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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
For the fiscal year ended September 30, 1997
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 12, 1997 was
$18,426,856. Excludes shares of CommonStock 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
12, 1997 was 4,287,711.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
(1) Proxy Statement for the Annual Meeting of Items 10, 11, 12 and
Stockholders scheduled for March 5, 1998 13 of Part III
GARDEN FRESH RESTAURANT CORP.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . 16
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 19
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . 25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 25
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 26
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 26
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 26
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 26
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . 26
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PART I
Item 1. BUSINESS
The statements contained in this Form 10-K that are not purely
historical are forward looking statements, including statements regarding the
Company's expectations, hopes, beliefs, intentions or strategies regarding the
future. Statements which use the words "expects", "will", "may",
"anticipates", "believes", "intends", and "seeks" are forward looking
statements. These forward looking statements, including statements regarding
the Company's expansion efforts and plans to open new restaurants, are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward looking statement. It is
important to note that the Company's actual results could differ materially
from those in such forward looking statements. Among the factors that could
cause actual results to differ materially are the factors set forth below under
the heading "Business Risk". In particular, the Company's expansion efforts
and plans to open new restaurants could be affected by the Company's ability to
locate suitable restaurants sites, construct new restaurants in a timely manner
and obtain additional funds.
THE COMPANY
Garden Fresh Restaurant Corp. (the "Company") was founded in 1983 and
currently operates 51 salad buffet restaurants in California, Florida, Arizona,
New Mexico and Utah 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 segment of the restaurant industry that is distinct from other buffet
concepts in that many of the characteristics of Garden Fresh Restaurant Corp.
resembles the casual dining segment rather than the buffet segment. The
Company believes that it is a leading salad buffet restaurant due, in part, to
its total revenues and number of restaurants. The Company also believes that
it is well-positioned to maintain its leadership position and that its
opportunities for expansion are attractive relative to expansion opportunities
for many other restaurant concepts.
The restaurants have, as their centerpiece, two approximately 55-foot
long salad bars that feature fresh tossed specialty salads as well as a broad
selection of fresh cut greens, vegetables, toppings and dressings, 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 focaccias, a hot pasta bar specializing in freshly
made pastas, 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
$5.79 to $6.99 at lunch and from $6.99 to $7.69 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 51 restaurants, 24 are located in Southern California using
the name Souplantation, and 5, 11, 7, 2 and 2, are located in Northern
California, Florida, Arizona, New Mexico and Utah respectively using the name
Sweet Tomatoes. The Company intends to expand in fiscal 1998, primarily in new
markets outside of California. In fiscal 1997, the Company opened one
additional restaurant in Arizona, four restaurants in the Florida market, one
in New Mexico, and one in Utah. In fiscal 1998 the Company anticipates opening
a total of approximately eleven restaurants, one of which already opened in the
Utah market in November 1997. The Company is also currently investigating
further expansion beyond fiscal 1998 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:
The Company's fundamental strategy is to provide a casual restaurant
dining experience that incorporates the variety and choice inherent in a buffet
restaurant but the food quality and service expected in casual chains. The
Company believes that this strategy will create restaurant operating margins
not normally found in the buffet/family dining segment. In implementing this
strategy the Company seeks to:
1. Provide fresh wholesome food with a strong emphasis on salads,
which are featured on two 55 foot bars that include a wide range of salad
offerings featuring three freshly tossed salads as well as a large assortment
of fresh cut produce, dressings and toppings and several signature prepared
salads. Various other offerings include made from scratch soups, a hot pasta
bar, a bakery which serves a variety of hot muffins, focaccias and other breads
and a dessert bar centered around a frozen yogurt station with toppings
complemented by fresh fruits and puddings.
2. The Company seeks to provide its guests with a level of service
that exceeds the standards set by other buffet concepts while not inhibiting
the guest from enjoying the benefits of selecting from a virtual cornucopia of
choices offered at the various food bars within the restaurant. In addition to
high service standards the Company has implemented several programs to maximize
guest satisfaction. Included in these is a "zero defect" program that focuses
on the most popular offerings to ensure that each portion is prepared exactly
as specified by the recipes. The Company's high service standards can only be
maintained through intensive recruiting and training programs designed to
employ crew members and management that can sustain a friendly, enjoyable
environment thereby maximizing the guest's meal experience.
