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 26, 1997
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 ___
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. [X]
As of March 1, 1997, 7,081,458 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 ($2.81) as of such date on the OTC Bulletin Board) of MAVERICK RESTAURANT
CORPORATION held by non-affiliates was approximately $5,691,529 (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 26, 1997
(Items 10, 11, 12 and 13 of PART III)
MAVERICK RESTAURANT CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended January 26, 1997
PART I. PAGE
----
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .6
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . .7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . .8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . .9
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . 11
PART III.
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 12
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 12
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
PART I
ITEM 1. BUSINESS
A) GENERAL DEVELOPMENT OF BUSINESS.
MAVERICK RESTAURANT CORPORATION (the "Company") operates seven Amarillo
Mesquite Grill restaurants in Kansas, Oklahoma and Arkansas. The
Company also operates four Cotton Patch Cafe restaurants located in
Oklahoma pursuant to a franchise agreement with Cotton Patch Cafe,
Inc. The Company intends to focus its business activities on the
development of additional Amarillo Grill restaurants.
On June 17, 1996, the Company acquired the assets of the Amarillo
Mesquite Grill restaurant chain from Homestead West, Inc. and Amagril,
Inc. for 1,000,000 shares of the Company's restricted common stock and
cash in the amount of $1,500,000. The Amarillo Mesquite Grill
restaurant chain consisted of four restaurants at the date of
purchase: two located in Wichita, Kansas, one located in Hutchinson,
Kansas and one located in Overland Park, Kansas. Since the date of
this acquisition, the Company has converted three of its Cotton Patch
Cafe restaurants to Amarillo Mesquite Grill restaurants and has under
construction one additional Amarillo Mesquite Grill restaurant.
The Company has also determined that it is in its best interests to
focus on the development of the Amarillo Mesquite Grill restaurants.
Therefore, on March 24, 1997 it sold its remaining eight Grandy's
restaurants to Red Apple Corporation for the purchase price of
$435,000.
B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not Applicable
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C) NARRATIVE DESCRIPTION OF BUSINESS.
i) PRINCIPAL PRODUCTS AND SERVICES.
AMARILLO MESQUITE GRILL. Amarillo Mesquite Grill restaurants are
open for lunch and dinner. Amarillo Mesquite Grill is a
moderately priced casual dining restaurant that specializes in
aged prime rib and steaks, along with barbecued ribs, chicken and
seafood, all uniquely grilled over an open flame of mesquite
wood. Appetizers and desserts, as well as a children's menu with
lower-priced selections, are also available. Most of the
Amarillo Mesquite Grill items are prepared from scratch on the
premises.
The Amarillo Mesquite Grill restaurant is a free-standing
building. The Company owns the furniture, fixtures and equipment
used in its restaurants. Each restaurant serves alcoholic
beverages and features a bar area located adjacent to the dining
room primarily to accommodate customers waiting for tables.
The average cost of a meal at the Company's Amarillo Mesquite
Grill restaurant is approximately $7.00 for lunch and $13.00 for
dinner. Alcoholic beverage service accounts for approximately 9%
of the Company's net sales at each restaurant.
The following table sets forth the location and opening or
acquisition date of the Company's Amarillo Mesquite Grill
restaurants currently in operation or under construction:
DATE OPENED
LOCATION OR PURCHASED
-------- ------------
Wichita, Kansas #1 June 17, 1996
Wichita, Kansas #2 June 17, 1996
Hutchinson, Kansas June 17, 1996
Overland Park, Kansas June 17, 1996
Ponca City, Oklahoma December 9, 1996
Rogers, Arkansas February 17, 1997
Salina, Kansas April 21, 1997
Springfield, Missouri* June 23, 1997
Enid, Oklahoma* August 1, 1997
- --------------------
* Under Construction. Projected Opening Date.
-2-
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.
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
Enid, Oklahoma November 21, 1994
McAlester, Oklahoma July 1, 1995
The Company has determined that it will not develop additional
Cotton Patch Cafe restaurants.
ii) DEVELOPING PRODUCTS AND INDUSTRY SEGMENTS.
Not Applicable
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.
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iv) FRANCHISE AGREEMENTS AND TRADEMARKS.
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 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.
TRADEMARKS. The Company acquired two service marks registered
with the United States Patent and Trademark Office for the words
"Amarillo Grill." Both of these registrations expire in January
2005, however, they are subject to renewal. The Company
considers both of these service marks to contribute significantly
to its operations.
v) SEASONALITY.
The Company experiences increased sales during holiday periods in
its restaurants.
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
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viii) BACKLOG ORDERS.
Not Applicable
ix) BUSINESS SUBJECT TO RENEGOTIATION AT ELECTION OF GOVERNMENT.
Not Applicable
x) COMPETITION.
The Company competes with mid-priced, full service restaurants
primarily on the basis of quality of food and service, ambiance,
location and price-value relationship. The Company also competes
with a number of other restaurants within its markets, including
both locally owned restaurants and regional or national chains.
The Company believes that its mesquite grill concept, attractive
price-value relationship and quality of food and service enable
it to differentiate itself from its competitors. While the
Company believes that its mesquite grill restaurants are
distinctive in design and operating concept, it is aware of
restaurants that operate with similar concepts. Many of the
Company's competitors are well-established in the mid-priced
dining segment and have substantially greater financial,
marketing and other resources than the Company. The Company
believes that its ability to compete effectively will continue to
depend upon its ability to offer high quality, moderately priced
food in a full service, distinctive dining environment.
xi) RESEARCH AND DEVELOPMENT.
