FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12692
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QUANTUM RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3490149
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042
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(Address of principal executive offices) (zip code)
516-627-1515
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(Registrant's telephone number, including area code)
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
As of May 5, 1996, the registrant had 6,392,843 Shares of its Common Stock, $.01
par value, issued and outstanding.
(1)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995 3-4
Consolidated Statements of Income for the three month periods 5
ended March 31, 1996 and April 2, 1995
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1996, and April 2, 1995 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Part II - Other Information
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Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
(2)
Item 1. Financial Statements
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
March 31, December 31,
1996 1995
---- ----
Assets (unaudited)
------
Current assets:
Cash and cash equivalents $ 2,944 2,351
Accounts receivable 1,458 2,575
Inventories 3,623 3,465
Landlord construction receivables,
prepaid expenses and other current assets 2,302 2,157
Deferred income taxes 1,880 2,280
Assets held for sale 21,590 22,583
------ ------
Total current assets 33,797 35,411
Property and equipment, at cost:
Furniture, fixtures and equipment 10,706 8,304
Leasehold improvements 11,734 7,050
Construction in progress 331 6,618
--- -----
22,771 21,972
Less accumulated depreciation and
amortization 2,999 2,593
----- -----
Net property and equipment 19,772 19,379
------ ------
Intangible assets, net of accumulated
amortization of $2,754 at March 31, 1996
and $2,654 at December 31, 1995 13,241 13,341
Other assets and deferred expenses, net of
accumulated amortization of $2,145 at
March 31, 1996 and $1,306 at
December 31, 1995 6,040 5,057
----- -----
$ 72,850 73,188
====== ======
(Continued)
(3)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
March 31, December 31,
1996 1995
---- ----
(unaudited)
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 6,159 6,904
Accrued expenses 3,579 4,499
Accrued income taxes 327 538
Current portion of note payable to related
party - 483
Liabilities related to assets held for sale 13,334 13,995
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Total current liabilities 23,399 26,419
Bank debt 24,200 23,650
Other liabilities 4,667 4,079
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Total liabilities 52,266 54,148
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Commitments and contingencies:
Stockholders' equity:
Preferred stock, $.01 par value per share.
Authorized 3,000,000 shares, no shares
issued or outstanding - -
Common stock, $.01 par value per share.
Authorized 25,000,000 shares, issued
and outstanding 6,367,093 shares at
March 31, 1996 and December 31, 1995 64 64
Nonvoting common stock, $.01 par value per
share. Authorized 3,000,000 shares, no
shares issued or outstanding - -
Additional paid-in capital 61,350 61,350
Accumulated deficit (40,830) (42,374)
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Total stockholders' equity 20,584 19,040
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$ 72,850 73,188
======= =======
See accompanying notes to consolidated financial statements.
(4)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(amounts in thousands, except per share data)
Three Months Ended
March 31, April 2,
1996 1995
---- ----
(unaudited)
Revenues $ 48,869 44,042
Food and beverage costs 16,271 14,708
Restaurant operating expenses 23,534 21,340
Depreciation, amortization and other
non-cash charges 1,594 1,952
General and administrative expenses 3,702 3,391
Marketing and promotional expenses 1,139 742
Interest expense, net 570 423
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Income before income taxes 2,059 1,486
Income tax expense 515 100
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Net income $ 1,544 1,386
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Income per share $ 0.23 0.21
======= ======
Weighted average shares outstanding 6,743 6,634
======= ======
See accompanying notes to consolidated financial statements.