3. The Company believes that the pricing and product mix at each
restaurant is maintained at such a high level that the resulting meal
experience can only be duplicated in other casual chains at price points that
average two to three dollars higher than at the Souplantation and Sweet
Tomatoes restaurants.
4. The ability of the Company to maintain the highest possible
quality products combined with what the Company believes to be one of the
lowest cost structures in the casual chain segment is directly attributable to
the Company's ability to manage costs rigorously. This is achievable only
through the use of the Company's fully integrated, proprietary computer
management information system. The precision with which the system operates
allows a manager to review his/her entire cost structure in increments of cents
per guest or minutes per employee if need be. At the same time, every level of
management can review virtually any data in any store as quickly as the store
itself. This allows for rapid problem detection and resolution thereby
minimizing potential cost problems. The Company believes that the system's
sophistication combined with the ability of management to effectively use it are
unequaled in the industry.
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".
UNIT ECONOMICS
For the 52 weeks ended September 30, 1997, the 42 full service
restaurants that were open for the entire period had an average of
approximately 296,000 guest visits during the period, generated average net
sales of approximately $1,985,000, average restaurant operating income (sales
less cost of sales, restaurant operating expenses, depreciation and
amortization) of approximately $310,000 or 15.6% of net sales, and average cash
flow (operating income plus depreciation and amortization) of approximately
$423,000. The Company's average cash investment for the seven restaurants
opened in fiscal 1997, excluding land purchases and pre-opening costs, was
approximately $1.6 million. Pre-opening costs averaged approximately $161,000
for the seven restaurants opened in fiscal 1997. 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.
CONCEPT AND MENU
The Company's menu is designed to focus on freshly made, great
tasting food. The focal point of the menu is the salad bar, but not to the
point of neglecting other interesting and exciting food offerings at the pasta,
soup, bakery, yogurt and dessert bars.
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:
Tossed Salads. Upon entering the restaurant, guests are greeted at
the door and begin to walk along either of the salad bars. The initial
featured selections along the salad bars are two to three specialty salads that
are tossed fresh approximately every 20 minutes. The selections are changed
weekly for variety. The following is a partial listing of the Company's
specialty salad recipes:
Antipasto Salad Ranchero Taco Salad
Barbecue Chicken Chopped Salad Roasted Vegetable with Feta & Olives
California Cobb Salad Roma Tomato, Mozzarella & Basil 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 Spinach & Pasta with Raspberry
Country French Salad with Bacon Vinaigrette
Greek Salad Won Ton Chicken Salad
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 10 dressings.
Employees located between the two salad bars replenish the salad offerings
frequently and assist guests.
