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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 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 August 1, 2001, the issuer had outstanding 5,993,882 shares of
Common Stock and 2,550,000 Class A Warrants.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
PART I FINANCIAL INFORMATION..................................................................................1
Item 1 Financial Statements...........................................................................1
Balance Sheets as of July 1, 2001 and December 31, 2000........................................1
Statements of Operations for the three and six months ended July 1, 2001
and July 2, 2000...............................................................................2
Statements of Cash Flows for the six months ended July 1, 2001
and July 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.....................................................................................14
Item 1 Legal Proceedings.............................................................................14
Item 2 Changes in Securities and Use of Proceeds.....................................................15
Item 3 Defaults upon Senior Securities...............................................................15
Item 4 Submission of Matters to a Vote of Security Holders...........................................15
Item 5 Other Information.............................................................................15
Item 6 Exhibits and Reports on Form 8-K..............................................................16
SIGNATURES......................................................................................................17
INDEX TO EXHIBITS...............................................................................................18
</Table>
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PART I
ITEM 1 Financial Statements
BIG BUCK BREWERY & STEAKHOUSE, INC.
BALANCE SHEETS
<Table>
<Caption>
July 1, December 31,
2001 2000
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 146,535 $ 22,901
Accounts receivable 98,850 385,536
Inventories 231,966 309,906
Prepaids and other 423,650 384,669
------------------ ----------------
Total current assets 901,001 1,103,012
PROPERTY AND EQUIPMENT 23,958,995 24,030,987
OTHER ASSETS, net 910,184 1,094,367
------------------ ----------------
$ 25,770,180 $ 26,228,366
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,128,044 $ 2,972,225
Accrued expenses 688,977 676,555
Current maturities of long-term obligations 1,862,456 949,657
------------------ ----------------
Total current liabilities 4,679,477 4,598,437
LONG-TERM OBLIGATIONS, less current maturities 14,325,637 14,379,594
------------------ ----------------
Total liabilities 19,005,114 18,978,031
------------------ ----------------
MINORITY INTEREST 455,859 463,811
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000
shares authorized; 5,818,882 and 5,474,562
shares issued and outstanding 58,189 54,746
Warrants 153,650 153,650
Additional paid-in capital 14,487,341 14,153,174
Accumulated deficit (8,389,973) (7,575,046)
------------------ -----------------
Total shareholders' equity 6,309,207 6,786,524
------------------ ----------------
$ 25,770,180 $ 26,228,366
================== ================
</Table>
The accompanying notes are an integral part of these balance sheets.
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BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
--------------- ------------ ------------- --------------
REVENUE:
Restaurant sales $ 3,972,675 $ 3,396,724 $ 8,648,398 $ 6,956,256
Wholesale and retail sales 66,214 92,310 146,821 173,542
-------------- ------------ ------------- -------------
Total revenue 4,038,889 3,489,034 8,795,219 7,129,807
-------------- ------------ ------------- -------------
COSTS AND EXPENSES:
Cost of sales 1,325,673 1,165,479 2,923,857 2,346,456
Restaurant salaries and benefits 1,118,567 1,117,884 2,391,303 2,170,888
Operating expenses 833,853 794,303 1,752,174 1,565,864
Depreciation 349,509 189,969 640,128 379,977
Preopening expenses 0 46,332 0 46,332
General and administrative expenses 482,011 347,547 906,408 744,459
-------------- ------------ ------------- -------------
Total costs and expenses 4,109,613 3,661,514 8,613,870 7,253,976
-------------- ------------ ------------- -------------
INCOME (LOSS) FROM OPERATIONS (70,724) (172,480) 181,349 (124,169)
OTHER EXPENSE:
Interest expense (416,259) (372,488) (829,439) (734,187)
Amortization of financing cost (85,435) (133,390) (175,183) (172,658)
-------------- ------------- ------------- -------------
Other expense, net (501,694) (505,878) (1,004,622) (906,845)
-------------- ------------- ------------- -------------
MINORITY INTEREST SHARE OF
JOINT VENTURE LOSS (INCOME) 9,326 9,175 (5,086) 9,175
-------------- ------------ ------------- -------------
NET LOSS $ (563,092) $ (669,183) $ (828,359) $ (1,021,839)
============== ============ ============= =============
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.10) $ (0.12) $ (0.14) $ (0.19)
============== ============= ============= ==============
OUTSTANDING WEIGHTED
AVERAGE SHARES 5,797,968 5,405,481 5,744,067 5,405,481
============== ============ ============= =============
</Table>
The accompanying notes are an integral part of these financial statements.
