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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 4, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
COMMISSION FILE NUMBER 0-20845
BIG BUCK BREWERY & STEAKHOUSE, INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-3196031
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
550 SOUTH WISCONSIN STREET
GAYLORD, MICHIGAN 49734
(517) 731-0401
(Address of Principal Executive Offices and Registrant's
telephone number, including Area Code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 .
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As of August 16, 1999, there were outstanding 5,405,481 shares of
common stock, $0.01 par value, of the registrant.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
PART I FINANCIAL INFORMATION.................................................................. 2
ITEM 1 Financial Statements
Balance Sheets as of July 4, 1999 and January 3, 1999.......................... 2
Statements of Operations for the three months ended July 4, 1999 and
June 28, 1998 and for the six months ended July 4, 1999 and June 28, 1998 ..... 3
Statements of Cash Flows for the six months ended July 4, 1999 and
June 28, 1998.................................................................. 4
Condensed Notes to Financial Statements........................................ 5
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 6
PART II OTHER INFORMATION...................................................................... 13
ITEM 2 Changes in Securities and Use of Proceeds...................................... 13
ITEM 5 Other Information.............................................................. 13
ITEM 6 Exhibits and Reports on Form 8-K............................................... 13
SIGNATURES....................................................................................... 14
EXHIBIT INDEX.................................................................................... 15
</TABLE>
1
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PART I
ITEM 1 Financial Statements
BIG BUCK BREWERY & STEAKHOUSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
July 4, 1999 January 3, 1999
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(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 134,722 $ 500,236
Accounts receivable 120,523 216,147
Inventories 265,179 308,286
Prepaids and other 401,688 274,819
------------ ------------
Total current assets 922,112 1,299,488
PROPERTY AND EQUIPMENT, net 19,444,801 18,847,968
MINORITY INTEREST IN JOINT VENTURE 3,295 0
OTHER ASSETS, net 581,879 672,530
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$ 20,952,087 $ 20,819,986
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,070,401 $ 925,031
Accrued expenses 421,809 709,070
Current maturities of long-term debt 1,644,228 1,644,228
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Total current liabilities 4,136,438 3,278,329
LONG-TERM DEBT, less current maturities 6,905,836 7,030,329
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Total liabilities 11,042,274 10,308,658
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 20,000,000
shares authorized; 5,405,481 and 5,285,000
shares issued and outstanding 54,055 52,850
Warrants 153,650 153,650
Additional paid-in capital 13,656,487 13,407,694
Accumulated deficit (3,954,379) (3,102,866)
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Total shareholders' equity 9,909,813 10,511,328
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$ 20,952,087 $ 20,819,986
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
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BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales $ 3,128,104 $ 3,440,741 $ 6,293,531 $ 7,256,480
Wholesale beer and gift shop sales 127,311 174,018 248,554 320,218
----------- ----------- ----------- -----------
Total revenue 3,255,415 3,611,759 6,542,085 7,576,698
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 1,078,486 1,248,514 2,146,068 2,607,675
Restaurant salaries and benefits 1,020,323 1,085,627 2,009,694 2,231,967
Operating expenses 630,156 839,265 1,261,323 1,645,006
Depreciation and amortization 202,089 187,811 404,178 375,319
----------- ----------- ----------- -----------
Total costs and expenses 2,931,054 3,361,217 5,821,263 6,859,967
----------- ----------- ----------- -----------
Restaurant operating income 324,361 250,542 720,822 716,731
Preopening expenses 98,892 -- 226,043 --
General and administrative expenses 401,507 434,767 932,644 858,944
----------- ----------- ----------- -----------
Loss from operations (176,038) (184,225) (437,865) (142,213)
OTHER INCOME (EXPENSE):
Interest expense (206,881) (187,044) (422,493) (375,070)
Interest income and other 5,191 1,938 5,549 5,450
----------- ----------- ----------- -----------
Other expense, net (201,690) (185,106) (416,944) (369,620)
----------- ----------- ----------- -----------
Minority interest share of joint venture 5 -- 3,295 --
----------- ----------- ----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (377,723) (369,331) (851,514) (511,833)
----------- ----------- ----------- -----------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR
PREOPENING COSTS -- -- -- (346,547)
----------- ----------- ----------- -----------
NET LOSS $ (377,723) $ (369,331) $ (851,514) $ (858,380)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $ (0.07) $ (0.07) $ (0.16) $ (0.16)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE
SHARES OUTSTANDING 5,355,170 5,285,000 5,320,085 5,285,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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BIG BUCK BREWERY & STEAKHOUSE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
July 4, 1999 June 28, 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (851,514) $ (858,380)
Adjustments to reconcile net loss to cash flows used in
operating activities-
Depreciation and amortization 404,178 375,319
Cumulative effect of change in accounting
for preopening costs -- 346,547
Change in operating assets and liabilities:
Accounts receivable 92,331 89,874
Inventories 43,107 12,917
Prepaids and other (126,869) (96,450)
Accounts payable 1,145,370 56,492
Accrued expenses (287,261) (294,300)
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Net cash provided by (used in) operating activities 419,342 (367,981)
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INVESTING ACTIVITIES:
Purchases of property and equipment, net (977,966) (393,268)
Decrease (increase) in other assets 67,605 (68,300)
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Net cash used in investing activities (910,361) (461,568)
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FINANCING ACTIVITIES:
Proceeds from long-term debt and capital lease obligations -- 699,650
Proceeds from sale of common stock 249,998
Payments on long-term debt and capital lease obligations (124,493) (125,810)
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Net cash used provided by financing activities 125,505 573,840
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DECREASE IN CASH (365,514) (255,709)
CASH, beginning of period 500,236 354,015
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CASH, end of period $ 134,722 $ 98,306
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 423,412 $ 381,631
Income taxes paid -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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BIG BUCK BREWERY & STEAKHOUSE, INC.