Next, the salad bar features eight prepared signature salads. The
following is a partial list of the Company's signature salad recipes:
Artichoke Rice Salad Moroccan Marinated Vegetables
Aunt Doris' Red Pepper Slaw Old Fashioned Macaroni Salad
BBQ Potato Salad Oriental Ginger Slaw with Krab
Baja Bean with Cilantro Salad Pesto Kashi
Chipotle Vinaigrette Picante Pasta Salad
Carrot Ginger Salad with Herb Vinaigrette Picnic Potato Salad
Carrot Raisin Salad Pineapple Coconut Slaw
Chinese Krab Salad Poppyseed Coleslaw
Confetti Pasta Salad with Cheddar & Dill Roasted Potato Salad with
Cowboy Beans Salad Chipotle Vinaigrette
Cucumber Tomato with Chile Lime Shrimp Tarragon Salad
Dijon Potato Salad with Garlic Dill Spinach Pasta with Raspberry
Vinaigrette Vinaigrette
Gemelli Pasta Salad with Chicken Spinach Krab Salad Summer Barley
German Potato Salad with Black Bean
Greek Couscous with Feta Cheese Soba Noodle with Chicken
Italian White Bean Salad Southern Dill Potato Salad
Jalapeno Potato Salad Spicy Southwestern Pasta
Lemon Orzo Salad with Feta & Mint Thai Noodle with Peanut Sauce
Mandarin Krab Salad Three Bean Marinade Salad
Mandarin Noodles with Tortellini Salad
Broccoli and Sesame Seeds Tortellini Salad with Basil
Mandarin Shells with Almonds and Snow Peas Tumbleweed Tortelli Salad
Marinated Summer Vegetable Salad Tuna Tarragon Salad
Mazatlan Krab & Pasta Salad Turkey Chutney Pasta Salad
Mediterranean Krab & Rotini Salad Zesty Tortellini
Mediterranean Harvest 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 in certain locations, 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 Santa Fe Black Bean Chile
Chesapeake Corn Chowder Shrimp Bisque
Chicken Jambalaya Spicy 4-Bean Minestrone
Chunky Potato Cheese Soup Split Pea Soup with Ham
Cream of Broccoli Soup Sweet Tomato Onion Soup
Cream of Mushroom Soup Texas Red Chili
Sweet Tomato Onion Soup Turkey Cassoulet
Green Chile Stew Turkey Noodle Soup
Irish Potato Leek Soup Turkey Vegetable Soup
Navy Bean Soup Vegetable Beef Stew
New England Clam Chowder with Bacon Vegetarian Harvest Soup
New Orleans Style Jambalaya Vegetable Medley Soup
Posole Yucatan Chili
Pasta Bar. At the pasta bar, guests can select from three hot pasta
dishes that are made fresh every 20 - 30 minutes. Pasta is prepared exhibition
style 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:
Bruschetta Garden Vegetable with Italian
Chipotle Chicken with Cilantro Sausage
Creamy Pesto with Sundried Tomatoes Italian Vegetable Beef
Creamy Bruschetta Jalapeno Salsa
Fettucine Alfredo Nutty Mushroom
Garden Vegetable with Meatballs Smoked Salmon & Dill
Vegetarian Marinara with Basil
Baked Goods. Each day, the bakery bar offers three different
muffins, two varieties of fresh dough pizza focaccias 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 Cinnamon Bran Muffin Garlic Parmesan Focaccia Muffin
Cranberry Orange Bran Muffin Georgia Peach Poppyseed Muffin
Fruit Medley Bran Muffin Lemon Muffin
Buttermilk Corn Bread Mandarin Almond Muffin with Oat
Chile Corn Muffin Bran
Indian Grain Bread Nutty Peanut Butter Muffin
Sourdough Bread Peanut Butter Chocolate Chip
Apple Raisin Muffin Muffin
Apricot Nut Muffin Pizza Focaccia
Banana Nut Muffin Pumpkin Raisin Muffin
Carrot Pineapple Muffin with Oat Bran Roasted Potato Focaccia
Cherry Nut Muffin Strawberry Buttermilk Muffin
Chocolate Brownie Muffin Tomatillo Focaccia
Chocolate Chip Mandarin Muffin Wild Maine Blueberry Muffin
Chocolate Chip Muffin Wild Maine Blueberry Muffin-Large
Zucchini Nut Muffin
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 peanuts)
and chocolate sauce.
RESTAURANT OPERATIONS
Cost Management Focus. The Company is very committed to cost
management without degrading either quality of food or service. To accomplish
this the Company has developed a unique management information system which in
conjunction with several other cost related programs allows the Company to
provide a cost structure that the Company believes is superior to any casual or
buffet style restaurant.
Computer Information System. The core component of the Company's
cost management program is the Company's 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 a much shorter management reaction time. The
system is used as a critical planning tool by corporate and restaurant managers
in four primary areas: production, labor, food cost and financial and
accounting controls. The system generates forecasts of estimated guest volumes
and other predictive data, which assist restaurant 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,
producing automated daily labor reports outlining the restaurant's staffing
needs based on changing trends and guest volume forecasts. 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.
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 in 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.
Central Kitchens. In ten 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 kitchens 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 without any additional operating costs.
