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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12145
AMARILLO MESQUITE GRILL, INC.
(formerly 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) 685-7286
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
Registrant was required to file such reports), and (ii) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No ___
Insert by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of April 1, 2001, 8,241,137 common shares (not including 60,000 shares held
as treasury stock) were outstanding, and the aggregate market value of the
common shares (based upon the closing price of these shares ($.625) as of such
date on the OTC Bulletin Board) of Amarillo Mesquite Grill, Inc. held by
non-affiliates was approximately $1,309,928 (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, 2001
(Items 10, 11, 12 and 13 of PART III)
AMARILLO MESQUITE GRILL, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended January 28, 2001
PART I. PAGE
Item 1. Business 1
Item 2. Properties 5
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 7A. Quantitative and Qualitative Disclosures About Market Risk 11
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.
Amarillo Mesquite Grill, Inc. (the "Company") operated fifteen
Amarillo Mesquite Grill restaurants in Kansas, Oklahoma, Missouri,
Texas and Arkansas during fiscal 2001. Amarillo Mesquite Grill
restaurants offer a casual dining environment serving prime rib,
steaks, chicken and seafood grilled over mesquite wood. The Company
intends to focus its business activities on the development of
additional Amarillo Mesquite 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 seven of its
Cotton Patch Cafe restaurants to Amarillo Mesquite Grill
restaurants, converted four other buildings to Amarillo Mesquite
Grill restaurants, constructed a prototype Amarillo Mesquite Grill
restaurant and closed one location upon termination of the lease
term.
During fiscal 2001, the Company opened a new restaurant in Wichita
Falls, Texas. In April 2001, the Company closed its restaurant
located in McAlester, Oklahoma.
B) Financial Information About Industry Segments.
Not Applicable
-1-
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.
The Amarillo Mesquite Grill concept, founded in 1982, is
designed to appeal to a broad spectrum of casual dining
customers who are seeking a consistent and high-quality dining
experience attentively served in a distinctive, relaxed
atmosphere for a moderate price. Amarillo Mesquite Grill
provides a casual and comfortable environment and well-
trained, enthusiastic service to its customers.
The Company believes that the Amarillo Mesquite Grill
restaurant concept and menu are designed to attract loyal
clientele who return with a high degree of frequency at both
lunch and dinner. The decor of the Company's restaurants
features a variety of western and country artifacts, giving it
a relaxed friendly feel. Amarillo Mesquite Grill is further
distinguished by requiring from its meat purveyors high-
quality, USDA choice or better graded steaks, many of which
are hand-cut fresh daily on site. High-quality ingredients
are used for all menu items. All meals are served in generous
portions by a well-trained friendly staff.
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
8% of the Company's net sales at each restaurant. The Company's
restaurants are open seven days a week.
-2-
The following table sets forth the location and opening or
acquisition date of the Company's Amarillo Mesquite Grill
restaurants in operation during the 2001 fiscal year:
DATE OPENED
LOCATION OR PURCHASED
Wichita, Kansas #1 June 17, 1996
Wichita, Kansas #2 June 17, 1996
Hutchinson, 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
Muskogee, Oklahoma November 12, 1997
Wichita, Kansas #3 January 14, 1998
Manhattan, Kansas February 2, 1998
Bartlesville, Oklahoma July 27, 1998
*McAlester, Oklahoma September 5, 1999
Topeka, Kansas December 3, 1999
Wichita Falls, Texas July 31, 2000
_____________
*Closed on April 8, 2001
The Company seeks to locate its restaurants in smaller cities
and suburban areas where they fill a significant market niche.
Amarillo Mesquite Grill restaurants are distinguished from
other family-oriented steakhouses in these smaller markets
(many of which are cafeteria-style) by their full table
service and attentive wait staff, full bar service,
entertaining atmosphere, distinctive decor and consistently
high-quality food. The Company distinguishes its restaurants
from other full-service restaurants through their family
orientation which is accomplished by offering lower priced
food (such as hamburgers and sandwiches) at dinner, placing
less emphasis on alcohol sales as compared to most competitors
and offering features designed to appeal to children.
ii) Developing Products and Industry Segments.
Not Applicable
-3-
iii) Sources and Availability of Raw Materials.
The Company's food costs are closely tied to market
conditions. The Company attempts 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 attempts to adjust prices wherever
possible to maintain desired margins.
iv) 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 has also obtained from the United States Patent and
Trademark Office a registration for the words "Amarillo
Mesquite Grill" which expires in May 2009. The Company
considers all 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
viii) Backlog Orders.
Not Applicable
ix) Business Subject to Renegotiation at Election of Government.
Not Applicable
-4-
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, 2001, the Company employed approximately 655
persons, including 10 administrative, 63 managerial, 257 full-
time and 325 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.
-5-
The land and buildings for the Company's fifteen restaurants are leased
pursuant to long-term leases with unrelated third parties. The initial lease
terms are for a period of three 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 $33,000 to $129,128. 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 operated fifteen Amarillo Mesquite Grill restaurants in fiscal
2001. These restaurants 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 $400,000 for land, $600,000 for the building and
$300,000 for equipment and furnishings. The Company has historically leased
the land and buildings used pursuant to long-term lease arrangements.
Item 3. LEGAL PROCEEDINGS
On September 18, 2000, Casey M. Bachrodt and Kelly J. Bachrodt filed a petition
in the District Court, Sedgwick County, Kansas naming the Company as defendant.
