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 May 2, 1999
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 May 2, 1999, 7,783,895 shares of common stock $.01 par value were
outstanding.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMARILLO MESQUITE GRILL, INC.
BALANCE SHEETS
(Unaudited)
ASSETS May 2 January 31
1999 1999
Current assets:
Cash $ 318,709 $ 214,513
Accounts receivable 24,715 16,912
Inventories 135,183 140,414
Prepaid expenses and other current assets 74,450 144,950
Total current assets 553,057 516,789
Property and equipment:
Buildings 1,107,429 1,107,429
Leasehold improvements 2,580,998 2,559,658
Equipment and fixtures 4,746,274 4,737,724
Leased property under capital lease 1,234,626 1,234,626
9,669,327 9,639,437
Less: accumulated depreciation and amortization 2,375,253 2,172,730
7,294,074 7,466,707
Other assets:
Cost in excess of net tangible assets of
purchased business, net of amortization
of $206,389 and $188,184 740,622 758,827
Deposits and other 38,687 39,187
779,309 798,014
$8,626,440 $8,781,510
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current notes payable $ 550,000 $ 550,000
Current portion of long term debt 1,041,176 1,020,795
Current portion of obligation under capital
lease 40,383 40,383
Accounts payable 775,891 921,831
Accrued payroll 174,604 140,551
Other accrued liabilities 664,321 782,746
Total current liabilities 3,246,375 3,456,306
Long-term debt, less current portion 5,091,665 5,164,077
Obligation under capital lease, less current
portion 996,046 1,006,142
Advances from affiliate 48,634 81,587
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 7,783,895 shares
at May 2, 1999 and 7,705,895 at
January 31, 1999 77,839 77,059
Additional paid-in capital 6,855,414 6,807,214
Accumulated deficit (7,419,533) (7,540,875)
Treasury stock, 60,000 shares of common stock
at cost ( 270,000) ( 270,000)
Total stockholders' equity (deficit) ( 756,280) ( 926,602)
$8,626,440 $8,781,510
[FN]
See accompanying notes to financial statements.
2
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
May 2 April 26
1999 1998
Net sales $4,630,842 $5,431,041
Costs and expenses:
Cost of goods sold 1,592,800 2,060,679
Operating expenses 2,201,011 2,554,854
Depreciation and amortization 220,728 212,095
General and administrative 310,148 413,732
4,324,687 5,241,360
Operating income 306,155 189,681
Other income (expense)
Interest expense ( 160,353) ( 159,126)
Noncash expense from issuance
of stock options pursuant to
debt guarantees ( 24,460) ( 24,460)
( 184,813) ( 183,586)
Earnings before income taxes 121,342 6,095
Provision for income taxes - -
Net earnings $ 121,342 $ 6,095
Net earnings per common share-
Basic and diluted $ .02 $ -
Average shares outstanding-
Basic and diluted 7,783,895 7,454,724
[FN]
See accompanying notes to financial statements.
3
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
May 2 April 26
1999 1998
Cash flows from operating activities:
Net earnings $ 121,342 $ 6,095
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 220,728 212,095
Changes in assets and liabilities
(Increase) decrease in accounts receivable ( 7,803) 2,166
(Increase) decrease in inventories 5,231 ( 17,807)
(Increase) decrease in prepaid expenses and
other current assets 70,500 44,011
Increase (decrease) in accounts payable ( 145,940) 13,938
Increase (decrease) in accrued expenses ( 84,372) ( 14,503)
Noncash expense from issuance of stock
options pursuant to debt guarantees 24,460 24,460
Other net 500 ( 3,620)
Cash provided by (used in) operating
activities 204,646 266,835
Cash flows from investing activities:
Purchase of property and equipment ( 29,890) ( 400,136)
Cash used in investing activities ( 29,890) ( 400,136)
Cash flows from financing activities:
Sale of common stock 24,520 5,465
Long-term borrowings - 260,000
Repayment of long-term borrowings
and capital lease obligations ( 95,080) ( 83,480)
Cash provided by financing activities ( 70,560) 181,985
Increase in cash 104,196 48,684
Cash at beginning of period 214,513 563,836
Cash at the end of period $ 318,709 $ 612,520
Supplemental disclosure of cash flow information:
Cash paid for interest $ 160,353 $ 159,126
Cash paid for income taxes -
[FN]
See accompanying notes to financial statements.