(5)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(amounts in thousands)
Three Months Ended
March 31, April 2,
1996 1995
---- ----
(unaudited)
Cash flows from operating activities:
Net income $ 1,544 1,386
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation, amortization and other non-cash
charges 1,594 1,952
Deferred income taxes 400 -
Change in assets and liabilities:
Accounts receivable 1,277 (686)
Inventories (60) (170)
Prepaid expenses and other assets (152) 339
Accounts payable, accrued expenses and
other liabilities (1,627) (4,795)
Accrued income taxes (267) (203)
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Net cash provided (used) by operating
activities 2,709 (2,177)
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Cash flows from investing activities:
Purchases of property and equipment, net (361) (1,771)
Payments for start-up costs, licenses and other
deferred expenses (1,822) (209)
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Net cash used by investing activities (2,183) (1,980)
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Cash flows from financing activities:
Increase in bank overdraft - 2,129
Principal reduction on bank debt (1,000) (150)
Proceeds from bank debt 1,550 2,675
Payments on note payable to related party (483) (490)
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Net cash provided by financing activities 67 4,164
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Net increase in cash and cash equivalents 593 7
Cash and cash equivalents at beginning of period 2,351 4,031
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Cash and cash equivalents at end of period $ 2,944 4,038
======== =======
See accompanying notes to consolidated financial statements.
(6)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996 and April 2, 1995
1) The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of
Quantum Restaurant Group, Inc. (the "Company") for the fiscal year ended
December 31, 1995, filed by the Company on Form 10-K with the Securities and
Exchange Commission on March 29, 1996.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire year.
During 1994, the Company changed its fiscal reporting period from a calendar
basis, with a December 31 year end, to a fiscal year basis ending on the closest
Sunday to December 31. The fiscal year will consist of 52 weeks and
approximately every six or seven years, a 53rd week will be added.
2) For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $490,000 and $420,000, and income
taxes of approximately $386,000 and $360,000, for the three months ended March
31, 1996 and April 2, 1995, respectively. During the first quarter of fiscal
1996, the Company entered into capital lease arrangements of approximately
$980,000 for restaurant equipment.
3) Effective January 2, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121").
During the second quarter of fiscal 1995, the Company approved a plan for
the sale of Peasant Holding Corp. ("Peasant Holding"), the holding company for
Mick's Restaurants, Inc., ("Mick's") and The Peasant Restaurants,
Inc.("Peasant"). Pursuant to Statement 121, the Company discontinued
depreciating fixed assets and amortizing goodwill relating to Mick's and Peasant
in April 1995. The amount of such depreciation and amortization for the
corresponding first three months of fiscal 1995 approximated $364,000.
Coincident with the Company's approval of the plan of sale, the assets held
for sale and related liabilities for Mick's and Peasant have been reclassified
as "Assets held for sale" and "Liabilities related to assets held for sale" when
the Company reports its financial position. The accompanying consolidated
balance sheets include the following components:
(7)
March 31, December 31,
1996 1995
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(amounts in thousands)
Current asset $ 2,244 $ 2,686
Net property and equipment 13,891 13,851
Unamortized goodwill 8,077 8,077
Other assets 3,498 4,089
Deferred tax assets 2,180 2,180
Write-down of carrying values (8,300) (8,300)
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Assets held for sale 21,590 22,583
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Current liabilities 3,656 3,470
Other liabilities 2,819 3,325
Lease exit costs 6,859 7,200
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Liabilities related to assets
held for sale 13,334 13,995
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Net assets held for sale $ 8,256 $ 8,588
======= ========
The following represents the combined results of Mick's and Peasant for
the periods ended March 31, 1996 and April 2, 1995. Interest expense was not
allocated.
