<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 December 31, 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.
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(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 February 5, 1999
- --------------------------------------- --------------------------------
Common stock, $.05 par value 3,991,863
1
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BFX HOSPITALITY GROUP, INC.
Index
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Page
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Part I - Financial Information............................................ 3
Item 1 - Financial Statements............................................. 3
Consolidated Condensed Balance Sheets December 31, 1998 (Unaudited)
and September 30, 1998.................................................. 3
Consolidated Condensed Statements of Operations (Unaudited)
Three Months Ended December 31, 1998 and 1997........................... 4
Consolidated Condensed Statements of Cash Flow (Unaudited)
Three Months Ended December 31, 1998 and 1997........................... 5
Supplemental Disclosures of Cash Flow Information (Unaudited)............. 5
Notes to Consolidated Condensed Financial Statements (Unaudited).......... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 7
Part II - Other Information............................................... 10
Signatures................................................................ 11
2
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Balance Sheets
-------------------------------------
December 31, September 30,
1998 1998
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(Unaudited)
Assets (In thousands)
------
Current assets:
Cash and cash equivalents......................... $ 2,652 $ 5,342
Accounts receivable............................... 99 128
Inventories....................................... 199 148
Income tax receivable............................. 1,234 1,102
Prepaid and other current assets.................. 62 120
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Total current assets........................... 4,246 6,840
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Property, plant and equipment, at cost:
Land, building and improvements................... 15,770 14,786
Less: Accumulated depreciation and amortization.. (3,991) (3,702)
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Net property, plant and equipment.............. 11,779 11,084
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Goodwill, net of amortization of $1,659,000 and
$1,567,000, respectively....................... 3,306 3,397
Deferred income taxes............................... 1,419 1,419
Other assets, net................................... 72 70
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$20,822 $22,810
======= =======
Liabilities and Stockholders' Equity
- ----------------------------------------------------
Current liabilities:
Current portion of long-term debt................. $ 138 $ 138
Accounts payable.................................. 679 578
Accrued liabilities............................... 3,780 4,793
Income taxes...................................... 266 847
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Total current liabilities...................... 4,863 6,356
Long-term debt...................................... 1,040 1,075
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Total liabilities.............................. 5,903 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................................. 7,043 7,307
Treasury stock, at cost, 3,768,100 and
3,637,850 shares, respectively................ (8,973) (8,777)
Employee notes for stock purchase................. (123) (123)
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Total stockholders' equity..................... 14,919 15,379
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$20,822 $22,810
======= =======
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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Three Months
Ended December 31,
--------------------
1998 1997
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(In thousands, except per
share amounts)
Net revenues.................................... $3,773 $2,206
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Cost of goods sold (exclusive of depreciation).. 949 487
Selling, general and administrative............. 2,860 2,197
Depreciation and amortization................... 380 261
----- -----
Total operating costs and expenses 4,189 2,945
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Net loss before other income
and income taxes.............................. (416) (739)
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Other income (expense):
Interest income................................ 44 211
Interest expense............................... (24) (30)
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20 181
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Loss before income taxes........................ (396) (558)
Income tax benefit.............................. 132 195
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Net loss........................................ (264) (363)
===== =====
Basic and diluted earnings per share:
Net income
(loss).......................................... $(0.06) $(0.06)
====== ======
Weighted average common shares outstanding...... 4,106 5,615
====== ======
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
4
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BFX HOSPITALITY GROUP, INC.
Consolidated Condensed Statements of Cash Flow (Unaudited)
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Three Months
Ended December 31,
------------------
1998 1997
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(In thousands)
Net cash provided (used) by operating activities.. $(1,475) $ 500
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Cash flows from investing activities:
Additions to property, plant and equipment...... (984) (1,784)
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Net cash used in investing activities............. (984) (1,784)
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Cash flows from financing activities:
Repayments of long-term debt.................... (35) (34)
Treasury stock purchases........................ (196) (528)
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Net cash used in financing activities............. (231) (562)
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Net decrease in cash.............................. (2,690) (1,846)
Cash at beginning of period....................... 5,342 16,356
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Cash at end of period............................. $ 2,652 $14,510
======= =======
Supplemental Disclosures of Cash Flow Information (Unaudited)
-------------------------------------------------------------
Supplemental schedule of cash payments:
Three Months
Ended December 31,
------------------
1998 1997
-------- --------
(In thousands)
Cash paid for:
Interest........................................ $ 24 $ 30
Income taxes.................................... 582 63
See accompanying notes to unaudited Consolidated Condensed Financial Statements.