Not Applicable
xii) COMPLIANCE WITH ENVIRONMENTAL REGULATION.
Not Applicable
xiii) EMPLOYEES.
As of April 1, 1997, the Company employed approximately 480
persons, including 20 administrative, 60 managerial, 100
full-time and 300 part-time restaurant employees.
D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not Applicable
-5-
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 twelve 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 twelve Amarillo
Mesquite Grill and Cotton Patch Cafe restaurants which encompass approximately
4,000 to 6,000 square feet. These restaurants seat approximately 140 to 280
persons and have on-site parking for an average of 70 cars. Typical capital
costs for a restaurant facility are approximately $700,000 for land, $700,000
for the building and $300,000 for equipment and furnishings.
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.
-6-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A) MARKET INFORMATION.
Stock quotations for the Company's stock are currently available on
the OTC Bulletin Board under the symbol "MAVR". 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, 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
Bid Price
Quarter Ended High Low
------------- --------------------------
April 28, 1996 7/8 3/8
July 29, 1996 2 3/8 3/8
October 27, 1996 2 3/8 1 1/4
January 26, 1997 3 3/4 1 1/4
B) HOLDERS OF COMPANY'S COMMON STOCK.
The number of holders of record of the Company's common stock as of
January 26, 1997, was 474, 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.
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.
-7-
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED (1) January 26, January 28, January 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
OPERATING DATA:
Net sales $ 14,090,500 $ 10,668,573 $ 9,106,111 $ 7,517,756 $ 10,956,091
Net loss $ (1,586,275) $ (175,341) $ (14,300) $ (126,852) $ (1,105,195)
Net loss per share $ (.24) $ ( .03) $ - $ (.02) $ (.22)
------------ ------------ ----------- ----------- ------------
BALANCE SHEET DATA:
Current assets $ 700,560 $ 420,691 $ 1,009,879 $ 1,649,790 $ 625,270
Property and equipment 4,601,807 4,041,077 3,342,382 2,285,972 2,246,921
Other assets 1,155,327 310,012 346,314 366,622 398,967
------------ ------------ ----------- ----------- ------------
Total assets $ 6,457,694 $ 4,771,780 $ 4,698,575 $ 4,302,384 $ 3,271,158
------------ ------------ ----------- ----------- ------------
------------ ------------ ----------- ----------- ------------
Current liabilities $ 2,931,011 $ 1,228,909 $ 900,991 $ 868,954 $ 1,277,475
Long-term debt, less
current portion 1,506,421 332,475 355,062 471,224 357,321
Obligation under capital leases,
less current portion 1,500,618 1,457,062 1,520,544 1,082,625 1,696,876
Deferred credits 6,789 24,204 26,507 28,810 31,113
Stockholders' equity (deficit) 512,855 1,729,130 1,895,471 1,850,771 (91,627)
------------ ------------ ----------- ----------- ------------
Total liabilities and
stockholders' equity $ 6,457,694 $ 4,771,780 $ 4,698,575 $ 4,302,384 $ 3,271,158
------------ ------------ ----------- ----------- ------------
------------ ------------ ----------- ----------- ------------
- --------------------
(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.
-8-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the year ended January 26, 1997, sales were $14,090,500 as compared to
$10,668,573 and $9,106,111 for fiscal 1996 and 1995 respectively. All of the
sales increase for the year can be attributed to the purchase of the four
Amarillo Mesquite Grill restaurants ("Amarillo Grill") on June 17, 1996. The
following schedule represents a summary of the restaurants operated by the
Company during the three year period ending January 26, 1997.
Cotton Amarillo
Grandy's Patch Cafe Grill Total
-------- ---------- -------- -----
January 31, 1995 9 5 - 14
Opened - 1 - 1
Converted (1) 1 - -
----- ----- ----- -----
January 28, 1996 8 7 - 15
----- ----- ----- -----
Opened - 1 - 1
Purchased - - 4 4
Converted - (1) 1 -
Closed - (2) - (2)
----- ----- ----- -----
January 26, 1997 8 5 5 18
----- ----- ----- -----
----- ----- ----- -----
Cost of sales, as a percentage of total sales, was 33.5%, 31.5% and 31.4% for
fiscal 1997, 1996 and 1995 respectively. The increase in cost of sales, as a
percentage of total sales, from fiscal 1996 to fiscal 1997 can be attributed to
the acquisition of four Amarillo Grills which run higher cost of sales
percentage than do Grandy's or Cotton Patch Cafe.
Operating expenses, as a percentage of total sales, was 60.8%, 59.1% and 58.2%
for fiscal 1997, 1996 and 1995 respectively. The increase in operating expense,
as a percentage of total sales, can be attributed to training expenses and
preopening costs relating to expansion of the Amarillo Grill concept. The
Company follows the policy of expensing as incurred all training and preopening
costs which was approximately $280,000 for fiscal 1997.
Depreciation and amortization are directly related to the acquisition or
disposition of fixed assets. The increase in depreciation and amortization from
fiscal 1995 to fiscal 1997 is the result of operating more restaurants.
General and administrative expenses, as a percentage of total sales, was 6.1%,
4.6% and 4.8% for fiscal 1997, 1996 and 1995 respectively. The increase in
general and administrative expenses can be attributed to an increase in
management and supervisory personnel in anticipation of growth and expansion of
the Amarillo Grill Concept.