Condensed Notes to Financial Statements
July 4, 1999
(1) Basis of Financial Statement Presentation
The accompanying unaudited financial statements included herein have been
prepared by Big Buck Brewery & Steakhouse, Inc. in accordance with
generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the SEC. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made are adequate to make the
information not misleading.
The financial statements for the three and six months ended July 4, 1999
include the results of operations for the joint venture described in Big
Buck's Form 10-KSB for the fiscal year ended January 3, 1999.
The unaudited balance sheet as of July 4, 1999 and the unaudited statements
of operations and cash flows for the three and the six months ended July 4,
1999 and June 28, 1998 include, in the opinion of management, all
adjustments, consisting solely of normal recurring adjustments, necessary
for a fair presentation of the financial results for the respective interim
periods and are not necessarily indicative of results of operations to be
expected for the entire fiscal year ending January 2, 2000. The
accompanying interim financial statements have been prepared under the
presumption that users of the interim financial information have either
read, or have access to, the audited financial statements and notes in Big
Buck's Form 10-KSB for the fiscal year ended January 3, 1999. Accordingly,
footnote disclosures which would substantially duplicate the disclosures
contained in the January 3, 1999 audited financial statements have been
omitted from these interim financial statements except for the disclosures
below. It is suggested that these interim financial statements should be
read in conjunction with the financial statements and the notes thereto
included in Big Buck's Form 10-KSB for the fiscal year ended January 3,
1999.
(2) Recently Issued Accounting Pronouncements
During April 1998, the Accounting Standards Executive Committee of the
America Institute of Certified Public Accountants (AICPA) issued Statement
of Position (SOP 98-5), "Reporting on the Costs of Start-Up Activities."
SOP 98-5 requires companies to expense as incurred all start-up and
preopening costs that are not otherwise capitalizable as long-lived assets.
Big Buck has elected early implementation of the accounting standard
retroactive to the beginning of 1998. The effect of this accounting change
was a charge to operations for the unamortized balance of preopening costs
for the year ended December 28, 1997 of $346,547.
5
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ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS DISCUSSION AND ANALYSIS CONTAINS CERTAIN FORWARD-LOOKING TERMINOLOGY SUCH
AS "BELIEVES," "ANTICIPATES," "EXPECTS," AND "INTENDS," OR COMPARABLE
TERMINOLOGY. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. POTENTIAL
PURCHASERS OF THE BIG BUCK'S SECURITIES ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH ARE QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONS AND RISKS DESCRIBED HEREIN. PLEASE REFER TO THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB, FILED ON MARCH 29, 1999, FOR ADDITIONAL
FACTORS KNOWN TO BIG BUCK THAT MAY CAUSE ACTUAL RESULTS TO VARY.
OVERVIEW
Big Buck develops, owns and operates microbrewery/restaurants under the name
"Big Buck Brewery & Steakhouse." Until May 1995 when Big Buck opened its
first unit in Gaylord, Michigan, it had no operations or revenue and its
activities were devoted solely to development. In March 1997, Big Buck opened
its second unit in Grand Rapids, Michigan, and in October 1997, Big Buck opened
its third unit in Auburn Hills, Michigan, a suburb of Detroit. Big Buck plans to
open a fourth unit in Grapevine, Texas, a suburb of Dallas. This unit will be
operated by Buck & Bass, L.P. pursuant to a joint venture agreement between Big
Buck and Bass Pro. Big Buck must contribute approximately $4.5 million to Buck &
Bass to complete construction of the Grapevine unit. Without additional
financing, Big Buck will be unable to make its required capital contribution to
complete construction of this unit.
Future revenue and profits will depend upon various factors, including market
acceptance of the Big Buck Brewery & Steakhouse concept and general economic
conditions. Big Buck's present sources of revenue are the Gaylord, Grand Rapids
and Auburn Hills units. There can be no assurance that Big Buck will
successfully implement its expansion plans, in which case Big Buck will continue
to depend on the revenue from the existing units. Big Buck also faces all of the
risks, expenses and difficulties frequently encountered in connection with the
expansion and development of a new business. Furthermore, to the extent that Big
Buck's expansion strategy is successful, it must manage the transition to
multiple site, higher volume operations, control increased overhead expenses and
hire additional personnel.
