<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended January 25, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12145
AMARILLO MESQUITE GRILL, INC.
(formerly Maverick Restaurant Corporation)
(Exact name of Registrant as specified in its charter)
Kansas 48-0936946
(State of Incorporation) (IRS Employer Identification No.)
302 North Rock Road, Suite 200
Wichita, Kansas 67206
(Principal executive offices, including zip code)
Registrant's telephone number including area code: (316) 685-7286
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock $0.01 Par Value
Indicate by check mark whether the Registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
--- ---
Insert by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of April 1, 1998, 7,573,895 common shares (not including 60,000 shares
held as treasury stock) were outstanding, and the aggregate market value of
the common shares (based upon the closing price of these shares ($3.875) as
of such date on the OTC Bulletin Board) of AMARILLO MESQUITE GRILL, INC. held
by non-affiliates was approximately $11,222,709 (For purposes of this
valuation "affiliates" are the officers, directors and 5% shareholders of the
Company.)
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the fiscal year ended January 25, 1998
(Items 10, 11, 12 and 13 of PART III)
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended January 25, 1998
<TABLE>
<CAPTION>
PART I. PAGE
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<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 6
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . . 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . 13
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . . . 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . 13
PART III.
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 13
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
A) GENERAL DEVELOPMENT OF BUSINESS.
AMARILLO MESQUITE GRILL, INC. (the "Company) operates twelve Amarillo
Mesquite Grill restaurants in Kansas, Oklahoma, Missouri and Arkansas.
The Company also operates one Cotton Patch Cafe restaurant located in
Oklahoma pursuant to a franchise agreement with Cotton Patch Cafe,
Inc. The Company intends to focus its business activities on the
development of additional Amarillo Mesquite Grill restaurants.
On June 17, 1996, the Company acquired the assets of the Amarillo
Mesquite Grill restaurant chain from Homestead West, Inc. and Amagril,
Inc. for 1,000,000 shares of the Company's restricted common stock and
cash in the amount of $1,500,000. The Amarillo Mesquite Grill
restaurant chain consisted of four restaurants at the date of
purchase: two located in Wichita, Kansas, one located in Hutchinson,
Kansas and one located in Overland Park, Kansas. Since the date of
this acquisition, the Company has converted five of its Cotton Patch
Cafe restaurants to Amarillo Mesquite Grill restaurants, converted two
other buildings to Amarillo Mesquite Grill restaurants and constructed
a prototype Amarillo Mesquite Grill restaurant.
The Company has also determined that it is in its best interests to
focus on the development of the Amarillo Mesquite Grill restaurants.
Therefore, on March 24, 1997 it sold its remaining eight Grandy's
restaurants to Red Apple Corporation for the purchase price of
$435,000.
B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Not Applicable
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C) NARRATIVE DESCRIPTION OF BUSINESS.
i) PRINCIPAL PRODUCTS AND SERVICES.
AMARILLO MESQUITE GRILL. Amarillo Mesquite Grill restaurants are
open for lunch and dinner. Amarillo Mesquite Grill is a
moderately priced casual dining restaurant that specializes in
aged prime rib and steaks, along with barbecued ribs, chicken and
seafood, all uniquely grilled over an open flame of mesquite
wood. Appetizers and desserts, as well as a children's menu with
lower-priced selections, are also available.
The Amarillo Mesquite Grill concept is designed to appeal to a
broad spectrum of casual dining customers who are seeking a
consistent and high-quality dining experience attentively served
in a distinctive, relaxed atmosphere for a moderate price.
Amarillo Mesquite Grill provides a casual and comfortable
environment and well-trained, enthusiastic service to its
customers.
The Company believes that the Amarillo Mesquite Grill restaurant
concept and menu are designed to attract loyal clientele who
return with a high degree of frequency at both lunch and dinner.
The decor of the Company's restaurants features a variety of
western and country artifacts, giving it a relaxed friendly feel.
Amarillo Mesquite Grill is further distinguished by requiring
from its meat purveyors high-quality, USDA choice or better
graded steaks, many of which are hand-cut fresh daily on site.
High-quality ingredients are used for all menu items. All meals
are served in generous portions by a well-trained friendly staff.
The Amarillo Mesquite Grill restaurant is a free-standing
building. The Company owns the furniture, fixtures and equipment
used in its restaurants. Each restaurant serves alcoholic
beverages and features a bar area located adjacent to the dining
room primarily to accommodate customers waiting for tables.