Three Months Ended
March 31, 1996 April 2, 1995
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(amounts in thousands)
Revenues $ 15,301 $ 17,399
Food and beverage costs 4,477 5,139
Restaurant operating expense 9,623 10,023
Depreciation, amortization and other
non-cash charges 65 1,244
General and administrative expenses 1,044 1,076
Marketing and promotional expenses 287 244
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Loss before income taxes $ (195) $ (327)
========== =========
Management had been actively seeking potential buyers for the sale of
all Mick's and Peasant restaurants and in the fourth quarter of fiscal 1995
engaged an investment banking firm to assist with the sale. Although marketing
efforts concentrated on selling all of the Mick's and Peasant restaurants, sales
materials indicated that a partial sale would be considered. As of May 1996,
interest received for the majority of the restaurants indicates that the related
net assets at March 31, 1996 are recoverable. No meaningful offers were received
for the remaining restaurants (the "Remaining Restaurants"). Cash flow analyses
prepared by management for the Remaining Restaurants indicate that it would be
less costly to close such restaurants in an orderly fashion in the near future,
rather than continue to operate them through the end of their respective lease
terms. Accordingly, during fiscal 1995 assets of $8,300,000 related to the
Remaining Restaurants have been written off and expenses of $7,200,000,
representing management's estimate of the expected costs to terminate related
leases, have been accrued at December 31, 1995. Net
(8)
assets held for sale at March 31, 1996 consist of net assets of $16,200,000
related to the majority of the restaurants and net liabilities of $7,900,000
related to the Remaining Restaurants.
The write-down and related charges for net assets held for sale reflect
management's best estimate of the costs expected to be incurred in connection
with the disposition of the Remaining Restaurants. As a result of the numerous
uncertainties which may impact the actual costs to be incurred by the Company,
such costs may differ from the current estimates used by management.
4) The Company is involved in various legal actions. See "Part II - Other
Information, Item 1. Legal Proceedings" on page 14 of this Form 10-Q for a
discussion of these legal actions.
(9)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
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Revenues increased $4.9 million, or 11.0%, to $48.9 million for the three
month period ended March 31, 1996, from $44.0 million during the comparable 1995
period. Of the increase, $4.2 million was attributable to incremental restaurant
revenues from seven new restaurants opened after January 2, 1995 and $0.6
million, or 1.5%, was attributable to additional comparable revenues from
restaurants open all of both periods. Average revenues per restaurant open for a
full period increased 2.1%. In addition, higher revenues for the first three
months of fiscal 1996 reflect the impact of price increases of approximately 2%
for Mick's and Peasant. The Company operated 74 and 67 restaurants as of March
31, 1996 and April 2, 1995, respectively.
Mick's and Peasant restaurants have generated lower than anticipated
revenues which are adversely impacting average restaurant revenues and earnings
trends. Additionally, as reflected in the table below, the 1996 period was
adversely impacted by declines in the comparable restaurant revenues in the
Mick's and Peasant restaurant groups, offset by increases in the Morton's and
Bertolini's restaurant groups. The Atlanta market, where 22 of the Company's
restaurants are located, has become increasingly competitive and may continue
to adversely impact comparable restaurant revenues and operating results. As
discussed in Note 3 to the accompanying consolidated financial statements, the
Company approved a plan for the sale of the Mick's and Peasant restaurant
groups. Operating results for Mick's and Peasant restaurant groups during the
period they are being held for sale may continue to be adversely impacted.
Percentage changes in comparable restaurant revenues for the three month
period ended March 31, 1996 versus April 2, 1995 for restaurants open all of
both periods are as follows:
Percentage Change
-----------------
Morton's 10.0%
Bertolini's 8.8%
Mick's (12.4)%
Peasant (8.7)%
Total Quantum 1.5%
The Company believes that revenues for the first quarter of 1996 were
adversely affected by severe winter storms in January 1996.
Food and beverage costs increased from $14.7 million for the three month
period ended April 2, 1995 to $16.3 million for the three month period ended
March 31, 1996. These costs as a percentage of revenues decreased 0.1% for the
period.
(10)
Restaurant operating expenses which include labor, occupancy and other
operating expenses increased from $21.3 million for the three month period ended
April 2, 1995 to $23.5 million for the three month period ended March 31, 1996,
an increase of $2.2 million. Those costs as a percentage of revenues decreased
0.3% from 48.5% for the three month period ended April 2, 1995 to 48.2% for the
three month period ended March 31, 1996. The 1996 period increase in costs
relates to the added costs of operating seven additional restaurants opened
after January 2, 1995.