Interest expense for fiscal 1997, 1996 and 1995 was $306,245, $224,450 and
$183,269 respectively. The increase in the dollar amount of interest expense
from fiscal 1995 to fiscal 1997 is the result of an increase in long-term debt
and obligation under capital leases relating to new store development and the
acquisition of four Amarillo Grills.
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The Company incurred noncash expenses of $61,000 in fiscal 1997 related to the
issuance of stock options pursuant to debt guarantees as disclosed in note 5 to
the financial statements.
As of January 26, 1997, the Company has net operating loss carryforwards for
income tax purposes of approximately $5,360,000 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, $116,000 in fiscal 2010 and
$1,716,000 in fiscal 2011.
During fiscal 1997, the Company took some major steps toward reorganizing which
will change the direction of the Company in the future. Effective June 17,
1996, the Company purchased four Amarillo Grill restaurants. The purchase price
was $1,500,000 cash and 1,000,000 shares of the Company's common stock valued at
$.30 per share. Amarillo Grill is a casual dining restaurant concept that
specializes in aged prime rib and steaks along with chicken and seafood all
uniquely grilled over an open flame of mesquite wood. The Company plans to
expand the Amarillo concept.
In preparation for this expansion the Company closed three Cotton Patch Cafes,
one of which was sold, one converted to an Amarillo Grill and one being
converted to an Amarillo Grill as of January 26, 1997. The Company also decided
during fiscal 1997 to discontinue operations of two Grandy's restaurants in
fiscal 1998. The provision for restaurant closing, dispositions and conversions
in the amount of $518,321 relates principally to the write off of restaurant
assets.
The Company has also determined that it is in its best interests to focus its
efforts and financial resources on the Amarillo Grill concept. Therefore,
subsequent to the balance sheet date, effective March 24, 1997, the Company sold
to Red Apple Corporation all of the assets of the eight Grandy's restaurants
owned and operated by the Company. Red Apple Corporation is owned by five
individuals, four of which are officers and directors of the Company. The
consideration received for these assets consisted of $435,000 in cash. Red
Apple Corporation also assumed the lease obligations associated with these
restaurants. The Company will recognize a gain of approximately $270,000 on
this disposition. The sales price was computed as three times last year's store
level cash flow before overhead or administrative expenses.
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. On January 26, 1997, the Company had a working capital deficit of
$2,230,451 compared to working capital deficit of $808,218 as of January 28,
1996. The Company does have available $1,350,000 of unused funds from a
$2,000,000 bank line of credit. While the line of credit expires in June 1997,
management anticipates the loan agreement will be renewed at that time under
comparable terms. This source of debt financing coupled with proceeds from the
sale of the Grandy's restaurants and anticipated higher cash flow from
restaurant operations due to continued focus on and expansion of the Amarillo
Grill concept will enable the Company to meet its obligations as they come due.
-10-
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 and the acquisition of restaurants represent
the single largest use of funds by the Company. The expenditures are primarily
made for the purchase and development of new restaurants. Capital expenditures
were $2,286,707 for the year ended January 26, 1997, compared to $1,143,620 for
the year ended January 28, 1996. 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 Amarillo Mesquite Grill concept
in fiscal 1998. The Company intends to lease existing restaurant properties
which are suitable for conversion to the Amarillo Mesquite Grill concept. It is
expected that each conversion will require approximately $300,000 to $500,000
for equipment and remodel costs. A ground-up proto-type restaurant will cost
approximately $1.7 million for the land, building and equipment. New
restaurants will be finished with proceeds received as a result of 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.
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-21 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
-11-
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 1997 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 1997 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 1997 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
The information relating to this Item is included in the Company's Annual
Proxy Statement for the 1997 Annual Meeting of Stockholders under the section
entitled "Certain Relationships and Related Transactions" and that portion of
such Proxy Statement is herein incorporated by reference.
-12-
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.
On January 14, 1997, the Company filed Form 8-K/A-1 with the
Commission which amended its Form 8-K dated June 17, 1997. The
8-K/A-1 was filed in order to include the following financial
statements:
A) Financial Statements of Homestead West, Inc.:
Independent Auditors' Report
Combined Balance Sheets
Combined Statements of Operations
Combined Statements of Stockholders' Equity (Deficit)
Combined Statements of Cash Flows
Notes to Combined Financial Statements
B) Pro Forma Financial Information
Pro Forma Balance Sheet as of April 28, 1996
Pro Forma Statement of Operations for the year ended January
28, 1996
Notes to Pro Forma Financial Statements
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
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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 Asset Purchase Agreement dated June 14, 1996 between
Homestead West, Inc., Amagril, Inc. and the Company (filed
as Exhibit 10.1 to the Company's Form 8-K dated June 17,
1996 and such exhibit is hereby incorporated by reference).
10.2 Stock Option Agreement dated June 17, 1996 between the
Company and C. Howard Wilkins, Jr. and amendment thereto
(filed herewith).
10.3 Stock Option Agreement dated June 17, 1996 between the
Company and Robert A. Geist and amendment thereto (filed
herewith).