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 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, pizza focaccias, and prepared pastas 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 central kitchen 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.
The Company's computer system assists the restaurant managers in monitoring
quality control without raising costs by providing a detailed analysis of the
raw materials used in the creation of each finished product.
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, as well as a technical shop once
a month to ensure strict adherence to the Company's standards for food quality
and service. The results of these independent evaluations are taken into
consideration in determining each restaurant manager's monthly bonus.
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. 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 in some cases, discount coupons. FSIs are distributed by direct mail and
through newspapers. In addition, the Company has 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 markets in which the Company has sufficient penetration, the
Company uses radio advertising to stimulate demand. Radio advertising is only
used where the Return on Investment of the radio campaign is sufficient to
justify the cost. In fiscal 1997, the Company used radio advertising in San
Diego, Tampa Bay and Phoenix markets.
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 1997, marketing and promotion expenses constituted
approximately 2.2% of total net sales.
RESTAURANT FACILITIES
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 220 guests,
provides a warm, comfortable atmosphere that creates a relaxed dining
environment similar to many casual family restaurants. 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 7,200 square feet.
Certain of the Company's restaurants provide limited outdoor seating.
Location. The following is a list of the Company's restaurants and
their locations by region:
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 8,100
Alhambra September 1989 7,500
Marina del Rey June 1989 8,490
Costa Mesa May 1989 10,140
Rancho Cucamonga April 1989 7,630
Brea October 1988 7,630
Arcadia October 1988 7,500
Torrance July 1988 8,080
Mira Mesa (San Diego) February 1988 8,210
Pasadena November 1987 7,940
Carlsbad July 1987 8,210
Lakewood July 1987 8,210
Garden Grove December 1986 8,210
Tustin August 1986 7,470
La Mesa February 1986 8,420(3)
Point Loma (San Diego) January 1982 7,000
Mission Gorge (San Diego) March 1978 7,570
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 7,910
Region: Florida
Fort Lauderdale September 1997 7,960
Hollywood August 1997 8,000(3)
Altamonte Springs (Orlando) February 1997 8,740(3)
Fort Myers January 1997 7,240
Sarasota July 1996 8,500(3)
Plantation April 1996 8,030
Brandon (Tampa) August 1995 8,110
Tampa July 1995 8,500
Carrollwood (Tampa) June 1993 7,020
Largo (Tampa) September 1992 6,800
Palm Harbor (Tampa) January 1990 8,000(3)
Region: Arizona
Tucson II November 1996 6,960
Ahwatukee (Phoenix) July 1996 6,960
Peoria (Phoenix) June 1996 6,460
Phoenix May 1996 6,940
Tucson I May 1996 7,420(3)
Tempe (Phoenix) February 1995 6,320
Scottsdale (Phoenix) February 1994 9,000(3)
Region: Albuquerque
Cottonwood Mall October 1996 6,300
San Mateo Avenue September 1996 7,240(3)
Region: Utah
Centennial (Sandy) November 1997 7,450
Overlook (Sandy) September 1997 9,000(3)
The restaurants listed below are under development and have lease or purchase
contracts signed.
ESTIMATED FISCAL APPROXIMATE
LOCATION YEAR OPENING SQUARE FOOTAGE (1)
Region: Florida
Coral Springs Q1 1998 7,240
Region: Georgia
Perimeter (Atlanta) Q3 1998 8,900(3)
Towncenter (Atlanta) Q3 1998 7,240
Northpoint (Atlanta) Q4 1998 7,240
Region: Texas
Houston Q3 1998 8,900(3)
Region: Oregon
Beaverton Q4 1998 6,960
Vancouver (Washington) Q4 1998 8,000(3)
Region: Nevada
Las Vegas Q2 1998 7,240(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 central kitchen
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,
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 two to nine months.
The interior build-out of in-line restaurants and the construction of
free-standing restaurants takes approximately four months and five months,
respectively.
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 restaurant in a timely manner and obtain additional funds. See "Business
Risks - Expansion:".