5
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BFX HOSPITALITY GROUP, INC.
Notes to Consolidated Condensed Financial Statements (Unaudited)
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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 December 31, 1998, and the results
of its operations and its cash flows for the three month periods ended December
31, 1998 and 1997.
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-month period ended December 31,
1998 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 ongoing
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 December 31, 1998, the Company
has a liability accrued of $2,940,000 representing the estimated future costs of
implementing the agreed-upon remedy.
6
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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 December 31, 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, amendments to the Record of Decision issued by the Environmental
Protection Agency (see Liquidity and Capital Resources) 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 three month period ended December 31, 1998 increased 71%
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. Future revenues are expected to increase as additional Cabo units are
planned to open during fiscal 1999.
Costs of goods sold (which consists primarily of food and beverage costs) during
the three month period ended December 31, 1998 increased 95% compared to the
prior year quarter. As a percent of related revenue, these costs were 25%
during 1998 versus 22% a year earlier. The absolute increase is due to
increased revenues discussed above. The increase in costs as a percentage of
revenues is due to the decreased percentage of sales from the Stockyards Hotel
which have a lower cost of goods sold than the Company's other concepts.
Selling, general and administrative expenses for the three month period ended
December 31, 1998 increased 30% compared to the prior year quarter. The primary
reasons 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.
The decrease in interest income to $44,000 for the 1998 three-month period
from $211,000 in 1997 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 1998 three month period
from $30,000 in 1997 is primarily due to the reduction of a mortgage loan
balance under the terms of the Company's note agreement.
7
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Liquidity and Capital Resources
The Company's cash decreased $2,690,000 from $5,342,000 at September 30,
1998 to $2,652,000 at December 31, 1998. The cash used in operating activities
during the three months ended December 31, 1998 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 $984,000 related primarily to the
construction of Cabo Fort Worth, opened during the first quarter of fiscal 1999.
Cash used for financing activities of $231,000 was primarily the result of
the Company purchasing 130,250 shares of its common stock at a total cost of
$196,000 (average cost of $1.50 per share). The shares are recorded as treasury
stock and will be available for employee stock plans and other corporate
requirements.
At December 31, 1998, the Company's only debt relates to a mortgage loan
assumed in the acquisition of the Stockyards hotel with annual commitments of
$138,000. The Company expects to incur approximately $2,000,000 in construction
costs for the two additional Cabo units expected to open in the last two
quarters of fiscal 1999 in Austin, Texas. Management anticipates incurring
$250,000 in fiscal 1999 in the initial phase of implementing the agreed-upon
remedy for its EPA Superfund Site. As long as the Company's shares continue to
represent an attractive investment and a prudent use of capital, the Company
intends to periodically purchase up to an additional 40,000 shares of the
Company's common stock pursuant to its stock repurchase plan. Also, 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 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 December 31, 1998, the
Company has a liability accrued of $2,940,000 representing the estimated future
costs of implementing the agreed-upon remedy.
8
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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 spring 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.
9
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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
None
(b) Reports on Form 8-K
None
10
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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
February 13, 1999
- -----------------
By: /s/ Robert Korman
-------------------------
Vice President and
Chief Financial Officer
February 13, 1999
- -----------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,652
<SECURITIES> 0
<RECEIVABLES> 99
<ALLOWANCES> 0
<INVENTORY> 199
<CURRENT-ASSETS> 4,246
<PP&E> 15,770
<DEPRECIATION> 3,991
<TOTAL-ASSETS> 20,822
<CURRENT-LIABILITIES> 4,863
<BONDS> 0
0
0
<COMMON> 389
<OTHER-SE> 14,530
<TOTAL-LIABILITY-AND-EQUITY> 20,822
<SALES> 3,773
<TOTAL-REVENUES> 3,773
<CGS> 949
<TOTAL-COSTS> 4,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (396)
<INCOME-TAX> (132)
<INCOME-CONTINUING> (264)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
