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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2001
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
COMMISSION FILE NUMBER 0-20845
BIG BUCK BREWERY & STEAKHOUSE, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
MICHIGAN 38-3196031
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
550 SOUTH WISCONSIN STREET
GAYLORD, MICHIGAN 49734
(517) 731-0401
(Address of Principal Executive Offices and Issuer's
Telephone Number, including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 3, 2001, the issuer had outstanding 5,797,968 shares of
Common Stock and 2,550,000 Class A Warrants.
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TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION................................................................................1
Item 1 Financial Statements...........................................................................1
Balance Sheets as of April 1, 2001 and December 31, 2000.......................................1
Statements of Operations for the three months ended April 1, 2001
and April 2, 2000..............................................................................2
Statements of Cash Flows for the three months ended April 1, 2001
and April 2, 2000..............................................................................3
Condensed Notes to Financial Statements........................................................4
Item 2 Management's Discussion and Analysis or Plan of Operation......................................5
PART II OTHER INFORMATION...................................................................................13
Item 1 Legal Proceedings.............................................................................13
Item 2 Changes in Securities and Use of Proceeds.....................................................13
Item 3 Defaults upon Senior Securities...............................................................14
Item 4 Submission of Matters to a Vote of Security Holders...........................................14
Item 5 Other Information.............................................................................14
Item 6 Exhibits and Reports on Form 8-K..............................................................14
SIGNATURES......................................................................................................15
INDEX TO EXHIBITS...............................................................................................16
i
PART I
ITEM 1 Financial Statements
BIG BUCK BREWERY & STEAKHOUSE, INC.
BALANCE SHEETS
April 1, December 31,
2001 2000
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 118,297 $ 22,901
Accounts receivable 83,107 385,536
Inventories 272,761 309,906
Prepaids and other 529,442 384,669
------------------ ----------------
Total current assets 1,003,607 1,103,012
PROPERTY AND EQUIPMENT 23,850,018 24,030,987
OTHER ASSETS, net 1,014,895 1,094,367
------------------ ----------------
$ 25,868,520 $ 26,228,366
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,573,980 $ 2,972,225
Accrued expenses 387,632 676,555
Current maturities of long-term obligations 1,224,657 949,657
------------------ ----------------
Total current liabilities 4,186,269 4,598,437
LONG-TERM OBLIGATIONS, less current maturities 14,355,154 14,379,594
------------------ ----------------
Total liabilities 18,541,423 18,978,031
------------------ ----------------
MINORITY INTEREST 464,789 463,811
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000
shares authorized; 5,797,968 and 5,474,562
shares issued and outstanding 57,980 54,746
Warrants 153,650 153,650
Additional paid-in capital 14,477,550 14,153,174
Accumulated deficit (7,826,872) (7,575,046)
------------------ ----------------
Total shareholders' equity 6,862,308 6,786,524
------------------ ----------------
$ 25,868,520 $ 26,228,366
================== ================
The accompanying notes are an integral part of these balance sheets.
1
BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
April 1, 2001 April 2, 2000
----------------- -----------------
REVENUE:
Restaurant sales $ 4,675,723 $ 3,559,541
Wholesale and retail sales 80,607 81,234
-------------- ----------------
Total revenue 4,756,330 3,640,775
-------------- ----------------
COSTS AND EXPENSES:
Cost of sales 1,598,184 1,180,980
Restaurant salaries and benefits 1,272,736 1,053,008
Operating expenses 918,320 771,564
Depreciation 290,619 190,008
General and administrative expenses 424,397 396,917
-------------- ----------------
Total costs and expenses 4,504,257 3,592,477
-------------- ----------------
INCOME FROM OPERATIONS 252,073 48,298
-------------- ----------------
OTHER EXPENSE:
Interest expense (413,180) (361,699)
Amortization of financing cost (89,748) (39,268)
-------------- ----------------
Other expense, net (502,928) (400,967)
-------------- ----------------
MINORITY INTEREST SHARE OF JOINT VENTURE LOSS (14,412) -
-------------- ----------------
NET LOSS $ (265,267) $ (352,699)
============== ================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.05) $ (0.07)
============== ================
OUTSTANDING WEIGHTED AVERAGE SHARES 5,690,166 5,405,481
============== ================
The accompanying notes are an integral part of these financial statements.