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BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Six Months Ended
----------------------------------------------
July 1, July 2,
2001 2000
--------------------- ---------------------
OPERATING ACTIVITIES:
Net loss $ (828,359) $ (1,021,839)
Adjustments to reconcile net loss to cash flows used in
operating activities-
Depreciation and amortization 823,822 652,302
Minority Interest's share of joint venture income 5,086 -
Interest expense paid for with common stock 303,170 -
Change in operating assets and liabilities:
Accounts receivable 286,686 78,386
Inventories 77,940 5,122
Prepaids and other (38,588) 39,862
Accounts payable (844,181) (51,375)
Accrued expenses 22,422 (3,211)
--------------- ---------------
Net cash used in operating activities (192,001) (300,753)
--------------- ----------------
INVESTING ACTIVITIES:
Purchases of property and equipment (549,697) (2,590,947)
Increase in other assets (17,950) (519,945)
Purchase of short-term investments, net - (1,000,000)
-------------- ----------------
Net cash used in investing activities (567,647) (4,110,892)
--------------- ----------------
FINANCING ACTIVITIES:
Borrowings under long-term debt 996,000 7,700,000
Payments on long-term debt and capital lease obligations (112,718) (3,076,989)
Payment of deferred financing costs - (520,246)
Proceeds from minority partner - 289,544
-------------- ---------------
Net cash provided by financing activities 883,282 4,392,309
-------------- ---------------
INCREASE (DECREASE) IN CASH 123,634 (19,336)
CASH, beginning of period 22,901 369,228
-------------- ---------------
CASH, end of period $ 146,535 $ 349,892
============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 450,638 $ 749,488
Income taxes paid - -
NON-CASH TRANSACTIONS:
Issuance of common stock, stock options and
warrants for property, services and interest and debt $ 327,610 -
</Table>
The accompanying notes are an integral part of these financial statements.
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BIG BUCK BREWERY & STEAKHOUSE, INC.
Condensed Notes to Financial Statements
July 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 and six months ended July 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 July 1, 2001 the unaudited statements of
operations for the three and six months ended July 1, 2001 and July 2,
2000, and the unaudited statements of cash flows for the six months ended
July 1, 2001 and July 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.
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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 THIS DOCUMENT AND 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 THIS
DOCUMENT AND 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 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.
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QUARTERS ENDED JULY 1, 2001 AND JULY 2, 2000
Our operating results, expressed as a percentage of total revenue, were as
follows:
<Table>
<Caption>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
--------------- ------------ ------------- --------------
REVENUE:
Restaurant sales 98.4% 97.4% 98.3% 97.6%
Wholesale and retail sales 1.6 2.6 1.7 2.4
--------------- ------------ ------------- --------------
Total revenue 100.0 100.0 100.0 100.0
--------------- ------------ ------------- --------------
COSTS AND EXPENSES:
Cost of sales 32.8 33.4 33.2 32.9
Restaurant salaries and benefits 27.7 32.0 27.2 30.4
Operating expenses 20.6 22.8 19.9 22.0
Depreciation 8.7 5.4 7.3 5.3
Preopening expenses 0.0 1.3 0.0 0.6
General and administrative expenses 11.9 10.0 10.3 10.4
--------------- ------------ ------------- --------------
Total costs and expenses 101.8 104.9 97.9 101.7
--------------- ------------ ------------- --------------
INCOME (LOSS) FROM OPERATIONS (1.8) (4.9) 2.1 (1.7)
--------------- ------------ ------------- --------------
OTHER EXPENSE:
Interest expense (10.3) (10.7) (9.4) (10.3)
Other (2.1) (3.8) (2.0) (2.4)
Minority interest's share of subsidiary's
loss (income) 0.2 0.3 (0.1) 0.1
--------------- ------------ ------------- --------------
NET LOSS (13.9)% (19.2)% (9.4)% (14.3)%
=============== ============ ============= ==============
</Table>
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JULY 1, 2001 AND JULY 2, 2000
REVENUES
Revenues increased 15.8% to $4,038,889 in the quarter ended July 1, 2001 from
$3,489,034 in the quarter ended July 2, 2000, and increased 23.4% to $8,795,219
for the first six months of 2001 from $7,129,807 for the first six months of
2000. The increases were 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 13.7% to $1,325,673 in the second quarter of 2001 compared to
$1,165,479 for the second quarter of 2000, and increased 24.6% to $2,923,857 for
the first six months of 2001 compared to the first six months of 2000. The
increases were
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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 decreased
to 32.8% in the second quarter of 2001 compared to 33.4% for the second
quarter of 2000, and increased to 33.2% for the first six months of 2001
compared to 32.9% for the first six months of 2001. The percentage decrease
was due to limiting portion sizes to specifications and entering into food
purchasing contracts, both components of the cost-saving strategy we
implemented late in the first quarter of 2001. The percentage increase was
due to higher meat costs and the cost associated with purchasing hard liquor
for resale in the Grapevine unit.