Depreciation, amortization and other non-cash charges were $2.0 million for
the three month period ended April 2, 1995 versus $1.6 million for the three
month period ended March 31, 1996, and decreased from 4.4% of revenues to 3.3%,
respectively. The fiscal 1996 period decrease is due to decreased start-up cost
amortization resulting from reduced development in the latter part of fiscal
1994 and during fiscal 1995, as well as the exclusion of 1996 first quarter
depreciation and amortization related to Mick's and Peasant restaurant groups.
The amount of such depreciation and amortization was approximately $0.4 million
in fiscal 1995 (see Note 3 to the Company's accompanying consolidated fiscal
statements).
General and administrative expenses for the three month period ended March
31, 1996 were $3.7 million, an increase of $0.3 million as compared with the
three month period ended April 2, 1995. Such costs as a percentage of revenues
were 7.6% for the three month period ended March 31, 1996, representing a
decrease of 0.1% from 7.7% for the three month period ended April 2, 1995. The
increase in such expense is driven by incremental costs associated with
increased restaurant development.
Marketing and promotional expenses were $1.1 million, or 2.3% of revenues,
for the three month period ended March 31, 1996, compared to $0.7 million, or
1.7% of revenues for the three month period ended April 2, 1995. The increase is
driven by incremental costs associated with restaurant development and increased
advertising expenditures in the Atlanta region for Mick's restaurants.
Interest expense, net of interest income, increased to $0.6 million for the
three month period ended March 31, 1996 from $0.4 million for the three month
period ended April 2, 1995. The increase is a result of higher outstanding debt
balances and higher interest rates.
Income tax expense of $0.5 million for the three month period ended March
31, 1996 represents state income taxes as well as Federal income taxes, which
were partially offset by the utilization of the Company's net operating loss
carrryforwards and the establishment of additional deferred tax assets relating
to FICA and other tax credits that were generated during the first quarter of
fiscal 1996.
Liquidity and Capital Resources
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In the past, the Company has had, and may have in the future, negative
working capital balances. The Company does not have significant receivables or
inventories and receives trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not needed immediately to pay
for food and supplies or to finance receivables or inventories were used for
noncurrent capital expenditures and or payments of long-term debt balances under
revolving credit agreements.
(11)
The Company and The First National Bank of Boston (FNBB) entered into the
Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of
June 19, 1995, as amended in February and March 1996 (collectively the "Credit
Agreement"), pursuant to which the Company's then existing credit facility was
restructured and amended to, among other things, increase the credit facility
from $25,000,000 to $30,000,000, consisting of a $15,000,000 term loan (the
"Term Loan") and a $15,000,000 revolving credit facility (the "Revolving Credit
Facility") and to extend the final maturity date one year to December 31, 2000.
Loans made pursuant to the Credit Agreement bear interest at a rate equal to the
lender's base rate (plus applicable margin) or, at the Company's option, the
Eurodollar Rate (plus applicable margin). At March 31, 1996, the Company's
applicable margin, calculated pursuant to the Credit Agreement, was 0.25% on
base rate loans and 2.25% on Eurodollar Rate loans. The Company has no
outstanding futures contracts or interest rate hedge agreements.
As of March 31, 1996 and December 31, 1995, the Company had outstanding
borrowings of $24,200,000 and $23,650,000, respectively, under the Credit
Agreement. At March 31, 1996, $484,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $5,316,000. The
weighted average interest rate on all bank borrowings on December 31, 1995 was
7.75%. In addition, the Company is obligated to pay fees of 0.25% on unused loan
commitments less than $10,000,000, 0.375% on unused loan commitments greater
than $10,000,000 and a per annum letter of credit fee (based on the face amount
thereof) equal to the applicable margin on the Eurodollar Rate loans.