2
BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Three Months Ended
April 1, 2001 April 2, 2000
--------------------- ---------------------
OPERATING ACTIVITIES:
Net loss $ (265,267) $ (352,669)
Adjustments to reconcile net loss to cash flows used in
operating activities-
Depreciation and amortization 381,124 264,340
Minority Interest's share of joint venture income 14,412 -
Interest expense paid for with common stock 227,453 -
Change in operating assets and liabilities:
Accounts receivable 302,430 96,608
Inventories 37,145 16,076
Prepaids and other (69,049) 18,517
Accounts payable (398,245) (973,002)
Accrued expenses (288,923) (100,118)
-------------- ---------------
Net cash used in operating activities (58,920) (1,030,248)
-------------- ---------------
INVESTING ACTIVITIES:
Purchases of property and equipment (102,736) (30,795)
Decrease (increase) in other assets (17,948) (192,650)
Purchase of short-term investments, net - (3,050,000)
-------------- ---------------
Net cash used in investing activities (120,683) (3,273,445)
-------------- ---------------
FINANCING ACTIVITIES:
Borrowings under long-term debt 350,000 7,700,000
Payments on long-term debt and capital lease obligations (75,000) (3,063,983)
Payment of deferred financing costs - (512,096)
Proceeds from minority partner - 98,278
Proceeds from sale of common stock - -
-------------- ---------------
Net cash provided by financing activities 275,000 4,222,199
-------------- ---------------
INCREASE (DECREASE) IN CASH 95,396 (81,494)
CASH, beginning of period 22,901 369,228
-------------- ---------------
CASH, end of period $ 118,297 $ 287,734
============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 413,180 $ 377,000
Income taxes paid - -
NON-CASH TRANSACTIONS:
Issuance of common stock, stock options and
warrants for property, services and interest and debt $ 327,610 357,866
The accompanying notes are an integral part of these financial statements.
3
BIG BUCK BREWERY & STEAKHOUSE, INC.
Condensed Notes to Financial Statements
April 1, 2001
(1) Basis of Financial Statement Presentation
The accompanying unaudited financial statements included herein have
been prepared by Big Buck Brewery & Steakhouse, Inc. in accordance with
generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although Big Buck believes that
the disclosures made are adequate to make the information not
misleading.
The financial statements for the three months ended April 1, 2001,
include the results of operations for the joint venture described in
Big Buck's Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 2000.
The unaudited balance sheet as of April 1, 2001 and the unaudited
statements of operations and cash flows for the three months ended
April 1, 2001, and April 2, 2000, include, in the opinion of
management, all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the financial results
for the respective interim periods and are not necessarily indicative
of results of operations to be expected for the entire fiscal year
ending December 30, 2001. The accompanying interim financial statements
have been prepared under the presumption that users of the interim
financial information have either read, or have access to, the audited
financial statements and notes in Big Buck's Annual Report on Form
10-KSB/A for the fiscal year ended December 31, 2000. Accordingly,
footnote disclosures which would substantially duplicate the
disclosures contained in the December 31, 2000, audited financial
statements have been omitted from these interim financial statements
except for the disclosures below. It is suggested that these interim
financial statements should be read in conjunction with the financial
statements and the notes thereto included in Big Buck's Annual Report
on Form 10-KSB/A for the fiscal year ended December 31, 2000.
4
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE FOLLOWING DISCUSSION CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 21E OF THE EXCHANGE ACT. ALTHOUGH WE BELIEVE THAT, IN
MAKING ANY SUCH STATEMENT, OUR EXPECTATIONS ARE BASED ON REASONABLE
ASSUMPTIONS, ANY SUCH STATEMENT MAY BE INFLUENCED BY FACTORS THAT COULD CAUSE
ACTUAL OUTCOMES AND RESULTS TO BE MATERIALLY DIFFERENT FROM THOSE PROJECTED.
WHEN USED IN THE FOLLOWING DISCUSSION, THE WORDS "ANTICIPATES," "BELIEVES,"
"EXPECTS," "INTENDS," "PLANS," "ESTIMATES" AND SIMILAR EXPRESSIONS, AS THEY
RELATE TO US OR OUR MANAGEMENT, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED, CERTAIN OF WHICH ARE BEYOND OUR CONTROL,
ARE SET FORTH IN OUR ANNUAL REPORT ON FORM 10-KSB/A FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000, UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION -- CAUTIONARY STATEMENT."
OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED IN, OR IMPLIED BY, FORWARD-LOOKING STATEMENTS. ACCORDINGLY,
WE CANNOT BE CERTAIN THAT ANY OF THE EVENTS ANTICIPATED BY FORWARD-LOOKING
STATEMENTS WILL OCCUR OR, IF ANY OF THEM DO OCCUR, WHAT IMPACT THEY WILL HAVE
ON US. WE CAUTION YOU TO KEEP IN MIND THE CAUTIONS AND RISKS DESCRIBED IN OUR
CAUTIONARY STATEMENT AND TO REFRAIN FROM ATTRIBUTING UNDUE CERTAINTY TO ANY
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THE DOCUMENT
IN WHICH THEY APPEAR.
OVERVIEW
We develop and operate microbrewery restaurants under the name "Big Buck
Brewery & Steakhouse." Until May 1995 when we opened our first unit in
Gaylord, Michigan, we had no operations or revenues and our activities were
devoted solely to development. In March 1997, we opened our second unit in
Grand Rapids, Michigan, and in October 1997, we opened our third unit in
Auburn Hills, Michigan, a suburb of Detroit. In August 2000, we opened our
fourth unit in Grapevine, Texas, a suburb of Dallas. This unit is owned and
operated by Buck & Bass pursuant to our joint venture agreement with Bass
Pro. Subject to obtaining the necessary financing, we plan to open our next
unit in Nashville, Tennessee, adjacent to the Grand Ole Opry.
