FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For
Fiscal Year Ended January 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12145
MAVERICK RESTAURANT CORPORATION
(Exact name of Registrant as specified in its charter)
Kansas 48-0936946
(State of Incorporation) (IRS Employer
Identification No.)
302 North Rock Road, Suite 200
Wichita, Kansas 67206
(Principal executive offices, including zip code)
Registrant's telephone number including area code: (316) 685-8281
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
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Insert by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 1996, 6,081,458 common shares (not including 60,000 shares held
as treasury stock) were outstanding, and the aggregate market value of the
common shares (based upon the average bid and asked closing price of these
shares ($.50) as of such date on the OTC Bulletin Board) of MAVERICK RESTAURANT
CORPORATION held by non-affiliates was approximately $831,388 (For purposes of
this valuation "affiliates" are the officers, directors and 5% shareholders of
the Company.)
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the fiscal year ended January 28, 1996
(Items 10, 11, 12 and 13 of PART III)
MAVERICK RESTAURANT CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended January 28, 1996
PART I. PAGE
----
Item 1. Business.............................................................1
Item 2. Properties...........................................................6
Item 3. Legal Proceedings....................................................7
Item 4. Submission of Matters to a Vote of Security Holders..................7
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................8
Item 6. Selected Financial Data..............................................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 8. Financial Statements and Supplementary Data.........................12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............................12
PART III.
Item 10. Directors and Executive Officers of the Registrant..................13
Item 11. Executive Compensation..............................................13
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................13
Item 13. Certain Relationships and Related Transactions......................13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................................14
Signatures...................................................................16
Financial Statements .......................................................F-1
PART I
ITEM 1. BUSINESS
A) GENERAL DEVELOPMENT OF BUSINESS.
MAVERICK RESTAURANT CORPORATION (the "Company) operates eight Grandy's
restaurants located in Oklahoma, Texas and New Mexico pursuant to a
franchise agreement with Grandy's, Inc. The Company also operates
eight Cotton Patch Cafe restaurants located in Arkansas, Kansas,
Oklahoma, and Texas pursuant to a franchise agreement with Cotton
Patch Cafe, Inc. The Company intends to focus its business activities
on the development of additional Cotton Patch Cafe restaurants.
On July 1, 1995, the Company opened for business its sixth Cotton
Patch Cafe in McAlester, Oklahoma. The Company converted an
unprofitable Grandy's restaurant in El Paso, Texas to a Cotton Patch
Cafe and opened this restaurant for business on September 15, 1995.
On February 12, 1996, the Company opened its eighth Cotton Patch Cafe
restaurant in Salina, Kansas. During 1995, the Company purchased a
building in Emporia, Kansas which will be converted to a Cotton Patch
Cafe during 1996.
The Company also has two leased restaurant properties, one of which is
located in Fort Smith, Arkansas and has been leased to an unrelated
third party through December 2001. The other property is located in
Hampton, Virginia and has been subleased under a long-term lease.
B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not Applicable
C) NARRATIVE DESCRIPTION OF BUSINESS.
i) PRINCIPAL PRODUCTS AND SERVICES.
GRANDY'S. Grandy's restaurants are open for breakfast, lunch
and dinner. The menu of the typical Grandy's restaurant
features southern-fried chicken, chicken nuggets, country-fried
steak, catfish and hickory-smoked rib dinners. Each dinner is
served with a choice of mashed potatoes or fresh homecut fries,
a wide selection of vegetables and cole slaw or special-recipe
baked beans. Also included are two specialty items, cream-
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style gravy and hot butter-yeast rolls. The breakfast menu
includes home-style biscuits, cinnamon rolls, pancakes, eggs
and sausage. Most of Grandy's menu items are prepared from
scratch on the premises.
Each Grandy's restaurant is a free-standing building. The
Company owns the furniture, fixtures and equipment used in each
of its restaurants. Plants and antique accent pieces give each
restaurant a country look. Each restaurant has drive-thru
facilities which generate approximately 35% of net sales.
Management emphasizes quick service of drive-thru customers and
strives for a service time not exceeding one minute per
customer.
The average cost of a meal at the Company's Grandy's
restaurants, including beverage, is approximately $5.00. All
food is prepared in strict compliance with recipes prescribed
by the franchisor.
The following table represents the location and opening or
acquisition date of the Company's Grandy's restaurants
currently in operation:
LOCATION DATE OPENED
El Paso, Texas #1 November 11, 1982
Las Cruces, New Mexico December 12, 1982
El Paso, Texas #2 January 22, 1983
Broken Arrow, Oklahoma May 26, 1985
Tulsa, Oklahoma April 3, 1986
Corpus Christi, Texas #1 October 1, 1986
Corpus Christi, Texas #2 October 1, 1986
Corpus Christi, Texas #3 October 1, 1986
COTTON PATCH CAFE. Cotton Patch Cafe restaurants are open for
lunch and dinner. The menu of the Cotton Patch Cafe features a
southern home-style menu with entrees including pork chops,
chicken and beef, along with vegetables, rolls and beverages.
Cotton Patch Cafe offers full table service in a relaxed,
family-oriented environment. Most of the Cotton Patch Cafe
items are prepared from scratch on the premises.
The Cotton Patch Cafe restaurant is a free-standing building.
The Company owns the furniture, fixtures and equipment used in
each of its restaurants. Signs for the Cotton Patch Cafe
restaurant utilize livestock watering tanks giving each
restaurant a home-style country look. Cotton Patch Cafe
restaurants do not offer drive-thru facilities but do offer
carry out service.
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The average cost of a meal at the Company's Cotton Patch Cafe
restaurant, including beverage, is approximately $6.00. All
food is prepared in strict compliance with recipes prescribed
by the franchisor.
The following table represents the location and opening date of
the Company's Cotton Patch Cafe restaurants:
LOCATION DATE OPENED
Muskogee, Oklahoma August 1, 1993
Bartlesville, Oklahoma January 4, 1994
Ponca City, Oklahoma April 5, 1994
Enid, Oklahoma November 21, 1994
Rogers, Arkansas January 10, 1995
McAlester, Oklahoma July 1, 1995
El Paso, Texas September 15, 1995
Salina, Kansas February 12, 1996
Emporia, Kansas*
*Under Construction
The Company has executed a development agreement with Cotton
Patch Incorporated which grants it the exclusive rights to
develop Cotton Patch Cafe restaurants in the following dominant
market areas ("DMAs"):
Oklahoma City, Oklahoma
Tulsa, Oklahoma
Ft. Smith, Arkansas
Columbia - Jefferson City, Missouri
Kansas City, Missouri - Kansas City, Kansas
Topeka, Kansas
Wichita, Kansas
St. Joseph, Missouri
Des Moines, Iowa
Kirksville, Missouri - Ottumwa, Iowa
Omaha, Nebraska - Council Bluffs, Iowa
Sioux City, Iowa
Cedar Rapids - Waterloo, Iowa
Corpus Christi, Texas
El Paso, Texas
ii) DEVELOPING PRODUCTS AND INDUSTRY SEGMENTS.
