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 August 1, 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 August 1, 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 August 1 January 31
1999 1999
Current assets:
Cash $ 286,866 $ 214,513
Accounts receivable 26,233 16,912
Inventories 112,239 140,414
Prepaid expenses and other current assets 233,027 144,950
Total current assets 658,365 516,789
Property and equipment:
Buildings 1,107,429 1,107,429
Leasehold improvements 2,640,426 2,559,658
Equipment and fixtures 4,807,664 4,737,724
Leased property under capital lease 1,234,626 1,234,626
9,790,145 9,639,437
Less: accumulated depreciation and amortization 2,577,777 2,172,730
7,212,368 7,466,707
Other assets:
Cost in excess of net tangible assets of
purchased business, net of amortization
of $224,594 and $188,184 722,417 758,827
Deposits and other 40,727 39,187
763,144 798,014
$8,633,877 $8,781,510
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current notes payable $ 250,000 $ 550,000
Current portion of long term debt 1,127,579 1,020,795
Current portion of obligation under capital
lease 40,383 40,383
Accounts payable 934,731 921,831
Accrued payroll 171,717 140,551
Other accrued liabilities 578,730 782,746
Total current liabilities 3,103,140 3,456,306
Long-term debt, less current portion 5,207,150 5,164,077
Obligation under capital lease, less current
portion 985,950 1,006,142
Advances from affiliate 17,426 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 August 1, 1999 and 7,705,895 at
January 31, 1999 77,839 77,059
Additional paid-in capital 6,879,874 6,807,214
Accumulated deficit (7,367,502) (7,540,875)
Treasury stock, 60,000 shares of common stock
at cost ( 270,000) ( 270,000)
Total stockholders' equity (deficit) ( 679,789) ( 926,602)
$8,633,877 $8,781,510
[FN]
See accompanying notes to financial statements.
2
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 1 July 26 August 1 July 26
1999 1998 1999 1998
Net sales $4,429,388 $5,080,117 $9,060,230 $10,511,158
Costs and expenses:
Cost of goods sold 1,525,247 1,988,353 3,118,047 4,049,032
Operating expenses 2,139,543 2,449,792 4,340,554 5,004,646
Depreciation and amortization 220,729 204,114 441,457 416,209
General and administrative 307,333 400,295 617,481 814,027
4,192,852 5,042,554 8,517,539 10,283,914
Operating income 236,536 37,563 542,691 227,244
Other income (expense)
Interest expense (160,045) (173,476) (320,398) (332,602)
Related party transaction -
noncash expense from issuance
of stock options pursuant to
debt guarantees ( 24,460) ( 24,460) ( 48,920) ( 48,920)
(184,505) (197,936) (369,318) (381,522)
Earnings (loss) before
income taxes 52,031 (160,373) 173,373 (154,278)
Provision for income taxes - - - -
Net Earnings (loss) $ 52,031 $ (160,373) $ 173,373 $ (154,278)
Net earnings (loss) per common share-
Basic and diluted $ .01 $ (.02) $ .02 $ (.02)
Average shares outstanding-
Basic and diluted 7,723,895 7,576,895 7,711,040 7,507,203
[FN]
See accompanying notes to financial statements.
3
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
August 1 July 26
1999 1998
Cash flows from operating activities:
Net earnings (loss) $ 173,373 $(154,278)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 441,457 416,209
Changes in assets and liabilities
(Increase) decrease in accounts receivable ( 9,321) 10,016
(Increase) decrease in inventories 28,175 14,162
(Increase) decrease in prepaid expenses and
other current assets ( 88,077) (124,895)
Increase (decrease) in accounts payable 12,900 154,355
Increase (decrease) in accrued expenses (172,850) 8,245
Noncash expense from issuance of stock
options pursuant to debt guarantees 48,920 48,920
Other net ( 1,540) ( 5,320)
Cash provided by (used in) operating
activities 433,037 367,414
Cash flows from investing activities:
Purchase of property and equipment (150,708) (819,322)
Cash used in investing activities (150,708) (819,322)
Cash flows from financing activities:
Sale of common stock 24,520 6,590
Short-term borrowings - 560,000
Long-term borrowings - 200,000
Repayment of long-term borrowings
and capital lease obligations (234,496) (305,171)
Cash provided by financing activities (209,976) 461,419
Increase in cash 72,353 9,511
Cash at beginning of period 214,513 563,836
Cash at the end of period $ 286,866 $ 573,347
Supplemental disclosure of cash flow information:
Cash paid for interest $ 320,398 $ 332,602
Cash paid for income taxes $ - $ -
[FN]
See accompanying notes to financial statements.
4
AMARILLO MESQUITE GRILL, INC.
