included in this report as listed in
the index on page 25 of this report - Item 14(a).
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report, in
that the Company will file its Proxy Statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report,
and certain information included therein is incorporated herein by reference.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors of the Company is incorporated by
reference from the Company's Proxy Statement filed in connection with the
Company's Annual Meeting of Stockholders to be held on February 26, 1997 as set
forth under the caption "Election of Directors". Information relating to the
executive officers of the Company is set forth in Part I of this Report under
the caption "Executive Officers of the Registrant".
Item 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated by
reference to the Proxy Statement under the caption "Executive Compensation and
Other Matters".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to ownership of equity securities of the Company by
certain beneficial owners and management is incorporated by reference to the
Proxy Statement as set forth under the caption "General Information --- Stock
Ownership of Certain Beneficial Owners and Management".
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
is incorporated by reference to the Proxy Statement under the caption "Certain
Transactions".
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Report:
Page Number
(1) Report of Independent Accountants F-1
Balance Sheet at September 30, 1996
and September 30, 1995 F-2
Statements of Operations for the Years Ended
September 30, 1996, September 30, 1995 and
September 30, 1994 F-3
Statements of Cash Flows for the Years Ended
September 30, 1996, September 30, 1995 and September
30, 1994 F-4
Statements of Shareholder's Equity for the
Years Ended September 30, 1996, September 30, 1995 and
September 30, 1994 F-5
Notes to the Financial Statements F-6
Other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(2) Exhibits. The Exhibits listed in the accompanying Exhibit Index are
filed or incorporated by reference as part of this Report.
(b) Reports on Form 8-K. The registrant did not file any Reports on Form 8-K
during the fourth quarter of fiscal 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 18, 1996 GARDEN FRESH RESTAURANT CORP.
/s/ Michael P. Mack
By:---------------------
Michael P. Mack
Chief Executive Officer
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on November 18, 1996 by the following persons in
the capacities indicated.
/s/ Michael M. Minchin, Jr.
- ----------------------- Chairman of the Board
Michael M. Minchin, Jr.
/s/ Michael P. Mack
- ------------------------ Chief Executive Officer
Michael P. Mack President
/s/ David W. Qualls Chief Financial Officer
- ------------------------ and Chief Accounting Officer
David W. Qualls
/s/ Edgar F. Berner
- ------------------------ Director
Edgar F. Berner
/s/ Robert A. Gunst
- ------------------------ Director
Robert A. Gunst
/s/ Patrick A. Hopf
- ------------------------ Director
Patrick A. Hopf
/s/ John M. Robbins
- ------------------------ Director
John M. Robbins
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
NUMBER
3.1* Restated Certificate of Incorporation of Garden Fresh Restaurant Corp.
3.2** Bylaws of Garden Fresh Restaurant Corp., as amended.
10.1** Form of Indemnity Agreement for executive officers and directors.
10.2** The Company's Restaurant Management Stock Option Plan, as amended.
10.3** The Company's Key Employee Stock Option Plan, as amended.
10.4** The Company's 1995 Outside Director Stock Option Plan.
10.5** The Company's 1995 Key Employee Stock Option Plan, as amended.
10.6** Series B Preferred Stock Purchase Agreement dated as of November 15,
1985 among the Company and the other signatories thereto.
10.7** Series C Preferred Stock Purchase Agreement dated as of April 13, 1987
among the Company and the other signatories thereto.
10.8** Series D Preferred Stock Purchase Agreement dated as of January 12,
1988 among the Company and the other signatories thereto.
10.9** Fifth Modification Agreement dated as of November 10, 1992 among the
Company and the other signatories thereto, as amended.
10.12**License Agreement for New Zealand/Australia dated as of March 8, 1991
between the Company and Outset Investments (NZ) Limited, as amended on
June 7, 1991, September 10, 1993 and March 4, 1994.
10.13**Park Terrace Office Park Lease between the Company and Park Terrace
Partners dated November 1, 1991.
11.1 Computation of Pro Forma Net Loss Per Share Available
to Common Shareholders (unaudited)
24.1** Power of Attorney
*Incorporated by reference from Exhibit 4.1 filed with the Company's
Registration Statement on Form S-8 (No. 33-93568) filed June 16, 1995.
**Incorporated by reference from the Exhibits with corresponding numbers filed
with the Company's Registration Statement on Form S-1 (No. 33-90404), as
amended by Amendment No. 1 to Form S-1 filed on April 19, 1995, Amendment No.
2 to Form S-1 filed May 8, 1995, Amendment No. 3 to Form S-1 filed May 15,
1995, except that Exhibit 3.4 is incorporated from Exhibits 3.4 and 3.4A,
Exhibit 10.2 is incorporated by reference from Exhibits 10.2 and 10.2A, Exhibit
10.3 is incorporated by reference from Exhibits 10.3 and 10.3A, Exhibit 10.5 is
incorporated by reference from Exhibit 10.5 and 10.5A, and Exhibit 10.9 is
incorporated by reference from Exhibits 10.9 and 10.9A.
GARDEN FRESH RESTAURANT CORP.
EXHIBT 11.1
UNAUDITED COMPUTATION OF PRO FORMA NET LOSS PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS
(DOLLARS AND SHARE AMOUNTS IN 000's)
(PER SHARE AMOUNTS ARE ACTUAL)
Fiscal Year Ended
September 30, 1995 September 30, 1996
Net income (loss) available to $ (4,473) $ 3,004
common shareholders
Calculation of pro forma weighted
common shares outstanding:
Common stock (1) 1,136(2)(3) 4,176
Conversion of preferred
into common stock 1,103
Common stock issued for preferential
dividend payment 922
Total 3,161 4,176
Pro forma net loss per share available
to common shareholders (1.42) $ .72
(1) Includes the use of dilutive options and warrants outstanding if
appropriate, using the treasury stock method.
(2) Assumes net exercise of 169,971 warrants into 138,495 shares of common
stock, at the initial public offering price of $9.00 per share, as if
such exercise had occurred at the beginning of each period presented.
(3) Includes the weighted average of 1.5 million shares issued in the initial
public offering, which was effective May 16, 1995.
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF THE
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ANNUAL REPORT ON FORM 10-K