FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12145
AMARILLO MESQUITE GRILL, INC.
Exact name of registrant as specified in its charter)
Kansas 48-0936946
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 200
302 North Rock Road
Wichita, Kansas 67206
(Address of principal executive offices)
(Zip Code)
(316) 685-7286
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
As of July 30, 2000, 8,241,137 shares of common stock $.01 par value were
outstanding.
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS July 30 January 30
2000 2000
Current assets:
Cash $ 397,209 $ 407,710
Accounts receivable 41,797 21,137
Advances to affiliate 22,635 45,655
Inventories 161,675 169,027
Prepaid expenses and other current assets 264,734 125,229
Total current assets 888,050 768,758
Property and equipment:
Buildings 1,108,129 1,108,129
Leasehold improvements 2,901,061 2,868,805
Equipment and fixtures 5,428,876 5,164,940
Leased property under capital lease 1,234,626 1,234,626
10,672,692 10,376,500
Less: accumulated depreciation and
amortization 3,395,853 2,998,736
7,276,839 7,377,764
Other assets:
Cost in excess of net tangible assets of
purchased business, net of amortization
of $297,414 and $261,004 649,597 686,007
Deposits and other 43,302 40,922
692,899 726,929
$8,857,788 $8,873,451
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $6,163,260 $ 270,912
Note payable, related party 104,356 224,000
Current portion of long term debt - $ 36,075
Current portion of obligation under
capital lease 45,038 45,038
Accounts payable 1,176,934 1,029,247
Accrued payroll 231,065 225,674
Other accrued liabilities 690,976 741,154
Total current liabilities 8,411,629 2,572,100
Long-term debt, less current portion - 5,904,586
Obligation under capital lease, less
current portion 938,570 961,104
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized
10,000,000 shares, none issued - -
Common stock, $.01 par value, authorized
20,000,000 shares, issued 8,301,137
shares at July 30, 2000 and at
January 30, 2000 83,011 83,011
Additional paid-in capital 7,581,542 7,532,622
Accumulated deficit (7,886,964) (7,909,972)
Treasury stock, 60,000 shares of common
stock at cost ( 270,000) ( 270,000)
Total stockholders' equity (deficit) ( 492,411) ( 564,339)
$8,857,788 $8,873,451
[FN]
See accompanying notes to consolidated financial statements.
2
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 30 August 1 July 30 August 1
2000 1999 2000 1999
Net sales $5,127,450 $4,429,388 $10,756,803 $ 9,060,230
Costs and expenses:
Cost of goods sold 1,751,628 1,525,247 3,674,812 3,118,047
Operating expenses 2,728,159 2,139,543 5,585,132 4,340,554
Depreciation and amortization 246,294 220,729 492,587 441,457
General and administrative 292,139 307,333 606,234 617,481
5,018,220 4,192,852 10,358,765 8,517,539
Operating income 109,230 236,536 398,038 542,691
Other income (expense)
Interest expense ( 166,604) ( 160,045) ( 326,110) ( 320,398)
Noncash expense from issuance
of stock options to related
parties pursuant to debt
guarantees ( 24,460) ( 24,460) ( 48,920) ( 48,920)
( 191,064) ( 184,505) ( 375,030) ( 369,318)
Earnings (loss) before
income taxes ( 81,834) 52,031 23,008 173,373
Provision for income taxes - - - -
Net Earnings (loss) $( 81,834) $ 52,031 $ 23,008 $ 173,373
Net earnings (loss) per common share-
Basic and diluted $ (.01) $ .01 $ - $ .02
Average shares outstanding-
Basic and diluted 8,241,137 7,723,895 8,241,137 7,711,040
[FN]
See accompanying notes to consolidated financial statements.
