<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- (Act of 1934)
For the quarterly period ended June 30, 1998 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 1-9822
BFX HOSPITALITY GROUP, INC.
---------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 75-1732794
- ------------------------------- --------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107
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(Address and zip code of principal executive offices)
(817) 332-4761
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(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding at:
Class July 31, 1998
- --------------------------------------- -------------------------------
Common stock, $.05 par value 4,854,128
1
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BFX HOSPITALITY GROUP, INC.
Index
-----
Page
----
Part I - Financial Information......................................... 3
Item 1 - Financial Statements.......................................... 3
Consolidated Condensed Balance Sheets June 30, 1998 (Unaudited)
and September 30, 1997............................................... 3
Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended June 30, 1998 and 1997............................ 4
Consolidated Condensed Statements of Operations (Unaudited)
Nine Months Ended June 30, 1998 and 1997............................. 5
Consolidated Condensed Statements of Cash Flow (Unaudited)
Nine Months Ended June 30, 1998 and 1997............................. 6
Supplemental Disclosures of Cash Flow Information (Unaudited).......... 6
Notes to Consolidated Condensed Financial Statements (Unaudited)....... 7
Item 2 - Management's Discussion and Analysis of Financial Conditionan
and Results of Operations............................................. 9
Part II - Other Information............................................ 12
Signatures............................................................. 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Balance Sheets
-------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
----------- --------------
(Unaudited)
Assets (In thousands)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 8,926 $16,356
Accounts receivable............................... 103 66
Inventories....................................... 127 79
Income tax receivable............................. 510 -
Prepaid and other current assets.................. 156 62
------- -------
Total current assets........................... 9,822 16,563
------- -------
Property, plant and equipment, at cost:
Land, building and improvements................... 13,477 9,387
Less: Accumulated depreciation and amortization... (3,463) (2,970)
------- -------
Net property, plant and equipment............... 10,014 6,417
------- -------
Goodwill, net of amortization of $1,478,000 and
$1,206,000, respectively........................ 3,487 3,758
Deferred income taxes............................... 833 833
Other assets, net................................... 90 513
------- -------
$24,246 $28,084
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt................. $ 138 $ 138
Accounts payable.................................. 499 300
Accrued liabilities............................... 4,836 5,014
Income taxes...................................... 26 314
------- -------
Total current liabilities....................... 5,499 5,766
Long-term debt...................................... 1,109 1,212
------- -------
Total liabilities............................... 6,608 6,978
------- -------
Stockholders' equity:
Preferred stock $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding... - -
Common stock $.05 par value; 30,000,000 shares
authorized; outstanding shares 7,786,878....... 389 389
Additional paid-in capital........................ 16,583 16,578
Retained earnings................................. 8,321 9,816
Treasury stock, at cost, 2,846,250 and
1,812,350 shares, respectively................. (7,532) (4,487)
Employee notes for stock purchase................. (123) (1,190)
------- -------
Total stockholders' equity...................... 17,638 21,106
------- -------
$24,246 $28,084
======= =======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
3
<PAGE>
BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
----------------------------------------------------------
Three Months
Ended June 30,
------------------------
1998 1997
----------- -----------
(In thousands, except per
share amounts)
Net revenues............................................. $ 3,302 $ 2,646
------- --------
Cost of goods sold (exclusive of depreciation)........... 771 551
Selling, general and administrative...................... 3,535 12,065
Depreciation and amortization............................ 291 218
------- --------
Total operating costs and expenses 4,597 12,834
------- --------
Net loss from continuing operations before other income
and income taxes....................................... (1,295) (10,188)
------- --------
Other income (expense):
Interest income........................................ 146 112
Interest expense....................................... (30) (56)
------- --------
116 56
------- --------
Loss from continuing operations before income taxes...... (1,179) (10,132)
Income tax benefit....................................... 375 3,026
------- --------
Loss from continuing operations.......................... (804) (7,106)
------- --------
Discontinued operations:
Income from operations, net of income tax expense
of $267,000........................................... - 437
Gain on disposal, net of income tax expense
of $7,252,000......................................... - 13,003
------- --------
Income from discontinued operations...................... - 13,440
------- --------
Net income (loss)........................................ $ (804) $ 6,334
======= ========
Basic earnings per share:
Continuing operations.................................... $ (0.15) $ (0.93)
Discontinued operations.................................. - 1.76
------- --------
Net income (loss)........................................ $ (0.15) $ 0.83
======= ========