Big Buck's sales and results of operations are expected to fluctuate based on
seasonal patterns. Big Buck anticipates that its highest earnings will occur in
the second and third quarters. Quarterly results in the future are likely to be
substantially affected by the timing of new unit openings. Because of the
seasonality of Big Buck's business and the impact of new unit openings, results
for any quarter are not necessarily indicative of the results that may be
achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
6
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QUARTERS ENDED JULY 4, 1999 AND JUNE 28, 1998
The following table is derived from Big Buck's statements of operations and
expresses the results from operations as a percent of total revenue:
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales 96.1% 95.3% 96.2% 95.8%
Wholesale beer and gift shop sales 3.9 4.7 3.8 4.2
------ ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
------ ----- ----- -----
COST AND EXPENSES:
Cost of sales 33.1 34.6 32.8 34.4
Restaurant salaries and benefits 31.3 30.1 30.7 29.5
Operating expenses 19.4 23.2 19.3 21.7
Depreciation and amortization 6.2 5.2 6.2 4.9
------ ----- ----- -----
Total costs and expenses 90.0 93.1 89.0 90.5
------ ----- ----- -----
Restaurant operating income 10.0 6.9 11.0 9.5
Preopening expenses 3.0 0.0 3.5 0.0
General and administrative expenses 12.4 12.0 14.3 11.3
------ ----- ----- -----
LOSS FROM OPERATIONS (5.4) (5.1) (6.8) (1.8)
OTHER INCOME (EXPENSE):
Interest expense (6.4) (5.2) (6.5) (5.0)
Interest income and other 0.2 0.1 0.1 0.1
------ ----- ----- -----
Total other income (expense) (6.2) (5.1) (6.4) (4.9)
Minority interest share of joint venture -- -- 0.1 --
-----
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (11.6) (10.2) (13.1) (6.7)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE FOR
PREOPENING COSTS -- -- -- (4.6)
NET LOSS (11.6)% (10.2)% (13.1)% (11.3)%
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
7
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RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JULY 4, 1999 AND
JUNE 28, 1998
REVENUE
Revenue decreased 10% to $3,255,414 in second quarter 1999 from $3,611,759 in
second quarter 1998. Revenue decreased 14% to $6,542,085 for the first six
months of 1999 from $7,576,698 for the first six months of 1998. The decrease
between the quarters was primarily due to the competitive effects of other
restaurant openings in Auburn Hills during second quarter 1999. Big Buck's
decision to close the Grand Rapids unit for lunch, effective in January 1999,
also contributed to the decrease in revenue. While such action decreased revenue
by approximately $130,000 during second quarter of 1999, it also improved
operating margins at the Grand Rapids unit. The decrease between the six month
periods was primarily due to the combined impact of the severe winter on all of
Big Buck's units, the delayed start of the NBA season on the Auburn Hills unit
and the passing of the peak of sales following the opening of the Auburn Hills
unit.
COST OF SALES
Cost of sales, which consists of food, merchandise and brewery supplies,
decreased 14% to $1,078,486 in second quarter 1999 compared to second quarter
1998, and decreased 18% to $2,146,068 for the first six months of 1999 compared
to the first six months of 1998. As a percentage of revenue, costs of sales
decreased to 33.1% in second quarter 1999 compared to 34.6% in second quarter
1998, and decreased to 32.8% for the first six months of 1999 compared to 34.4%
for the first six months of 1998. As a percentage of revenue, the decreases were
primarily the result of an increase in menu prices and savings from volume
purchasing.
RESTAURANT SALARIES AND BENEFITS
Restaurant salaries and benefits, which consist of restaurant management and
hourly employee wages and benefits, payroll taxes and workers' compensation
insurance, decreased 6% to $1,020,323 in second quarter 1999 compared to second
quarter 1998, and decreased 10% to $2,009,694 for the first six months of 1999
compared to the first six months of 1998. The decreases were primarily due to
lower staffing needs for hourly employees in existing units as a result of
decreased sales volume. As a percentage of revenue, restaurant salaries and
benefits increased to 31.3% for second quarter 1999 compared to 30.1% for second
quarter 1998, and increased to 30.7% for the first six months of 1999 compared
to 29.5% for the first six months of 1998. The increases were primarily the
result of higher restaurant management wages and benefits, which do not decrease
directly with decreases in sales volume as compared to hourly employee wages.
OPERATING EXPENSES
Operating expenses, which include supplies, utilities, repairs and maintenance,
advertising and occupancy costs, decreased 24.9% to $630,156 in second quarter
1999 compared to second quarter 1998, and decreased 23.3% to $1,261,323 for the
first six months of 1999 compared to the first six months of 1998. As a
percentage of revenue, operating expenses decreased to 19.4% in second quarter
1999 as compared to 23.2% in second quarter 1998, and decreased to 19.3% for the
first six months of 1999 compared to 21.7% for the first six months of 1998. The
decreases were primarily the result of refocusing of advertising and marketing
efforts and tighter cost controls.