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 slightly to $1,118,567 in the second quarter of 2001
compared to $1,117,884 for the second quarter of 2000, and increased 10.2% to
$2,391,303 for the first six months of 2001 compared to the first six months of
2000. The increases were primarily due to the added cost of operating an
additional restaurant. As a percentage of revenues, restaurant salaries and
benefits decreased to 27.7% in the second quarter of 2001 as compared to 32.0%
in the second quarter of 2000, and decreased to 27.2% for the first six months
of 2001 compared to 30.4% for the first six months of 2000. The percentage
decreases were 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 5.0% to $833,854 in the second
quarter of 2001 compared to $794,303 in the second quarter of 2000, and
increased 11.9% to $1,752,174 for the first six months of 2001 compared to the
first six months of 2000. The increases were primarily due to the added
operating expenses from the Grapevine unit. As a percentage of revenues,
operating expenses decreased to 20.6% in the second quarter of 2001 as compared
to 22.8% in the second quarter 2000, and decreased to 19.9% for the first six
months of 2001 compared to 22.0% for the same period in 2000. The percentage
decreases were 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.
PREOPENING EXPENSES
Preopening expenses consist of expenses incurred prior to the opening of a new
unit, including but not limited to wages and benefits, relocation costs,
supplies, advertising expenses and training costs. There were no preopening
expenses for the first six months of 2001 compared to $46,332 for the first six
months of 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 38.7% to $482,011 in the second
quarter of 2001 compared to $347,547 in the second quarter of 2000, and
increased 21.8% to $906,408 for the first six months of 2001 compared to the
first six months of 2000. The increases reflect the added professional fees
incurred in connection with our dispute with the general contractor of the
Grapevine unit, travel expenses related to the Grapevine unit and consulting
fees relating to obtaining a liquor license for our future unit in Nashville. As
a percentage of revenue, these expenses increased to 11.9% in the second quarter
of 2001 as compared to 10.0% in the second quarter of 2000, and decreased to
10.3% for the first six months of 2001 compared to 10.4% for the first six
months of 2000.
DEPRECIATION
Depreciation expenses increased 84.0% to $349,509 in the second quarter of 2001
compared to $189,969 in the second quarter of 2000, and increased 68.5% to
$640,128 for the first six months of 2001 compared to the same period in 2000.
The increases were due the additional depreciation from the Grapevine unit. As a
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percentage of revenues, these expenses increased to 8.7% in the second quarter
of 2001 from 5.4% in the second quarter of 2000, and increased to 7.3% for the
first six months of 2001 from 5.3% for the first six months of 2000. The
increases were 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 $43,771 to $416,259 in the second quarter of 2001
compared to $372,488 in the second quarter of 2000, and increased 13.0% to
$829,439 for the first six months of 2001 compared to the first six months of
2000. The increases reflect payments on additional borrowings for the completion
of the Grapevine unit and working capital purposes. As a percentage of revenues,
interest expense decreased to 10.3% in the second quarter of 2001 from 10.7% in
the second quarter of 2000, and decreased to 9.4% for the first six months of
2001 compared to 10.3% for the same period in 2000. The decreases as a
percentage of revenues reflect 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
decreased $47,955 to $85,435 in the second quarter of 2001 compared to $133,390
in the second quarter of 2000, and increased $2,525 during the first six months
of 2001 as compared to the first six months of 2000. These changes were the
result of the amortization of financing costs from the WCERS financing and
warrants issued during 2000.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
We used $192,001 in cash for operating activities for the first six months of
2001, and used $300,753 in cash for operating activities for the first six
months of 2000. We had a working capital deficit of $3,778,476 at July 1,
2001, and a working capital deficit of $3,162,833 at July 2, 2000. We spent
$567,647 in the first six months of 2001 for fixed assets, including
approximately $405,000 in payments to subcontractors on the Grapevine unit
and $100,000 in architectural fees and project consulting relating to the
development of our future unit in Nashville. During the first six months of
2001 we secured a line of credit for up to $1.0 million from Crestmark Bank,
of which we had borrowed approximately $996,000 as of July 1, 2001. During
the first six months 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.