Not Applicable
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iii) SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Company's food costs are closely tied to market conditions.
The Company has been able to maintain its cost of sales
percentages by refining cost controls, directing marketing
activities to re-emphasize low-cost menu items, and selectively
increasing menu prices. The Company monitors the cost of
ingredients and adjusts prices wherever possible to maintain
desired margins.
iv) LICENSES.
GRANDY'S. The Company operates its Grandy's restaurants
pursuant to a franchise agreement entered into by the Company's
predecessors in July 1983. The initial term of the agreement
is for fifteen years and is renewable at the option of the
Company for an additional fifteen year period upon the
satisfaction of certain conditions.
The franchise agreement requires the Company to develop and
operate a minimum number of restaurants during specified time
periods. The Company was required by the franchise agreement
(as amended) to develop twenty-eight additional restaurants by
July 31, 1989. The Company chose to discontinue development of
Grandy's restaurants and, as a result, has forfeited all of its
exclusive development rights to develop future Grandy's
restaurants.
In the event of a material breach of the franchise agreement,
other than a violation of the development schedule, all of the
Company's rights under the franchise agreement may be
terminated, including the right to operate then existing
restaurants under the "Grandy's" trademark. In the event of
such termination, the Company may be prohibited from competing
with the franchisor in the sale of chicken in the licensed
territory or within a specific distance of the Company's or
other Grandy's locations for a period of time.
COTTON PATCH CAFE. The Company operates its Cotton Patch Cafe
restaurants pursuant to a development agreement dated November
1, 1993 with Cotton Patch Cafe, Inc. and a franchise agreement
for each restaurant. The development agreement terminates on
March 31, 1998 while the franchise agreement for each
restaurant terminates twenty years from the date the restaurant
opens for business.
The development agreement requires the Company to develop and
operate a minimum number of restaurants during specified time
periods. The Company must have under construction a minimum of
four restaurants for
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each period from April 1 to March 31 of each year until March
31, 1998. The minimum number of restaurants which must be
developed by the Company is eighteen. In the event the Company
does not fulfill its specified development obligation, the
development agreement automatically terminates ninety days
after the end of the development period in question unless the
development obligation is satisfied within this ninety day
period.
In the event of a breach of the franchise agreement, all of the
Company's rights under such agreement may be terminated for the
specific restaurant and the development agreement may be
terminated.
v) SEASONALITY.
The Company experiences increased sales during holiday periods
in its Cotton Patch Cafe restaurants. The Company's Grandy's
restaurants experience lower than average sales during such
periods.
vi) PRACTICES RELATING TO WORKING CAPITAL.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
vii) DEPENDENCE UPON A SINGLE CUSTOMER.
Not Applicable
viii) DOLLAR AMOUNT OF BACKLOG ORDERS.
Not Applicable
ix) BUSINESS SUBJECT TO RENEGOTIATION AT ELECTION OF GOVERNMENT.
Not Applicable
x) COMPETITION.
The Company experiences significant competition from numerous
other restaurants, including restaurants which offer similar
menus. Many of the Company's competitors have more locations,
greater financial resources, and longer operating histories
than the Company.
Management emphasizes its control systems and the training of
personnel to maintain high standards of food quality, service
and cleanliness. All
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food is prepared in strict compliance with recipes prescribed
by its franchisors. All supplies are purchased from a list of
franchisor-approved suppliers.
xi) RESEARCH AND DEVELOPMENT.
Not Applicable
xii) COMPLIANCE WITH ENVIRONMENTAL REGULATION.
Not Applicable
xiii) EMPLOYEES.
As of April 1, 1996, the Company employed approximately 525
persons, including five administrative, 60 managerial, 80 full-
time and 380 part-time restaurant employees.
D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not Applicable
ITEM 2. PROPERTIES
The Company's principal executive office is located at 302 North Rock Road,
Suite 200, Wichita, Kansas 67206. This office space is leased from an
unrelated third party.
The land and buildings for the Company's seventeen restaurants are leased
pursuant to long-term leases with unrelated third parties. The initial lease
terms are for a period of ten to twenty years with provisions for two additional
five year extensions. The Company pays minimum annual rentals for the land and
building of each restaurant in amounts ranging from approximately $30,000 to
$85,050. In some cases, the rental rates escalate in accordance with sales
volume in excess of specified amounts. Each lease obligates the Company to pay
the real estate taxes and utilities applicable to the particular location, to
maintain casualty and liability insurance, and to keep the property in general
repair. The Company also has leased to unrelated third parties two buildings
which were formerly operated as Grandy's restaurants.
The Company currently operates or has under construction seventeen Grandy's and
Cotton Patch Cafe restaurants which encompass approximately 4,000 to 5,000
square feet. These restaurants seat approximately 140 to 180 persons and have
on-site parking for an average of fifty-five cars. Typical capital costs for a
restaurant facility are approximately $300,000 for land, $400,000 for the
building and $200,000 for equipment and furnishings.
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ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A) MARKET INFORMATION.
The Company's common stock was traded in the over-the-counter market
of the Nasdaq Stock Market from October 4, 1983 to June 30, 1992. The
Company's stock has not met the requirements for inclusion on Nasdaq
Stock Market since July 1, 1992. However, stock quotations for the
Company's stock are currently available on the OTC Bulletin Board.
The following tabulation sets forth the high and low closing bid
quotations for the calendar quarters shown as reported by the OTC
Bulletin Board. The prices quoted represent prices between dealers in
securities without adjustment for mark-ups, mark-downs, or commissions
and do not necessarily reflect actual transactions.
Bid Price
Quarter Ended High Low
------------- -----------------------
April 30, 1994 3 1/8 2
July 31, 1994 3 1/4 2 3/8
October 31, 1994 2 3/4 2 5/8
January 31, 1995 2 5/8 1
Bid Price
Quarter Ended High Low
------------- -----------------------
April 30, 1995 2 1 9/16
July 31, 1995 1 1/2 1 1/4
October 31, 1995 1 5/8 1 3/16
January 28, 1996 1 1/4 3/8
B) HOLDERS OF COMPANY'S COMMON STOCK.
The number of holders of record of the Company's common stock as of
January 28, 1996, was 586, as determined by an examination of the
Company's transfer book. However, because a number of shares of stock
are held in "street name," the actual number could not be determined
more precisely.