Weighted average common shares outstanding............... 5,448 7,658
======= ========
Diluted earnings per share:
Continuing operations.................................... $ (0.15) $ (0.93)
Discontinued operations.................................. - 1.76
------- --------
Net income (loss)........................................ $ (0.15) $ 0.83
======= ========
Weighted average common shares outstanding............... 5,448 7,658
======= ========
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
4
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BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
----------------------------------------------------------
Nine Months
Ended June 30,
-----------------------
1998 1997
----------- ----------
(In thousands, except per
share amounts)
Net revenues............................................. $ 8,130 $ 7,993
------- --------
Cost of goods sold (exclusive of depreciation)........... 1,790 1,703
Selling, general and administrative...................... 8,181 16,251
Depreciation and amortization............................ 819 736
------- --------
Total operating costs and expenses 10,790 18,690
------- --------
Net loss from continuing operations before other income
and income taxes....................................... (2,660) (10,697)
------- --------
Other income (expense):
Interest income........................................ 530 181
Interest expense....................................... (90) (164)
------- --------
440 17
------- --------
Loss from continuing operations before income taxes...... (2,220) (10,680)
Income tax benefit....................................... 725 3,216
------- --------
Loss from continuing operations.......................... (1,495) (7,464)
------- --------
Discontinued operations:
Income from operations, net of income tax expense
of $933,000........................................... - 1,509
Gain on disposal, net of income tax expense
of $7,252,000......................................... - 13,003
------- --------
Income from discontinued operations...................... - 14,512
------- --------
Net income (loss)........................................ $(1,495) $ 7,048
======= ========
Basic earnings per share:
Continuing operations.................................... $ (0.27) $ (1.07)
Discontinued operations.................................. - 2.08
------- --------
Net income (loss)........................................ $ (0.27) $ 1.01
======= ========
Weighted average common shares outstanding............... 5,552 6,976
======= ========
Diluted earnings per share:
Continuing operations.................................... $ (0.27) $ (1.07)
Discontinued operations.................................. - 2.08
------- --------
Net income (loss)........................................ $ (0.27) $ 1.01
======= ========
Weighted average common shares outstanding............... 5,552 6,976
======= ========
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
5
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BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Cash Flow (Unaudited)
----------------------------------------------------------
Nine Months
Ended June 30,
-----------------
1998 1997
-------- -------
(In thousands)
Net cash provided by (used in) operating activities.. $(1,675) $ 49
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment......... (4,148) (566)
Net proceeds from sale of operating assets......... - 24,744
------- -------
Net cash used in investing activities................ (4,148) 24,178
------- -------
Cash flows from financing activities:
Repayments of long-term debt....................... (103) (140)
Treasury stock purchases........................... (1,504) (165)
------- -------
Net cash used in financing activities................ (1,607) (305)
------- -------
Net increase (decrease) in cash...................... (7,430) 23,922
Cash at beginning of period.......................... 16,356 1,659
------- -------
Cash at end of period................................ $ 8,926 $25,581
======= =======
Supplemental Disclosures of Cash Flow Information (Unaudited)
-------------------------------------------------------------
Supplemental schedule of cash payments:
Nine Months
Ended June 30,
-----------------
1998 1997
-------- -------
(In thousands)
Cash paid for:
Interest........................................... $ 90 $ 164
Income taxes....................................... 63 324
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
6
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BFX HOSPITALITY GROUP, INC.
Notes to Consolidated Condensed Financial Statements (Unaudited)
----------------------------------------------------------------
Note A
- ------
In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of BFX
Hospitality Group, Inc. (the Company), as of June 30, 1998, the results of its
operations for the three and nine month periods ended June 30, 1998 and 1997 and
its cash flows for the nine month periods ended June 30, 1998 and 1997.
The accounting policies followed by the Company are set forth in Note
1 to the Company's financial statements in the 1997 BFX Hospitality Group, Inc.
Form 10-K.
Note B
- ------
The results of operations for the three and nine month periods ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the full year.
Note C
- ------
During the nine months ended June 30, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, Earnings Per Share. This
statement requires interim and annual presentation of basic and diluted earnings
per share ("EPS") by all entities that have issued common stock or potential
common stock if those securities are traded in a public market. The objective
of basic and diluted EPS is to measure the performance of an entity over the
reporting period while giving effect to the dilutive potential of all common
shares that were outstanding during the period. This statement also requires a
reconciliation of the numerator and denominator of the diluted EPS computation.
EPS data for the period ended June 30, 1998 and all prior periods have been
restated to conform with the provisions of this statement.