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).*
10.8 Maverick Restaurant Corporation 1997 Incentive Stock Option
Plan (filed as Exhibit A to the Company's Proxy Statement
dated April 23, 1997 and such exhibit is hereby incorporated
by reference).*
23 Consent of KPMG Peat Marwick LLP (filed herewith).
- ---------------
*Management's Compensation Plan
-14-
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 21, 1997
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 21, 1997
- ------------------------------ the Board and Director -----------------
Chris F. Hotze (Principal Executive
Officer)
/s/ Linn F. Hohl Vice President of April 21, 1997
- ------------------------------ Finance, Treasurer, -----------------
Linn F. Hohl Assistant Secretary and
Director (Principal
Financial and Accounting
Officer)
/s/ Alan L. Bundy Executive Vice President April 21, 1997
- ------------------------------ and Director -----------------
Alan L. Bundy
/s/ Andres Mouland Vice President of April 21, 1997
- ------------------------------ Operations and Director -----------------
Andres Mouland
/s/ C. Howard Wilkins, Jr. Director April 21, 1997
- ------------------------------ -----------------
C. Howard Wilkins, Jr.
-15-
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 F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-9
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 26, 1997 and January 28, 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended January 26, 1997. 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 26, 1997 and January 28, 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended January
26, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Wichita, Kansas
March 21, 1997, except as to note 11,
which is as of March 24, 1997
F-2
MAVERICK RESTAURANT CORPORATION
Balance Sheets
January 26, 1997 and January 28, 1996
1997 1996
---- ----
Current assets:
Cash $ 328,285 195,365
Accounts receivable 22,058 13,006
Inventories 219,315 109,074
Prepaid expenses 130,902 103,246
---------- ----------
Total current assets 700,560 420,691
---------- ----------
Property and equipment (notes 3 and 4):
Land - 168,800
Buildings 224,178 288,449
Leasehold improvements 1,433,338 1,333,727
Equipment and fixtures 3,883,586 3,488,869
Transportation equipment 18,000 -
Property under capital leases 1,903,191 1,832,176
---------- ----------
7,462,293 7,112,021
Less accumulated depreciation and amortization 2,860,486 3,070,944
---------- ----------
Total property and equipment 4,601,807 4,041,077
---------- ----------
Other assets:
Cost in excess of net tangible assets of
purchased businesses, net of amortization
of $436,309 and $412,040 1,012,496 209,462
License fees, net of amortization of
$52,361 and $60,067 63,327 92,996
Deposits and other 79,504 7,554
---------- ----------
Total other assets 1,155,327 310,012
---------- ----------
Total assets $6,457,694 4,771,780
---------- ----------
---------- ----------
See accompanying notes to financial statements.
F-3
MAVERICK RESTAURANT CORPORATION
Balance Sheets, Continued
January 26, 1997 and January 28, 1996
1997 1996
---- ----
Current liabilities:
Current portion of long-term debt (note 3) $1,014,778 234,729
Current portion of obligations under capital
leases (note 4) 95,947 63,540
Accounts payable 1,039,399 533,304
Accrued payroll 205,373 137,589
Other accrued liabilities 487,211 259,747
Accrual for restaurant closings (note 7) 88,303 -
---------- ----------
Total current liabilities 2,931,011 1,228,909
Long-term debt, less current portion (note 3) 1,506,421 332,475
Obligations under capital leases, less current
portion (note 4) 1,500,618 1,457,062
Deferred credits (note 4) 6,789 24,204
---------- ----------
Total liabilities 5,944,839 3,042,650
---------- ----------
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 7,141,458 shares
at January 26, 1997 and 6,141,458 shares at
January 28, 1996 71,414 61,414
Additional paid-in capital 6,491,984 6,131,984
Accumulated deficit (5,780,543) (4,194,268)
Treasury stock, 60,000 shares of common stock
at cost (270,000) (270,000)
---------- ----------
Total stockholders' equity 512,855 1,729,130
Commitments (notes 4 and 9)
---------- ----------
Total liabilities and stockholders' equity $6,457,694 4,771,780
---------- ----------
---------- ----------
See accompanying notes to financial statements.
F-4
MAVERICK RESTAURANT CORPORATION
Statements of Operations
Years Ended January 26, 1997, January 28, 1996 and January 31, 1995
1997 1996 1995
---- ---- ----
Net sales $ 14,090,500 10,668,573 9,106,111
------------ ------------ ------------
Costs and expenses:
Cost of goods sold 4,719,511 3,359,662 2,859,132
Operating expenses (note 4) 8,561,108 6,305,378 5,300,729
Depreciation and amortization 604,788 479,163 365,084
General and administrative 853,545 493,836 435,915
Provision for restaurant closings, dispositions
and conversions (note 7) 518,321 - -
------------ ------------ ------------
Total expenses 15,257,273 10,638,039 8,960,860
------------ ------------ ------------
Operating income (loss) (1,166,773) 30,534 145,251
------------ ------------ ------------
Other income (expense):
Interest income 11 18,575 23,718
Interest expense (306,245) (224,450) (183,269)
Loss on sale of fixed assets (52,268) - -
Noncash expense from issuance of stock
options pursuant to debt guarantees (note 5) (61,000) - -
------------ ------------ ------------
Total other income (expense) (419,502) (205,875) (159,551)
------------ ------------ ------------
Loss before income taxes (1,586,275) (175,341) (14,300)
Income taxes (note 6) - - -
------------ ------------ ------------
Net loss $ (1,586,275) (175,341) (14,300)
------------ ------------ ------------
------------ ------------ ------------
Net loss per common share $ (.24) (.03) -
------------ ------------ ------------
------------ ------------ ------------
Average shares outstanding 6,701,458 6,081,458 6,067,665
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to financial statements.