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C) DIVIDENDS.
The Company has not paid dividends to its stockholders since its
inception. For the foreseeable future, it is anticipated that any
earnings which may be generated from operations of the Company will be
used to finance the growth of the Company, and that dividends will not
be paid to stockholders.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED (1) January 28, January 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
OPERATING DATA:
Net sales $10,668,573 $9,106,111 $7,517,756 $ 10,956,091 $13,141,996
Net loss $ (175,341) $ (14,300) $(126,852) $(1,105,195) $ (304,099)
Net loss per share $ ( .03) $ - $ (.02) $ (.22) $ (.06)
------------ ----------- ----------- ------------- ------------
BALANCE SHEET DATA:
Current assets $ 420,691 $1,009,879 $1,649,790 $ 625,270 $ 371,492
Property and equipment 4,041,077 3,342,382 2,285,972 2,246,921 4,235,388
Other assets 310,012 346,314 366,622 398,967 562,026
------------ ----------- ----------- ------------- ------------
Total assets $ 4,771,780 $4,698,575 $4,302,384 $ 3,271,158 $ 5,168,906
------------ ----------- ----------- ------------- ------------
------------ ----------- ----------- ------------- ------------
Current Liabilities $ 1,228,909 $ 900,991 $ 868,954 $ 1,277,475 $ 1,760,925
Long-term debt, less
current portion 332,475 355,062 471,224 357,321 441,054
Obligation under capital leases,
less current portion 1,457,062 1,520,544 1,082,625 1,696,876 1,757,416
Deferred credits 24,204 26,507 28,810 31,113 195,943
Stockholders' equity (deficit) 1,729,130 1,895,471 1,850,771 (91,627) 1,013,568
------------ ----------- ----------- ------------- ------------
Total liabilities and
stockholders' equity $ 4,771,780 $4,698,575 $4,302,384 $ 3,271,158 $ 5,168,906
------------ ----------- ----------- ------------- ------------
------------ ----------- ----------- ------------- ------------
- ----------------------
(1) Prior to fiscal year 1996, the Company operated on a fifty-two week period
ending on January 31. Beginning in fiscal year 1996, the Company changed
to a fifty-two or fifty-three week period ending on the last Sunday in
January.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the year ended January 28, 1996, sales were $10,668,573 as compared to
$9,106,111 and $7,517,756 for fiscal 1995 and 1994 respectively. The Company
operated eight Grandy's restaurants and seven Cotton Patch Cafes as of January
28, 1996, compared to nine Grandy's and five Cotton Patch Cafes as of January
31, 1995, compared to nine Grandy's and two Cotton Patch Cafes as of January 31,
1994. During the current fiscal year the Company opened two Cotton Patch Cafes,
one being a conversion of a Grandy's restaurant. The eight Grandy's restaurants
reported a decrease of 3.0% in same store sales.
Cost of sales as a percentage of total sales was 31.5%, 31.4% and 31.5% for
fiscal 1996, 1995 and 1994 respectively.
Operating expenses, as a percentage of total sales was 59.1%, 58.2% and 59.6%
for fiscal 1996, 1995 and 1994 respectively.
Depreciation and amortization are directly related to the acquisition or
disposition of fixed assets. The increase in depreciation and amortization from
fiscal 1994 to fiscal 1996 is the result of opening three restaurants during
fiscal 1995 and two restaurants during fiscal 1996.
General and administrative expenses, as a percentage of total sales, was 4.6%,
4.8% and 6.6% for fiscal 1996, 1995 and 1994 respectively. General and
administrative expenses, as a percentage of total sales, for fiscal 1994 was
high as a result of spreading costs over lower total sales. In addition, the
dollar amount of general and administrative expense for fiscal 1994 included
$69,250 representing non-cash compensation as explained in note 5 to the
financial statements.
Interest expense for fiscal 1996, 1995 and 1994 was $224,450, $183,269 and
$147,143 respectively. The increase in the dollar amount of interest expense
from fiscal 1994 to fiscal 1996 is the result of an increase in long-term debt
and obligation under capital leases relating to new store development.
Effective February 16, 1993, the Company sold to Red Apple Corporation all of
its assets of three restaurants located in Missouri. Red Apple Corporation is
owned by five individuals, three of which are officers and directors of the
Company (Chris F. Hotze, Andres Mouland, and Linn F. Hohl) and one of which is a
large stockholder and director of the Company (C. Howard Wilkins, Jr.). The
consideration received for these assets consisted of $300,000 plus the value of
the petty cash and the cost of inventories. The Company recognized a gain of
$175,342 on this disposition. The restaurants were sold in order to meet cash
flow needs. The computation of the sales price was based on three times store
level cash flow before allocation of overhead. The same formula was used in the
prior year when the Company sold four restaurants to its franchisor, Grandy's
Inc.
As of January 28, 1996, the Company has net operating loss carryforwards for
income tax purposes of approximately $3,644,000 which, if not used, will expire
$552,000 in fiscal 2001, $984,000 in fiscal 2002, $1,193,000 in fiscal 2003,
$434,000 in fiscal 2004, $134,000 in fiscal
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2005, $7,000 in fiscal 2006, $180,000 in fiscal 2008, $44,000 in fiscal 2009 and
$116,000 in fiscal 2010.
The Company also has approximately $167,000 of investment tax credit carry-
forwards available which, if not used, will expire $42,000 in fiscal 1999,
$111,000 in fiscal 2000 and $14,000 in fiscal 2001.
The Company's disappointing results during the third and fourth quarters and
consequently the year can be attributed to pre-opening expenses relating to new
restaurants, increased competition, and the weather. During the year, the
Company expended approximately $83,000 in preopening costs relating to new
restaurants. In addition, the Company experienced a substantial negative effect
on top line sales from its Cotton Patch division as a result of competitive
intrusion from other new restaurants and the severe cold weather primarily in
Oklahoma. Management believes the Company will gain back market share as a
result of its marketing efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds to finance its business have been its
cash flow from operations, and proceeds from the sale of the Company's common
stock. At January 28, 1996, the Company had a working capital deficit of
$808,218 compared to working capital of $108,888 as of January 31, 1995.
Substantially all of the Company's revenues are derived from cash sales. The
Company does not maintain significant receivables and inventories; therefore,
working capital requirements for continuing operations are not significant.
Additions to property and equipment represent the single largest use of funds by
the Company. These expenditures are primarily made for the development of new
restaurants. Capital expenditures were $1,143,620 for the year ended January
28, 1996, compared to $878,960 for the year ended January 31, 1995. These
capital expenditures have resulted in an increase in property and equipment and
a decrease in working capital.