EXPANSION STRATEGY
The Company intends to expand in fiscal 1998 and 1999 primarily in
new markets outside of California. In fiscal 1997, the Company opened one
restaurant in Arizona, four restaurants in Florida, one restaurant in New
Mexico, and one restaurant in Utah. In fiscal 1998, the Company anticipates
opening approximately eleven full size restaurants outside of California. The
Company has signed two leases, purchased three sites and signed contracts to
purchase an additional four of the sites to be opened in fiscal 1998.
Expansion 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 1998 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".
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 both of the restaurant closures equaled $815,000 taken in fiscal
1994.
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 primary competitors include
mid-price, full-service casual dining restaurants, as well as 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 and casual 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 and casual restaurants has increased
and will continue to increase as the Company's competitors expand operations in
various geographic areas. Such increased competition could increase the
Company's operating costs or adversely affect its revenues. The Company
believes it competes favorably 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
imposed increases in state or federal minimum wages in 1996, 1997 and will
impose one more increase in California in March 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 trademarks and service
marks Souplantation since 1978 and Sweet Tomatoes since 1990. The
Souplantation trademark is used in the Southern California market, while the
Sweet Tomatoes trademark is used in the Northern California, Florida, Arizona,
New Mexico and Utah markets. The Company registered both Souplantation and
Sweet Tomatoes trademark's with the United States Patent and Trademark Office.
EMPLOYEES
As of September 30, 1997, the Company had approximately 3,348
employees including 3,087 hourly restaurant employees (of whom 2,576 were
part-time employees), 212 full-time restaurant management employees and 42
full-time corporate management and staff employees and 7 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 46 President, Chief Executive Officer and Director
David W. Qualls 52 Executive Vice President --- Finance and Real Estate,
Chief Financial Officer and Secretary
R. Gregory Keller 49 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, from 1982 to 1985, Mr. Qualls served as Vice
President of Finance and Administration and Chief Financial Officer of Diatek,
Inc., a medical electronics company. 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. From January 1991 to June 1991 prior to joining the Company,
Mr. Keller served as a consultant to the Company. 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.
RESTAURANT MANAGEMENT
Management. 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 reporting to District Operations 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.
Item 2. PROPERTIES
The Company currently operates 51 restaurants in California, Florida,
Arizona, New Mexico and Utah. One restaurant has been opened in fiscal 1998,
seven restaurants were opened in fiscal 1997, one mini-restaurant and seven
full size restaurants in 1996 and three in 1995. The Company currently leases
the sites for most of its restaurants, mixed between stand-alone sites and
in-line locations. The Company operates 36 free-standing restaurants and 15
restaurants located within larger buildings. The Company owns six properties
located in Florida, one in Arizona, two in New Mexico, and one in Utah.
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. In the future the
Company expects to continue to both lease and purchase its sites. 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
2001.
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 still 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 case
has not been set for trial and currently is in mediation. 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 adversely affect the Company or its business. See "Business Risk:
Legal Matters".
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 1997.
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, 1997,
4,264,579 shares were owned by 164 shareholders of record. The following is a
summary of market activity for the fiscal years 1996 and 1997.
