<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 March 31, 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 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 April 30, 1999
- ---------------------------- --------------
Common stock, $.05 par value 4,020,263
1
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BFX HOSPITALITY GROUP, INC.
Index
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<TABLE>
<CAPTION>
Page
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<S> <C>
Part I - Financial Information............................................ 3
Item 1 - Financial Statements............................................. 3
Consolidated Condensed Balance Sheets March 31, 1999 (Unaudited)
and September 30, 1998.................................................. 3
Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and 1998.............................. 4
Consolidated Condensed Statements of Operations (Unaudited)
Six Months Ended March 31, 1999 and 1998................................ 5
Consolidated Condensed Statements of Cash Flow (Unaudited)
Six Months Ended March 31, 1999 and 1998................................ 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 Condition and
Results of Operations................................................... 8
Item 3 - Quantitative and Qualitative Disclosure About Market Risk........ 10
Part II - Other Information............................................... 11
Signatures................................................................ 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Balance Sheets
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<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
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(Unaudited)
Assets (In thousands)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 2,273 $ 5,342
Accounts receivable............................... 218 128
Inventories....................................... 185 148
Income tax receivable............................. 1,140 1,102
Prepaid and other current assets.................. 143 120
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Total current assets........................... 3,959 6,840
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Property, plant and equipment, at cost:
Land, building and improvements................... 16,364 14,786
Less: Accumulated depreciation and amortization.. (4,297) (3,702)
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Net property, plant and equipment............... 12,067 11,084
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Goodwill, net of amortization of $1,749,000 and
$1,567,000, respectively........................ 3,216 3,397
Deferred income taxes............................... 1,419 1,419
Other assets, net................................... 92 70
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$20,753 $22,810
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt................. $ 138 $ 138
Accounts payable.................................. 636 578
Accrued liabilities............................... 1,100 2,143
Income taxes...................................... 266 847
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Total current liabilities....................... 2,140 3,706
Long-term debt...................................... 1,006 1,075
Accrued EPA costs................................... 2,650 2,650
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Total liabilities............................... 5,796 7,431
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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 16,583
Retained earnings................................. 7,127 7,307
Treasury stock, at cost, 3,796,615 and
3,637,850 shares, respectively................. (9,019) (8,777)
Notes for stock purchase.......................... (123) (123)
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Total stockholders' equity...................... 14,957 15,379
------- -------
$20,753 $22,810
======= =======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
3
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BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1999 1998
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(In thousands, except per
share amounts)
<S> <C> <C>
Net revenues...................................... $4,725 $2,622
------ ------
Cost of goods sold (exclusive of depreciation).... 1,144 532
Selling, general and administrative............... 3,006 2,449
Depreciation and amortization..................... 399 267
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Total operating costs and expenses 4,549 3,248
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Net income (loss) before other income
and income taxes................................ 176 (626)
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Other income (expense):
Interest income.................................. 26 173
Interest expense................................. (24) (30)
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2 143
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Income (loss) before income taxes................. 178 (483)
Income tax expense (benefit)...................... 94 (155)
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Net income (loss)................................. $ 84 $ (328)
====== ======
Basic and diluted earnings per share:
Net income (loss)................................. $ 0.02 $(0.06)
====== ======
Weighted average common shares outstanding........ 3,995 5,593
====== ======
</TABLE>
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
4
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BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Six Months
Ended March 31,
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1999 1998
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(In thousands, except per
share amounts)
<S> <C> <C>
Net revenues........................................ $8,498 $4,828
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Cost of goods sold (exclusive of depreciation)...... 2,093 1,019
Selling, general and administrative................. 5,866 4,646
Depreciation and amortization....................... 779 528
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Total operating costs and expenses 8,738 6,193
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Net loss before other income
and income taxes.................................. (240) (1,365)
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Other income (expense):
Interest income.................................... 70 384
Interest expense................................... (48) (60)
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22 324
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Loss before income taxes............................ (218) (1,041)
Income tax benefit.................................. 38 350
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Net loss............................................ $ (180) $ (691)
====== ======
Basic and diluted earnings per share:
Net loss............................................ $(0.04) $(0.12)
====== ======
Weighted average common shares outstanding.......... 4,036 5,604
====== ======
</TABLE>
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)
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<TABLE>
<CAPTION>
Six Months
Ended March 31,
---------------------
1999 1998
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(In thousands)
<S> <C> <C>
Net cash used in operating activities................. $(1,180) $ (403)
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Cash flows from investing activities:
Additions to property, plant and equipment.......... (1,578) (2,713)
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Net cash used in investing activities................. (1,578) (2,713)
------- -------
Cash flows from financing activities:
Repayments of long-term debt........................ (69) (69)
Treasury stock purchases............................ (242) (640)
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Net cash used in financing activities................. (311) (709)
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Net increase (decrease) in cash (3,069) (3,825)
Cash at beginning of period........................... 5,342 16,356
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Cash at end of period................................. $ 2,273 $12,531
======= =======
</TABLE>
Supplemental Disclosures of Cash Flow Information (Unaudited)
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Supplemental schedule of cash payments:
<TABLE>
<CAPTION>
Six Months
Ended March 31
--------------
1999 1998
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(In thousands)
<S> <C> <C>
Cash paid for:
Interest................................ $ 48 $ 60
Income taxes............................ 582 63
</TABLE>
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
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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 March 31, 1999, the results of its
operations for the three and six month periods ended March 31, 1999 and 1998 and
its cash flows for the six month periods ended March 31, 1999 and 1998.