Future revenues and profits will depend upon various factors, including
market acceptance of the Big Buck Brewery & Steakhouse concept and general
economic conditions. Our present sources of revenue are the Gaylord, Grand
Rapids, Auburn Hills and Grapevine units. We cannot assure you that we will
successfully implement our expansion plans, in which case we will continue to
depend on revenues from our existing units. We also face all of the risks,
expenses and difficulties frequently encountered in connection with the
expansion and development of a new business. Furthermore, to the extent that
our expansion strategy is successful, we must manage the transition to
multiple site, higher volume operations, control increased overhead expenses
and hire additional personnel.
Our operating results are expected to fluctuate based on seasonal patterns.
Based on our existing units, we anticipate that our highest revenues will
occur in the second and third calendar quarters due to the milder climate
during those quarters in Michigan. We believe, however, that additional
expansion into markets outside Michigan, if any, will mitigate the effect of
seasonality on our business. Quarterly results in the future are likely to be
substantially affected by the timing of new unit openings. Because of the
seasonality of our business and the impact of new unit openings, results for
any quarter are not necessarily indicative of the results that may be
achieved for a full fiscal year and cannot be used to indicate financial
performance for a full fiscal year.
5
QUARTERS ENDED APRIL 1, 2001 AND APRIL 2, 2000
Our operating results, expressed as a percentage of total revenue, were as
follows:
Three Months Ended
--------------------------------
April 1, April 2,
2001 2000
------- -------
REVENUE:
Restaurant sales 98.3% 97.8%
Wholesale and retail sales 1.7 2.2
------ -------
Total revenue 100.0 100.0
------ -------
COSTS AND EXPENSES:
Cost of sales 33.6 32.4
Restaurant salaries and benefits 26.8 28.9
Operating expenses 19.3 21.2
Depreciation 6.1 5.2
General and administrative expenses 8.9 10.9
------ -------
Total costs and expenses 94.7 98.7
------ -------
INCOME FROM OPERATIONS 5.3 1.3
------ -------
OTHER EXPENSE:
Interest expense (8.7) (9.9)
Interest income - -
Other (1.9) (1.1)
Minority interest's share of subsidiary's loss (0.3) -
------ -------
NET LOSS (5.6)% (9.7)%
====== =======
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED APRIL 1, 2001 AND APRIL 2, 2000
REVENUES
Revenues increased 30.6% to $4,756,330 in the quarter ended April 1, 2001
from $3,640,775 in the quarter ended April 2, 2000. The increase was
primarily due to the opening of the Grapevine unit on August 31, 2000. We
believe that we can attain continued revenue growth through additional
expansion. We also believe that we can attain higher revenue through the menu
price increases we implemented in the first quarter of 2001.
COSTS OF SALES
Cost of sales, which consists of food, merchandise and brewing supplies,
increased 35.3% to $1,598,184 in the first quarter of 2001 compared to
$1,180,980 for the first quarter of 2000. The increase was primarily due to
the purchase of additional food and brewing supplies for use at the Grapevine
unit. As a percentage of revenues, costs of sales increased to 33.6% in the
first quarter of 2001 compared to 32.4% for the first quarter of 2000. The
percentage increase was due to higher meat costs and the cost associated with
purchasing hard liquor for resale in the Grapevine unit. We believe that we
can reduce our cost of sales by limiting portion
6
sizes to specifications and entering into food purchasing contracts, both
components of the cost-saving strategy we implemented in the first quarter of
2001.
RESTAURANT SALARIES AND BENEFITS
Restaurant salaries and benefits, which consist of restaurant management and
hourly employee wages and benefits, payroll taxes and workers' compensation
insurance, increased 20.9% to $1,272,736 in the first quarter of 2001
compared to $1,053,008 for the first quarter of 2000. The increase was
primarily due to the added cost of operating an additional restaurant. As a
percentage of revenues, restaurant salaries and benefits decreased to 26.8%
in the first quarter of 2001 as compared to 28.9% in the first quarter of
2000. The percentage decrease was due to the implementation of lower staffing
levels and more efficient scheduling.
OPERATING EXPENSES
Operating expenses, which include supplies, utilities, repairs and
maintenance, advertising and occupancy costs, increased 19.0% to $918,320 in
the first quarter of 2001 compared to $771,564 in the first quarter of 2000.