The petition alleges that the Company interfered with a contract and interfered
with a prospective business advantage when it purchased the Amarillo Grill
Restaurants from Alan Bundy in June 1996. The plaintiffs are seeking damages in
the amount of $9,000,000. The proceedings are in the early stages, however, the
Company believes it will be successful in its defense of this lawsuit.
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 "MESQ". 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
May 2, 1999 $ 2 5/8 $1 3/8
July 25, 1999 1 13/16 1 1/4
October 31, 1999 1 5/16 3/4
January 30, 2000 1 7/32 7/8
Bid Price
Quarter Ended High Low
April 30, 2000 $ 3/4 $ 17/32
July 30, 2000 1 5/8 5/8
October 29, 2000 15/16 9/16
January 28, 2001 3/4 5/32
B) Holders of Company's Common Stock.
The number of holders of record of the Company's common stock as
of January 28, 2001, was approximately 450, 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 January 28, January 30, January 31, January 25, January 26,
2001 2000 1999 1998 1997
Operating Data:
Net sales $20,808,604 $18,355,305 $20,509,882 $16,022,471 $14,185,898
Net loss (639,526) (369,097) (490,039) (1,270,293) (1,586,275)
Net loss per share (.08) (.05) (.06) (.18) (.24)
Balance Sheet Data:
Current assets 700,672 768,758 516,789 965,335 700,560
Property and equipment 6,746,428 7,377,764 7,466,707 7,442,598 4,601,807
Other assets 651,800 726,929 798,014 873,408 1,155,327
Total assets $ 8,098,900 $ 8,873,451 $ 8,781,510 $ 9,281,341 $ 6,457,694
Current liabilities $ 2,376,466 $ 2,572,100 $ 3,456,306 $ 3,198,960 $ 2,931,011
Long-term debt, less
current portion 5,904,586 5,904,586 5,164,077 5,618,279 1,506,421
Obligation under capital
leases, less current
portion 910,873 961,104 1,006,142 1,046,525 1,500,618
Advances from affiliates - - 81,587 - -
Deferred credits - - - - 6,789
Stockholders' equity
(deficit) (1,093,025) (564,339) (926,602) (582,423) 512,855
Total liabilities and
stockholders' equity
(deficit) $ 8,098,900 $ 8,873,451 $ 8,781,510 $ 9,281,341 $ 6,457,694
-8-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
For the year ended January 28, 2001, sales were $20,808,604 as compared to
$18,355,305 and $20,509,882 for fiscal 2000 and 1999, respectively. Cost of
sales, as a percentage of total sales, was 34.6%, 34.7% and 37.2% for fiscal
2001, 2000 and 1999, respectively. The decrease in cost of sales from fiscal
1999 to fiscal 2000, as a percentage of sales, was the result of implementing a
new menu with more cost effective entrees resulting in an improvement in cost
of sales of 2.5%.
Operating expenses include all direct and indirect labor costs incurred at the
store level and all other store level operating costs, the major component of
which are operating supplies, rent, repairs and maintenance, advertising,
utilities and other occupancy costs. Operating expenses, as a percentage of
total sales, were 52.8%, 49.9% and 49.1% for fiscal 2001, 2000 and 1999,
respectively. The increase in operating expense from fiscal 2000 to fiscal
2001, as a percentage of total sales, is the result of increased promotional
costs and labor costs. The Company increased its advertising expenditures
significantly resulting in greater operating expenses. In addition, the
Company concentrated its efforts to decrease turnover of its experienced
managers by increasing salaries.
General and administrative expenses include area management personnel and
recruiting and training expenses relating to the development of management
personnel for future restaurants as well as home office costs for
administration, accounting, support personnel, rent and other costs of
maintaining a central office. General and administrative expenses, as a
percentage of total sales, were 6.0%, 7.6% and 7.9% for fiscal 2001, 2000 and
1999, respectively. The decrease in general and administrative expenses from
fiscal 2000 to fiscal 2001, as a percentage of sales, can be attributed to a
reduction in recruiting and training costs resulting from the Company's
concentrated efforts to reduce employee turnover.
Depreciation and amortization is directly related to the acquisition or
disposition of fixed assets. The increase in depreciation and amortization
from fiscal 1999 to fiscal 2001 is the result of a greater investment in
property and equipment and therefore increased depreciation and amortization.
Interest expense for fiscal 2001, 2000 and 1999 was $665,080, $642,724 and
$689,535, respectively. Interest expense is directly related to the amount of
borrowings and the interest rate.
The Company incurred noncash expenses of $97,840 in fiscal 2001, 2000, 1999,
respectively related to the issuance of stock options pursuant to debt
guarantees as disclosed in note 5 to the financial statements.
-9-
As of January 28, 2001, the Company has federal net operating loss
carryforwards for income tax purposes of approximately $7,292,000 which, if
not used, will expire $984,000 in fiscal 2002, $1,193,000 in fiscal 2003,
$434,000 in fiscal 2004, $134,000 in fiscal 2005, $6,000 in fiscal 2006,
$180,000 in fiscal 2008, $45,000 in fiscal 2009, $114,000 in fiscal 2011,
$1,524,000 in fiscal 2012, $1,706,000 in fiscal 2013, $567,000 in fiscal 2019,
$233,000 in fiscal 2020 and $172,000 in fiscal year 2021.
The Company's loss for the current year ended January 28, 2001, can in part be
attributed to the Company's decision to close its McAlester, Oklahoma
restaurant on April 8, 2001. The Company incurred an operating loss of
approximately $248,000 relating to the anticipated closure of this restaurant.