The average cost of a meal at the Company's Amarillo Mesquite
Grill restaurant is approximately $7.00 for lunch and $13.00 for
dinner. Alcoholic beverage service accounts for approximately 8%
of the Company's net sales at each restaurant. The Company's
restaurants are open seven days a week.
The following table sets forth the location and opening or
acquisition date of the Company's Amarillo Mesquite Grill
restaurants currently in operation:
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<TABLE>
<CAPTION>
DATE OPENED
LOCATION OR PURCHASED
-------- ------------
<S> <C>
Wichita, Kansas #1 June 17, 1996
Wichita, Kansas #2 June 17, 1996
Hutchinson, Kansas June 17, 1996
Overland Park, Kansas June 17, 1996
Ponca City, Oklahoma December 9, 1996
Rogers, Arkansas February 17, 1997
Salina, Kansas April 21, 1997
Springfield, Missouri June 23, 1997
Enid, Oklahoma August 1, 1997
Muskogee, Oklahoma November 12, 1997
Wichita, Kansas #3 January 14, 1998
Manhattan, Kansas February 2, 1998
</TABLE>
COTTON PATCH CAFE. The Company owns and operates one Cotton
Patch Cafe restaurant in McAlester, Oklahoma pursuant to a
franchise agreement with Cotton Patch Cafe, Inc. The menu of the
Cotton Patch Cafe features a southern home-style menu with
entrees including pork chops, chicken and beef, along with
vegetables, rolls and beverages. Cotton Patch Cafe offers full
table service in a relaxed, family-oriented environment. Most of
the Cotton Patch Cafe items are prepared from scratch on the
premises. The average cost of a meal at the Company's Cotton
Patch Cafe restaurant, including beverage, is approximately
$6.00.
The Company has determined that it will not develop additional
Cotton Patch Cafe restaurants.
ii) DEVELOPING PRODUCTS AND INDUSTRY SEGMENTS.
Not Applicable
iii) SOURCES AND AVAILABILITY OF RAW MATERIALS.
The Company's food costs are closely tied to market conditions.
The Company attempts to maintain its cost of sales percentages by
refining cost controls, directing marketing activities to
re-emphasize low-cost menu items, and selectively increasing menu
prices. The Company monitors the cost of ingredients and
attempts to adjust prices wherever possible to maintain desired
margins. The cost of sales percentage in the Amarillo Mesquite
Grill restaurants is somewhat higher than in the Cotton Patch and
Grandy's restaurants due to the different nature of the menu
offerings.
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iv) TRADEMARKS.
The Company acquired two service marks registered with the United
States Patent and Trademark Office for the words "Amarillo
Grill." Both of these registrations expire in January 2005,
however, they are subject to renewal. The Company has also
recently filed with the United States Patent and Trademark Office
an application for the words "Amarillo Mesquite Grill." The
Company considers all of these service marks to contribute
significantly to its operations.
v) SEASONALITY.
The Company experiences increased sales during holiday periods in
its restaurants.
vi) PRACTICES RELATING TO WORKING CAPITAL.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
vii) DEPENDENCE UPON A SINGLE CUSTOMER.
Not Applicable
viii) BACKLOG ORDERS.
Not Applicable
ix) BUSINESS SUBJECT TO RENEGOTIATION AT ELECTION OF GOVERNMENT.
Not Applicable
x) COMPETITION.
The Company competes with mid-priced, full service restaurants
primarily on the basis of quality of food and service, ambiance,
location and price-value relationship. The Company also competes
with a number of other restaurants within its markets, including
both locally owned restaurants and regional or national chains.
The Company believes that its mesquite grill concept, attractive
price-value relationship and quality of food and service enable
it to differentiate itself from its competitors. While the
Company believes that its mesquite grill restaurants are
distinctive in design and operating concept, it is aware of
restaurants that operate with similar concepts. Many of the
Company's competitors are well-
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established in the mid-priced dining segment and have
substantially greater financial, marketing and other
resources than the Company. The Company believes that its
ability to compete effectively will continue to depend upon
its ability to offer high quality, moderately priced food in
a full service, distinctive dining environment.
xi) RESEARCH AND DEVELOPMENT.
Not Applicable
xii) COMPLIANCE WITH ENVIRONMENTAL REGULATION.
Not Applicable
xiii) EMPLOYEES.
As of April 1, 1998, the Company employed approximately 750
persons, including 15 administrative, 60 managerial, 275
full-time and 400 part-time restaurant employees.