The increase was primarily due to the added operating expenses from the
Grapevine unit. As a percentage of revenues, operating expenses decreased to
19.3% in the first quarter of 2001 as compared to 21.2% in the first quarter
2000. The percentage decrease was due to reduced discounting, the elimination
of certain in-store promotions and reduced laundry expenses resulting from a
dress code modification, each a component of the cost-saving strategy we
implemented in the first quarter of 2001.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 6.9% to $424,397 in the first
quarter of 2001 compared to $396,917 in the first quarter of 2000. The
increase reflected the added professional fees and travel expenses related to
the Grapevine unit. As a percentage of revenue, these expenses decreased to
8.9% in the first quarter of 2001 as compared to 10.9% in the first quarter
of 2000. The decrease was the result of general and administrative expenses
increasing only $27,480 while revenues increased $1,115,555 due to the
opening of the Grapevine unit.
DEPRECIATION
Depreciation expenses increased 53.0% to $290,619 in the first quarter of
2001 compared to $190,008 in the first quarter of 2000. The increase was due
the additional depreciation from the Grapevine unit. As a percentage of
revenues, these expenses increased to 6.1% in the first quarter of 2001 from
5.2% in the first quarter of 2000. The increase was due to the Grapevine unit
having a higher amount of depreciation as a percentage of revenue as the
result of this leasehold being depreciated over a 15-year term without
considering renewals.
INTEREST EXPENSE
Interest expense increased $51,481 to $413,180 in the first quarter of 2001
compared to $361,699 in the first quarter of 2000. The increase reflected
payments on additional borrowings for the completion of the Grapevine unit
and working capital purposes. As a percentage of revenues, interest expense
decreased to 8.7% in the first quarter of 2001 from 9.9% in the first quarter
of 2000. The decrease as a percentage of revenues reflected the fact that
interest expense was offset by the additional revenues from the Grapevine
unit. As new units are added, we anticipate that we will incur additional
interest expense.
OTHER EXPENSE
Other expense consists primarily of amortization expense. Other expenses
increased $51,481 to $89,748 in the first quarter of 2001 compared to $39,268
in the first quarter of
7
2000. The increase was the result of the amortization of financing costs from
the WCERS financing and warrants issued during 2000.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
We used $58,920 in cash for operating activities during the first quarter of
2001, and used $1,030,248 in cash for operating activities during the first
quarter of 2000. We had a working capital deficit of $3,182,662 at April 1,
2001, and a working capital deficit of $3,495,425 at April 2, 2000. We spent
$102,736 in the first quarter of 2001 for fixed assets. During the first
quarter of 2001 we secured a line of credit for up to $1.0 million from
Crestmark Bank, of which we had borrowed approximately $350,000 as of May 3,
2001. During the first quarter of 2001, we used funds borrowed under the
credit line to fund a portion of the remaining balance from the Grapevine
construction, to repay $75,000 to one holder of a convertible subordinated
promissory note and for working capital purposes. We intend to borrow
additional funds under the credit line to fund the remaining balance from the
Grapevine construction.
In general, we have experienced operating losses in each quarterly and annual
period since inception. We incurred net losses of $265,267 for the first
quarter 2001, and $352,669 for the first quarter of 2000. As of April 1,
2001, we had an accumulated deficit of $7.8 million. We currently depend upon
our existing units for all of our revenues. In connection with our plans to
open additional units, we expect increased pre-opening expenses.
Consequently, we expect to incur significant losses for the foreseeable
future. We will need to generate significant increases in our revenues to
achieve and maintain profitability. If our revenues fail to grow or grow more
slowly than we anticipate, or our operating expenses exceed our expectations,
our losses could significantly increase, which would harm our business,
operating results, cash flows and financial condition. In addition, our
failure to become and remain profitable may adversely affect the market price
of our securities and our ability to raise capital and continue operations.
The report of our independent public accountants for the year ended December
31, 2000, includes an explanatory paragraph expressing doubt about our
ability to continue as a going concern.
Since inception, our principal capital requirements have been the funding of
(a) our operations and promotion of the Big Buck Brewery & Steakhouse format
and (b) the construction of units and the acquisition of furniture, fixtures
and equipment for such units. Total capital expenditures for the Gaylord,
Grand Rapids and Auburn Hills units were approximately $6.2 million, $3.2
million and $10.2 million, respectively. Total capital expenditures of Buck &
Bass for the Grapevine unit were approximately $7.6 million. Pursuant to our
joint venture agreement with Bass Pro, we funded approximately $6.4 million
of that cost, including our $1.5 million loan to Buck & Bass.
FINANCINGS ACTIVITIES DURING 2000
In January 2000, we generated $237,500 in net proceeds from the private
placement of $250,000 principal amount of convertible subordinated promissory
notes. In February 2000, we generated $7,017,000 in net proceeds from the
private placement of $7,500,000 principal amount convertible secured
promissory notes to WCERS. We used these funds to repay $2,495,000 due Bank
One (f/k/a NBD Bank) and Crestmark Bank and to make a required capital
contribution to Buck & Bass. In August 2000, we generated $1,425,000 in net
proceeds from the private placement of a $1,500,000 principal amount
non-convertible secured promissory note to WCERS. We used these funds and
working capital to lend $1,500,000 to Buck & Bass in August 2000. Buck & Bass
applied such funds to the construction of the Grapevine unit. In October
2000, we agreed with WCERS to extend the maturity dates of certain promissory
notes held by WCERS, with an aggregate principal amount of approximately
$7,500,000, to October 2002. Also in October 2000, we entered into a first
amendment and acknowledgment of partial payment with the holder of one of our
convertible subordinated promissory notes with a principal amount of $50,000.