In addition, the Company incurred approximately $77,000 in preopening expenses
for its Wichita Falls, Texas restaurant.
Liquidity and Capital Resources
The Company's primary sources of funds to finance its business have been its
cash flow from operations and, principally during the past three years,
proceeds from long-term debt. On January 28, 2001 and January 30, 2000,
the Company had an excess of current liabilities over current assets of
$1,675,794 and $1,803,342, respectively. Cash flow from operations was
$818,763, $762,797 and $712,385 for fiscal 2001, 2000 and 1999, respectively.
Management anticipates higher cash flow from restaurant operations in fiscal
2002 and that such higher operating cash flow will enable the Company to meet
its financial obligations in fiscal 2002 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 January 30, 2000, the note had a balance of
$224,000 and was renewed with a due date of January 3, 2001. This note was
paid in full during fiscal 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 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 $522,550 for the year ended January 28, 2001,
compared to $772,851 for the year ended January 30, 2000. These capital
expenditures have resulted in an increase in property and equipment and a
decrease in working capital.
During the year ended January 30, 2000, three major shareholders purchased
517,242 shares of restricted common stock at the market value of $1.16 per
share for a total consideration of $600,000. These funds were used to open
two new restaurants.
-10-
The Company plans to continue expansion of the Amarillo Mesquite Grill concept
in fiscal 2002. 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
would cost approximately $1,300,000 for 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 2002, it will 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, 2002. 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.
This report contains certain forward-looking statement, 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. In light of
the significant uncertainties inherent in the 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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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-22 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 2001 Annual Meeting of Stockholders under the
section entitled "Election of Directors" and under the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" 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 2001 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 2001 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 2001 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.
No reports on Form 8-K were filed by the Company during the quarter
ended January 28, 2001.
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).
-13-
3.3 Certificate of Amendment to Articles of Incorporation as filed with
the Secretary of State of the State of Kansas on May 27, 1997
changing the corporate name to Amarillo Mesquite Grill, Inc.
(filed as Exhibit 3.3 to the Company's Form 10-K for the
fiscal year ended January 25, 1998, and such exhibit is hereby
incorporated by reference).
3.4 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 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).*
10.2 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).*
10.3 Promissory Note dated January 3, 2000 between the Company and
Chris F. Hotze (filed as Exhibit 10.3 to the Company's Form
10-K for the fiscal year ended January 30, 2000 and such
exhibit is hereby incorporated by reference).
21 Subsidiaries
23 Consent of Allen, Gibbs & Houlik, L.C. (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.
AMARILLO MESQUITE GRILL, INC.
By: /s/ Chris F. Hotze
Chris F. Hotze, President
Date: April 27, 2001
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 27, 2001
Chris F. Hotze the Board and Director
(Principal Executive
Officer and Principal
Financial and Accounting Officer)
/s/ Alan L. Bundy Executive Vice President April 27, 2001
Alan L. Bundy and Director
/s/ C. Howard Wilkins, Jr. Director April 27, 2001
C. Howard Wilkins, Jr.
AMARILLO MESQUITE GRILL, INC.
TABLE OF CONTENTS
Page
Independent Auditors' Reports F-2
Financial Statements:
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-22
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Amarillo Mesquite Grill, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Amarillo
Mesquite Grill, Inc. and Subsidiary as of January 28, 2001 and January 30,
2000 and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years then ended. These financial statements
are the responsibility of the Companies' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amarillo
Mesquite Grill, Inc. and Subsidiary as of January 28, 2001 and January 30,
2000, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
Allen, Gibbs & Houlik, L.C.
March 20, 2001, except for Note 4 as to
which the date is April 9, 2001
F-2
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 28, 2001 and January 30, 2000
ASSETS
2001 2000
CURRENT ASSETS
Cash $ 348,182 $ 407,710
Accounts receivable 17,248 21,137
Advances to affiliate 35,868 45,655
Inventories 168,953 169,027
Prepaid expenses and other current assets 130,421 125,229
Total current assets 700,672 768,758
PROPERTY AND EQUIPMENT
Buildings 1,122,019 1,108,129
Leasehold improvements 2,758,064 2,868,805
Equipment and fixtures 5,346,363 5,145,941
Transportation equipment 18,999 18,999
Property under capital leases 1,234,626 1,234,626
10,480,071 10,376,500
Less accumulated depreciation and
amortization 3,733,643 2,998,736
Total property and equipment 6,746,428 7,377,764
OTHER ASSETS
Cost in excess of net tangible assets of
purchased businesses, net of accumulated
amortization of $333,824 and $261,004 613,187 686,007
Deposits and other 38,613 40,922
Total other assets 651,800 726,929
Total assets $ 8,098,900 $ 8,873,451
F-3
LIABILITIES AND STOCKHOLDERS' DEFICIT
2001 2000
CURRENT LIABILITIES
Note payable $ 220,284 $ 270,912
Note payable, related party -- 224,000