Note D
- ------
During 1992, the United States Environmental Protection Agency (EPA)
issued a Record of Decision (ROD) with respect to the Company's Superfund Site
in Vestal, New York. The ROD required the Company to construct a water treatment
facility at the site and to pump contaminated ground water from bedrock and
overburden extraction wells for 15 to 30 years until remediation goals were met.
Due to concerns about the correctness of the remedy provided for in the ROD, the
Company performed additional fieldwork and, in 1995, the EPA agreed the remedy
needed to be modified. After additional discussions with the EPA, a revised ROD
was issued in July 1997. The revised ROD eliminates certain provisions of the
original ROD and primarily includes the removal and treatment of contaminated
soil. In June 1998, the Company signed a Consent Decree with the EPA in regard
to the implementation of the remedy and ongoing monitoring of the property. At
June 30, 1998, the Company had a liability accrued of $3,500,000 for future EPA
costs.
7
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Note E
- ------
In June 1998, Alan Tremain tendered his resignation as Chairman of the
Board of the Company effective June 26, 1998. In accordance with his employment
agreement, Mr. Tremain received $100,000 in severance compensation. Also
pursuant to his employment agreement, which required the Company to purchase any
common stock held by Mr. Tremain at the greater of fair market value or his
cost, the Company purchased 280,000 shares of the Company's common stock from
Mr. Tremain for $700,000. As a result of these transactions, the Company
recorded an expense of $205,000 during the quarter ending June 30, 1998.
8
<PAGE>
BFX HOSPITALITY GROUP, INC.
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL INFORMATION
At June 30, 1998, the Company owned and operated food service, lodging
and entertainment facilities in Texas and Louisiana.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain matters discussed herein are forward-looking statements about
the business, financial condition and prospects of the Company. The actual
results could differ materially from those indicated by such forward-looking
statements because of various risks and uncertainties. Such risks and
uncertainties may include, but are not limited to regional and national economic
conditions, changes in customer demand for products offered by the Company, and
other matters that may adversely affect the availability of products and
pricing, state and federal regulatory environment, possible future acquisitions
or dispositions and other risks indicated in the Company's previous filings with
the Securities and Exchange Commission. The Company cannot control these risks
and uncertainties, and in many cases, cannot predict the risks and uncertainties
that could cause its actual results to differ materially from those indicated by
the forward-looking statements.
RESULTS OF OPERATIONS
Revenues for the 1998 three month period increased 25% and for the
nine month period increased 2% due to the opening of the second Cabo unit in
downtown Houston, Texas (opened in April 1998) offset by the closing of the food
and beverage operations at the Stockyards Hotel (SYH), due to the construction
of the new H3 Ranch Restaurant, scheduled to open in August 1998. After the
restaurant opens (which will replace the previous food and beverage operations
at SYH), revenues should increase over prior levels at SYH. Future revenues are
expected to increase due to the opening of the third Cabo unit in downtown Fort
Worth, Texas, projected to open in September 1998.
Consolidated costs of sales (which consist primarily of food and
beverage costs) during the 1998 three and nine month periods versus 1997
increased 40% and 5%, respectively. As a percent of related revenue, these costs
were 23% during the 1998 three month period versus 21% a year earlier. For the
nine month period, the costs were 22% versus 21% a year earlier. The increase in
absolute dollars and the increase in costs as a percent of revenue is due to the
opening of the second Cabo unit.
Consolidated selling, general and administrative expenses for the 1998
three and nine month period decreased 71% and 50%, respectively, compared to
1997. The primary reason for the decrease was the additional expenses incurred
in 1997 related to the expense associated with the acquisition of Hotels of
Distinction, the charge incurred as a result of the amended Record of Decision
regarding the Company's Vestal, New York superfund site, bonus to the Company's
management as a result of the sale of Current Technology, Inc., the reserve for
collection of certain notes receivable and certain concept development
expenditures.
9
<PAGE>
The increase in interest income to $146,000 for the 1998 three month
period from $112,000 in 1997 and the increase to $530,000 for the 1998 nine
month period from $181,000 in 1997 is due to the interest income earned on the
proceeds of the Current Technology, Inc. sale.
The decrease in interest expense to $30,000 for the 1998 three month
period from $56,000 in 1997 and to $90,000 for the 1998 nine month period from
$164,000 in 1997 is primarily due to the assumption, by the purchaser, of a
$1,169,000 mortgage loan in connection with the sale of a commercial office
building in July 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1992, the United States Environmental Protection Agency (EPA)
issued a Record of Decision (ROD) with respect to the Company's Superfund Site
in Vestal, New York. The ROD required the Company to construct a water treatment
facility at the site and to pump contaminated ground water from bedrock and
overburden extraction wells for 15 to 30 years until remediation goals were met.