PREOPENING EXPENSES
Preopening expenses consist of expenses incurred prior to an opening of a new
unit, including but not limited to wages and benefits, relocation costs,
supplies, advertising expenses and training costs. Preopening expenses for the
Grapevine unit were $98,892 for second quarter 1999 and $226,043 for the first
six months of 1999. There were no preopening expenses during the second quarter
or first six months of 1998. In June 1999, Big Buck laid off the personnel it
had hired to operate the Grapevine unit due to the lack of financing required to
complete such unit. If Big Buck obtains financing which enables it to make its
required capital contribution to complete construction of the Grapevine unit,
the required restaffing of the Grapevine unit would cause preopening expenses to
increase.
8
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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased 7.7% to $401,507 in second quarter
1999 compared to second quarter 1998, and increased 8.6% to $932,644 for the
first six months of 1999 compared to the first six months of 1998. The increase
between the six month periods primarily reflected additional legal and
consulting fees, as well as additional travel expense related to the development
of the Grapevine unit. As a percentage of revenue, these expenses increased
slightly to 12.3% in second quarter 1999 from 12.0% in second quarter 1998 and
increased to 14.3% for the first six months of 1999 from 11.3% for the first six
months of 1998. The increases as a percentage of revenue primarily reflect the
decrease in revenue, as well as increased legal and consulting fees. To help
reduce general and administrative expenses, Big Buck implemented salary
reductions for executive officers and administrative staff in June 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased 7.6% to $202,089 in second
quarter 1999 compared to second quarter 1998, and increased 7.7% to $404,178 for
the first six months of 1999 compared to the first six months of 1998. As
percentage of revenue, these expenses increased to 6.2% in second quarter 1999
from 5.2% in second quarter 1998, and increased to 6.2% for the first six months
of 1999 from 5.0% for the first six months of 1998. The increases as a
percentage of revenue primarily reflect the decrease in revenue, as well as the
additional depreciation from newly acquired assets.
INTEREST EXPENSE
Interest expense increased $19,837 to $206,881 in second quarter 1999 compared
to second quarter 1998, and increased $47,423 to $422,493 for the first six
months of 1999 compared to the first six months of 1998. The increases reflect
the added interest on the $1,400,000 borrowed from Crestmark Bank in November
1998. Big Buck and Crestmark recently negotiated an extension of such note,
which is now payable in November 1999. A second priority lien in favor of
Crestmark on substantially all of Big Buck's assets secures this indebtedness.
As a percentage of revenue, interest expense increased to 6.4% in second quarter
1999 from 5.2% in second quarter 1998, and increased to 6.5% for the first six
months of 1999 from 5.0% for the first six months of 1998. If Big Buck obtains
debt financing to increase its working capital or to make its required capital
contribution to complete construction of the Grapevine unit, it will incur
additional interest expense.
CHANGE IN ACCOUNTING PRINCIPLE
Big Buck has elected early adoption of Statement of Position (SOP 98-5),
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires companies to
expense as incurred all start-up and preopening costs that are not otherwise
capitalizable as long-lived assets. The effect of this accounting change is to
charge operations the unamortized balance of preopening costs as of the end of
1997 of $346,547.
LIQUIDITY AND CAPITAL RESOURCES
Big Buck generated $419,342 in cash from operating activities for the first six
months of 1999, and used $367,981 in cash for operating activities for the first
six months of 1998. As of July 4, 1999, Big Buck had a working capital deficit
of $3,214,326. In order to fund operations in the short-term Big Buck intends to
use cash provided by the operations of its three existing units. Big Buck spent
$910,361 during the first six months of 1999 for construction and equipment for
the Grapevine unit. Big Buck spent $124,493 during the first six months of 1999
for payments of long-term debt.
On May 13, 1999, Big Buck issued 120,481 shares of its Common Stock to Michael
G. Eyde, the landlord of Big Buck's Auburn Hills site, at a price of $2.075 per
share. This issuance was made in a private transaction pursuant to which Big
Buck obtained gross proceeds of approximately $250,000. Big Buck is exploring
the possible issuance of additional debt or equity securities (a) to make its
required capital contribution to complete construction of the Grapevine unit,
(b) to repay its indebtedness to Crestmark, and (c) to increase its working
capital.
9
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Since inception, Big Buck's principal capital requirements have been the
funding of (a) its operations and promotion of the Big Buck Brewery &
Steakhouse format and (b) the construction of units and the acquisition of
furniture, fixtures and equipment for such units. Total capital expenditures
for the Gaylord, Grand Rapids and Auburn Hills units were approximately $5.8
million, $3.2 million and $9.7 million, respectively. As of July 4, 1999, Big
Buck had contributed $952,048 to the limited partnership which will own and
operate the Grapevine unit. Big Buck must contribute approximately $4.5
million to Buck & Bass to complete construction of the Grapevine unit.