Notes to Financial Statements
(Unaudited)
August 1, 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 six month period ended August 1,
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 (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 August 1, 1999, there are 1,194,675
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 August 1, 1999 Compared to Three Months Ended July 26,
1998.
For the three months ended August 1, 1999, sales were $4,429,388 as
compared to sales of $5,080,117 for the second quarter of the prior year. As
of August 1, 1999, the Company operated twelve Amarillo Mesquite Grills as
compared to eleven Amarillo Mesquite Grills and one Cotton Patch Cafe as of
July 26, 1998. The decrease in sales 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 39.1% 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
4.7%.
Operating expenses, as a percentage of total sales, were 48.3% and 48.2%
for the 1999 and 1998 periods respectively.
General and administrative expenses, as a percentage of sales, was 6.9%
for the quarter ended August 1, 1999, as compared to 7.9% for the second
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 $160,045 for the quarter ended August 1, 1999 as
compared to $173,476 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 remained relatively constant the amount of short and long-term debt has
decreased. Accordingly interest expense is lower.
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.
Six Months Ended August 1, 1999 Compared to Six Months Ended July 26, 1998.
For the six months ended August 1, 1999, sales were $9,060,230 as
compared to sales of $10,511,158 for the first six months of the prior year.
The Company operated twelve Amarillo Mesquite Grills as of August 1, 1999, as
compared to eleven Amarillo Mesquite Grills and one Cotton Patch Cafe as of
July 26, 1998. The decrease in sales 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 38.5% for
the 1999 and 1998 periods respectively. The decrease in cost of sales, as a
percentage of total 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
4.l%.
6
Operating expense, as a percentage of total sales, was 47.9% and 47.6%
for the 1999 and 1998 periods respectively.
General and administrative expense, as a percentage of total sales was
6.8% for the six months ended August 1, 1999, as compared to 7.7% for the
first six months of the prior year. The decrease in general and administrative
expense is the result of reducing the dollar amount of certain expenses,
principally training labor and area management expense.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets.
Interest expense was $320,398 for the six months ended August 1, 1999,
as compared to $332,602 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 remained relatively constant the amount of short and long-term debt has
decreased. Accordingly interest expense is lower.
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 August 1, 1999 and January 31, 1999, the Company had an excess of
current liabilities over current assets of $2,444,775 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 $433,037 in the second quarter of fiscal 2000 compared to cash
flow of $367,414 in the second quarter of fiscal 1999.
In June 1999, the Company negotiated with its bank to make interest-only
payments on approximately one-half of its long-term debt through September
1999. Commencing on October 15, 1999, the Company will begin making
principal payments on all bank debt.
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 which has been renewed with a due date of January 1,
2000. 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 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 $700,000 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 "Year 2000 Issue" is the result of manufactured equipment and
computer programs using two digits rather than four to define the applicable
year. If the Company's equipment and computer programs with date-sensitive
functions are not Year 2000 compliant, they may recognize a date using "00"
as the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including,
but not limited to, a temporary inability to process transactions, generate
invoices or engage in similar normal business practices.
The Company has almost completed its assessment of the Year 2000 impact
for both information technology ("IT") and Non-IT systems. In regard to IT
systems, the Company has identified the following as the main areas of Year
2000 focus: payroll systems, financial systems, and register systems.
Register systems are the point-of-sale systems used within each restaurant
to accumulate employee hours worked and as an order entry system from the
server to the kitchen.
The Company does not rely heavily on internal computer technology.
While the Company believes it is taking all appropriate steps to assure
Year 2000 compliance, it is dependent on key vendor compliance. The Company
maintains an outsourcing agreement for its payroll and financial systems
and has been advised that its outsourcer is capable of processing the Year
2000. Three of the Company's restaurants operate on a different point of
sale system that has not been assessed. The restaurants' point-of-sale
system for all remaining restaurants is believed to be 2000 compliant. In
addition, as part of our normal operating procedure, each restaurant has been
supplied with a so called "crash kit" containing the tools necessary to do
manually what our point-of-sale system does electronically.
In addition to the above IT systems, the Company has identified the
following as the primary Non-IT systems subject to the Year 2000 Issue: ovens,
alarms, proofers, HVAC-Freezers, and safes. The Company is currently in
contact with vendors in order to assess the potential impact. Based on
initial review the Company believes the potential impact of the Year 2000
Issue pertaining to Non-IT systems to be minor.
Since the Company does not rely heavily on internal computer technology
the cost of addressing the Year 2000 Issue has been nominal to date.
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. 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.
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 28, 1999, 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 6,806,590 2,050
Linn F. Hohl 6,808,590 50
C. Howard Wilkins, Jr. 6,808,590 50
Alan Bundy 6,808,590 50
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 20, 1999 /s/LINN F. HOHL
Linn F. Hohl - Vice President
of Finance,
Secretary and
Treasurer
10