In general, we have experienced losses in each quarterly and annual period
since inception. We incurred net losses of $563,092 for the second quarter
2001 and $669,183 for the second quarter of 2000. As of July 1, 2001, we had
an accumulated deficit of $8,389,973. 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.
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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, 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
July 1, 2001, we had borrowed $996,000 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 amended two promissory notes held by Michael G. Eyde, one of
our shareholders. We made his $100,000 principal amount 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. We also
extended the maturity date of his $100,000 principal amount 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
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<Page>
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. In July 2001, we generated $100,000
in net proceeds from the private placement of a $100,000 principal amount
convertible subordinated promissory note to an accredited investor. We used
the funds provided by this subordinated debt financing for working capital
purposes.
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
August 1, 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 $996,000, and (4) convertible
subordinated debt aggregating approximately $949,500. Of such amounts, $125,000
had matured as of August 1, 2001. Such funds must be repaid in full as follows:
<Table>
<Caption>
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 $996,000 March 2002
Convertible Subordinated Debt $125,000 Immediate
Convertible Subordinated Debt $124,500 *
Convertible Subordinated Debt $550,000 October 2001
Convertible Subordinated Debt $50,000 January 2002
Convertible Subordinated Debt $100,000 July 2002
</Table>
--------------------
* Pursuant to an agreement with the note holder, we will make six
additional monthly payments of $18,161 (commencing September 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 AND PAYMENT DEFAULTS
Our agreements with WCERS, the holder of approximately $9.0 million of our
secured debt, require that (1) we will 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 will keep and maintain tangible net worth plus
subordinated debt in an amount not less than $8.5 million, (3) we will keep
and maintain a minimum debt coverage ratio of 1.25 to 1.0 (excluding
Grapevine pre-opening and financing costs), (4) we will maintain our then
current cash flow position, and (5) we will 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. 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
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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.
Our agreements with WCERS require us to make payments of principal and
interest aggregating approximately $80,000 per month. To date, we have not
made the payments due on June 1, 2001 and July 1, 2001, although we have made
the payment due on August 1, 2001. Because we did not make timely payments of
principal and interest on our indebtedness to WCERS, we are in default under
our agreements with WCERS. As a result, WCERS may, by notice in writing to
us, declare all amounts owing with respect to the agreements to be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which we previously waived. We are currently
negotiating with WCERS to establish a repayment schedule for the two missed
payments. We also plan to seek a waiver of these payment defaults from WCERS.
Our agreements with WCERS define an event of default to include our failure
to perform any term, covenant or agreement contained in our agreements with
WCERS. 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.
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 approximately $1.0 million in debt financing from
Crestmark Bank, guaranteed by WCERS, for working capital purposes including the
payment of such contractors. In May 2001, Knoebel Construction, Inc., the
general contractor of the Grapevine unit, brought suit against us to recover
amounts alleged due in connection with the construction of the Grapevine unit.
In June 2001, Bass Pro declared that we were in default of the commercial
sublease and other documents executed between the parties. Bass Pro has demanded
that we (1) secure and file of record a bond against the lien filed by Knoebel
which has the effect of replacing the bond secured and filed by Bass Pro, or,
alternatively, make payment to Knoebel for the work performed and cause the lien
filed by Knoebel to be discharged of record, and (2) cause each of the other
outstanding liens filed against the leased premises and all other outstanding
claims for payment to be discharged of record.
Buck & Bass disputes the amount of Knoebel's claims and has sought to have
the case moved from District Court to mediation or binding arbitration. On
behalf of Buck & Bass, we have settled directly with and obtained releases
from substantially all of the subcontractors on the Grapevine unit, other
than Turtlecreek Landscape Services, Inc. As of August 1, 2001, we had paid
approximately $405,000 to the subcontractors on the Grapevine unit. Knoebel
has asserted that it may dispute the validity of some or all of the claims of
the subcontractors and, therefore, will dispute the amount of any offset that
we would apply to Knoebel's claims based upon our payments to the
subcontractors. We cannot assure you that we will be able to fully and
finally discharge 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 declaration of default pursuant to the existence of such encumbrances and
the failure of Buck & Bass to perform quarterly customer satisfaction surveys
give Bass Pro the ability to 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%. We presently have an 89.1% interest in the Buck & Bass joint venture.