Without additional financing, Big Buck will be unable to make its required
capital contribution to complete construction of this unit. The inability to
open the Grapevine unit would have a material adverse effect upon Big Buck's
business, operating results and financial condition.
Buck & Bass is currently in default under the operating covenant of the
Grapevine sublease. Such covenant required Buck & Bass to open the Grapevine
unit for business on the same date that Bass Pro's Outdoor World store opened
for business. In the event of a material default, Bass Pro has the right to
purchase Big Buck's interest in the joint venture at 40% of book value, thereby
eliminating Big Buck's interest in the Grapevine unit. Further, Bass Pro has the
right to purchase up to 15% of Big Buck's interest in the joint venture, at 100%
of Big Buck's original cost, within 24 months of the opening of the Grapevine
unit; provided, however, that Big Buck's interest in the joint venture may not
be reduced below 51%. The reduction or elimination of Big Buck's interest in the
Grapevine unit would have a material adverse effect upon its business, operating
results and financial condition.
Big Buck expects that it will continue to require significant capital resources
to fund new unit development and construction. The completion of the Grapevine
unit and the development of any additional units will require Big Buck to obtain
additional financing. The amount of financing required for new units depends on
the definitive locations, site conditions, construction costs and size and type
of units to be built. There can be no assurance that financing will be available
on terms acceptable or favorable to Big Buck, or at all. Without such financing
Big Buck's development plans will be unachievable.
Big Buck leases the Grand Rapids site at a minimum annual base rent of $140,000
and a maximum annual base rent of $192,500 over a ten-year term. In addition to
the annual base rent, Big Buck is obligated to pay an annual percentage rent in
the amount of 5% on gross sales at the site in excess of $2.9 million per year.
Annual gross sales did not exceed $2.9 million for the first two years of the
lease term. As a consequence, the lessor currently has the right to require Big
Buck to repurchase the Grand Rapids site. If the lessor exercises such right,
Big Buck would be obligated to repurchase the Grand Rapids site for $1.4
million, plus $70,000 for each lease year on a pro rata basis, within 180 days
of its receipt of such request. As of July 4, 1999, the lessor had not submitted
such a request to Big Buck. Should a repurchase be required, Big Buck believes
that it would be able to obtain mortgage financing sufficient to pay the
required purchase price. There can be no assurance that such mortgage financing,
in the event repurchase were required, would be available on terms acceptable to
Big Buck or at all. Big Buck's inability to continue operating the Grand Rapids
unit would have a material adverse effect upon its business, operating results
and financial condition.
As of July 4, 1999, Big Buck owed NBD Bank approximately $1.7 million under a
credit facility which matures on October 1, 2000. A first priority lien in
favor of NBD on substantially all of Big Buck's assets secures this
indebtedness. Big Buck is currently in default under several financial and
non-financial credit facility covenants. Big Buck received a written
waiver from NBD of the minimum debt coverage ratio and the minimum working
capital covenant defaults through January 3, 1999 under the credit facility.
Big Buck is currently seeking a written waiver from NBD of all defaults
through July 4, 1999 under the credit facility. If any event of default
occurs, NBD's obligation to lend terminates and NBD may declare the
obligations of Big Buck to be due and payable. In addition, for any period
after the occurrence of an event of default, NBD may charge interest at
increased rates. Big Buck does not presently have sufficient funds to repay
its obligations to NBD. NBD's acceleration of Big Buck's indebtedness would
have a material adverse effect upon Big Buck's business, operating results
and financial condition.
10
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YEAR 2000 READINESS DISCLOSURE
The term "Year 2000" is used to describe general problems that may result from
improper processing of dates and date-sensitive calculations by computers or
other machinery as the year 2000 is approached and reached. This problem stems
from the fact that many of the world's computer hardware and software
applications have historically used only the last two digits to refer to a year.
As a result, many of these computer programs do not or will not properly
recognize a year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create erroneous results.
State of Readiness
To operate its business, Big Buck relies on many third party information
technology ("IT") systems, including its point of sale, table seating and
reservation management, inventory management, credit card processing,
payroll, accounts payable, fixed assets, banking and general ledger systems.
Big Buck does not maintain any proprietary IT systems and has not made any
modifications to any of the IT systems provided to it by its IT vendors. Big
Buck requested information from each of its hardware and software vendors
regarding the Year 2000 compliance status of products purchased by Big Buck.
Based upon information received from such vendors, Big Buck has completed the
upgrades required to achieve Year 2000 compliance for substantially all of
its hardware and software. Big Buck plans to finalize its IT systems
remediation efforts, by upgrading or replacing four non-compliant PCs and
installing a software patch in its point of sale system before October 31,
1999.