The Company plans to continue expansion of the Cotton Patch Cafe concept in
fiscal 1997. The Company intends to lease existing restaurant properties which
are suitable for conversion to the Cotton Patch concept. It is expected that
each conversion will require approximately $300,000 for equipment and remodel
costs. New restaurants would be financed with bank debt.
The Company does not expect to pay dividends in the foreseeable future, but
rather intends to retain all available funds for the development of the
business.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation" (Statement No. 123), which establishes a fair
value based method of accounting for stock-based compensation plans. Entities
are encouraged to adopt all provisions of Statement No. 123 and are required to
comply with the disclosure requirements of Statement No. 123. However, it is
permissible to continue to account for stock-based compensation under the
intrinsic value method of Accounting Principles Board Opinion No. 25 rather than
the fair value based method of Statement No. 123. Statement No. 123 is
effective for financial
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statements for fiscal years beginning after December 15, 1995. The provisions
of Statement No. 123, when adopted, will not have a material effect on the
financial condition or operating results of the Company.
The Financial Accounting Standards Board has also issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (Statement No.121). Statement No. 121 requires that long-lived
assets and certain intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company believes that the
adoption of Statement No. 121 will not have a material effect on its financial
statements.
INFLATION
The Company is constantly evaluating ways to improve efficiency, productivity
and operational standards in order to increase its return on investment.
Management believes it has done an effective job of countering the effects of
inflation on operating costs.
The Company's food costs are closely tied to market conditions. The Company has
been able to maintain its cost of sales percentages by refining cost controls,
directing marketing activities to reemphasize low-cost menu items and
selectively increasing menu prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements that the Company is required to file under Item 8 of
this Form 10-K are presented on pages F-1 through F-15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to this Item is included in the Company's Annual Proxy
Statement for the 1996 Annual Meeting of Stockholders under the section entitled
"Election of Directors" and under the section entitled "Compliance with Section
16(a) of the Securities Exchange Act of 1934" and these portions of such Proxy
Statement are herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to this Item is included in the Company's Annual Proxy
Statement for the 1996 Annual Meeting of Stockholders under the section entitled
"Executive Compensation" and "Directors' Fees" and these portions of such Proxy
Statement are herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to this Item is included in the Company's Annual Proxy
Statement for the 1996 Annual Meeting of Stockholders under the section entitled
"Principal Holders of Securities" and that portion of such Proxy Statement is
herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no related party transactions during the fiscal year ended January
28, 1996.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A) DOCUMENTS FILED AS A PART OF THIS REPORT.
i) FINANCIAL STATEMENTS
See "Index to Financial Statements on Page F-1 of this Report
ii) FINANCIAL STATEMENT SCHEDULES
Not Applicable
iii) EXHIBITS
See Item 14(c), "Exhibits" below.
B) REPORTS ON FORM 8-K.
During the last quarter of the fiscal year, no reports on Form 8-K
were filed on behalf of the Company with the Commission.
C) EXHIBITS.
3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc.
and Change of Corporate Name to Maverick Restaurant Corporation
and Certificate of Correction to Restated Articles of
Incorporation of Grandy's of El Paso, Inc. changing the Corporate
Name to Maverick Restaurant Corporation as filed with the
Secretary of State of the State of Kansas on July 28, 1983 and
August 18, 1983, respectively (filed as Exhibit 3.1 to
Registration No. 2-86266-FW and such exhibit is hereby
incorporated by reference).
3.2 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 22,
1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the
fiscal year ended January 31, 1985, and such exhibit is hereby
incorporated by reference).
3.3 Bylaws of the Company (filed as Exhibit 3.2 to Registration No.
2-86266-FW and such exhibit is hereby incorporated by reference).
10.1 Franchise Agreement entered into on July 21, 1983 between C.
Howard Wilkins, Jr., Tulsa Food Company (now a part of the
Company) and
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Grandy's, Inc. (filed as Exhibit 10.1 to Registration No. 2-86266-
FW and such exhibit is hereby incorporated by reference).
10.1.1 Franchise Agreement entered into on November 1, 1983 between the
Company and Grandy's, Inc. (filed as Exhibit 10.1.1 to the
Company's Form 10-K for the fiscal year ended January 31, 1984
and such exhibit is hereby incorporated by reference).
10.1.2 Franchise Agreement entered into on February 1, 1985 between the
Company and Grandy's, Inc. (filed as Exhibit 10.1.2 to the
Company's Form 10-K for the fiscal year ended January 31, 1985
and such exhibit is hereby incorporated by reference).
10.1.3 Letter Agreement dated March 21, 1985, amending all Franchise
Agreements between the Company and Grandy's, Inc. (filed as
Exhibit 10.1.3 to the Company's Form 10-K for the fiscal year
ended January 31, 1985 and such exhibit is hereby incorporated by
reference).
10.2 Commercial Promissory Note dated February 28, 1994 from the
Company to Intrust Bank for the principal amount of $343,324
(filed as Exhibit 10.2 to the Company's Form 10-K for the fiscal
year ended January 31, 1994 and such exhibit is hereby
incorporated by reference).
10.3 Commercial Promissory Note dated March 5, 1994 from the Company
to Intrust Bank for the principal amount of $239,221 (filed as
Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended
January 31, 1994 and such exhibit is hereby incorporated by
reference).
10.4 Franchise Agreement entered into on April 1, 1993 between the
Company and Cotton Patch Incorporated (filed as Exhibit 10.8 to
the Company's Form 10-K for the fiscal year ended January 31,
1993 and such exhibit is hereby incorporated by reference).
10.5 Development Agreement dated November 1, 1993 between the Company
and Cotton Patch Incorporated (filed as Exhibit 10.9 to the
Company's Form 10-K for the fiscal year ended January 31, 1994
and such exhibit is hereby incorporated by reference).
10.6 Form of Franchise Agreement between the Company and Cotton Patch
Incorporated (filed as Exhibit 10.10 to the Company's Form 10-K
for the fiscal year ended January 31, 1994 and such exhibit is
hereby incorporated by reference).