F-5
MAVERICK RESTAURANT CORPORATION
Statements of Stockholders' Equity
Years Ended January 26, 1997, January 28, 1996 and January 31, 1995
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
----- ------- ------- ----- -----
Balance, January 31, 1994 $ 61,133 6,064,265 (4,004,627) (270,000) 1,850,771
Sale of common stock 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
Issuance of common stock in
connection with acquisition
(note 9) 10,000 290,000 - - 300,000
Contributed capital (note 5) - 9,000 - - 9,000
Noncash expense from issuance of
stock options pursuant to debt
guarantees (note 5) - 61,000 - - 61,000
Net loss - - (1,586,275) - (1,586,275)
-------- ---------- ----------- --------- ----------
Balance, January 26, 1997 $ 71,414 6,491,984 (5,780,543) (270,000) 512,855
-------- ---------- ----------- --------- ----------
-------- ---------- ----------- --------- ----------
See accompanying notes to financial statements.
F-6
MAVERICK RESTAURANT CORPORATION
Statements of Cash Flows
Years Ended January 26, 1997, January 28, 1996 and January 31, 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss $ (1,586,275) (175,341) (14,300)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 604,788 479,163 365,084
Loss on sale of equipment 52,268 - -
Changes in assets and liabilities, net of
effects of business acquisition:
(Increase) decrease in receivables (9,052) 17,076 (23,062)
(Increase) decrease in inventories (26,727) 2,395 (24,932)
Increase in prepaid expenses (27,655) (36,347) (16,956)
Increase in accounts payable 465,570 136,770 16,562
Increase in accrued expenses 295,248 78,243 52,167
Noncash provision for restaurant closings,
dispositions and conversions 518,321 - (19,159)
Noncash compensation expense 9,000 9,000 9,000
Noncash expense from issuance of stock
options pursuant to debt guarantees (note 5) 61,000 - -
Other (71,950) (930) (2,529)
------------ ---------- -----------
Cash provided by operating activities 284,536 510,029 341,875
------------ ---------- -----------
Cash flows from investing activities:
Additions to property and equipment (786,707) (1,143,620) (878,960)
Business acquisition (note 9) (1,500,000) - -
Proceeds from sale of property and equipment 253,274 18,691 -
Additions to license fees (9,000) (18,000) (27,000)
------------ ---------- -----------
Cash used in investing activities (2,042,433) (1,142,929) (905,960)
------------ ---------- -----------
Cash flows from financing activities:
Sale of common stock - - 50,000
Proceeds from long-term debt 2,425,000 210,000 -
Repayment of long-term debt and capital lease
obligations (534,183) (183,164) (190,776)
------------ ---------- -----------
Cash provided by (used in) financing
activities 1,890,817 26,836 (140,776)
------------ ---------- -----------
Net increase (decrease) in cash 132,920 (606,064) (704,861)
Cash at beginning of year 195,365 801,429 1,506,290
----------- ---------- -----------
Cash at end of year $ 328,285 195,365 801,429
----------- ---------- -----------
----------- ---------- -----------
F-7
MAVERICK RESTAURANT CORPORATION
Statements of Cash Flows, Continued
Years Ended January 26, 1997, January 28, 1996 and January 31, 1995
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Interest $ 302,250 224,450 186,494
Income taxes - - -
See accompanying notes to financial statements.
F-8
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements Continued
January 26, 1997, January 28, 1996 and January 31, 1995
(1) OPERATIONS
Maverick Restaurant Corporation (the Company) owns and operates eight
franchised Grandy's restaurants located in Texas, Oklahoma and New Mexico,
five franchised Cotton Patch Cafes located in Oklahoma and Kansas and five
Amarillo Grill restaurants in Kansas and Oklahoma. 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. Amarillo Grill is a casual, full service restaurant specializing in
mesquite-grilled steaks.
(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.
(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. Estimated useful
lives are as follows:
Buildings 20 years
Leasehold improvements 3 - 20 years
Equipment and fixtures 5 - 10 years
Autos 5 years
Property under capital leases 20 years
(d) LICENSE FEES
A license fee for each franchised 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. In fiscal 1997, the
Company recorded a write-down of $16,288 on license fees due to store
closings (see note 7).
F-9
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) INTANGIBLE ASSETS
Cost in excess of net tangible assets of purchased businesses is
amortized on a straight-line basis over the remaining life of the
building leases. The Company assesses the recoverability of
intangible assets by determining whether the amortization of the
intangible asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired
operation. The amount of intangible asset impairment, if any, is
measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of intangible assets will be
impacted if estimated future operating cash flows are not achieved.
In fiscal 1997, the Company recorded a write-down of $60,331 on
intangible assets due to store closings (see note 7).
(f) PRE-OPENING COSTS
Pre-opening costs are charged to operations as incurred.
(g) INCOME TAXES
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.
(h) 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.
(i) NET LOSS PER SHARE
Net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding.
F-10
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(j) STATEMENTS OF CASH FLOWS
Noncash investing and financing activities included the following:
1997 1996 1995
---- ---- ----
Addition to capital leases $ 385,804 - 495,000
Issuance of common stock in
business acquisition $ 300,000 - -
Noncash expense from issuance of
stock options pursuant to debt
guarantees $ 61,000 - -
(k) STOCK AWARDS
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As such, compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On
January 29, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 (SFAS 123), ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to continue to apply the cost
measurement provisions of APB Opinion No. 25 but also requires that
pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in fiscal years that begin after
December 15, 1994 be provided as if the fair-value-based cost
measurement method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure required of SFAS No. 123
for its stock options issued to employees.