The accounting policies followed by the Company are set forth in Note
1 to the Company's financial statements in the 1998 BFX Hospitality Group, Inc.
Form 10-K.
Note B
- ------
The results of operations for the three and six month periods ended
March 31, 1999 are not necessarily indicative of the results to be expected for
the full year.
Note C
- ------
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. At September 30, 1997, the Company had accrued environmental remediation
expenses of $3,550,000. In June 1998, the Company signed a Consent Decree with
the EPA in regard to the implementation of the agreed-upon remedy and on-going
monitoring of the property. In addition, the Company reimbursed the EPA $550,000
for monies spent by the EPA at the Company's Superfund Site over a ten-year
period from October 1987 through April 1997. At March 31, 1999, the Company has
a total liability accrued of $2,940,000 representing the estimated future costs
of implementing the agreed-upon remedy. The Company anticipates $290,000 to be
incurred during the next 12 months and this amount is included in accrued
liabilities in the accompanying Consolidated Condensed Balance Sheet.
7
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BFX HOSPITALITY GROUP, INC.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL INFORMATION
At March 31, 1999, 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, amendments to the Record of Decision issued by the Environmental
Protection Agency (see Liquidity and Capital Resources), resolution of the Year
2000 issue 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 1999 three and six month periods increased 80% and 76%,
respectively, due to the opening of the second Cabo unit in Houston, Texas in
April 1998, the opening of the H3 Ranch restaurant located in the Stockyards
Hotel in August 1998 and the opening of the third Cabo unit in Fort Worth, Texas
in December 1998.
Consolidated costs of sales (which consist primarily of food and beverage
costs) during the 1999 three and six month periods versus 1998 increased 115%
and 105%, respectively. As a percent of related revenue, these costs were 24%
during the 1999 three month period versus 20% a year earlier. For the six month
period, the costs were 25% versus 21% a year earlier. The increase in absolute
dollars was due to increased sales discussed above. The increase in costs as a
percent of revenue is due to decreased percentage of sales from the Stockyards
Hotel which have a lower cost of goods sold than the Company's other concepts.
Consolidated selling, general and administrative expenses for the 1999
three and six month period increased 23% and 26%, respectively, compared to
1998. The primary reason for the increase is the inclusion of the results of
operations of Cabo Travis and H3 Ranch from their respective opening dates in
fiscal 1998 and Cabo Fort Worth from its opening date in fiscal 1999.
8
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The decrease in interest income to $26,000 for the 1999 three month period
from $173,000 in 1998 and the decrease to $70,000 for the 1999 six month period
from $384,000 in 1998 is due to the reduction in cash balances due to investing
and financing activities in fiscal 1998 and 1999. See Liquidity and Capital
Resources.
The decrease in interest expense to $24,000 for the 1999 three month period
from $30,000 in 1998 and to $48,000 for the 1999 six month period from $60,000
in 1998 is primarily due to the reduction of a mortgage loan balance under the
terms of the Company's note agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash decreased $3,069,000 from $5,342,000 at September 30,
1998 to $2,273,000 at March 31, 1999. The cash used in operating activities
during the six months ended March 31, 1999 was primarily attributable to
payments made to Jean-Claude Mathot, a former officer of the Company, totaling
$831,000 pursuant to the terms of his employment agreement upon termination of
his employment. The total payment included $656,000 to purchase shares of the
Company's common stock owned by Mr. Mathot and $175,000 for severance
compensation. The expense related to this transaction was recorded in fiscal
1998. In addition, $582,000 was paid in federal and state tax liabilities that
had been accrued in previous years.