10.7 Maverick Restaurant Corporation 1994 Incentive Stock Option Plan
(filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal
year ended January 31, 1995 and such exhibit is hereby
incorporated by reference).*
23 Consent of KPMG Peat Marwick LLP (filed herewith).
27 Financial Data Schedule
- ----------------
*Management's Compensation Plan
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MAVERICK RESTAURANT CORPORATION
By: /s/ Chris F. Hotze
--------------------------
Chris F. Hotze, President
Date: April 24, 1996
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons of the Registrant and in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Chris F. Hotze President, Chairman of April 24, 1996
- --------------------------- the Board and Director -----------------
Chris F. Hotze (Principal Executive
Officer)
/s/ Linn F. Hohl Vice President of April 24, 1996
- --------------------------- Finance, Treasurer, ----------------
Linn F. Hohl Assistant Secretary and
Director (Principal
Financial and Accounting
Officer)
/s/ Andres Mouland Vice President of April 24, 1996
- --------------------------- Operations and Director ----------------
Andres Mouland
/s/ C. Howard Wilkins, Jr. Director April 24, 1996
- --------------------------- ----------------
C. Howard Wilkins, Jr.
-16-
MAVERICK RESTAURANT CORPORATION
Index to Financial Statements
-----------------------------
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Operations F-5
Statements of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Maverick Restaurant Corporation:
We have audited the accompanying balance sheets of Maverick Restaurant
Corporation as of January 28, 1996 and January 31, 1995, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended January 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maverick Restaurant Corporation
as of January 28, 1996 and January 31, 1995, and the results of its operations
and its cash flows for each of the years in the three-year period ended January
28, 1996, in conformity with generally accepted accounting principles.
As discussed in note 2 to the financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, in 1994.
KPMG Peat Marwick LLP
Wichita, Kansas
March 15, 1996
F-2
MAVERICK RESTAURANT CORPORATION
Balance Sheets
January 28, 1996 and January 31, 1995
1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 195,365 801,429
Accounts receivable, including $20,086
from related parties in 1995 13,006 30,082
Inventories 109,074 111,469
Prepaid expenses 103,246 66,899
--------- ---------
Total current assets 420,691 1,009,879
--------- ---------
Property and equipment (notes 3 and 4):
Land 168,800 168,800
Buildings 288,449 211,200
Leasehold improvements 1,333,727 881,837
Equipment and fixtures 3,488,869 3,044,027
Leased property under capital leases 1,832,176 1,832,176
--------- ---------
7,112,021 6,138,040
Less accumulated depreciation and amortization 3,070,944 2,795,658
--------- ---------
Total property and equipment 4,041,077 3,342,382
--------- ---------
Other assets:
Cost in excess of net tangible assets of purchased
business, net of amortization of $412,040 and
$367,892 209,462 253,610
License fees, net of amortization of $60,067 and
$58,983 92,996 86,080
Deposits and other 7,554 6,624
--------- ---------
Total other assets 310,012 346,314
--------- ---------
Total assets $ 4,771,780 4,698,575
--------- ---------
--------- ---------
See accompanying notes to financial statements.
F-3
MAVERICK RESTAURANT CORPORATION
Balance Sheets, Continued
January 28, 1996 and January 31, 1995
1996 1995
---- ----
Current liabilities:
Current portion of long-term debt (note 3) $ 234,729 128,727
Current portion of obligations under capital
leases (note 4) 63,540 56,637
Accounts payable 533,304 396,534
Accrued payroll 137,589 113,306
Other accrued liabilities 259,747 205,787
--------- ---------
Total current liabilities 1,228,909 900,991
--------- ---------
Long-term debt, less current portion (note 3) 332,475 355,062
Obligations under capital leases, less current
portion (note 4) 1,457,062 1,520,544
Deferred credits (note 4) 24,204 26,507
Stockholders' equity (note 5):
Preferred stock, $.01 par value, authorized
10,000,000 shares, none issued - -
Common stock, $.01 par value, authorized
20,000,000 shares, issued 6,141,458 shares
at January 28, 1996 and January 31, 1995 61,414 61,414
Additional paid-in capital 6,131,984 6,122,984
Accumulated deficit (4,194,268) (4,018,927)
Treasury stock, 60,000 shares of common stock
at cost (270,000) (270,000)
--------- ---------
Total stockholders' equity 1,729,130 1,895,471
Commitments (note 4)
--------- ---------
Total liabilities and stockholders' equity $ 4,771,780 4,698,575
--------- ---------
--------- ---------
See accompanying notes to financial statements.
F-4
MAVERICK RESTAURANT CORPORATION
Statements of Operations
Years Ended January 28, 1996, January 31, 1995
and January 31, 1994
1996 1995 1994
---- ---- ----
Net sales $ 10,668,573 9,106,111 7,517,756
---------- --------- ---------
Costs and expenses:
Cost of goods sold 3,359,662 2,859,132 2,370,217
Operating expenses (note 4) 6,305,378 5,300,729 4,482,954
Depreciation and amortization 479,163 365,084 321,282
General and administrative 493,836 435,915 498,354
---------- --------- ---------
Total expenses 10,638,039 8,960,860 7,672,807
---------- --------- ---------
Operating income (loss) 30,534 145,251 (155,051)
---------- --------- ---------
Other income (expense):
Interest income 18,575 23,718 -
Interest expense (224,450) (183,269) (147,143)
Gain on sale of restaurants (note 7) - - 175,342
---------- --------- ---------
Total other income (expense) (205,875) (159,551) 28,199
Loss before income taxes (175,341) (14,300) (126,852)
Income taxes (note 6) - - -
---------- --------- ---------
Net loss $ (175,341) (14,300) (126,852)
---------- --------- ---------
---------- --------- ---------
Net loss per common share $ (.03) - (.02)
---------- --------- ---------
---------- --------- ---------
Average shares outstanding 6,081,458 6,067,665 5,113,607
---------- --------- ---------
---------- --------- ---------
See accompanying notes to financial statements.
F-5
MAVERICK RESTAURANT CORPORATION
Statements of Stockholders' Equity (Deficit)
Years Ended January 28, 1996, January 31, 1995
and January 31, 1994
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
----- ------- ------- ----- -----
Balance, January 31, 1993 $ 50,300 4,005,848 (3,877,775) (270,000) (91,627)
Sale of common stock (note 5) 10,833 1,989,167 - - 2,000,000
Contributed capital (note 5) - 69,250 - - 69,250
Net loss - - (126,852) - (126,852)
--------- --------- --------- ------- ---------
Balance, January 31, 1994 61,133 6,064,265 (4,004,627) (270,000) 1,850,771
Sale of common stock (note 5) 281 49,719 - - 50,000
Contributed capital (note 5) - 9,000 - - 9,000
Net loss - - (14,300) - (14,300)
--------- --------- --------- ------- ---------
Balance, January 31, 1995 61,414 6,122,984 (4,018,927) (270,000) 1,895,471
Contributed capital (note 5) - 9,000 - - 9,000
Net loss - - (175,341) - (175,341)
--------- --------- --------- ------- ---------
Balance, January 28, 1996 $ 61,414 6,131,984 (4,194,268) (270,000) 1,729,130
--------- --------- --------- ------- ---------
--------- --------- --------- ------- ---------
See accompanying notes to financial statements.