Pursuant to such agreement, we repaid $25,000 of principal, extended the
maturity date on the remaining $25,000 of principal from January 2001 to June
2001,
8
and adjusted the conversion price on such note from $1.9125 to $1.50 per
share. In addition, we entered into a first amendment with the holder of two
of our convertible subordinated promissory notes with an aggregate principal
amount of $150,000. Pursuant to such amendment, we extended the maturity date
on $100,000 of principal from October 2000 to October 2001, and adjusted the
conversion price on such note from $1.5252 to $1.50 per share. In December
2000, we generated $100,000 in net proceeds from the private placement of a
$100,000 principal amount non-convertible subordinated promissory note to one
of our shareholders, Michael G. Eyde. We used the funds provided by the
subordinated debt financings for working capital purposes.
FINANCINGS ACTIVITIES DURING 2001
In February 2001, we agreed with WCERS to extend the maturity dates of
certain promissory notes held by WCERS, with an aggregate principal amount of
approximately $7,400,000, to February 2003. As a consequence, each of our
outstanding promissory notes held by WCERS has a maturity date of February 1,
2003. In March 2001, we obtained a line of credit from Crestmark Bank for up
to $1,000,000. The collateral on this line of credit is a $1,000,000 million
letter of credit from WCERS. This letter of credit is valid through March
2002. As of May 3, 2001, we had borrowed approximately $350,000 under the
line of credit to fund a portion of the remaining balance from the Grapevine
construction, to repay $75,000 to one holder of a convertible subordinated
promissory note and for working capital purposes. In March 2001, we entered
into a first amendment and acknowledgment of partial payment with the holder
of one of our convertible subordinated promissory notes with a principal
amount of $250,000. Pursuant to such agreement, we repaid $75,000 of
principal, agreed to a repayment schedule involving monthly payments of
principal and interest commencing May 1, 2001, and adjusted the conversion
price on such note from $1.4752 to $0.73 per share. Also in March 2001, we
entered into two first amendments with Michael G. Eyde, one of our
shareholders, the holder of our non-convertible subordinated promissory note
with a principal amount of $100,000 and the holder of one of our convertible
subordinated promissory notes with a principal amount of $100,000. Pursuant
to the first of such agreements, we made his non-convertible note convertible
into shares of our common stock at a conversion price of $1.00 per share and
extended the maturity date of such note until October 2001. Pursuant to the
second of such agreements, we extended the maturity date of his convertible
note until October 2001 and adjusted the conversion price from $1.9188 to
$1.00 per share. In April 2001, we entered into a first amendment with the
holder of one of our convertible subordinated promissory notes with a
principal amount of $50,000. Pursuant to such agreement, the maturity date of
such note was extended until January 2002 and the conversion price was
adjusted from $1.9125 to $0.73 per share. In April 2001, we entered into a
first amendment with the holder of one of our convertible subordinated
promissory notes with a principal amount of $250,000. Pursuant to such
agreement, the maturity date of such note was extended until October 2001 and
the conversion price was adjusted from $1.4752 to $0.73 per share.
ADDITIONAL FINANCING IS REQUIRED FOR DEBT REPAYMENT
Without additional financing, our leveraged position, requirements for
payments to the holders of our secured and subordinated debt and requirements
for payments on our line of credit may require us to liquidate all or a
portion of our assets. We had working capital deficits of approximately $3.6
million at December 31, 2000 and approximately $3.9 million at January 2,
2000. As of May 3, 2001, we had outstanding (1) convertible secured debt
aggregating $7.5 million, (2) non-convertible secured debt of $1.5 million,
(3) a line of credit for up to $1.0 million, of which we had borrowed
approximately $350,000, and (4) convertible subordinated debt aggregating
approximately $883,300. Of such amounts, $100,000 had matured as of May 3,
2001. Such funds must be repaid in full as follows:
9
TYPE OF DEBT PRINCIPAL AMOUNT MATURITY DATE
------------------------------------------------------------------------------------
Convertible Secured Debt $7,500,000 February 2003
Non-Convertible Secured Debt $1,500,000 February 2003
Line of Credit $1,000,000 March 2002
Convertible Subordinated Debt $100,000 Immediate
Convertible Subordinated Debt $158,300 *
Convertible Subordinated Debt $25,000 June 2001
Convertible Subordinated Debt $550,000 October 2001
Convertible Subordinated Debt $50,000 January 2002
--------------------
* Pursuant to an agreement with the note holder, Big Buck will
make nine additional monthly payments of $18,161 (commencing
June 1, 2001) and one monthly payment of $1,584 (on March 1,
2002) to repay this note in full.