1996 High Low
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
1997
First Quarter 10 7/8 8 1/4
Second Quarter 12 3/4 9 3/4
Third Quarter 12 9 1/4
Fourth Quarter 15 1/2 11 1/8
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
Year Ended September 30,
1993 1994 1995 1996 1997
Statement of Operations Data:
Net sales $51,380 $59,658 $61,320 $71,373 $90,252
Costs and expenses:
Cost of sales 14,953 16,277 16,721 19,318 23,497
Restaurant operating expenses 27,927 32,939 32,898 36,851 46,966
General and administrative 4,008 4,446 4,098 5,142 5,672
expenses
Depreciation and amortization 2,711 3,633 3,604 4,518 6,147
Restaurant closure costs 815
Total costs and expenses 49,599 58,110 57,321 65,829 82,282
Operating income 1,781 1,548 3,999 5,544 7,790
Interest income 213 93 221 142 106
Interest expense, (1,708) (1,898) (1,313) (671) (1,579)
Other expense, net (60) (210) (66) (62)
Income (loss) before income taxes
and extraordinary item 286 (317) 2,697 4,949 6,435
Benefit (provision) for (77) (18) 1,646 (1,945) (2,548)
income taxes (5)
Income (loss) before extraordinary 209 (335) 4,343 3,004 3,887
item
Extraordinary item -
early extinguishment of debt (6) (518)
Net income (loss) 209 (335) 3,825 3,004 3,887
Stock dividend (8,298)
Net income (loss) available to $209 $ (335) $(4,473) $3,004 $3,887
common stockholders
Pro forma net loss $ (.13) $ (1.42)
per share available to common
stockholders (1) (2)
Net income per share available to
common stockholders (1) (2)
Primary $ .72 $ .88
Fully diluted $ .71 $ .85
Shares used in computing pro forma 2,526 3,161
net loss per share (2) (3)
Shares used in computing net
income per share
Primary 4,176 4,402
Fully diluted 4,245 4,548
Selected Operating Data:
Percentage change in comparable (4.2)% 1.2% 2.0% 2.5% 4.7%
restaurant sales (3)
Average price per guest (4) $6.64 $6.66 $6.56 $6.57 $6.75
Average sales for restaurants
open for full period $1,748 $1,779 $1,835 $1,902 $1,985
Number of full service restaurants
open for full period 27 31 32 35 42
Number of full service restaurants
open at end of period 33 33 35 43 49
Balance Sheet Data:
Total assets $27,932 $29,713 $34,651 $48,062 $62,409
Long-term debt and capital lease
obligations, current portion $11,117 $13,263 $ 4,017 $ 9,934 $17,421
Shareholders' equity $10,522 $10,209 $23,768 $29,257 $34,168
(1) 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.
(2) 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.
(3) 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.
(4) Average price per guest is derived from the Company's net sales,
which reflects discounts and coupons.
(5) Fiscal 1995 results include a benefit related to recognition of
deferred tax assets of $2,173,000.
(6) 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,
1995 1996 1997
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Costs and expenses
Cost of sales 27.3 27.1 26.0
Restaurant operating expenses:
Labor 28.4 27.8 29.0
Occupancy and other 25.2 23.8 23.1
Total restaurant
operating expenses 53.6 51.6 52.1
General and administrative expense 6.7 7.2 6.3
Depreciation and amortization 5.9 6.3 6.8
Total costs and expenses 93.5 92.2 91.2
Operating income 6.5 7.8 8.8
Interest expense, net (1.8) (.8) (1.6)
Other expense, net (.3) (.1) (.1)
Income before income tax expense
and extraordinary item 4.4 6.9 7.1
Benefit (provision) for income taxe 2.7 (2.7) (2.8)
Income before
extraordinary item 7.1 4.2 4.3
Extraordinary item -
early extinguishment of debt (.9)
Net income 6.2 4.2 4.3
Stock dividend (13.5)
Net income (loss) available
to common shareholders (7.3)% 4.2% 4.3%
Selected Operating Data:
Percentage change in comparable
restaurant sales 2.0% 2.5% 4.7%
Average net sales for restaurants
open for full fiscal period $1,835 $1,902 $1,985
Number of full service restaurants
open for full period 32 35 42
Number of full service restaurants
open at end of period 35 42 49
Statement of Operations Data:
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fiscal 1997 versus Fiscal 1996
Net Sales. Net sales for the fiscal year ended September 30, 1997
increased 26.5% to $90.3 million from $71.4 million for the comparable 1996
period. The increase was due to a 4.7% increase in comparable restaurant sales
which resulted from an increase in guest volume of 3.1%, and in average meal
price of 1.6% and the addition of seven new stores that opened in fiscal 1997.
Cost of Sales. Cost of sales increased 21.8% to $23.5 million in the
year ended September 30, 1997 from $19.3 million in the comparable 1996 period.
As a percent of sales, cost of sales decreased 1.1% from 27.1% in fiscal 1996
to 26.0% for the fiscal year ended September 30, 1997. This decrease was
primarily due to better menu management and improved purchasing.