Big Buck is also finalizing its assessment of its non-IT systems (i.e.
embedded technology such as microprocessors in kitchen equipment, brewery
equipment, elevators, etc.). Big Buck has determined that its kitchen and
brewery equipment does not contain date-sensitive microprocessors. Big Buck's
elevator provider has indicated that its products will function properly in
the year 2000 provided that other peripheral links, such as power and HVAC,
function properly. Big Buck has received oral assurances regarding its HVAC
system and plans to contact its utility suppliers. Big Buck plans to
complete its assessment of other non-IT systems, namely its telephone and
alarm systems, by October 31, 1999. Big Buck will then determine the best
approach for remedying any non-compliant system.
Big Buck also relies upon suppliers of raw materials and packaging for beer,
suppliers of food and retail products and other third party product and service
providers, over which it can assert little control. Big Buck has contacted all
critical suppliers and service providers to assess the readiness of such parties
and to determine the extent to which Big Buck may be vulnerable to such parties'
failure to resolve their own Year 2000 issues. Big Buck's main food supplier
has indicated that its operations are Year 2000 compliant. Big Buck hopes to
receive similar assurances from its main supplier of raw materials and
packaging for beer by October 31, 1999.
Costs to Address Year 2000 Issues
Big Buck expenses costs associated with its Year 2000 compliance efforts as the
costs are incurred. As of August 16, 1999, Big Buck had incurred approximately
$7,500 of costs in connection with its Year 2000 compliance efforts. Big Buck
estimates that its total cost of assessing and remedying Year 2000 issues will
approximate $40,000. Such estimate does not consider any additional costs
incurred due to the failure of any third party vendor, supplier or service
provider to achieve Year 2000 compliance.
Risks of Year 2000 Issues
Big Buck recognizes that Year 2000 issues constitute a material known
uncertainty. Big Buck also recognizes the importance of ensuring that Year 2000
issues will not adversely affect its operations. Big Buck believes that the
processes described above will be effective to manage the risks associated with
the problem. However, there can be no assurance that the processes can be
completed on the timetable described above or that remediation will be fully
effective. The failure to identify and remediate Year 2000 issues, or the
failure of key vendors, suppliers and service providers or other critical third
parties who do business with Big Buck to timely remediate their Year 2000 issues
could cause system failures or errors, business interruptions and, in worst case
scenario, the inability to engage in normal business practices for an unknown
length of time. Big Buck's business, operating results, financial condition and
cash flows could be materially adversely affected. At this time, however, Big
Buck does not possess information necessary to estimate the overall potential
financial impact of Year 2000 compliance issues. Specific risks Big Buck faces
with regard to Year 2000 issues include the following:
1. Disruption of Internal Computer Systems. If our internal computer systems
should fail, it could disrupt our accounting, restaurant management and other
systems. We believe that the failure of our internal computer systems is
unlikely. However, we expect that minor Year 2000 compliance issues will
continue to be identified through our discussions with our hardware and software
vendors.
11
<PAGE>
2. Disruption of Supply Materials. The inability of our suppliers and service
providers to be Year 2000 ready could result in delays in product delivery,
disruption in the distribution channels and disruption in services required to
operate.
CONTINGENCY PLANS
Big Buck recognizes the need for Year 2000 contingency plans in the event
that remediation is not fully successful or that the remediation efforts of
Big Buck's vendors, suppliers and service providers are not timely completed.
Big Buck intends to finalize contingency planning during third quarter 1999.
Such plans will likely include building inventory levels of raw materials and
packaging for beer as a contingency against failure by its main supplier of
such goods to achieve Year 2000 readiness on a timely basis. To the extent
that Big Buck's vendors, suppliers and service providers are unable to
provide sufficient evidence of Year 2000 readiness by October 31, 1999, Big
Buck will seek to arrange for their replacement before the changeover date.
12
<PAGE>
PART II
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
On May 13, 1999, Big Buck issued 120,481 shares of its Common Stock to
Michael G. Eyde, the landlord of Big Buck's Auburn Hills site, at a price of
$2.075 per share. This issuance was made in a private transaction pursuant to
which Big Buck obtained gross proceeds of approximately $250,000. This
issuance was made in reliance upon the exemption provided in Section 4 (2) of
the Securities Act of 1933, as amended (the "Act"). The foregoing securities
are restricted as to sale or transfer, unless registered under the Act, and
the certificate representing such securities contains a restrictive legend
preventing sale, transfer or other disposition unless registered under the
Act. In addition, the recipient of such securities received, or had access
to, material information concerning Big Buck, including, but not limited to,
Big Buck's reports on Form 10-KSB, Form 10-QSB and Form 8-K, as filed with
the SEC. No underwriting commissions or discounts were paid with respect to
the issuance of such securities.
ITEM 5 OTHER INFORMATION
(a) Shareholder Proposals
If a shareholder of Big Buck wishes to present a proposal for consideration
for inclusion in the proxy materials for the 1999 Annual Meeting of
Shareholders, the proposal must be sent by certified mail, return receipt
requested, and must be received at the executive offices of Big Buck, 550
South Wisconsin Street, P. O. Box 1430, Gaylord, Michigan 49734-5430, Attn:
Secretary, no later than August 31, 1999. All proposals must conform to the
rules and regulations of the SEC.