F-6
MAVERICK RESTAURANT CORPORATION
Statements of Cash Flows
Years Ended January 28, 1996, January 31, 1995
and January 31, 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net loss $ (175,341) (14,300) (126,852)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 479,163 365,084 321,282
Gain on sale of restaurants - - (175,342)
Changes in assets and liabilities, net of
effects of sale of restaurant operations:
(Increase) decrease in receivables 17,076 (23,062) (1,873)
(Increase) decrease in inventories 2,395 (24,932) 609
(Increase) decrease in prepaid expenses (36,347) (16,956) 3,748
Increase in accounts payable 136,770 16,562 32,200
Increase (decrease) in accrued expenses 78,243 52,167 (337,095)
Decrease in notes payable to vendors - - (136,389)
Cost applicable to closed restaurants - (19,159) (44,641)
Noncash compensation expense 9,000 9,000 69,250
Other (930) (2,529) -
--------- --------- ---------
Cash provided by (used in) operating
activities 510,029 341,875 (395,103)
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (1,143,620) (878,960) (612,288)
Proceeds from sale of property and equipment 18,691 - -
Proceeds from sale of restaurants, net - - 315,553
Additions to license fees (18,000) (27,000) (34,000)
--------- --------- ---------
Cash used in investing activities (1,142,929) (905,960) (330,735)
--------- --------- ---------
Cash flows from financing activities:
Sale of common stock - 50,000 2,000,000
Long-term borrowings 210,000 - 300,000
Repayment of long-term borrowings and capital lease
obligations (183,164) (190,776) (127,134)
Repayment of short-term borrowings - - (3,000)
--------- --------- ---------
Cash provided by (used in) financing
activities 26,836 (140,776) 2,169,866
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (606,064) (704,861) 1,444,028
Cash and cash equivalents at beginning of year 801,429 1,506,290 62,262
--------- --------- ---------
Cash and cash equivalents at end of year $ 195,365 801,429 1,506,290
--------- --------- ---------
--------- --------- ---------
Cash paid during the year for:
Interest $ 224,450 186,494 182,972
Income taxes - - -
See accompanying notes to financial statements.
F-7
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements
Years Ended January 28, 1996, January 31, 1995
and January 31, 1994
(1) OPERATIONS
Maverick Restaurant Corporation (the Company) operates eight franchised
Grandy's restaurants located in Texas, Oklahoma and New Mexico and
also owns and operates seven franchised Cotton Patch Cafes located in
Oklahoma, Texas and Arkansas. Grandy's is a family fast food
restaurant specializing in crispy southern fried chicken and country
fried steak dinners. Cotton Patch Cafe is a casual, full service
family-style restaurant specializing in home-style cooking. The
Cotton Patch Cafe concept features a variety of full entree meals all
prepared to order.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) FISCAL YEAR
Prior to fiscal year 1996, the Company operated on a fifty-two
week period ending on January 31. In fiscal year 1996,
the Company changed its fiscal year from January 31 to a
fifty-two or fifty-three week period ending on the last
Sunday in January. The accompanying 1996 financial statements
represent the fifty-two week period ended January 28, 1996.
Management believes the impact of the change on the fiscal
1996 financial statements is not material.
(b) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(c) PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed
by the straight-line method based on the estimated useful life of
the asset. Leasehold improvements are amortized over the life of
the building lease. Maintenance and repairs are charged to
expense as incurred; renewals and betterments are capitalized.
(d) CAPITAL LEASES
Leases are accounted for in accordance with the provisions of
Financial Accounting Standards Board Statement No. 13 (see note
4).
(e) LICENSE FEES
A license fee for each restaurant is payable on commencement of
construction. Amortization is provided, beginning when the
restaurant is opened, on the straight-line method over the
initial term of the related restaurant lease.
(f) INTANGIBLE ASSETS
Cost in excess of net tangible assets of purchased business is
amortized on a straight-line basis over the remaining life of the
building leases. Recoverability of intangible assets is assessed
periodically based on the relationship of operating income with
the carrying value of intangible assets on an individual
restaurant basis.
(g) PRE-OPENING COSTS
Pre-opening costs are charged to operations as incurred.
F-8
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(h) INCOME TAXES
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (Statement 109), ACCOUNTING FOR
INCOME TAXES. There was no cumulative effect of adoption of
Statement 109 as of February 1, 1993.
Deferred income taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's
assets and liabilities and operating loss and tax credit
carryforwards based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected
to affect taxable income.
(i) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Company to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(j) NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding.
(k) STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
all cash on hand and in certificates of deposit (with original
maturities of 90 days or less) with depository institutions as
cash and cash equivalents. Noncash investing and financing
activities in 1995 and 1994 included the following:
1995 1994
---- ----
Assignment of capital lease obligations as
a result of the sale of three restaurants
to Red Apple Corporation (see note 7) $ - 519,339
Addition to capital leases 495,000 -
F-9
(3) LONG-TERM DEBT
As of January 28, 1996 and January 31, 1995, long-term debt consisted of
the following:
1996 1995
---- ----
Note payable to bank, due in monthly
installments of $3,740 beginning March
1996 through February 2001, including
interest at prime rate plus 1% (10.25%
at January 28, 1996) $ 100,000 -
Note payable to bank, due in monthly
installments of $9,400, including
interest, at prime rate plus 1%
(10.25% at January 28, 1996) with
final installment due on July 5, 1996 60,966 161,309
Mortgage note due in monthly install-
ments of $4,965 including interest at
prime rate plus 1% (10.25% at January
28, 1996) through March 1997 with the
remaining balance then due 296,238 322,480
Note payable to bank bearing interest at
prime rate plus 1% (10.25% at January
28, 1996), interest only due monthly
with principal due May 1996 110,000 -
------- -------
567,204 483,789
Less current portion 234,729 128,727
------- -------
Long-term debt, less current portion $ 332,475 355,062
------- -------
------- -------
Principal amounts payable on the above notes during each of the next three
fiscal years are as follows: 1997 - $234,729; 1998 - $305,475; and
1999 - $27,000.
The notes payable to bank are collateralized by restaurant equipment with a
net book value of $1,282,332 and the personal guarantees of three
officers and a major stockholder. The mortgage note due in March 1997
is collateralized by a first lien on certain land, building and
restaurant equipment with an aggregate net book value of $1,146,253
and a personal guarantee by a major stockholder.
(4) LEASE AGREEMENTS
The Company leases its restaurant facilities under agreements with lease
terms of 10 to 20 years generally with a provision for one or two
renewal options of five years each. These agreements provide for
minimum annual rentals and, in certain instances, contingent rentals
based on sales performance. The Company is obligated to pay real
estate taxes, insurance and maintenance.