The availability under the Credit Agreement is scheduled to reduce by
$5,000,000 on December 31, 1996 and thereafter principal installments on the
Term Loan of $625,000 each will be due at the end of each calendar quarter
through December 31, 2000. The Revolving Credit Facility will be payable in full
on December 31, 2000. Borrowings under the Credit Agreement are secured by all
tangible and intangible assets of the Company. Total amounts of principal
payable by the Company under the Credit Agreement during the five years
subsequent to March 31, 1996 amount to $0 in 1996, $2,500,000 in 1997,
$2,500,000 in 1998, $2,500,000 in 1999, and $16,700,000 in 2000. As stated in
Note 3 to the accompanying consolidated financial statements, the Company
approved a plan for the sale of Mick's and Peasant. Under the terms of the
Company's Credit Agreement, net proceeds from such sale will be required to be
used to reduce the Company's outstanding debt.
The Credit Agreement contains certain restrictive covenants with respect to
the Company that, among other things, create limitations (subject to certain
exceptions) on: (i) the incurrence or existence of additional indebtedness or
the granting of liens on assets or contingent obligations; (ii) the making of
investments in any person; (iii) mergers, dispositions of assets or
consolidations; (iv) prepayment of certain other indebtedness; (v) making
capital expenditures above specified amounts; and (vi) the ability to make
certain fundamental changes or to change materially the present method of
conducting the Company's business. The Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. As of March 31, 1996, the
Company believes it was in compliance with such covenants.
In conjunction with the Company's investment in Santa Fe, in fiscal 1994,
the Company entered into a guaranty of up to $200,000 for Santa Fe lease
obligations and in conjunction with the Company's exit strategy from such
investment, a subsidiary of the Company funded additional amounts to Santa Fe
totaling approximately $900,000 during fiscal 1995. The Company estimates that
further fundings, if any, will be minimal.
(12)
In July 1994, the Company entered into an agreement to purchase 9% of the
outstanding 11% of common stock of Peasant Holding Corp. ("Peasant Holding")
from one of the two remaining minority holders of Peasant Holding common stock.
The purchase price of the shares was approximately $1,985,000 plus interest
calculated at 5%, $900,000 of which was paid in fiscal 1994, $535,000 of which
was paid through December 31, 1995 and the balance of which was paid through
March 1996.
During the first three months of fiscal 1996, the Company's net investment
in fixed assets, capitalized leases, and related investment costs approximated
$2.2 million. The Company estimates that it will expend up to an aggregate of
$11.0 million in 1996 to finance pre-opening costs and capital expenditures net
of landlord development and rent allowances and net of equipment lease financing
for new restaurants and ordinary refurbishment of existing restaurants. The
Company has entered into various equipment lease financing agreements with
several financial institutions of which approximately $6.2 million in the
aggregate has been funded through May 1996 and $7.9 million in the aggregate is
available for future fundings. The Company anticipates that funds generated
through operations and funds available through equipment lease commitments as
well as those available under the Credit Agreement will be sufficient to fund
planned expansion and to meet obligations under the Company's notes payable.
Forward-Looking Statements
- - --------------------------
Except for the historical information contained in this Form 10-Q, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause actual
results to differ materially from these forward-looking statements, including
without limitation, the effect of economic and market conditions, the impact of
competitive activities, the Company's expansion plans, restaurant profitability
levels and other risks detailed in the Company's public reports and SEC filings.
(13)
QUANTUM RESTAURANT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in various legal actions incidental to the normal
conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse affect on the Company's
consolidated financial position, equity, results of operations, liquidity and
capital resources.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits.
4.04 (d) Letter Agreement, dated May 2, 1996, among the Registrant, the
Peasant Restaurants, Inc., Morton's of Chicago, Inc., and
The First National Bank of Boston, individually and as agent.
27.00 Financial Data Schedule
(b)Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
was filed.
(14)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUANTUM RESTAURANT GROUP, INC.
------------------------------
(Registrant)
Date May 13, 1996
-------------------
By: /s/ ALLEN J. BERNSTEIN
---------------------------
Allen J. Bernstein
Chairman of the Board and Chief
Executive Officer
Date May 13, 1996
--------------------- By: /s/ THOMAS J. BALDWIN
---------------------------
Thomas J. Baldwin
Senior Vice President, Finance
and Chief Financial Officer
(15)