Current portion of long-term debt -- 36,075
Current portion of obligations under
capital leases 50,231 45,038
Accounts payable 1,059,669 1,029,247
Accrued payroll 213,338 225,674
Other accrued liabilities 797,094 741,154
Accrual for restaurant closings 35,850 --
Total current liabilities 2,376,466 2,572,100
LONG-TERM LIABILITIES
Short-term debt, subsequently refinanced 5,904,586 5,904,586
Obligations under capital leases, less
current portion 910,873 961,104
Total liabilities 9,191,925 9,437,790
COMMITMENTS
STOCKHOLDERS' 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 January 28, 2001 and January 30, 2000 83,011 83,011
Additional paid-in capital 7,643,462 7,532,622
Accumulated deficit (8,549,498) (7,909,972)
Treasury stock, 60,000 shares of common
stock, at cost (270,000) (270,000)
Total stockholders' deficit (1,093,025) (564,339)
Total liabilities and stockholders'
deficit $ 8,098,900 $ 8,873,451
The accompanying notes are an integral
part of these financial statements
F-4
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended January 28, 2001, January 30, 2000, and January 31, 1999
2001 2000 1999
Net sales $20,808,604 $18,355,305 $20,509,882
Costs and expenses:
Cost of sales 7,189,569 6,374,037 7,637,278
Restaurant operating expenses 10,988,848 9,163,419 10,067,446
General and administrative 1,238,500 1,389,528 1,613,525
Depreciation and amortization 1,020,398 934,614 894,297
Provision for restaurant closings 247,895 -- --
Total costs and expenses 20,685,210 17,861,598 20,212,546
Operating income 123,394 493,707 297,336
Other income (expense):
Interest expense (665,080) (642,724) (689,535)
Litigation expense -- (122,240) --
Non-cash expense from issuance of
stock options to related
parties pursuant to debt guarantees (97,840) (97,840) (97,840)
Total other expense (762,920) (862,804) (787,375)
Loss before income taxes (639,526) (369,097) (490,039)
Income taxes -- -- --
Net loss $ (639,526) $ (369,097) $ (490,039)
Net loss per common share -
basic and diluted $ (.08) $ (.05) $ (.06)
Average shares outstanding -
basic and diluted 8,241,137 7,908,111 7,545,395
The accompanying notes are an integral
part of these financial statements
F-5
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended January 28, 2001, January 30, 2000, and January 31, 1999
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
Balance, January 25, 1998 $ 71,839 $ 6,666,574 $ (7,050,836) $ (270,000) $ (582,423)
Contributed capital -- 9,000 -- -- 9,000
Non-cash expense from issuance of stock
options to related parties pursuant
to debt guarantees -- 97,840 -- -- 97,840
Issuance of 72,000 shares of common stock
pursuant to stock option plans 720 38,300 -- -- 39,020
Acquisition of AMG, Inc., a related party 4,500 (4,500) -- -- --
Net loss -- -- (490,039) -- (490,039)
Balance, January 31, 1999 77,059 6,807,214 (7,540,875) (270,000) (926,602)
Contributed capital -- 9,000 -- -- 9,000
Non-cash expense from issuance of stock
options to related parties pursuant
to debt guarantees -- 97,840 -- -- 97,840
Issuance of 78,000 shares of common stock
pursuant to stock option plans 780 23,740 -- -- 24,520
Issuance of 517,242 shares of common stock
to related parties 5,172 594,828 -- -- 600,000
Net loss -- -- (369,097) -- (369,097)
Balance, January 30, 2000 83,011 7,532,622 (7,909,972) (270,000) (564,339)
Contributed capital -- 13,000 -- -- 13,000
Non-cash expense from issuance of stock
options to related parties pursuant
to debt guarantees -- 97,840 -- -- 97,840
Net loss -- -- (639,526) -- (639,526)
Balance, January 28, 2001 $ 83,011 $ 7,643,462 $ (8,549,498) $ (270,000) $(1,093,025)
The accompanying notes are an integral
part of these financial statements
F-6
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended January 28, 2001, January 30, 2000, and January 31, 1999
2001 2000 1999
Cash flows from operating activities:
Net loss $ (639,526) $ (369,097) $ (490,039)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 1,020,398 934,614 894,297
Provision for restaurant closings 247,895 -- --
Non-cash compensation expense 13,000 9,000 9,000
Non-cash expense from issuance of
stock options to related parties
pursuant to debt guarantees 97,840 97,840 97,840
Increase (decrease) in cash, net of
effects of acquisitions and
dispositions:
Accounts receivable 3,889 (4,225) 32,560
Advances to affiliate 9,787 (45,655) --
Inventories 74 (28,613) 27,434
Prepaid expenses (5,192) 19,721 39,229
Accounts payable 30,422 107,416 (63,262)
Accrued expenses 43,604 43,531 170,646
Other (3,428) (1,735) (5,320)
Net cash provided by operating
activities 818,763 762,797 712,385
Cash flows from investing activities:
Additions to property and equipment (522,550) (772,851) (1,390,636)
Net cash used in investing
activities (522,550) (772,851) (1,390,636)
Cash flows from financing activities:
Issuance of common stock to related
parties -- 600,000 --
Issuance of common stock pursuant
to stock option plan -- 24,520 39,020
Proceeds from long-term debt -- -- 200,000
(Repayment of) proceeds from note
payable and note payable, related
party (274,628) (55,088) 550,000
Repayment of affiliate -- (81,587) 81,587
Repayment of long-term debt and
capital lease obligations (81,113) (284,594) (541,679)
Net cash (used in) provided by
financing activities (355,741) 203,251 328,928
(Decrease) increase in cash (59,528) 193,197 (349,323)
Cash at beginning of year 407,710 214,513 563,836
Cash at end of year $ 348,182 $ 407,710 $ 214,513
Cash paid during the year for:
Interest $ 665,080 $ 666,776 $ 665,483
Income taxes -- -- --
The accompanying notes are an integral
part of these financial statements
F-7
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Amarillo Mesquite Grill, Inc. and Subsidiary (Company) own and operate
15 Amarillo Grill restaurants in Kansas, Oklahoma, Missouri, Arkansas,
and Texas. Amarillo Grill is a casual, full-service restaurant
specializing in mesquite-grilled steaks. During fiscal 2001, the
Company formed a wholly-owned subsidiary, Amarillo Mesquite Grill of
Texas, Inc., which owns and operates the restaurant located in Wichita
Falls, Texas.