The Company has also entered into a lease agreement for its Corporate
offices. The lease agreement has a term of five years with a
provision for two renewal options of three years each. The lease
agreement provides for minimum annual rentals and additional rentals
based on operating costs incurred by the lessor. The Company is
obligated to pay real estate taxes, insurance and maintenance.
F-10
(4) LEASE AGREEMENTS, CONTINUED
Future minimum lease payments required for the years subsequent to January
28, 1996, under operating leases are as follows:
1997 $ 895,441
1998 825,598
1999 684,497
2000 624,875
2001 636,847
Thereafter 3,273,395
---------
$ 6,940,653
---------
---------
Minimum annual rentals under operating leases were $745,441, $663,951 and
$662,906 for the fiscal years ended January 28, 1996, January 31, 1995
and January 31, 1994, respectively. In addition, there were
percentage rental payments in the amount of $880, $3,842 and $3,278
for the fiscal years ended January 28, 1996, January 31, 1995 and
January 31, 1994, respectively.
Property and accumulated amortization accounts at January 28, 1996 include
$1,832,176 and $674,176, respectively, for leases that have been
capitalized. Generally, the building portions of such leases are
capitalized whereas the land portion of such leases are considered
operating leases. The future minimum lease payment obligations under
capital leases for the years subsequent to January 28, 1996, are as
follows:
1997 $ 234,861
1998 234,861
1999 234,861
2000 234,861
2001 234,861
Thereafter 1,775,291
---------
2,949,596
Less amount representing interest 1,428,994
---------
Total obligations under capital leases 1,520,602
Less current portion 63,540
---------
Obligations under capital leases, less
current portion $ 1,457,062
---------
---------
Deferred credits consist of gains on the sale-leaseback of properties which
have been deferred and are being amortized over the life of the
respective lease.
The Company, as lessor, leases two properties to outside third parties.
Property and accumulated depreciation accounts at January 28, 1996
include $380,000 and $21,540, respectively, for properties that have
been leased.
F-11
(4) LEASE AGREEMENTS, CONTINUED
Future minimum lease payments to be received subsequent to January 28, 1996
are as follows:
1997 $ 58,000
1998 58,000
1999 58,000
2000 63,000
2001 68,000
Thereafter 238,000
-------
$ 543,000
-------
-------
(5) STOCKHOLDERS' EQUITY
On October 13, 1993, the Company entered into an Agreement to sell in a
private transaction, shares of its common stock valued at $2,000,000.
The Agreement provided that the price per share of the common stock to
be sold would be based on market value, discounted by 15%, but would
not be less than $1.50 nor more than $2.00 per share. On October 13,
1993, the Company sold 333,333 shares of restricted common stock for a
total of $500,000. On January 12, 1994, the Company sold 750,000
shares of restricted common stock for a total of $1,500,000.
In addition, on October 13, 1993, the Board of Directors granted an option
to purchase 50,000 shares to a major stockholder of the Company. The
options were granted to the major stockholder in exchange for services
performed in obtaining the additional equity financing discussed
above. The exercise price is $1.50 per share for the first 12,500
shares exercised and $2.00 per share for the remaining 37,500 shares.
On July 31, 1994, 28,125 shares were exercised at a total price of
$50,000. The remaining options expired on October 13, 1995.
The Company's President worked on behalf of the Company during 1996, 1995
and 1994 without receiving compensation from the Company. The Company
determined that the President performed services valued at $9,000
which was paid by a corporation owned by a major stockholder of the
Company. Accordingly, such amount has been recorded as compensation
expense with a corresponding credit to additional paid-in capital in
the accompanying financial statements. Additionally, during 1994,
certain executives and employees of the Company were gifted, in
aggregate, 241,000 shares of the Company's common stock from a major
stockholder. The shares gifted had a fair value of $60,250 at the
date of gift. Such amount has been recorded in the accompanying 1994
financial statements as compensation expense with a corresponding
credit to additional paid-in capital.
F-12
(5) STOCKHOLDERS' EQUITY, CONTINUED
In March 1984, the Company adopted an Employee Incentive Stock Option Plan
for a ten-year term to grant options for the purchase of up to 475,000
shares of common stock. The Plan provides that the Company may grant
options to certain employees at the fair market value of the stock at
the grant date. One-half of the option is exercisable six months
after the grant date and one-half eighteen months after the grant
date. Following is a summary of the activity in the Plan for the
three years ended January 28, 1996:
Number of Per Share
Shares Exercise Price
------ --------------
Balance, January 31, 1993 269,100 $.29 - $5.06
Granted -
Exercised -
Canceled 13,300 $.29 - $5.06
------- -----------
Balance, January 31, 1994 255,800 $.29 - $2.81
Granted -
Exercised -
Canceled 18,500 $.29 - $2.81
------- -----------
Balance, January 31, 1995 237,300 $.29 - $2.81
Canceled 51,300 $.29 - $2.81
------- -----------
Balance, January 28, 1996 186,000 $.29 - $2.81
------- -----------
Exercisable at January 28, 1996 186,000 $.29 - $2.81
------- -----------
------- -----------
On July 25, 1994, the Company adopted an Employee Incentive Stock Option
Plan for a ten-year term to grant options for the purchase of up to
600,000 shares of stock. The Plan provides that the Company may grant
options to certain employees at the fair market value at the grant
date. Ten percent of the option can be exercised after one year, an
additional 15% after the second year and 25% in each of the next three
years. Following is a summary of the activity in the Plan for the two
years ended January 28, 1996:
Number of Per Share
Shares Exercise Price
------ --------------
Balance, January 31, 1994 - -
Granted 51,467 $1.50 - $2.875
------- -------------
Balance, January 31, 1995 51,467 $1.50 - $2.875
Granted 155,366 $ .84 - $1.940
Canceled 60,129 $1.44 - $2.875
------- -------------
Balance, January 28, 1996 146,704 $ .84 - $2.875
------- -------------
------- -------------
Exercisable at January 28, 1996 870 $2.875
------- -------------
------- -------------
F-13
(6) INCOME TAXES
As of January 28, 1996, the Company has net operating loss carryforwards
for income tax purposes of approximately $3,644,000 which, if not
used, will expire $552,000 in fiscal 2001, $984,000 in fiscal 2002,
$1,193,000 in fiscal 2003, $434,000 in fiscal 2004, $134,000 in fiscal
2005, $7,000 in fiscal 2006, $180,000 in fiscal 2008, $44,000 in
fiscal 2009 and $116,000 in fiscal 2010.