Due to concerns about the correctness of the remedy provided for in the ROD, the
Company performed additional fieldwork and, in 1995, the EPA agreed the remedy
needed to be modified. After additional discussions with the EPA, a revised ROD
was issued in July 1997. The revised ROD eliminates certain provisions of the
original ROD and primarily includes the removal and treatment of contaminated
soil. In June 1998, the Company signed a Consent Decree with the EPA in regard
to the implementation of the remedy and ongoing monitoring of the property. At
June 30, 1998, the Company has a liability accrued of $3,500,000 for future EPA
costs.
In 1997, the Company began construction on a second Cabo unit to be
located in the historical district of downtown Houston, Texas. The unit opened
during April 1998. The Company's third Cabo location is under construction in
Fort Worth, Texas and is projected to open in the fourth quarter of fiscal 1998.
A new restaurant at SYH is under construction and is expected to open during the
fourth quarter of fiscal 1998. Capital expenditures for these three projects are
expected to approximate $4,000,000, of which approximately $2,100,000 had been
incurred as of June 30, 1998, and are expected to be funded from existing cash
and operating cash flow.
For the nine months ending June 30, 1998, the Company purchased
679,600 shares of its common stock at a total cost of $1,504,000 (average cost
of $2.21 per share).
In October 1997, pursuant to the terms of their respective note
agreements, Robert H. McLean, Chief Executive Officer and Director of the
Company and Robert Korman, Chief Financial Officer tendered to the Company
284,430 and 62,825 shares, respectively, of the Company's stock to repay their
loans and to reimburse the Company for certain taxes paid by the Company on
behalf of Mr. McLean and Mr. Korman in the amount of $400,695 and $90,065,
respectively. The shares were tendered on October 8, 1997 at a value of $4.13
per share, which was the closing price per share of the Company's common stock
on that date.
In October 1997, pursuant to the terms of his note agreement, Walter
D. Rogers, a Director of the Company, tendered to the Company 52,045 shares of
its common stock owned by Mr. Rogers in payment of one-half of the principal
balance of the note in the amount of $123,500 and to reimburse the Company for
certain taxes paid by the Company on Mr. Rogers' behalf in the amount of
$91,446. Mr. Rogers tendered the shares on October 8, 1997 at a value of $4.13
per share, which was the closing price per share of the Company's common stock
on that date. The Company also amended the note as of October 21, 1997, to (i)
extend the due date for the principal
10
<PAGE>
sum of $26,500 until February 3, 2000; (ii) extend the due date for the
principal sum of $97,000 until September 6, 2001; (iii) eliminate any interest
charges prior to maturity; and (iv) provide for the payment of the note by the
delivery of shares of the Company's common stock valued at the greater of book
or market value.
In June 1998, Alan Tremain tendered his resignation as Chairman of the
Board of the Company effective June 26, 1998. In accordance with his employment
agreement, Mr. Tremain received $100,000 in severance compensation. Also
pursuant to his employment agreement, which required the Company to purchase any
common stock held by Mr. Tremain at the greater of fair market value or his
cost, the Company purchased 280,000 shares of the Company's common stock from
Mr. Tremain for $700,000. As a result of these transactions, the Company
recorded an expense of $205,000 during the quarter ending June 30, 1998.
11
<PAGE>
BFX HOSPITALITY GROUP, INC.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. - Legal Proceedings
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
12
<PAGE>
BFX HOSPITALITY GROUP, INC.
SIGNATURES
----------
Pursuant to 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.
BFX HOSPITALITY GROUP, INC.
(Registrant)
By: /s/ Robert H. McLean
-----------------------
Chairman of the Board
and President
August 13, 1998
- ---------------
By: /s/ Robert Korman
-----------------------
Vice President and
Chief Financial Officer
August 13, 1998
- ---------------
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 8,926
<SECURITIES> 0
<RECEIVABLES> 103
<ALLOWANCES> 0
<INVENTORY> 127
<CURRENT-ASSETS> 9,822
<PP&E> 10,014
<DEPRECIATION> (3,463)
<TOTAL-ASSETS> 24,246
<CURRENT-LIABILITIES> 5,499
<BONDS> 0
0
0
<COMMON> 389
<OTHER-SE> 17,249
<TOTAL-LIABILITY-AND-EQUITY> 24,246
<SALES> 8,130
<TOTAL-REVENUES> 8,130
<CGS> 1,790
<TOTAL-COSTS> 10,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> (2,220)
<INCOME-TAX> (725)
<INCOME-CONTINUING> (1,495)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,495)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