On September 11, 1997, the Company and four of its stockholders formed
AMG, Inc., a Kansas corporation, to develop and own three Amarillo
Grill restaurants. AMG, Inc. was 48%-owned by the Company and 52%-
owned by the four stockholders as of January 25, 1998. The accounts
and operations of AMG, Inc. were consolidated with the Company as
entities under common control for the year ended January 25, 1998. The
Company included the amount of AMG, Inc.'s loss, otherwise attributable
to the financial statements as of January 25, 1998 because such loss
exceeded the capital investment made by these stockholders, and they
were under no obligation to provide additional capital to AMG, Inc.
Effective February 23, 1998, the Company purchased the remaining shares
of AMG, Inc. by issuing 450,000 shares of the Company's common stock in
a transaction accounted for similar to a pooling. The interest in AMG,
Inc. acquired by the Company had no book value after consideration of
the losses absorbed by the Company in fiscal 1998. Accordingly, this
transaction resulted in no additional assets or liabilities being
established, and stockholders' equity reflects the issuance of the
shares of common stock at par value, with an offsetting reduction to
additional paid-in capital. Effective September 21, 1998, AMG, Inc.
was merged into the Company and the separate existence of AMG, Inc.
ceased.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company's fiscal year is the 52- or 53-week period
ending on the last Sunday in January.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary.
All material intercompany accounts and transactions are eliminated in
consolidation.
Cash - The Company maintains cash in bank deposit accounts that, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
(Continued)
F-8
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 lesser of the useful life of the asset or the
remaining lease term. Maintenance and repairs are charged to expense
as incurred; renewals and betterments are capitalized. Estimated
useful lives are as follows:
Buildings 98 months - 20 years
Leasehold improvements 3 - 20 years
Equipment and fixtures 5 - 10 years
Autos 3 years
Property under capital leases 20 years
Impairment of Long-lived Assets - Long-lived assets and certain
identifiable intangibles are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may
not be recoverable. A two-year history of restaurant operating losses
is used as a primary indicator of potential impairment. Recoverability
of assets to be held and used is measured on a restaurant-by-restaurant
basis through 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. See also Note 8.
Intangible Assets - Cost in excess of net tangible assets of purchased
businesses is amortized on a straight-line basis over the remaining
lives of the building leases. The Company periodically assesses the
recoverability of intangible assets on a restaurant-by-restaurant basis
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 goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows. No intangible assets were considered impaired at
January 28, 2001. The assessment of the recoverability of intangible
assets will be impacted if estimated future operating cash flows are
not achieved.
Pre-Opening Costs Pre-opening costs are charged to operations as
incurred.
Advertising - The Company expenses advertising costs as incurred.
Advertising expense was $186,297, $293,987, and $287,949 during fiscal
years 2001, 2000, and 1999, respectively.
(Continued)
F-9
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes - Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards; deferred
tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
Use of Estimates - The preparation of financial statements requires
management to make estimates and assumptions that affect: (1) the
reported amounts of assets and liabilities, (2) disclosures such as
contingencies, and (3) the reported amounts of revenues and expenses
included in such financial statements. Actual results could differ
from those estimates.
Earnings Per Share - Earnings per common share has been computed on the
basis of the weighted-average number of common shares outstanding
during each period presented. The Company is also required to present
diluted earnings per share, which assumes the conversion, exercise, or
issuance of all potential common stock instruments unless the effect is
to reduce a loss or increase the income per common share from
continuing operations.
Options to purchase common stock were not included in the computation
of diluted earnings (loss) per common share because the Company had a
net loss available to common stockholders and the inclusion of such
options would be antidilutive. As of January 28, 2001, there were
1,325,475 options outstanding at a weighted average exercise price of
$1.93 that may become dilutive in the future. As of January 30, 2000,
there are 1,277,937 options outstanding at a weighted average exercise
price of $2.04. As of January 31, 1999, there were 1,289,453 options
outstanding at a weighted average exercise price of $2.48.
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 is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. In addition,
SFAS No. 123, Accounting for Stock-Based Compensation, requires that
pro forma net income and pro forma income 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.
(Continued)
F-10
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 determined on the date of grant and is charged to operations
over the period the services are provided, based on the fair-value-
based cost measurement method defined in SFAS No. 123 (see Note 6).
3. RELATED PARTY TRANSACTIONS
The Company shares office space and certain administrative employees
with companies owned in part by certain stockholders of the Company.
Rent expense, utilities, and other office expenses are allocated
between the companies based on estimated usage.
Advances to/from Affiliate - At January 28, 2001, the Company had a
receivable from Red Apple Corporation of $29,418 and a receivable from
Maverick Development Corp. of $6,450. The Company has a receivable
from Red Apple Corporation for $45,655 at January 30, 2000. The notes
have an implied interest rate of 8%.
Stockholders' Equity - The Company's president is also employed by
another corporation owned by a major stockholder of the Company, and
his salary is paid by that corporation. He received no compensation
from the Company during 2001, 2000, or 1999. The Company determined
that the president performed services valued at $13,000 in 2001 and
$9,000 in 2000 and 1999, and accordingly, such amounts have been
recorded as compensation expense with a corresponding credit to
additional paid-in-capital in the accompanying financial statements.