4
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
May 2, 1999
(1) 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 three month period ended May 2, 1999 are not
necessarily indicative of the results that may be expected for the year
ended January 30, 2000. 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,
1999.
(2) Net Earnings Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share (Statement 128) which replaces the prior accounting
standard regarding computation and presentation of earnings per share.
Statement 128 requires a dual presentation of basic earnings per share
(based on the weighted average number of common shares outstanding) and
diluted earnings per share which reflects the potential dilution that
could occur if contracts to issue securities (such as stock options)
were exercised. The Company adopted Statement 128 as of January 25,
1998 and, accordingly, earnings per share data for all periods presented
has been computed in accordance with Statement 128. The adoption of
Statement 128 had no impact on the Company's previously reported loss
per share data.
Options to purchase common stock were not included in the computation of
diluted earnings per common share because the market price of the common
stock was in excess of the exercise price and the inclusion of such
options would be antidilutive. As of May 2, 1999, there are 1,111,725
options outstanding at a weighted average exercise price of $2.59 which
may become dilutive in the future.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Three Months Ended May 2, 1999 Compared to Three Months Ended April 26, 1998.
For the three months ended May 2, 1999, sales were $4,630,842 as compared
to sales of $5,431,041 for the first quarter of the prior year. As of May 2,
1999, the Company operated twelve Amarillo Mesquite Grills as compared to
twelve Amarillo Mesquite Grills and one Cotton Patch Cafe as of April 26, 1998.
Of the $800,199 decrease in sales, approximately $418,000 was due to
restaurants operated during the quarter a year ago that were not open during
the current quarter. The remainder can be attributed to several factors
including increased competition in most markets and due to comparing current
sales levels with high opening sales volumes of a year ago from new
restaurants.
Cost of sales, as a percentage of total sales, was 34.4% and 37.9% for the
1999 and 1998 periods respectively. The decrease in cost of sales, as a
percentage of sales, was the result of implementing a new menu during the third
quarter of last year resulting in an improvement in cost of sales of 3.5%.
Operating expenses, as a percentage of total sales, were 47.5% and 47.0%
for the 1999 and 1998 periods respectively.
General and administrative expenses, as a percentage of sales, was 6.7% for
the quarter ended May 2, 1999, as compared to 7.6% for the first quarter of the
prior year. The decrease in general and administrative, as a percentage of
total sales, is the result of reducing the dollar amount of general and
administrative expenses, principally, training labor and area management
expense.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets. Fixed assets and the related depreciation expense
remained relatively constant during the current quarter as compared to a year
ago.
Interest expense was $160,353 for the quarter ended May 2, 1999 as compared
to $159,126 for the same period a year ago. The Company's short and long-term
debt and interest rate remained relatively constant during the current quarter
as compared to a year ago.
The Company incurred noncash expenses of $24,460 for the 1999 and 1998
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 principally from long term debt.
On May 2, 1999 and January 31, 1999, the Company had an excess of current
liabilities over current assets of $2,693,318 and $2,939,517, respectively.
Management anticipates being able to sustain the current level of trade payable
financing and higher cash flow from operations in fiscal 2000 and that such
higher operating cash flow will enable the Company to meet its financial
obligations in fiscal 2000 as they come due. Cash flow from operations was
$204,646 in the first quarter of fiscal 2000 compared to cash flow of $266,835
in the first quarter of fiscal 1999.
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.
6
The Company plans to continue expansion of the Amarillo Mesquite Grill
concept in fiscal 2000. 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 is holding discussions with an investment banking firm
regarding a private placement of convertible securities which would enable the
Company to open approximately eight to ten new Amarillo Grill restaurants. The
company has no commitments for financing at this time. In order for the
Company to meet its expansion goals for fiscal 2000, 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.
Year 2000
The Company maintains an outsourcing agreement for its accounting software
and has been advised that its outsourcer is capable of processing in the year
2000. Three of the Company's restaurants operate on a different point of sale
system that has not been assessed, while the restaurants' point of sale system
for all the remaining restaurants is believed to be year 2000 compliant. Other
various restaurant equipment has not been assessed to determine if it is date
sensitive and possibly out of compliance. Any computer system that is not year
2000 compliant could potentially be disruptive to the Company's operations, but
actual impact has not been determined.
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. 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.
7
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.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Reports Form 8-K
Not applicable
Exhibits
27 Financial Data Schedule
8
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 May 20, 1999 /s/LINN F. HOHL
Linn F. Hohl - Vice President
of Finance,
Secretary and
Treasurer