The Company accounts for its stock options issued to persons other
than employees in accordance with the provisions of SFAS No. 123. As
such, expense is recorded on the date of grant based on the fair value
based cost measurement method defined in SFAS No. 123.
F-11
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(l) IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF, on January 29, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity in
1997.
(3) LONG-TERM DEBT
As of January 26, 1997 and January 28, 1996, long-term debt consisted of
the following:
1997 1996
---- ----
Note payable to bank, due in monthly installments of $3,740,
including interest, at prime rate plus 1% (9.25% at
January 26, 1997) with final installment due February 2001 $ 148,877 100,000
Note payable to bank, repaid in 1997 - 60,966
Mortgage note, due in monthly installments of $4,965, including
interest, at prime rate plus 1% (9.25% at January 26, 1997)
through March 1997 with the remaining balance then due 23,026 296,238
Note payable to bank bearing interest at prime rate plus 1%
(9.25% at January 26, 1997), interest only due monthly with
principal due May 1997 110,000 110,000
Note payable to bank, due in monthly installments of $27,000,
including interest, at the prime rate (8.25% at
January 26, 1997) with final installment due June 2003 1,589,296 -
Note payable to bank bearing interest at the prime rate (8.25%
at January 26, 1997), interest only due quarterly with
principal due June 1997 650,000 -
----------- -------
2,521,199 567,204
Less current portion 1,014,778 234,729
----------- -------
Long-term debt, less current portion $ 1,506,421 332,475
----------- -------
----------- -------
F-12
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(3) LONG-TERM DEBT, CONTINUED
Principal amounts payable on the above notes during each of the next five
fiscal years and thereafter are as follows: 1998 - $1,014,778; 1999 -
$252,208; 2000 - $274,482; 2001 - $298,731; 2002 - $280,469 and thereafter
- $400,531.
The notes payable to bank of $148,877 and $110,000 at January 26, 1997 are
collateralized by restaurant equipment with a net book value of $1,943,077
and the personal guarantees of three officers and two major stockholders.
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 $753,183 and a personal guarantee by a major stockholder.
The $650,000 note payable to bank at January 26, 1997 represents advances
received pursuant to a $2,000,000 loan agreement which expires June 1997.
The $650,000 note payable to bank and the $1,589,296 note payable to bank
are secured by Amarillo Grill equipment with a net book value at January
26, 1997 of $1,461,124 and the personal guarantees of a director and a
stockholder. Management anticipates the above loan agreement will be
renewed with comparable terms in June 1997.
(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.
Future minimum lease payments required for the years subsequent to January
26, 1997, under operating leases are as follows:
1998 $ 968,223
1999 733,097
2000 550,100
2001 542,272
2002 538,467
Thereafter 1,476,980
------------
$ 4,809,139
------------
------------
F-13
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(4) LEASE AGREEMENTS, CONTINUED
Minimum annual rentals under operating leases were $928,051; $745,441 and
$663,951 for the fiscal years ended January 26, 1997, January 28, 1996 and
January 31, 1995, respectively. In addition, the Company made percentage
rental payments in the amount of $27,868; $880 and $3,842 for the fiscal
years ended January 26, 1997, January 28, 1996 and January 31, 1995,
respectively.
Included in the future minimum lease payments above is $1,759,336 due under
leases assumed by Red Apple Corporation on March 24, 1997 in connection
with the sale discussed in note 11.
Property and accumulated amortization accounts at January 26, 1997 include
$1,903,191 and $633,942, 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 26, 1997, are as
follows:
1998 $ 241,188
1999 241,188
2000 241,188
2001 241,188
2002 241,188
Thereafter 1,958,880
------------
3,164,820
Less amount representing interest 1,568,255
------------
Total obligations under capital leases 1,596,565
Less current portion 95,947
------------
Obligations under capital leases, less current portion $ 1,500,618
------------
------------
Deferred credits consist of gains on the sale-leaseback of properties which
have been deferred and are being amortized over the term of the respective
lease.
The Company, as lessor, leases one property to an outside third party.
Property and accumulated depreciation accounts at January 26, 1997 include
$80,000 and $19,500, respectively, related to this property.
F-14
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(4) LEASE AGREEMENTS, CONTINUED
Future minimum lease payments to be received subsequent to January 26, 1997
are as follows:
1998 $ 58,000
1999 58,000
2000 63,000
2001 68,000
2002 68,000
Thereafter 170,000
------------
$ 485,000
------------
------------
(5) STOCKHOLDERS' EQUITY
The Company's President worked on behalf of the Company during 1997, 1996
and 1995 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.
In March 1984, the Company adopted an Employee Incentive Stock Option Plan
(the 1984 Plan) for a ten-year term to grant options for the purchase of up
to 475,000 shares of common stock. The 1984 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 1984 Plan for the three years
ended January 26, 1997:
Per Share Exercise Price
------------------------
Number of Weighted
Shares Range Average
------ ----- -------
Balance, January 31, 1994 255,800 $.29 - 5.06 1.32
Canceled (18,500) .29 - 5.06 4.68
------- ----------- -----
Balance, January 31, 1995 237,300 .29 - 2.81 1.06
Canceled (51,300) .29 - 2.81 2.60
------- ----------- -----
Balance, January 28, 1996 186,000 .29 - 1.75 .63
Canceled (35,000) 1.75 1.75
------- ----------- -----
Balance, January 26, 1997 151,000 $ .29 - .47 .37
------- ----------- -----
------- ----------- -----
Exercisable at January 26, 1997 151,000 $ .29 - .47 .37
------- ----------- -----
------- ----------- -----
F-15
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
At January 26, 1997, there were no additional shares available for grant
under the 1984 Plan and the weighted-average remaining contractual life of
outstanding options was 1.85 years.