The Company also has approximately $167,000 of investment tax credit
carryforwards available which, if not used, will expire $42,000 in
fiscal 1999, $111,000 in fiscal 2000 and $14,000 in fiscal 2001.
The total provision for income taxes varied from the Federal statutory rate
for the following reasons:
1996 1995 1994
---- ---- ----
Computed "expected" tax benefit (34.0)% (34.0)% (34.0)%
Increase (decrease) in income taxes
resulting from:
Losses producing no current tax
benefit 34.0 34.0 34.0
----- ----- -----
- % - % - %
----- ----- -----
----- ----- -----
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 28, 1996 and January 31, 1995 are presented below:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 1,384,575 1,340,773
Investment tax credits 167,000 256,000
Capital leases 137,788 124,478
Other 17,747 18,622
--------- ---------
Total gross deferred tax assets 1,707,110 1,739,873
Less valuation allowance (1,650,761) (1,678,435)
--------- ---------
Net deferred tax assets 56,349 61,438
--------- ---------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (56,349) (61,438)
--------- ---------
Net deferred tax assets (liabilities) $ - -
--------- ---------
--------- ---------
F-14
(7) GAIN ON SALE OF RESTAURANTS
On February 16, 1993, the Company sold all of its assets and assigned all
of its leasehold interests in three restaurants located in Missouri to
Red Apple Corporation. Red Apple Corporation is owned by five
individuals, three of which are officers and directors of the Company
(Chris F. Hotze, Andres Mouland and Linn F. Hohl) and one of which is
a major stockholder of the Company (C. Howard Wilkins, Jr.). The
consideration received for these assets consisted of $300,000 plus the
value of the petty cash and the cost of inventories. The Company
recognized a gain of $175,342 on this disposition.
(8) QUARTERLY INCOME DATA (UNAUDITED)
Selected quarterly income data is as follows:
Net Earnings
Gross Earnings (Loss)
Sales Margin (Loss) Per Share
----- ------ ------ ---------
Fiscal 1996 Quarters:
1st quarter $ 2,736,676 1,886,761 123,028 .02
2nd quarter 2,832,743 1,948,116 24,166 -
3rd quarter 2,696,893 1,836,869 (126,575) (.02)
4th quarter 2,402,261 1,637,165 (195,960) (.03)
---------- --------- ------- ---
Total $ 10,668,573 7,308,911 (175,341) (.03)
---------- --------- ------- ---
---------- --------- ------- ---
Fiscal 1995 Quarters:
1st quarter $ 2,255,884 1,556,893 101,325 .02
2nd quarter 2,275,060 1,562,673 20,889 -
3rd quarter 2,143,964 1,455,436 (89,100) (.01)
4th quarter 2,431,203 1,671,977 (47,414) (.01)
---------- --------- ------- ---
Total $ 9,106,111 6,246,979 (14,300) -
---------- --------- ------- ---
---------- --------- ------- ---
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined the fair value of its financial instruments in
accordance with Statement of Financial Accounting Standards No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying
amounts of variable rate debt instruments approximate their fair value
because the interest rates on these instruments change with market
interest rates. For all other financial instruments including cash,
accounts receivable, accounts payable and other accrued liabilities,
the carrying amounts approximate fair value because of the short
maturity of these instruments.
F-15
EXHIBIT INDEX Sequential
PAGE NO.
3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc.
and Change of Corporate Name to Maverick Restaurant Corporation
and Certificate of Correction to Restated Articles of
Incorporation of Grandy's of El Paso, Inc. changing the Corporate
Name to Maverick Restaurant Corporation as filed with the
Secretary of State of the State of Kansas on July 28, 1983 and
August 18, 1983, respectively (filed as Exhibit 3.1 to
Registration No. 2-86266-FW and such exhibit is hereby
incorporated by reference).
3.2 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 22,
1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the
fiscal year ended January 31, 1985, and such exhibit is hereby
incorporated by reference).
3.3 Bylaws of the Company (filed as Exhibit 3.2 to Registration No.
2-86266-FW and such exhibit is hereby incorporated by reference).
10.1 Franchise Agreement entered into on July 21, 1983 between C.
Howard Wilkins, Jr., Tulsa Food Company (now a part of the
Company) and Grandy's, Inc. (filed as Exhibit 10.1 to
Registration No. 2-86266-FW and such exhibit is hereby
incorporated by reference).
10.1.1 Franchise Agreement entered into on November 1, 1983 between the
Company and Grandy's, Inc. (filed as Exhibit 10.1.1 to the
Company's Form 10-K for the fiscal year ended January 31, 1984
and such exhibit is hereby incorporated by reference).
10.1.2 Franchise Agreement entered into on February 1, 1985 between the
Company and Grandy's, Inc. (filed as Exhibit 10.1.2 to the
Company's Form 10-K for the fiscal year ended January 31, 1985
and such exhibit is hereby incorporated by reference).
10.1.3 Letter Agreement dated March 21, 1985, amending all Franchise
Agreements between the Company and Grandy's, Inc. (filed as
Exhibit 10.1.3 to the Company's Form 10-K for the fiscal year
ended January 31, 1985 and such exhibit is hereby incorporated by
reference).
10.2 Commercial Promissory Note dated February 28, 1994 from the
Company to Intrust Bank for the principal amount of $343,324
(filed as Exhibit 10.2 to the Company's Form 10-K for the fiscal
year ended January 31, 1994 and such exhibit is hereby
incorporated by reference).
(i)
10.3 Commercial Promissory Note dated March 5, 1994 from the Company
to Intrust Bank for the principal amount of $239,221 (filed as
Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended
January 31, 1994 and such exhibit is hereby incorporated by
reference).
10.4 Franchise Agreement entered into on April 1, 1993 between the
Company and Cotton Patch Incorporated (filed as Exhibit 10.8 to
the Company's Form 10-K for the fiscal year ended January 31,
1993 and such exhibit is hereby incorporated by reference).
10.5 Development Agreement dated November 1, 1993 between the Company
and Cotton Patch Incorporated (filed as Exhibit 10.9 to the
Company's Form 10-K for the fiscal year ended January 31, 1994
and such exhibit is hereby incorporated by reference).
10.6 Form of Franchise Agreement between the Company and Cotton Patch
Incorporated (filed as Exhibit 10.10 to the Company's Form 10-K
for the fiscal year ended January 31, 1994 and such exhibit is
hereby incorporated by reference).
10.7 Maverick Restaurant Corporation 1994 Incentive Stock Option Plan
(filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal
year ended January 31, 1995 and such exhibit is hereby
incorporated by reference.*
23 Consent of KPMG Peat Marwick LLP (filed herewith).
27 Financial Data Schedule
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*Management's Compensation Plan
(ii)