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 a note payable to bank 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 the 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 non-cash debt guarantee
expense aggregating $684,875 is based on the fair value of the stock
options granted pursuant to the Stock Option Agreements, which is being
recognized as expense over the period of time the related debt is
outstanding. The amount of non-cash expense recorded was $97,840 for
each of the three years ended January 28, 2001.
(Continued)
F-11
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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 and the
following weighted average assumptions: expected dividend yield 0%,
expected volatility of 145.00%, risk-free interest rate of 6.72% and an
expected life of five years.
At January 28, 2001, the weighted average remaining contractual life of
the 500,000 outstanding options under the Stock Option Agreements was
2.375 years.
4. FINANCING ARRANGEMENTS
Note Payable - As of January 28, 2001, the Company has a 9.50% note
payable to a bank in the amount of $220,284, which is due June 18,
2001.
Long-term Debt - As of January 28, 2001 and January 30, 2000, long-term
debt consisted of the following:
2001 2000
Note payable to bank, with interest only due
monthly at the Wall Street Journal prime rate
less 1/2% (8.5% at January 28, 2001) with
principal due April 2001. $5,904,586 $5,904,586
Note payable to bank, due in monthly
installments of $4,000, including interest,
at the Bank's prime rate plus 1% (10.25% at
January 30, 2000) with final installment due
November 2000. -- 36,075
5,904,586 5,940,661
Less current portion -- 36,075
Long-term debt, less current portion $5,904,586 $5,904,586
In October 1999, the Company negotiated with its bank to consolidate
four of its notes payable into one new note. Interest-only payments
are to be made on this note through April 2001. In April 2001, the
terms of this note were extended, with final maturity due in April
2002.
Maturities of long-term debt are as follows:
2003 $5,904,586
(Continued)
F-12
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. FINANCING ARRANGEMENTS (CONTINUED)
The note is secured by substantially all the Company's assets, and the
loan agreement has been personally guaranteed by certain stockholders,
officers, and directors of the Company. The stockholders' guarantees
are limited to $5,585,000 of debt.
5. 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 28, 2001, under operating leases, including amounts accrued for
restaurant closings, are as follows:
2002 $ 1,026,623
2003 1,027,395
2004 947,529
2005 905,519
2006 739,675
Thereafter 5,545,057
$10,191,798
Annual rent expense under operating leases was $1,013,712, $906,208,
and $918,441 for the fiscal years ended January 28, 2001, January 30,
2000, and January 31, 1999, respectively. This included percentage
rental payments in the amount of $7,010, $5,709, and $46,769 for the
fiscal years ended January 28, 2001, January 30, 2000, and January 31,
1999, respectively.
(Continued)
F-13
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. LEASE AGREEMENTS (CONTINUED)
Property and accumulated depreciation accounts at January 28, 2001
include $1,234,626 and $504,286, 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, 2001 are as
follows:
2002 $ 151,102
2003 151,102
2004 151,102
2005 151,102
2006 151,102
Thereafter 1,030,615
1,786,125
Less amount representing interest 825,021
Total obligations under capital
leases 961,104
Less current portion 50,231
Obligations under capital leases,
less current portion $ 910,873
The Company, as lessor, subleases two properties to outside third
parties. Property and accumulated depreciation accounts at January 28,
2001 include $210,308 and $119,566, respectively, related to these
properties.
Future minimum lease payments to be received subsequent to January 28,
2001 are as follows:
2002 $ 115,000
2003 116,000
2004 116,000
2005 99,000
2006 32,000
Thereafter --
$ 478,000
(Continued)
F-14
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. STOCKHOLDERS' EQUITY
In March 1984, the Company adopted an Employee Incentive Stock Option
Plan (1984 Plan) for a 10-year term to grant options for the purchase
of up to 475,000 shares of common stock. The 1984 Plan provides 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
6 months after the grant date and one-half 18 months after the grant
date. Following is a summary of the activity in the 1984 Plan for the
three years ended January 28, 2001:
Per Share
Number Exercise Price
of Weighted
Shares Range Average
Balance, January 25, 1998 146,000 $ .29 - .47 $ .38
Exercised (69,000) .47 .47
Balance, January 31, 1999 77,000 $ .29 $ .29
Exercised (77,000) .29 .29
Balance, January 30, 2000 -- $ -- $ --
Exercised -- -- --
Balance, January 28, 2001 -- $ -- $ --
Exercisable at January 31, 1999 77,000 $ .29 $ .29
Exercisable at January 30, 2000 -- $ -- $ --
Exercisable at January 28, 2001 -- $ -- $ --
At January 28, 2001, there were no additional shares available for
grant under the 1984 Plan.