D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not Applicable
ITEM 2. PROPERTIES
The Company's principal executive office is located at 302 North Rock Road,
Suite 200, Wichita, Kansas 67206. This office space is leased from an
unrelated third party.
The land and buildings for the Company's thirteen restaurants are leased
pursuant to long-term leases with unrelated third parties. The initial lease
terms are for a period of three to twenty years with provisions for two
additional five year extensions. The Company pays minimum annual rentals for
the land and building of each restaurant in amounts ranging from approximately
$30,000 to $85,050. In some cases, the rental rates escalate in accordance with
sales volume in excess of specified amounts. Each lease obligates the Company
to pay the real estate taxes and utilities applicable to the particular
location, to maintain casualty and liability insurance, and to keep the property
in general repair.
The Company currently operates twelve Amarillo Mesquite Grill restaurants and
one Cotton Patch Cafe restaurant which encompass approximately 4,000 to 6,000
square feet. These restaurants seat approximately 140 to 280 persons and have
on-site parking for an average of 70 cars. Typical capital costs for a
restaurant facility are approximately $700,000 for land,
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$700,000 for the building and $300,000 for equipment and furnishings. The
Company has historically leased the land and buildings used pursuant to
long-term lease arrangements.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A) MARKET INFORMATION.
Stock quotations for the Company's stock are currently available on
the OTC Bulletin Board under the symbol "MESQ". The following
tabulation sets forth the high and low closing bid quotations for the
calendar quarters shown as reported by the OTC Bulletin Board. The
prices quoted represent prices between dealers in securities without
adjustment for mark-ups, mark-downs, or commissions and do not
necessarily reflect actual transactions.
<TABLE>
<CAPTION>
Bid Price
Quarter Ended High Low
------------- ------------------------------
<S> <C> <C>
April 28, 1996 7/8 3/8
July 29, 1996 2 3/8 3/8
October 27, 1996 2 3/8 1 1/4
January 26, 1997 3 3/4 1 1/4
Bid Price
Quarter Ended High Low
------------- ------------------------------
April 27, 1997 4 3/4 2 1/2
July 27, 1997 4 1/2 3 1/4
October 26, 1997 4 3/8 2 1/2
January 25, 1998 3 1/2 2 1/4
</TABLE>
B) HOLDERS OF COMPANY'S COMMON STOCK.
The number of holders of record of the Company's common stock as of
January 25, 1998, was 453, as determined by an examination of the
Company's transfer book. However, because a number of shares of stock
are held in "street name," the actual number could not be determined
more precisely.
C) DIVIDENDS.
The Company has not paid dividends to its stockholders since its
inception. For the foreseeable future, it is anticipated that any
earnings which may be generated from operations of the Company will be
used to finance the growth of the Company, and that dividends will not
be paid to stockholders.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED (1) January 25, January 26, January 28, January 31, January 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $ 16,022,471 $14,185,898 $10,668,573 $9,106,111 $7,517,756
Net loss $(1,270,293) $(1,586,275) $ (175,341) $ (14,300) $(126,852)
Net loss per share $ ( .18) $ ( .24) $ ( .03) $ - $ (.02)
------------ ----------- ----------- ---------- ----------
BALANCE SHEET DATA:
Current assets $ 965,335 $ 700,560 $ 420,691 $1,009,879 $1,649,790
Property and equipment 7,442,598 4,601,807 4,041,077 3,342,382 2,285,972
Other assets 873,408 1,155,327 310,012 346,314 366,622
------------ ----------- ----------- ---------- ----------
Total assets $9,281,341 $ 6,457,694 $4,771,780 $4,698,575 $4,302,384
------------ ----------- ----------- ---------- ----------
------------ ----------- ----------- ---------- ----------
Current liabilities $3,198,960 $ 2,931,011 $1,228,909 $900,991 $868,954
Long-term debt, less
current portion 5,618,279 1,506,421 332,475 355,062 471,224
Obligation under capital leases,
less current portion 1,046,525 1,500,618 1,457,062 1,520,544 1,082,625
Deferred credits - 6,789 24,204 26,507 28,810
Stockholders' equity (deficit) ( 582,423) 512,855 1,729,130 1,895,471 1,850,771
------------ ----------- ----------- ---------- ----------
Total liabilities and
stockholders' equity (deficit) $9,281,341 $ 6,457,694 $4,771,780 $4,698,575 $4,302,384
------------ ----------- ----------- ---------- ----------
------------ ----------- ----------- ---------- ----------
</TABLE>
______________________
(1) Prior to fiscal year 1996, the Company operated on a fifty-two week period
ending on January 31. Beginning in fiscal year 1996, the Company changed
to a fifty-two or fifty-three week period ending on the last Sunday in
January.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During fiscal 1997, the Company took some major steps which will change the
direction of the Company in the future. Effective June 17, 1996, the Company
purchased four Amarillo Mesquite Grill restaurants. The purchase price was
$1,500,000 cash and 1,000,000 shares of the Company's common stock valued at
$.30 per share. Amarillo Mesquite Grill is a casual dining restaurant concept
that specializes in aged prime rib and steaks along with chicken and seafood all
uniquely grilled over an open flame of mesquite wood. The Company plans to
expand the Amarillo concept.