On July 25, 1994, the Company adopted an Employee Incentive Stock Option
Plan (the 1994 Plan) for a ten-year term to grant options for the purchase
of up to 600,000 shares of stock. The 1994 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 1994 Plan for the
three years ended January 26, 1997:
Per Share Exercise Price
------------------------
Number of Weighted
Shares Range Average
------ ----- -------
Balance, January 31, 1994 - $ - -
Canceled 51,467 1.50 - 2.875 2.43
------- ------------- ----
Balance, January 31, 1995 51,467 1.50 - 2.875 2.43
Granted 155,366 .84 - 1.940 1.19
Canceled (60,129) 1.44 - 2.875 2.08
------- ------------- ----
Balance, January 28, 1996 146,704 .84 - 2.875 1.26
Granted 436,776 .50 - 2.190 1.90
Canceled (88,675) .84 - 1.810 1.13
------- ------------- ----
Balance, January 26, 1997 494,805 $.50 - 2.875 1.85
------- ------------- ----
------- ------------- ----
Exercisable at January 26, 1997 8,490 $.84 - 2.875 1.74
------- ------------- ----
------- ------------- ----
At January 26, 1997, there were 105,195 additional shares available for
grant under the 1994 Plan and the weighted-average remaining contractual
life of outstanding options was 9.28 years.
F-16
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
On June 17, 1996, the Company entered into Stock Option Agreements with a
director of the Company and a principal stockholder of the Company, whereby
it agreed to grant stock options as consideration for the guarantee of the
note payable to bank of $1,589,296 at January 26, 1997 (see note 3) by such
individuals for the benefit of the Company. These two individuals were
each granted options to purchase 250,000 shares of the Company's common
stock. The exercise price of options granted pursuant to this agreement is
$2.19 per share, and all options granted are exercisable immediately and
expire seven years from the date of grant. Total noncash expense based on
the fair value of the stock options issued pursuant to the Stock Option
Agreements as of January 26, 1997 aggregates $684,875. The Company will
recognize this expense over the period of time the related debt is
outstanding. The amount of noncash expense recorded during the year ended
January 26, 1997 was $61,000.
The per share weighted-average fair value of stock options granted under
the Stock Option Agreements during fiscal 1997 was $1.37 on the date of
grant using the Black Scholes option-pricing model using the following
weighted-average assumptions: expected dividend yield 0%, expected
volatility of 145.0%, risk-free interest rate of 6.72% and an expected life
of five years.
At January 26, 1997, the weighted-average remaining contractual life of
outstanding options under the Stock Option Agreements was 6.38 years.
On January 1, 1997, the Company adopted an Employee Incentive Stock Option
Plan (the 1997 Plan) for a ten-year term to grant options for the purchase
of up to 700,000 shares of stock. The 1997 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 1997 Plan for the
year ended January 26, 1997:
Per Share Exercise Price
------------------------
Number of Weighted
Shares Range Average
------ ----- -------
Balance, January 28, 1996 - $ - -
Granted 160,000 2.75 2.75
------- ------ ----
------- ------ ----
Balance, January 26, 1997 160,000 $2.75 2.75
------- ------ ----
------- ------ ----
Exercisable at January 26, 1997 - $ - -
------- ------ ----
------- ------ ----
F-17
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
At January 26, 1997, there were 540,000 additional shares available for
grant under the 1997 Plan and the weighted-average remaining contractual
life of outstanding options was 9.96 years.
The per share weighted-average fair value of stock options granted under
the 1994 and 1997 Plans during 1997 and 1996 was $1.94 and $1.08,
respectively, on the date of grant using the Black Scholes option-pricing
model using the following weighted-average assumptions: expected dividend
yield 0%, expected volatility of 145.0%, risk-free interest rate of 5.63%
to 6.72%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its stock
options issued to employees and, accordingly, no compensation cost has
been recognized for its stock options in the financial statements. Had
the Company determined compensation cost for the 1994 Plan and the 1997
Plan based on the fair value of the grant date for its stock options
under SFAS No. 123, the Company's 1997 and 1996 pro forma net loss and pro
forma net loss per share would have been adjusted to the pro forma amounts
indicated below.
1997 1996
---- ----
Net loss As reported $ (1,586,275) (175,341)
Pro forma (1,681,310) (188,907)
Loss per share As reported $ (.24) (.03)
Pro forma (.25) (.03)
The above proforma disclosure reflects only options granted during fiscal
years 1997 and 1996. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in
the pro forma net loss amounts presented above because compensation cost is
reflected over the options' vesting period of five years and compensation
cost for options granted prior to February 1, 1995 is not considered.
(6) INCOME TAXES
As of January 26, 1997, the Company has net operating loss carryforwards
for income tax purposes of approximately $5,360,000 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, $116,000 in
fiscal 2010 and $1,716,000 in fiscal 2011.
F-18
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(6) INCOME TAXES, CONTINUED
The Company also has approximately $108,000 of investment tax credit
carryforwards available which, if not used, will expire $27,000 in fiscal
1999, $72,000 in fiscal 2000 and $9,000 in fiscal 2001.