(Continued)
F-15
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
On July 25, 1994, the Company adopted an Employee Incentive Stock
Option Plan (1994 Plan) for a 10-year term to grant options for the
purchase of up to 600,000 shares of common stock. The 1994 Plan
provides the Company may grant options to certain employees at the fair
market value at the grant date. The vesting period is at the sole
discretion of the Board of Directors. Generally, 10% 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 28, 2001:
Per Share
Number Exercise Price
of Weighted
Shares Range Average
Balance, January 25, 1998 319,363 $ 1.81 - 2.19 $ 2.17
Granted 189,740 1.87 - 4.25 3.77
Canceled (25,900) 4.06 - 4.25 4.17
Exercised (2,500) 2.19 2.19
Balance, January 31, 1999 480,703 $ 1.81 - 4.25 $ 2.70
Granted 210,950 .90 - 2.09 1.52
Canceled (121,466) 1.50 - 4.06 2.84
Exercised (1,000) 2.19 2.19
Balance, January 30, 2000 569,187 $ .90 - 2.19 $ 1.96
Granted -- -- --
Canceled (65,462) .90 - 2.19 1.72
Balance, January 28, 2001 503,725 $ 1.50 - 2.19 $ 1.99
Exercisable at January 31, 1999 306,504 $ 1.81 - 2.19 $ 2.19
Exercisable at January 30, 2000 318,712 $ 2.19 $ 2.19
Exercisable at January 28, 2001 392,637 $ 1.50 - 2.19 $ 2.08
At January 28, 2001, there were 52,838 additional shares available for
grant under the 1994 Plan, and the weighted average remaining
contractual life of outstanding options was 6.6 years.
(Continued)
F-16
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
On January 1, 1997, the Company adopted an Employee Incentive Stock
Option Plan (1997 Plan) for a 10-year term to grant options for the
purchase of up to 700,000 shares of stock. The 1997 Plan provides the
Company may grant options to certain employees at the fair market value
at the grant date. The vesting period is at the sole discretion of the
Board of Directors. Generally, 10% 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 three years ended January 28, 2001:
Per Share
Number Exercise Price
of Weighted
Shares Range Average
Balance, January 25, 1998 308,250 $ 2.75 - 4.13 $ 3.44
Granted 50,000 2.63 - 3.94 3.30
Canceled (126,000) 2.75 - 4.13 3.41
Exercised (500) 2.75 2.75
Balance, January 31, 1999 231,750 $ 2.63 - 4.13 $ 3.43
Granted 60,000 .97 - 1.34 1.22
Canceled (83,000) 2.63 - 4.13 3.43
Balance, January 30, 2000 208,750 $ .97 - 2.19 $ 1.91
Granted 161,500 .66 - 1.31 .90
Canceled (48,500) .66 - 2.19 1.76
Balance, January 28, 2001 321,750 .66 - 2.19 1.43
Exercisable at January 31, 1999 41,625 $ 2.75 - 4.13 $ 3.48
Exercisable at January 30, 2000 66,500 $ 2.19 $ 2.19
Exercisable at January 28, 2001 80,500 $ .97 - 2.19 $ 2.13
At January 28, 2001, there were 377,750 additional shares available for
grant under the 1997 Plan, and the weighted average remaining
contractual life of outstanding options was 8.2 years.
(Continued)
F-17
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The per share weighted average fair value of stock options granted
under the 1994 and 1997 Plans during fiscal 2001, 2000, and 1999 was
$.72, $1.23, and $3.09, respectively, on the date of grant using the
Black Scholes option-pricing model using the following weighted average
assumptions:
2001 2000 1999
Expected dividend yield 0% 0% 0%
Volatility factor 107.28% 120.82% 119.77%
Risk free interest rate 6.39% 5.85% 5.33%
Expected life 5 years 5 years 5 years
In December 1999, the Company adopted a resolution to reprice all stock
options granted to employees under the 1994 or 1997 Plans. The
exercise price of all options granted that exceeded $2.19 per share was
repriced to $2.19 per share. The pro forma income per share
disclosures below were modified in accordance with SFAS No. 123.
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 1997
Plan based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's fiscal 2001, 2000, and 1999 pro forma
net loss and pro forma net loss per common share would have been
adjusted to the pro forma amounts indicated below:
2001 2000 1999
Net loss: As reported $(639,526) $(369,097) $(490,039)
Pro forma for SFAS No. 123 (804,671) (512,873) (917,769)
Loss per share: As reported $ (.08) $ (.05) $ (.06)
Pro forma for SFAS No. 123 (.10) (.06) (.12)
The above pro forma disclosure reflects only options granted during
fiscal years 2001, 2000, and 1999. 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,
1998 is not considered.
(Continued)
F-18
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES
As of January 28, 2001, the Company has net operating loss
carryforwards for federal and state income tax purposes. These result
in deferred tax assets that, if not used, expire as follows:
Fiscal Year Operating Loss Carryforwards
Ending Federal Kansas Oklahoma Missouri Arkansas Virginia
2002 $ 984,000 $ -- $ 294,000 $ 98,000 $ 125,000 $ 30,000
2003 1,193,000 11,000 401,000 139,000 151,000 84,000
2004 434,000 8,000 163,000 60,000 30,000 48,000
2005 134,000 -- 52,000 -- 14,000 18,000
2006 6,000 4,500 2,000 -- 10,000 --
2007 -- 470,000 -- -- -- --
2008 180,000 811,000 -- -- -- --
2009 45,000 330,000 60,000 -- -- --
2010 -- 125,000 -- -- -- --
2011 114,000 92,000 51,000 -- -- --
2012 1,524,000 -- 518,000 -- -- 72,000
2013 1,706,000 -- 598,000 103,000 -- 13,000
2014 -- -- 152,000 -- -- --
2015 -- -- 75,000 -- -- --
2016 -- -- 55,000 -- -- --
2019 567,000 -- -- 49,000 -- 13,000
2020 233,000 -- -- 19,000 -- 2,000
2021 172,000 -- -- 14,000 -- 1,000
$7,292,000 $1,851,500 $2,421,000 $ 482,000 $ 330,000 $ 281,000
The Company also has approximately $346,000 of certain general business
credit carryforwards that, if not used, will expire in years through
2020.