In preparation for this expansion, the Company closed three Cotton Patch Cafes,
one of which was sold, one converted to an Amarillo Mesquite Grill and one which
was being converted to an Amarillo Mesquite Grill as of January 26, 1997. The
Company also decided during fiscal 1997 to discontinue operations of two
Grandy's restaurants in fiscal 1998. The provision for restaurant closings,
dispositions and conversions in the amount of $518,321 recorded in fiscal 1997
related principally to the write off of restaurant assets and related intangible
assets. During fiscal 1998, three additional Cotton Patch Cafes were converted
to Amarillo Mesquite Grills leaving the Company with only two Cotton Patch Cafes
as of year end January 25, 1998.
The Company has also determined that it is in its best interest to focus its
efforts and financial resources on the Amarillo Mesquite Grill concept.
Therefore, effective March 24, 1997, the Company sold to Red Apple Corporation
all of the assets of the eight Grandy's restaurants owned and operated by the
Company. Red Apple Corporation is owned by five individuals, four of which are
officers and directors of the Company. The consideration received for these
assets consisted of $435,000 in cash. Red Apple Corporation also assumed the
lease obligations associated with these restaurants. The Company recognized a
gain of $249,536 on this disposition. Management believes the sales price which
was computed as three times the prior year's store level earnings before
overhead or administrative expenses, plus inventories and cash on hand,
represents fair value for the assets sold.
Effective May 27, 1997, the Company changed its corporate name to Amarillo
Mesquite Grill, Inc. Management believes this name change more accurately
reflects the direction the Company is headed.
RESULTS OF OPERATIONS
For the year ended January 25, 1998, sales were $16,022,471 as compared to
$14,185,898 and $10,668,573 for fiscal 1997 and 1996, respectively. All of the
sales increase can be attributed to the addition of Amarillo Mesquite Grill
restaurants. The following schedule represents a summary of the restaurants
operated by the Company during the three year period ended January 25, 1998.
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<TABLE>
<CAPTION>
Cotton Amarillo Mesquite
Grandy's Patch Cafe Grill Total
-------- ---------- ----- -----
<S> <C> <C> <C> <C>
January 28, 1996 8 7 - 15
Opened - 1 - 1
Purchased - - 4 4
Converted - (1) 1 -
Closed - (2) - (2)
-------- ---------- ----- -----
January 26, 1997 8 5 5 18
-------- ---------- ----- -----
Sold (8) - - (8)
Converted - (3) 3 -
Opened - - 3 3
-------- ---------- ----- -----
January 25, 1998 - 2 11 13
-------- ---------- ----- -----
-------- ---------- ----- -----
</TABLE>
As of January 25, 1998, the Company had one Amarillo Mesquite Grill under
construction which opened during February 1998. In addition, subsequent to year
end, the Company closed one of the two remaining Cotton Patch Cafes which will
be converted to an Amarillo Mesquite Grill.
Cost of sales, as a percentage of total sales, was 37.7%, 33.3% and 31.5% for
fiscal 1998, 1997 and 1996, respectively. The increase in cost of sales, as a
percentage of total sales, is the result of a change in direction by the Company
from fast food restaurants to an upscale, full service restaurant concept,
Amarillo Mesquite Grill, which has a higher cost of sales.