Under SEC rules, if a shareholder notifies Big Buck of his or her intent to
present a proposal for consideration at the 1999 Annual Meeting of
Shareholders after September 15, 1999, Big Buck, acting through the persons
named as proxies in the proxy materials for such meeting, may exercise
discretionary authority with respect to such proposal without including
information regarding such proposal in its proxy materials.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10 Amended and Restated Real Estate Mortgage Note dated July 27, 1999, by and
between Big Buck, Borrower, and Crestmark Bank, Lender.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K during the quarter ended
July 4, 1999.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BIG BUCK BREWERY & STEAKHOUSE, INC.
Date: August 18, 1999 By /s/ Anthony P. Dombrowski
--------------------------------
Anthony P. Dombrowski
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10 Amended and Restated Real Estate Mortgage Note dated July 27,
1999, by and between Big Buck, Borrower, and Crestmark Bank,
Lender.
27 Financial Data Schedule.
</TABLE>
15
<PAGE>
EXHIBIT 10
AMENDED AND RESTATED
REAL ESTATE MORTGAGE NOTE
Principal Amount Troy, Michigan
$1,428,000.00
Due Date: May 20, 1999 Dated: November 20, 1998
October 1, 1999 July 27, 1999
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Crestmark Bank, a Michigan banking corporation, ("Lender") at its offices
located at 850 East Long Lake Road, Troy, Michigan 48098 or at such other place
as Lender may designate in writing, the principal sum of One Million Four
Hundred Twenty Eight Thousand and No/100 ($1,428,000.00) Dollars, plus interest
as hereinafter provided, in lawful money of the United States, or such sum as
has been advanced, interest thereon and all expenses then outstanding under this
Note and the Loan Agreement.
The unpaid principal balance outstanding from time to time under this
Amended and Restated Real Estate Mortgage Note ("Note") shall bear interest on a
basis of a year of 360 days for the actual number of days elapsed in a month, at
a rate equal to ten percent (10%) per annum (the "Effective Rate").
The interest hereunder shall be repaid in monthly installments of
interest only, commencing on the first day of August, 1999 and continuing on the
first day of each calendar month thereafter, until October 1, 1999, when the
unpaid principal balance and all accrued interest thereon, if any, shall be due
and payable in full, or such earlier date upon which the indebtedness is due and
payable as a result of acceleration or otherwise (the earlier of such date being
the "Due Date"). The Borrower acknowledges that the monthly payments required
hereunder are not amortized and will not amortize the indebtedness evidenced by
the maturity hereof, and that the final payment due hereunder at maturity will
be a balloon payment of all then outstanding indebtedness. Anything herein
contained to the contrary, notwithstanding, all unpaid principal and accrued and
unpaid interest shall be due and payable in full on the Due Date above stated.
The Money Advance and all interest and expenses shall be charged to a
loan account in Borrower's name on Lender's books (the "Loan Account"), and
Lender shall debit to such account the amount of each loan or advance when made
and credit to such account the amount of each repayment hereunder. Lender shall
render Borrower from time to time a statement of account setting forth the
Borrower's loan balance in said Loan Account which shall be deemed to be correct
and accepted by and binding upon Borrower, unless Lender receives a written
statement of exceptions within ten (10) Business Days after such statement has
been rendered to Borrower. Such statement of account shall be prima facie
evidence of the loans and advances owing to Lender by Borrower hereunder,
together with interest accrued thereon.
Any payment made by mail will be deemed tendered and received only
upon actual receipt by Lender at the address of Lender designated for such
payment whether or not Lender has authorized payment by mail or any other
manner. Borrower hereby expressly assumes all risk of loss or liability
resulting from non-delivery or delay in delivery of any payment transmitted by
mail or in any other manner.
No delay or failure of Lender in exercising any right, remedy, power
or privilege hereunder shall affect such right, remedy, power or privilege, nor
shall any single or partial exercise thereof preclude the exercise of any other
right, remedy, power or privilege. No delay or failure of Lender at any time to
demand strict adherence to the terms of this Note shall be deemed to constitute
a course of conduct inconsistent with Lender's right at any time, before or
after any Event of Default, to demand strict adherence to the terms of this
Note.
<PAGE>
This Note may be prepaid, in full or in part, at anytime without
penalty.
Nothing herein contained, nor any transaction relating thereto, or
hereto, shall be construed or so operate as to require the Borrower to pay, or
be charged, interest at a greater rate than the maximum allowed by the
applicable law relating to this Note. Should any interest or other charges,
charged, paid or payable by the Borrower in connection with this Note, or any
other document delivered in connection herewith, result in the charging,
compensation, payment or earning of interest in excess of the maximum allowed by
the applicable law as aforesaid, then any and all such excess shall be and the
same in hereby waived by the holder, and any and all such excess paid shall be
automatically credited against and in reduction of the principal due under this
Note. If Lender shall reasonably determine that the Effective Interest Rate
(together with all other charges or payments related hereto that may be deemed
interest) stipulated under this Note is, or may be, usurious or otherwise
limited by law, the unpaid balance of this Note, with accrued interest at the
highest rate then permitted to be charged by stipulation in writing between
Lender and Borrower, at the option of Lender, shall immediately become due and
payable.