The total provision for income taxes varied from the federal statutory
rate for the following reasons:
2001 2000 1999
Computed "expected" tax benefit (34.0)% (34.0)% (34.0)%
Increase in income taxes resulting
from:
Losses producing no financial
statement tax benefit 34.0% 34.0% 34.0%
--% --% --%
(Continued)
F-19
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 28, 2001 and January 30, 2000 are presented below:
2001 2000
Deferred tax assets:
Net operating loss carryforwards $2,806,000 $2,960,000
General business credits 379,000 250,500
Capital leases 87,700 81,350
Debt guarantee expense 172,000 134,775
Provision for restaurant closings 94,200 --
Other 16,900 15,535
Total gross deferred tax assets 3,555,800 3,442,160
Less valuation allowance (3,289,500) (3,143,000)
Net deferred tax assets 266,300 299,160
Deferred tax liabilities:
Property and equipment (266,300) (299,160)
Net deferred tax assets $ -- $ --
8. RESTAURANT CLOSINGS, DISPOSITIONS, AND CONVERSIONS
During the last quarter of fiscal 2001, management decided that one
store, which had generated operating losses for two years, would be
closed during fiscal 2002. Management estimates the store will be
closed by May 1, 2001, and certain costs related to the store closure
have been recorded as an "accrual for restaurant closings" in the
accompanying consolidated balance sheet as of January 28, 2001. These
closure costs include accrued lease costs of $35,850 to be incurred
during the time management estimates it will need to find a sublessee
for the facility after store closure, and a $212,045 impairment loss
from leasehold improvements and other equipment that management
believes would have no fair value or use outside the restaurant. The
Company incurred operating losses on this store of $68,194 and $46,017
in fiscal years 2001 and 2000, respectively. Management judgment is
inherent in the estimated fair value of the assets and time needed to
find a sublessee, and accordingly, actual results could vary from such
estimates.
(Continued)
F-20
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. RESTAURANT CLOSINGS, DISPOSITIONS, AND CONVERSIONS (CONTINUED)
During fiscal 2000, the Company converted its last Cotton Patch Cafe
restaurant to an Amarillo Grill. The Company incurred an operating
loss of $60,000 in 2000 on the Cotton Patch Cafe prior to its closure.
These costs are included in the results from operations in the
Statement of Operations.
During fiscal 1999, the Company closed one and converted another
restaurant to an Amarillo Grill. The Company incurred operating losses
on these stores of $124,141 prior to closure in 1999, and an additional
$42,000 in losses on the closed store in 2000 due to the Company still
being under lease on the facility until August 1999. These costs are
included in the results from operations in the Statement of Operations.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined the fair value of its financial instruments
in accordance with SFAS 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.
10. LIQUIDITY
At January 28, 2001, the Company had current liabilities in excess of
current assets of $1,675,794 and a stockholders' deficit of $1,093,025.
The Company reported a net loss of $639,526 and cash provided by
operating activities of $818,763 for fiscal 2000.
Management estimates that the Amarillo Grill restaurants opened in
fiscal 1999, 2000, and 2001 will generate sufficiently increased cash
flow from operations that will enable the Company to meet its financial
obligations in fiscal 2002 as they come due.
As explained in Note 4, the Company refinanced its note payable to bank
in April 2001 to extend its term through April 2002. The Company's
ability to refinance this note is dependent on obtaining certain
stockholders' guarantees. There is no assurance the guarantors will
continue their commitments on the debt beyond future maturity dates.
(Continued)
F-21
AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. LITIGATION
The Company is a party to various litigation arising in the normal
course of conducting business in the litigious U.S. business
environment. Management does not expect any material amounts of future
loss as a result of such litigation.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended January 28, 2001
<CAPTION
Year Ended January 28, 2000
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $5,629,353 $5,127,450 $5,260,497 $4,791,304
Operating income (loss) 288,808 109,230 80,570 (355,214)
Net income (loss) 104,842 (81,834) (114,431) (548,103)
Net income (loss) per share 0.01 (0.01) (0.01) (0.07)
F-22
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 Certificate of Amendment to Articles of Incorporation as
filed with the Secretary of State of the State of
Kansas on May 27, 1997 changing the corporate name to
Amarillo Mesquite Grill, Inc. (filed as Exhibit 3.3 to
the Company's Form 10-K for the fiscal year ended
January 25, 1998, and such exhibit is hereby
incorporated by reference
3.4 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 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).*
10.2 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).*
10.3 Promissory Note dated January 3, 2000 between the Company
and Chris F. Hotze (filed as Exhibit 10.3 to the Company's
Form 10-K for the fiscal year ended January 30, 2000 and
such exhibit is hereby incorporated by reference).
21 Subsidiaries
23 Consent of Allen, Gibbs & Houlik, L.C. (filed herewith).
________________
*Management's Compensation Plan
(i)
EXHIBIT 21
Subsidiaries of
Amarillo Mesquite Grill, Inc.
Amarillo Mesquite Grill of Texas, Inc., a
Texas corporation
(ii)
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Amarillo Mesquite Grill, Inc:
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (nos. 33-95480 and 333-44227), of our report, dated
March 20, 2001, relating to the financial statements of Amarillo Mesquite
Grill, Inc., included in the annual report on Form 10-K, as of and for the
year ended January 28, 2001.
Allen, Gibbs & Houlik, L.C.
Wichita, Kansas
April 27, 2001
(iii)