3
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty Six Weeks Ended
July 30 August 1
2000 1999
Cash flows from operating activities:
Net earnings $ 23,008 $ 173,373
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 492,587 441,457
Noncash expense from issuance of stock
options pursuant to debt guarantees 48,920 48,920
Changes in assets and liabilities
(Increase) decrease in accounts receivable 2,360 ( 9,321)
(Increase) decrease in inventories 7,352 28,175
(Increase) decrease in prepaid expenses and
other current assets ( 139,505) ( 88,077)
Increase (decrease) in accounts payable 147,687 12,900
Increase (decrease) in accrued expenses ( 44,788) ( 172,850)
Other net ( 2,380) ( 1,540)
Cash provided by (used in) operating
activities 535,241 433,037
Cash flows from investing activities:
Purchase of property and equipment ( 355,251) ( 150,708)
Cash used in investing activities ( 355,251) ( 150,708)
Cash flows from financing activities:
Sale of common stock - 24,520
Repayment of notes payable and
Note payable related party ( 167,957) -
Repayment of long-term borrowings
and capital lease obligations ( 22,534) ( 234,496)
Cash provided by financing activities ( 190,491) ( 209,976)
Increase (decrease) in cash ( 10,501) 72,353
Cash at beginning of period 407,710 214,513
Cash at the end of period $ 397,209 $ 286,866
Supplemental disclosure of cash flow information:
Cash paid for interest $ 326,110 $ 320,398
Cash paid for income taxes $ - $ -
[FN]
See accompanying notes to consolidated financial statements.
4
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
July 30, 2000
(1) Principles of Consolidation
The consolidated financial statements include the accounts of Amarillo
Mesquite Grill, Inc., and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
(2) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the twenty six week period ended July
30, 2000 are not necessarily indicative of the results that may be
expected for the year ended January 28, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's 10-K and Annual Report to Stockholders as
filed on April 23, 2000.
(3) Net Earnings Per Share
The Company, as required under FASB Statement no. 128, Earnings Per Share,
calculates and presents both a basic and diluted earnings per share in
the financial statements. Earnings per common share is computed on the
basis of the weighted-average number of common shares outstanding
during each period presented. The Company has granted options to
employees to purchase 1,304,025 shares of common stock at a weighted
average exercise price of $1.96 per share. These options were not
included in the computation of diluted earnings per share because the
exercise price of those options exceeded the average market price of
the common shares during the quarter.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Three Months Ended July 30, 2000 Compared to Three Months Ended August 1,
1999.
For the three months ended July 30, 2000, sales increased 15.8% to $5,127,450
as compared to $4,429,388 for the second quarter of the prior year. As of
July 30, 2000, the Company operated fourteen Amarillo Mesquite Grills as
compared to twelve Amarillo Mesquite Grills as of August 1, 1999.
Cost of sales, as a percentage of total sales, was 34.2% for the quarter
ended July 30, 2000, as compared to 34.4% for the second quarter of the prior
year.
Operating expenses, as a percentage of total sales, were 53.2% and 48.3%
for the 2000 and 1999 periods respectively. The increase in operating expense
is due to an increase in promotional costs related to various programs
designed to increase customer counts and same store sales. In addition,
during the second quarter ended July 30, 2000, the Company incurred
approximately $77,000 in pre-opening costs relating to a new restaurant which
opened the first day of the third quarter.
General and administrative expenses, as a percentage of sales, was 5.7%
for the quarter ended July 30, 2000, as compared to 6.9% for the second quarter
of the prior year. The decrease in general and administrative, as a percentage
of sales, is the result of increasing sales while maintaining the dollar amount
of expense at a fairly constant level for both periods.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets. The investment in fixed assets increased
approximately $882,547 from the end of the second quarter last year to the end
of the second quarter of the current year. Consequently, depreciation and
amortization increased.
Interest expense was $166,604 for the quarter ended July 30, 2000 as
compared to $160,045 for the same period a year ago. Interest expense is a
function of the interest rate and the amount of debt. While the interest rate
has increased over the past few months, the amount of short and long-term debt
has decreased. Consequently, interest expense has remained relatively
constant.
The Company incurred noncash expenses of $24,460 for the 2000 and 1999
periods respectively, relating to the issuance of stock options pursuant to
debt guarantees.
Six Months Ended July 30, 2000 Compared to Six Months Ended August 1, 1999.
For the six months ended July 30, 2000, sales increased 18.7% to
$10,756,803 as compared to sales of $9,060,230 for the first six months of
the prior year. The Company operated fourteen Amarillo Mesquite Grills as
of July 30, 2000, as compared to twelve Amarillo Mesquite Grills as of
August 1, 1999.