Cash used for investing activities of $1,578,000 related primarily to the
construction of Cabo Fort Worth, opened during the first quarter of fiscal 1999,
and a Cabo unit currently under construction in Austin, Texas.
Cash used for financing activities of $311,000 was primarily the result of
the Company purchasing 158,765 shares of its common stock at a total cost of
$242,000 (average cost of $1.52 per share). The shares are recorded as treasury
stock and will be available for employee stock plans and other corporate
requirements.
At March 31, 1999, the Company's only debt relates to a mortgage loan
assumed in the acquisition of the Stockyards Hotel with annual commitments of
$138,000. Management anticipates incurring $290,000 during the next 12 months in
the initial phase of implementing the agreed-upon remedy for its EPA Superfund
Site. The Company will fund the cost of ensuring that the Company's systems are
Year 2000 compliant, which are not currently expected to be significant.
Management believes that cash flow from operations combined with cash on hand
will provide sufficient resources to fund the Company's fiscal 1999 operations
as well as its planned fiscal 1999 capital expenditures.
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. At September 30, 1997, the Company had accrued environmental remediation
expenses of $3,550,000. In June 1998, the Company signed a Consent Decree with
the EPA in regard to the implementation of the agreed-upon remedy and ongoing
monitoring of the property. In
9
<PAGE>
addition, the Company reimbursed the EPA $550,000 for monies spent by the EPA at
the Company's Superfund Site over a ten-year period from October 1987 through
April 1997. At March 31, 1999, the Company has a total liability accrued of
$2,940,000 representing the estimated future costs of implementing the agreed-
upon remedy.
YEAR 2000
The Company is currently assessing all systems that could potentially be
affected by the Year 2000 Issue, including facility systems, POS systems,
telephone hardware and software, out-sourced services and suppliers. Based on
information currently available, management does not anticipate significant
replacements of any of its computer systems. By June 1999, management intends
to have obtained upgrades or replacements for all equipment that is determined
not to be Year 2000 compliant. Management has the intent and ability to commit
the required resources to the upgrades or replacements but at the current time
cannot estimate what the total cost will be, though it is not anticipated to be
material. The Company will diligently test all upgrades or replacements prior
to summer 1999 to ensure their compliance.
In addition to the current assessment of its systems, the Company is
working with its key suppliers and other third parties with which it has a
material relationship to determine that such parties are achieving compliance
with respect to the Year 2000 Issue in those systems affecting the Company's
operations. Although the Company believes that such persons are working
diligently to properly address the Year 2000 Issue, the Company cannot guarantee
that these third parties will be compliant in a timely manner, or that a failure
to be compliant by another company would not have a material adverse effect on
the Company.
Though the Company is not able to estimate the full impact of any potential
failure of its systems as a result of the Year 2000 Issue, the Company believes
that its operations are such that a contingency plan based primarily on manual
processing of information will be adequate for the Company to continue
operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
10
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BFX HOSPITALITY GROUP, INC.
PART II - OTHER INFORMATION
- ---------------------------
Item 1. - Legal Proceedings
None
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Rights Agreement dated as of February 26, 1999, between the
Company and Continental Stock Transfer & Trust Company, as Rights
Agent, incorporated by reference to Form 8-K dated February 11,
1999
(b) Reports on Form 8-K
Report dated as of February 11, 1999 reporting adoption of
Shareholder Rights Plan
11
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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
May 6, 1999
- -----------
By: /s/ Robert Korman
-------------------------
Vice President and
Chief Financial Officer
May 6, 1999
- -----------
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,273
<SECURITIES> 0
<RECEIVABLES> 218
<ALLOWANCES> 0
<INVENTORY> 185
<CURRENT-ASSETS> 3,959
<PP&E> 16,364
<DEPRECIATION> 4,297
<TOTAL-ASSETS> 20,753
<CURRENT-LIABILITIES> 2,140
<BONDS> 0
0
0
<COMMON> 389
<OTHER-SE> 14,568
<TOTAL-LIABILITY-AND-EQUITY> 20,753
<SALES> 0
<TOTAL-REVENUES> 8,498
<CGS> 2,093
<TOTAL-COSTS> 8,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> (218)
<INCOME-TAX> (38)
<INCOME-CONTINUING> (180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