To fund the maturity of the outstanding debt, we will be required to obtain
additional financing or refinance the debt. However, we cannot assure you
that we will be able to obtain the required funds or refinance the debt,
which could materially adversely affect our business, operating results, cash
flows and financial condition.
WCERS COVENANT VIOLATIONS
Among other things, we agreed with WCERS, the holder of approximately $9.0 of
our secured debt, that (1) we would not create, incur or suffer to be created
or incurred or to exist, any lien of any kind upon any of our property or
assets of any character whether then owned or thereafter acquired, or upon
the income or profits therefrom except for certain permitted liens, (2) we
would keep and maintain tangible net worth plus subordinated debt in an
amount not less than $8.5 million, (3) we would keep and maintain a minimum
debt coverage ratio of 1.25 to 1.0 (excluding Grapevine pre-opening and
financing costs), (4) we would maintain our then current cash flow position,
and (5) we would not permit the difference between our current assets and our
current liabilities (other than subordinated debt) to be less than $500,000.
We have notified WCERS that we have violated each of the foregoing covenants.
Our agreements with WCERS define an event of default to include our failure
to perform any term, covenant or agreement contained in our agreements. In
the event of a default which is not waived under our agreements with WCERS,
our assets would be at risk. Foreclosure by WCERS would force us to cease all
operations. On April 3, 2001, we entered into a letter agreement with WCERS
pursuant to which the forgoing covenants were modified to provide that (1) we
must maintain tangible net worth plus subordinated debt in an amount not less
than $6.25 million and (2) we have until January 1, 2002 to meet all other
covenants set forth in the loan documents (unless modified by the parties in
writing). We cannot assure you that we will maintain or regain compliance
with the foregoing covenants or be able to repay or refinance our
indebtedness to WCERS.
ADDITIONAL FINANCING IS REQUIRED FOR GRAPEVINE
In September 1999, Bass Pro declared the limited partnership agreement of
Buck & Bass and the commercial sublease agreement for the Grapevine site to
be breached and in default due to, among other things, our failure to make
our required capital contribution. In February 2000, we made all required
capital contributions and satisfied all subcontractors' liens and claims. In
March 2000, we agreed with Bass Pro in writing to the reinstatement of the
limited partnership agreement and the sublease. In August 2000, we generated
approximately $1.4 million from the private placement of a $1.5 million
secured promissory note to WCERS. We used these funds and working capital to
lend $1.5 million to Buck & Bass in August 2000. These funds were applied by
Buck & Bass to the construction of the Grapevine unit.
During the first quarter of 2001, certain contractors of Buck & Bass filed
liens and made demands for payment of additional sums aggregating
approximately $1.4 million in connection with the construction of the
Grapevine unit. In February 2001, as guarantor of the obligations of Buck &
Bass, we arranged to have filed of record a bond with respect to each lien
for which we had received notice. In March 2001, we obtained
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approximately $1.0 million in debt financing from Crestmark Bank, guaranteed
by WCERS, for working capital purposes including the payment of such
contractors. As of May 3, 2001, we had paid approximately $190,000 to such
contractors. However, we cannot assure you that we will be able to fully and
finally discharge of record all outstanding liens and claims. If we fail to
do so, we may be in material default under the limited partnership agreement
and the commercial sublease agreement.
GRAPEVINE COVENANT VIOLATIONS
The existence of such encumbrances and the failure of Buck & Bass to perform
quarterly customer satisfaction surveys give Bass Pro the ability to declare
an event of default under the sublease, terminate the sublease and demand all
unpaid and reasonably calculable future rent over the balance of the sublease
term. Pursuant to the limited partnership agreement, a material default under
the sublease would also entitle Bass Pro to purchase our interest in the
joint venture at 40% of book value, thereby eliminating our interest in the
Grapevine unit. Further, Bass Pro has the right to purchase up to 15% of our
interest in the joint venture, at 100% of our original cost, on or before
August 31, 2002; provided, however, that our interest in the joint venture
may not be reduced below 51%. The termination of the sublease or the
elimination of our interest in the Grapevine unit would have a material
adverse effect on our business, operating results, cash flows and financial
condition.
ADDITIONAL FINANCING IS REQUIRED FOR NASHVILLE
Without additional financing, we will be unable to develop and open the
Nashville unit. We anticipate that construction of the Nashville unit will
require approximately $4.0 million, including approximately $2.0 million in
the form of tenant allowances provided by our landlord. Our lease agreement
for the Nashville site requires us to make annual minimum base rent payments
of approximately $520,000 commencing upon the earlier of the opening of the
Nashville unit or August 19, 2001. These payments are required whether or not
we have the financing required to develop and open the Nashville unit. In the
absence of necessary financing, we will be unable to make payments required
by the lease and our landlord would have the ability to declare an event of
default under the lease, terminate the lease and demand all unpaid and
reasonably calculable future rent over the balance of the lease term.