Upon the occurrence of a Default as set forth in the Loan Agreement,
the entire unpaid principal balance and all accrued interest and expenses shall,
at the sole discretion of Lender, regardless of the Due Date, be immediately due
and payable, together with (to the extent permitted under applicable law) the
costs, reasonable attorney's fees, and reasonable outside consultants' fee
incurred by Lender in collecting or enforcing payment. During any period of a
Default as defined in the Loan Agreement, the outstanding principal amount
hereof shall bear interest at a rate which is equal to eight (8%) percent per
annum greater than the Effective Interest Rate otherwise charged hereunder. If
any required installment is not paid when due, then, at the option of Lender, in
addition to all other sums due hereunder, a late charge of five cents ($.05) for
each dollar of the installment so overdue may be charged to cover the extra
expense and other costs incurred in connection with delinquent payments and not
as additional interest or a penalty, it being understood and agreed that Lender
shall incur additional costs as a result of any late payment, the precise amount
of which may be difficult to ascertain.
Borrower hereby grants to Lender a security interest in any
indebtedness or liability of Lender to Borrower, however, evidenced, including a
security interest in all of Borrower's deposits, instruments, negotiable
documents and chattel paper which at any time are in the possession or control
of Lender, as further security for repayment of the Indebtedness of Borrower;
and Borrower hereby grants to Lender all rights and privileges afforded a
secured party under the Michigan Uniform Commercial Code with respect to any
such indebtedness or liability in which lender is hereby granted a security
interest.
All payments hereunder shall, at option of Lender, first be applied
against expenses, then accrued interest, and the balance against principal.
Acceptance by Lender of any payment in an amount less than the amount then due
shall be deemed an acceptance on account only, and the failure to pay the entire
amount then due shall be and continue to be an event of default, and at any time
thereafter and until the entire amount then due has been paid, Lender shall be
entitled to exercise all rights conferred upon it by this Note upon occurrence
of default as herein set forth.
Borrower hereby waives presentment for payment, demand, notice of
non-payment, notice of protest and protest of this Note, or diligence in
collection or bringing suit. The liability of Borrower hereunder shall be
absolute and unconditional, without regard to the liability of any other party
hereto.
This Note is secured by, and executed pursuant to, a Loan Agreement
and a Security Agreement each dated November 20, 1998 between Borrower and
Lender, as the same may be amended, modified or altered from time to time
(herein referred to as the "Loan Documents") and the Collateral, the Premises
and Collateral Documents therein described. Reference is hereby made to the Loan
Agreement and Collateral Documents for additional terms relating to the
transaction giving rise to this Note, defined terms not otherwise defined
herein, the security given for this Note and additional terms and conditions
under which this Note matures, accelerates, is repaid or may be prepaid.
<PAGE>
As consideration for Lender agreeing to enter into this Note and
extending the maturity date, Borrower will pay Lender a non-refundable extension
fee of TWENTY EIGHT THOUSAND AND NO/100 ($28,000) DOLLARS, which fee has been
added to the principal amount of this Note.
This Note amends and restates in it entirety a certain Real Estate
Mortgage Note dated November 20, 1998 from Borrower to Lender. This Note does
not constitute a novation or extinguishment of the existing indebtedness
evidenced by said promissory note and said indebtedness is still outstanding.
The term "Borrower" shall mean each person executing this Note, each
individually and together collectively, and their obligations to Bank shall be
joint and several.
"Borrower"
BIG BUCK BREWERY &
STEAKHOUSE, INC., a Michigan
corporation
/s/ William F. Rolinski
------------------------------
By: WILLIAM F. ROLINSKI
Its: President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JUL-04-1999
<CASH> 134,722
<SECURITIES> 0
<RECEIVABLES> 120,523
<ALLOWANCES> 0
<INVENTORY> 265,179
<CURRENT-ASSETS> 922,112
<PP&E> 19,444,801
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,952,087
<CURRENT-LIABILITIES> 4,136,438
<BONDS> 6,905,836
0
0
<COMMON> 54,055
<OTHER-SE> 9,855,758
<TOTAL-LIABILITY-AND-EQUITY> 20,952,087
<SALES> 6,542,085
<TOTAL-REVENUES> 6,542,085
<CGS> 2,146,068
<TOTAL-COSTS> 5,821,263
<OTHER-EXPENSES> 1,158,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 422,493
<INCOME-PRETAX> (851,514)
<INCOME-TAX> 0
<INCOME-CONTINUING> (851,514)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (851,514)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