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
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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.
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 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 outstanding liens and claims in connection with
the Grapevine unit or fund
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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.
Within the limitations on our ability to incur additional indebtedness, we are
exploring the possible issuance of additional convertible subordinated
promissory notes to fund our working capital requirements.
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 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
In November 2000, two claimants, who were then employees of our
company, brought sexual harassment claims against another of our
former employees. In connection with their allegations of
discrimination, the claimants sought monetary damages from our
company. In August 2001, we reached an agreement to settle such
claims out of court in exchange for the payment of $52,000 to each
claimant.
On May 3, 2001, Knoebel Construction, Inc., the general
contractor of the Grapevine unit, brought suit against Buck &
Bass, BBBP Management Company, Bass Pro, St. Paul Fire & Marine
Insurance Company, Grapevine II, L.P. and our company in the
352nd District Court of Tarrant County, Texas, for breach of
contract and quantum meruit, as well as claims under the Texas
Property Code for alleged failure to make prompt payment and
alleged misapplication of statutory construction trust funds.
Our company owns an 89.1% interest in Buck & Bass. The
proceeding is a lawsuit that arises out of the construction of
the Grapevine unit. Buck & Bass, as owner, and Knoebel, as
construction manager, signed an AIA "Standard Form of Agreement
Between Owner and Construction Manager" dated March 31, 2000.
Under the agreement, Buck & Bass hired Knoebel to construct the
Grapevine unit. Knoebel alleges that it performed its
obligations under the agreement but is still owed $1,174,516 that
Buck & Bass has failed to pay. Buck & Bass disputes the amount
of Knoebel's claims and has sought to have the case moved from
District Court to mediation or binding arbitration. Knoebel also
seeks recovery under St. Paul's bond and foreclosure of a
statutory lien. In addition to its alleged damages of
$1,174,516, Knoebel's petition asks for attorneys' fees, court
costs, and pre-judgment and post-judgment interest.
On June 1, 2001, Turtlecreek Landscape Services, Inc., a
subcontractor on the construction of the Grapevine unit, alleged
a suit on a sworn account against Knoebel, St. Paul and our
company in the 141st District Court of Tarrant County, Texas.
Turtlecreek alleges that it was a subcontractor on the
construction of the Grapevine unit and that it is owed $35,244 in
connection with its work on the project. Turtlecreek seeks
recovery under a bond issued by St. Paul. In addition, it also
seeks attorneys' fees, court costs, and pre-judgment and
post-judgment interest.
On behalf of Buck & Bass, we have settled directly with and
obtained releases from substantially all of the other
subcontractors on the Grapevine unit. Knoebel has asserted that
it may dispute the validity of some or all of the claims of the
subcontractors and, therefore, will dispute the amount of any
offset that we would apply to Knoebel's claims based upon our
payments to the subcontractors.
In addition, 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 these routine legal proceedings are unlikely to have a
material adverse effect upon our business, operating results, cash
flows and financial condition.
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ITEM 2 Changes in Securities and Use of Proceeds
On April 2, 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 as adjusted from $1.9125 to $0.73 per share.
On April 12, 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.
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 10-QSB and Form 8-K, as filed with
the SEC. No underwriting commissions or discounts were paid with
respect to the modification of such securities.
ITEM 3 Defaults upon Senior Securities
Our agreements with WCERS require us to make payments of principal
and interest aggregating approximately $80,000 per month. To date,
we have not made the payments due on June 1, 2001 and July 1, 2001,
although we have made the payment due on August 1, 2001. Because we
did not make timely payments of principal and interest on our
indebtedness to WCERS, we are in default under our agreements with
WCERS. As a result, WCERS may, by notice in writing to us, declare
all amounts owing with respect to the agreements to be immediately
due and payable without presentment, demand, protest or other notice
of any kind, all of which we previously waived. We are currently
negotiating with WCERS to establish a repayment schedule for the two
missed payments. We also plan to seek a waiver of these payment
defaults from WCERS.
See "Management's Discussion and Analysis or Plan of
Operation-Liquidity and Capital Resources" for a discussion of
certain covenant violations.
ITEM 4 Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5 Other Information
Not applicable.
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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 July 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: August 15, 2001 By /s/ Anthony P. Dombrowski
-------------------------------------
Anthony P. Dombrowski
Chief Financial Officer
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INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit
Number Description
- ------- -----------
10 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)).
</Table>
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