ADDITIONAL FINANCING REQUIRED FOR FUTURE EXPANSION
We expect that we will continue to require significant capital resources to
fund new unit development and construction. The development of any additional
units will require us to obtain additional financing. The amount of financing
required for new units depends on the definitive locations, site conditions,
construction costs and size and type of units to be built. We cannot assure
you that financing will be available on terms acceptable or favorable to us,
or at all. Without such financing, our development plans will be slower than
planned or even unachievable.
LIMITATIONS ON ABILITY TO INCUR ADDITIONAL INDEBTEDNESS
We granted the following security interests to WCERS in connection with the
February 2000 convertible secured debt financing and the August 2000
non-convertible secured debt financing:
o a pledge of our limited partnership interest in Buck & Bass,
o a pledge of our shares of the issued and outstanding common
stock of BBBP Management Company, and
o a security interest, assignment or mortgage, as applicable, in
our interest in all assets now or hereafter owned, ownership
interests, licenses, and permits, including, without
limitation, a mortgage encumbering the Gaylord site and the
Auburn Hills site.
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We also granted to WCERS a right of first refusal pursuant to which WCERS
may, for so long as the approximately $5.9 million promissory note is
outstanding or WCERS owns more than 15% of our common stock, elect to
purchase securities offered by us, within 45 days of the receipt of notice by
WCERS, at the same price and on the same terms and conditions as are offered
to a third party.
Our agreement with WCERS imposes limitations on our ability to incur
additional indebtedness. We agreed that we would not create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to
any indebtedness, except for indebtedness incurred in the ordinary course of
business not to exceed at any time $1.5 million in the aggregate. Any
indebtedness not in the ordinary course of business or in excess of $1.5
million requires the approval of WCERS. These restrictions may impede our
ability to secure financing for future expansion and continued operations.
Our failure to raise capital when needed would have a material adverse effect
on our business, operating results, cash flows and financial condition.
SHORT-TERM LIQUIDITY PLANS
We are exploring the possibility of refinancing our Gaylord unit to provide
us with the liquidity required to repay current maturities of existing
indebtedness, to discharge of record outstanding liens and claims in
connection with the Grapevine unit and to fund initial construction of the
Nashville unit. We anticipate that WCERS will provide us with approval for
such refinancing. Assuming that we obtain such refinancing, we will then seek
to have WCERS convert its convertible secured promissory note with a
principal amount of approximately $1.6 million into shares of our common
stock. The elimination of certain WCERS debt service obligations would
provide us with additional working capital for operations. Should we be
unable to pay off current maturities of existing indebtedness, discharge of
record outstanding liens and claims in connection with the Grapevine unit or
fund initial construction of the Nashville unit, our business, operating
results, cash flows and financial condition would be materially adversely
affected.
We plan to explore the possibility of expanding our relationship with the
Mills Corporation to develop and open Big Buck Brewery & Steakhouses adjacent
to Bass Pro Outdoor World superstores in several other cities, including, but
not limited to, each of the following markets: Atlanta, Ft. Lauderdale and
the Washington, D.C. area. We cannot assure you that we will enter into
agreements to develop and open additional units. We must raise substantial
proceeds to finance any expansion. However, we believe that the Mills
Corporation would provide substantial tenant allowances, thereby reducing the
amount of other capital we would be required to raise in connection with
future expansion involving the Mills Corporation.
SEASONALITY
Our sales and earnings are expected to fluctuate based on seasonal patterns.
Based on our existing units, we anticipate that our highest earnings will
occur in the second and third calendar quarters due to the milder climate
during those quarters in Michigan. We believe, however, that additional
expansion into markets outside Michigan, if any, will mitigate the effect of
seasonality on our business. Quarterly results in the future are also likely
to be substantially affected by the timing of new unit openings. Because of
the effect of seasonality on our business and the impact of new unit
openings, results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year and cannot be used to
indicate financial performance for a full fiscal year.
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PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
We are involved in routine legal actions in the ordinary
course of our business. Although the outcomes of any such
legal actions cannot be predicted, in the opinion of
management there is no legal proceeding pending against or
involving us for which the outcome is likely to have a
material adverse effect upon our business, operating results,
cash flows and financial condition.
ITEM 2 Changes in Securities and Use of Proceeds
On January 18, 2001, we issued a warrant for the purchase of
50,000 shares of our common stock to Columbia Construction
Company as compensation for field audit services provided by
such entity to us in connection with the Grapevine unit. This
five-year warrant may be exercised at any time upon payment of
the exercise price of $1.32 per share.
On February 1, 2001, we agreed with Wayne County Employees'
Retirement System ("WCERS") to extend the maturity dates of
certain promissory notes held by WCERS, with an aggregate
principal amount of approximately $7,400,000, to February
2003. As a consequence, each of our outstanding promissory
notes held by WCERS has a maturity date of February 1, 2003.