Labor Expense. Labor expense for the fiscal year ended September 30,
1997 increased 31.1% to $26.1 million from $19.9 million for the comparable
1996 period. This increase was due primarily to an increase in the minimum
wage and the associated benefits based on wages. The remainder of the 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, 1997 increased to 29.0% from 27.8% in the
comparable 1996 period.
Occupancy and Other Operating Costs. Occupancy and other operating
costs for the fiscal year ended September 30, 1997 increased 22.4% to $20.8
million from $17.0 in the comparable 1996 period. As a percentage of net
sales, occupancy and other operating costs for the fiscal year ended September
30, 1997 decreased to 23.1% from 23.8% in the comparable 1996 period. The
decrease was due to primarily lower occupancy costs in the newer regions.
General and Administrative Expenses. General and administrative
expenses for the fiscal year ended September 30, 1997 increased 11.8% to $5.7
million from $5.1 million for the comparable 1996 period. This increase was
primarily due to the increased 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, 1997 decreased
to 6.3% from 7.2% in the comparable 1996 period.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the fiscal years ended September 30, 1997 and 1996 was
approximately $6.1 million and $4.5 million, respectively. As a percentage of
net sales, depreciation and amortization expense for the fiscal year ended
September 30, 1997 increased to 6.8% from 6.3% in the comparable 1996 period.
This increase was attributable to the increased amortization of start up costs
associated with the opening of seven new restaurants, four of which were in new
regions. The first store in a new region typically has higher startup costs
than later stores due to extra costs associated with establishing a new region.
Interest Expense. Interest expense for the fiscal year ended
September 30, 1997 increased to $1.6 million from $.7 million for the fiscal
year ended September 30, 1996. This increase was attributable to new debt
incurred for continued expansion.
Provision for Income Taxes. Provision for income taxes increased to
$2.5 million in 1997 from $1.9 million in 1996 principally due to higher pretax
income during the fiscal year.
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, which were utilized during fiscal 1997.
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 7.2% 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 6.3% 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. Interest expense for the fiscal year ended
September 30, 1996 decreased 46.2% to $.7 million from $1.3 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.
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. Interest expense for the fiscal year ended
September 30, 1995 decreased 31.6% to $1.3 million from $1.9 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.
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 1996 and the four
fiscal quarters of fiscal 1997. 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 1996 Fiscal 1997
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Statement of
Operations Data:
Net Sales $14,935 $17,597 $18,712 $20,129 $19,277 $23,459 $23,502 $24,014
Operating income $ 515 $ 1,384 $ 1,729 $ 1,916 $ 950 $ 2,069 $ 2,391 $ 2,560
Net income 245 $ 771 $ 962 $ 1,026 $ 375 $ 1,017 $ 1,192 $ 1,303
As a Percentage
of Net Sales:
Operating income 3.4% 7.9% 9.2% 9.5% 4.9% 8.8% 10.2% 10.7%
Net income 1.6% 4.4% 5.1% 5.1% 1.9% 4.3% 5.1% 5.4%
Selected Operating
Data:
Number of restaurants
open at end of period 36 36 40 43 45 47 47 50
Percentage change in (.2%) 6.7% 2.2% .9% 3.7% 1.6% 5.0% 9.4%
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.
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.
From October 1, 1992 through September 30, 1997, the Company generated $38.4
million in cash flow from operating activities, received $30.5 million from
bank debt and capital lease financing, $7.6 million from subordinated debt
financing and $11.6 million from the Company's initial public offering and an
additional $1.1 million from the sale of the Company's common stock pursuant to
stock options.
The Company's principal capital requirement has been and will
continue to be 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 ten restaurants. During fiscal 1995, 1996 and 1997, the Company opened 3,
8 and 7 restaurants, respectively, resulting in a net increase in the Company's
restaurants from 32 to 50 at September 30, 1997 (one Southern California
restaurant was closed during fiscal 1995). Capital expenditures totalled $8.2
million and $18.2 million, respectively, during fiscal 1995 and 1996 and $17.6
million during fiscal 1997.