The total provision for income taxes varied from the Federal statutory rate
for the following reasons:
1997 1996 1995
---- ---- ----
Computed "expected" tax benefit (34.0)% (34.0)% (34.0)%
Increase 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
26, 1997 and January 28, 1996 are presented below:
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 2,037,075 1,384,575
Investment tax credits 108,000 167,000
Capital leases 124,380 137,788
Accrual for restaurant closing 33,555 -
Other 13,280 17,747
------------ ----------
Total gross deferred tax assets 2,316,290 1,707,110
Less valuation allowance (2,189,918) (1,650,761)
------------ ----------
Net deferred tax assets 126,372 56,349
------------ ----------
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation $ (126,372) (56,349)
------------ ----------
Net deferred tax assets (liabilities) $ - -
------------ ----------
------------ ----------
F-19
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(7) PROVISION FOR RESTAURANT CLOSINGS, DISPOSITIONS AND CONVERSIONS
The Company closed three Cotton Patch Cafe restaurants during 1997, one of
which was sold, one was converted to an Amarillo Grill restaurant and one
was in the process of being converted to an Amarillo Grill restaurant at
January 26, 1997. The Company also decided during fiscal 1997 to
discontinue operations of two Grandy's restaurants in fiscal 1998.
Provision for restaurant closings, dispositions and conversions in the
accompanying 1997 statement of operations of $518,321 relates principally
to the write-off of property and equipment, license fees and intangible
assets.
(8) 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.
(9) BUSINESS ACQUISITION
Effective June 17, 1996, the Company purchased substantially all of the
operating assets and business operations of Homestead West, Inc. and
Amagril, Inc. for an initial cash payment of $1,500,000. In addition,
1,000,000 shares of the Company's $.01 par value common stock was issued at
an estimated fair value of $.30 per share. The acquisition has been
accounted for by the purchase method of accounting and, accordingly, the
operations of Homestead West, Inc. and Amagril, Inc. have been included in
the accompanying statements of operations subsequent to June 17, 1996. The
initial purchase price has been allocated to the assets acquired based on
their estimated fair values at the date of acquisition. Cost in excess of
fair value of net tangible assets of purchased businesses arising from the
acquisition amounted to $947,011.
The following table summarizes the pro forma results of operations for the
fifty-two weeks ended January 26, 1997 and January 28, 1996 as if the
acquisition had been consummated at the beginning of fiscal 1997 and 1996.
The pro forma results do not necessarily reflect what would have occurred
if the acquisition had been made at the beginning of the respective periods
or the results that may occur in the future.
1997 1996
---- ----
Net sales $ 16,257,436 16,113,185
Net earnings (loss) $ (1,470,582) 1,149
Net earnings (loss) per share $ (.21) -
F-20
MAVERICK RESTAURANT CORPORATION
Notes to Financial Statements, Continued
(9) BUSINESS ACQUISITION, CONTINUED
In connection with the acquisition, the Company entered into an Option to
Purchase Agreement with the seller which grants the seller the option to
purchase the assets acquired after four years from the date of the
acquisition. The option is exercisable for a 90-day period and the
purchase price will be equal to the price paid by the Company plus all
amounts expended by the Company for capital improvements on the restaurants
during the four-year period.
(10)LIQUIDITY
At January 26, 1997, the Company had current liabilities in excess of
current assets of $2,230,451.
Management believes that the continued focus on and expansion of its
Amarillo Grill restaurant concept will enable the Company to generate
sufficient cash flow from operations in fiscal 1998, which when combined
with proceeds from the sale of its Grandy's restaurants (see note 11) and
use of available borrowing capacity (see note 3), will enable it to meet
its obligations as they come due.
(11)SUBSEQUENT EVENT
Effective March 24, 1997, the Company sold to Red Apple Corporation all of
the assets of the eight Grandy's restaurants owned and operated by the
Company. Red Apple Corporation is owned by five individuals, three of
which are officers and directors of the Company and one of which is a
significant stockholder of the Company. The consideration received for
these assets consisted of $435,000 in cash. Red Apple Corporation also
assumed the lease obligations associated with these restaurants. The
Company recognized a gain of approximately $270,000 on this disposition.
The following presents the net sales and operating income, before
allocation of corporate overhead, of the above restaurants which are
included in the accompanying statements of operations for the fiscal years
ended January 26, 1997, January 28, 1996 and January 31, 1995.
January 26, January 28, January 31,
1997 1996 1995
---- ---- ----
Net sales $ 5,102,205 5,204,724 5,364,538
Operating income $ 36,013 209,504 236,031
F-21
EXHIBIT INDEX
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 Asset Purchase Agreement dated June 14, 1996 between Homestead West,
Inc., Amagril, Inc. and the Company (filed as Exhibit 10.1 to the
Company's Form 8-K dated June 17, 1996 and such exhibit is hereby
incorporated by reference).
10.2 Stock Option Agreement dated June 17, 1996 between the Company and C.
Howard Wilkins, Jr. and amendment thereto (filed herewith).
10.3 Stock Option Agreement dated June 17, 1996 between the Company and
Robert A. Geist and amendment thereto (filed herewith).
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).
(i)
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).*
10.8 Maverick Restaurant Corporation 1997 Incentive Stock Option Plan
(filed as Exhibit A to the Company's Proxy Statement dated April 23,
1997 and such exhibit is hereby incorporated by reference).*
23 Consent of KPMG Peat Marwick LLP (filed herewith).
- --------------------
*Management's Compensation Plan
(ii)