On the same day, we also issued 323,406 shares of our common
stock to WCERS in lieu of $327,610 in principal and/or
interest otherwise payable to WCERS in February, March, April
and May 2001.
On March 22, 2001, we entered into a first amendment and
acknowledgment of partial payment with the holder of one of
our convertible subordinated promissory notes with a principal
amount of $250,000. Pursuant to such agreement, we repaid
$75,000 of principal, agreed to a repayment schedule involving
monthly payments of principal and interest commencing May 1,
2001 (ten payments of $18,160.80 and one payment of
$1,583.76), and adjusted the conversion price on such note
from $1.4752 to $0.73 per share.
On March 29, 2001, we entered into two first amendments with
Michael G. Eyde, one of our shareholders, the holder of our
non-convertible subordinated promissory note with a principal
amount of $100,000 and the holder of one of our convertible
subordinated promissory notes with a principal amount of
$100,000. Pursuant to the first of such agreements, we made
his non-convertible note convertible into shares of our common
stock at a conversion price of $1.00 per share and extended
the maturity date of such note until October 1, 2001. Pursuant
to the second of such agreements, we extended the maturity
date of his convertible note until October 1, 2001 and
adjusted the conversion price from $1.9188 to $1.00 per share.
On March 30, 2001, we issued non-qualified stock options
outside our stock option plans for the purchase of an
aggregate of 60,000 shares of our stock to three directors of
Buck & Bass, L.P., in consideration of their services as
directors of such entity. In general, these five-year options
may be exercised to the extent of 25% upon grant and 25% per
year commencing one year after the date of grant upon payment
of the exercise price of $1.00 per share.
The foregoing issuances were made in reliance upon the
exemption provided in Section 4(2) of the Securities Act. Such
securities are restricted as to sale or transfer, unless
registered under the Securities Act, and certificates
representing such securities contain restrictive legends
preventing sale, transfer or other disposition unless
registered under the Securities Act. In addition, the
recipients of such securities received, or had access to,
material information concerning us, including, but not limited
to, our reports on Form 10-KSB, Form
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10-QSB and Form 8-K, as filed with the SEC. No underwriting
commissions or discounts were paid with respect to the
issuance of the warrant to Columbia Construction Company, the
shares to WCERS, the options to certain directors of Buck &
Bass, L.P. or the modification of the other securities.
ITEM 3 Defaults upon Senior Securities
See "Management's Discussion and Analysis or Plan of
Operation-Liquidity and Capital Resources" for a discussion of
our defaults.
ITEM 4 Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5 Other Information
Not applicable.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
See "Index to Exhibits."
(b) Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K
during the quarter ended April 1, 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIG BUCK BREWERY & STEAKHOUSE, INC.
Date: May 4, 2001 By /s/ Anthony P. Dombrowski
-------------------------------------
Anthony P. Dombrowski
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
10.1 Third Loan Modification Agreement by and between Wayne
County Employees' Retirement System and Big Buck, dated
February 20, 2001 (incorporated by reference to our Annual
Report on Form 10-KSB, filed on April 2, 2001
(File No. 0-20845)).
10.2 Letter Agreement between Wayne County Employees' Retirement
System and Big Buck, dated February 1, 2001 (incorporated by
reference to our Annual Report on Form 10-KSB, filed on
April 2, 2001 (File No. 0-20845)).
10.3 Promissory Note (Line of Credit) in the principal amount of
$1,000,000.00, issued by Big Buck, Maker, to Crestmark Bank,
Payee, dated March 16, 2001 (incorporated by reference to our
Annual Report on Form 10-KSB, filed on April 2, 2001 (File No.
0-20845)).
10.4 Loan Agreement by and between Crestmark Bank and Big Buck,
dated March 16, 2001 (incorporated by reference to our Annual
Report on Form 10-KSB, filed on April 2, 2001 (File No.
0-20845)).
10.5 Form of First Amendment to 10% Convertible Subordinated
Promissory Note (incorporated by reference to our Annual Report
on Form 10-KSB, filed on April 2, 2001 (File No. 0-20845)).
10.6 Letter Agreement between Wayne County Employees' Retirement
System and Big Buck, dated April 3, 2001 (incorporated by
reference to our Annual Report on Form 10-KSB/A, filed on
April 13, 2001 (File No. 0-20845)).
10.7 Form of Non-Qualified Stock Option Agreement between Big Buck
and certain directors of Buck & Bass, L.P., dated March 30, 2001.
10.8 Common Stock Purchase Warrant issued by Big Buck to Columbia
Construction Company, dated January 18, 2001.
10.9 First Amendment and Acknowledgment of Partial Payment to
Convertible Subordinated Promissory Note issued by Big Buck to
James E. Blasius, dated March 22, 2001.
10.10 First Amendment to Non-Convertible Subordinated Promissory Note
issued by Big Buck to Michael G. Eyde, dated March 29, 2001.
10.11 Letter Agreement between Big Buck and Steven G. Balan, dated
April 12, 2001.
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