Cost of sales, as a percentage of total sales, was 34.2% and 34.4% for
the 2000 and 1999 periods respectively.
Operating expense, as a percentage of total sales, was 51.9% and 47.9% for
the 2000 and 1999 periods respectively. The increase in operating expense is
due to an increase in promotional costs related to various programs designed
to increase customer counts and same store sales. In addition, during the six
months ended July 30, 2000, the Company incurred approximately $77,000 in pre-
opening costs relating to a new restaurant which opened the first day of the
third quarter.
6
General and administrative expense, as a percentage of total sales was
5.6% for the six months ended July 30, 2000, as compared to 6.8% for the first
six months of the prior year. The decrease in general and administrative
expense, as a percentage of sales, is the result of increasing sales while
maintaining the dollar amount of expense at a fairly constant level for both
periods.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets.
Interest expense was $326,110 for the six months ended July 30, 2000, as
compared to $320,398 for the same period a year ago. Interest expense is a
function of the interest rate and the amount of debt. While the interest rate
has increased over the past few months, the amount of short and long-term debt
has decreased. Consequently, interest expense has remained relatively
constant.
The Company incurred noncash expenses of $48,920 for the 2000 and 1999
periods respectively, relating to the issuance of stock options pursuant to
debt guarantees.
Liquidity and Capital Resources
The Company's primary sources of funding to finance its business have
been its cash flow from operations, and proceeds from bank debt. On July 30,
2000 and January 30, 2000, the Company had an excess of current liabilities
over current assets of $7,523,578 and $1,803,342, respectively. However
included as a current liability as of July 30, 2000 is a bank note payable in
the amount of $5,904,586 which is due April 15, 2001. Management expects to
renew the note on April 15, 2001 and commence making monthly principal
payments based on a 60 month amortization period. Cash flow from operations
$535,241 and $433,037 for 2000 and 1999 respectively. Management anticipates
higher cash flow from operations in fiscal 2001 and that such higher operating
cash flow will enable the Company to meet its financial obligations in fiscal
2001 as they come due.
On May 12, 1998, the President of the Company loaned the Company $250,000
to fund construction cost overages. The note was an unsecured 10% demand note
due January 1, 1999. As of July 30, 2000, the note had a balance of $104,356
and has been renewed with a due date of January 3, 2001. Although the
Company's President has made loans to the Company in the past, there is no
assurance that he will make additional loans in the future.
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 operations are not significant.
The Company plans to continue expansion of the Amarillo Mesquite Grill
concept in fiscal 2001. 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 $1.3 million for the land, building and
equipment. The Company has no commitments for financing at this time. In
order for the Company to meet its expansion goals for fiscal 2001, it may need
to raise additional funds through debt or equity instruments, the availability
and terms of which will depend upon market and other conditions. There can be
no assurance that such additional financing will be available on terms
acceptable to the Company.
The Company has restructured its long-term bank debt to provide for
interest only payments through April 15, 2001. The purpose of the
restructuring is to use cash flow to open additional restaurants that would
otherwise be used to retire long term debt. Management views this as a way
to continue our growth, that should result in increased future earnings and
cash flow, but do so without increasing bank debt.
7
This report contains certain forward-looking statements, including those
relating to the opening of additional restaurants and planned capital
expenditures. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, actual results
could differ materially from such forward-looking statements included herein,
the inclusion of such information should not be regarded as a representation
by the Company that objectives and plans of the Company will be achieved.
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 26, 2000, the company held it's Annual Meeting of
stockholders. The only matter voted upon at such meeting was the
election of directors. The following Directors were re-elected to
serve on the Board of Directors:
FOR WITHHELD
Chris F. Hotze 5,825,883 37,640
Linn F. Hohl 5,825,883 37,640
C. Howard Wilkins, Jr. 5,825,883 37,640
Alan Bundy 5,825,883 37,640
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMARILLO MESQUITE GRILL INC.
(Registrant)
Date August 30, 2000 /s/LINN F. HOHL
Linn F. Hohl - Vice President
of Finance,
Secretary and
Treasurer