The Company currently operates 51 restaurants, including one which
opened in fiscal 1998. Additionally, the Company has signed one lease,
purchased land for two restaurants and opened escrow for four of the remaining
ten sites expected to open in fiscal 1998. The Company opened one new
restaurant in Utah, one additional restaurant in Arizona, four additional
restaurants in Florida and one additional restaurant in New Mexico during
fiscal 1997. 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 seven full service restaurants opened
in fiscal 1996, excluding land purchases was $1.40 million. Pre-opening costs
averaged approximately $134,000 for the seven full service restaurants opened
in fiscal year 1996. The's Company's average cash investment for the seven
restaurants opened in fiscal 1997 excluding land purchases was $1.60 million.
Preopening costs averaged approximately $161,000 for the seven restaurants
opened in fiscal year 1997. 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 1998 of $20.0 million for new restaurant openings, the Company has
budgeted $2.4 million in expenditures for fiscal 1998 for capital improvements
at existing sites. See "Business Risks - Capital Requirements".
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.
Certain Operating Results and Consideration. In fiscal 1995, 1996
and 1997, respectively, the Company experienced an increase of 2.0%, an
increase of 2.5%, and an increase of 4.7%, 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 4.7% comparable restaurant
sales growth in fiscal 1997 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. The Company opened seven full size restaurants in
fiscal 1996 and has opened seven in fiscal 1997, and currently intends to open
eleven restaurants in fiscal 1998. 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.
Capital Requirements. In addition to funds generated from
operations, the Company will need to obtain external financing to complete its
expansion plans for fiscal year 1998 and beyond. There can be no assurance
that such funds will be available when needed. Additionally should the
Company's results of operations decrease 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, because capital may not be available.
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.
Minimum Wage. The Company has recently experienced increase in
hourly wage rates due to an increase in the federal way rate on October 1,
1996, and September 1, 1997, and in California on March 1, 1997. The Company
expects to experience another increase on March 1, 1998 in California. While
the Company has managed to absorb the first increases without a reduction in
profitability, there can be no assurance that the Company will be able to
absorb the increase on March 1, 1998 or any future potential increases.
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 51 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 that 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.
Legal Matters. The Company closed a leased restaurant in September
1994 and filed a lawsuit against the landlord for a breach of contract. The
landlord has countersued the Company for damages. An unfavorable decision
against the Company could adversely affect the Company's results of operations.
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, 1997 and 1996,
and for each of the three fiscal years in the period ended September 30, 1997
and the report of independent accountants, are included in this report as
listed in the index on page 26 of this report - Item 14(a).
Item 9. CHANGES 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
March 5, 1998 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:
(1) Report of Independent Accountants. . . . . . . . . . . . . . F-1
Balance Sheet at September 30, 1996
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of Operations for the Years Ended
September 30, 1995, 1996 and 1997. . . . . . . . . . . . . . F-3
Statement of Cash Flows for the Years Ended
September 30, 1995, 1996 and 1997. . . . . . . . . . . . . . F-4
Statement of Changes in Shareholder's Equity for the
Years Ended September 30, 1995, 1996 and 1997. . . . . . . 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 1997.
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: December 18, 1997 GARDEN FRESH RESTAURANT CORP.
By: /s/ Michael P. Mack
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 December 18, 1997 by the
following persons in the capacities indicated.
/s/ Michael P. Mack Chairman of the Board
Michael P. Mack Chief Executive Officer
President and Director
/s/ David W. Qualls Chief Financial Officer and
David W. Qualls Chief Accounting Officer
/s/ Edgar F. Berner Director
Edgar F. Berner
/s/ Robert A. Gunst Director
Robert A. Gunst
/s/ Michael M. Minchin, Jr. Director
Michael M. Minchin, Jr.
/s/ John M. Robbins, Jr. Director
John M. Robbins, Jr.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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.
10.13** Park Terrace Office Park Lease between the Company and Park Terrace
Partners dated November 1, 1991.
23.1 Consent of Price Waterhouse LLP, Independent Accountants
24.1** Power of Attorney
27.1 Financial Data Schedule
* 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.
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