Operating expenses include all direct and indirect labor costs incurred at the
store level and all other store level operating costs, the major component of
which are operating supplies, rent, repairs and maintenance, advertising,
utilities and other occupancy costs. Operating expenses, as a percentage of
total sales, were 53.4%, 59.4% and 59.1% for fiscal 1998, 1997 and 1996,
respectively. The decrease in operating expense, as a percentage of total
sales, is the result of operating more Amarillo Mesquite Grills which have
higher sales volumes and lower proportionate operating costs than the Grandy's
restaurants which were sold during the first quarter of fiscal 1998.
General and administrative expenses include area management personnel and
recruiting and training expenses relating to the development of management
personnel for future restaurants as well as home office costs for
administration, accounting, support personnel, rent and other costs of
maintaining a home office. General and administrative expenses, as a percentage
of total sales, were 10.5%, 7.6% and 4.6% for fiscal 1998, 1997 and 1996,
respectively. The increase in general and administrative expenses can be
attributed to area management positions and recruiting and training costs being
in existence for all of fiscal 1998. During fiscal 1998, these costs were
approximately $858,000 as compared to approximately $285,000 for fiscal 1997 and
$75,000 for fiscal 1996.
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Depreciation and amortization are directly related to the acquisition or
disposition of fixed assets. The increase in depreciation and amortization
from fiscal 1996 to fiscal 1997 is the result of operating more restaurants.
Even though the number of restaurants operated by the Company decreased from
fiscal 1997 to fiscal 1998, the investment was greater and therefore
depreciation and amortization increased.
Interest expense for fiscal 1998, 1997 and 1996 was $511,531, $306,245 and
$224,450, respectively. The increase in the dollar amount of interest
expense from fiscal 1996 to fiscal 1998 is the result of an increase in short
and long-term debt relating to the acquisition of four Amarillo Mesquite
Grill restaurants in fiscal 1997 and continuing new store development
thereafter.
The Company incurred noncash expenses of $97,840 and $61,000 in fiscal 1998
and 1997, respectively, related to the issuance of stock options pursuant to
debt guarantees as disclosed in note 5 to the financial statements.
As of January 25, 1998, the Company had net operating loss carryforwards for
income tax purposes of approximately $6,476,000 which, if not used, will
expire $552,000 in fiscal 2001, $984,000 in fiscal 2002,$1,193,000 in fiscal
2003, $434,000 in fiscal 2004, $134,000 in fiscal 2005, $7,000 in fiscal
2006, $180,000 in fiscal 2008, $44,000 in fiscal 2009, $116,000 in fiscal
2011, $1,524,000 in fiscal 2012, and $1,308,000 in fiscal 2013.
The Company's loss for the current year ended January 25, 1998, can be
largely attributed to growth of the Amarillo Mesquite Grill concept. During
the year ended January 25, 1998, the Company incurred approximately $550,000
in pre-opening costs and start-up costs through the first month of
operations. The Company expenses these costs as incurred. The Company
expects to be profitable the first full month a restaurant is open. In
addition, during fiscal 1998, the Company expensed approximately $858,000
compared to approximately $285,000 in fiscal 1997 for recruiting and training
expenses relating to the development of management personnel for future
restaurants and for an increase in area management personnel. The Company
will continue to incur recruiting and training costs and pre-opening costs as
the Company continues to grow. However, as the Company's base number of
restaurants increase, these expenses become less significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funding to finance its business have been
its cash flow from operations and, principally during the past two years,
proceeds from long-term debt. On January 25, 1998 and January 26, 1997, the
Company had an excess of current liabilities over current assets of
$2,233,624 and $2,230,451, respectively. Management anticipates higher cash
flow from restaurant operations in fiscal 1999 and that such higher operating
cash flow together with remaining borrowing capacity of $200,000 will enable
the Company to meet its financial obligations in fiscal 1999 as they come
due. In the event operating cash flow and remaining borrowing capacity are
not sufficient to enable the Company to meet its financial obligations in
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fiscal 1999, an individual who is a major stockholder and director of the
Company has committed to provide up to $1,000,000 of additional capital or
guarantees of additional indebtedness on behalf of the Company.
Substantially all of the Company's revenues are derived from cash sales. The
Company does not maintain significant receivables and inventories; therefore,
working capital requirements for continuing operations are not significant.
Additions to property and equipment and the acquisition of restaurants
represent the single largest use of funds by the Company. The expenditures
are primarily made for the purchase and development of new restaurants. Cash
expended for capital expenditures was $3,563,335 for the year ended January
25, 1998, compared to $2,286,707 for the year ended January 26, 1997. These
expenditures were funded primarily with proceeds from long-term debt. These
capital expenditures have resulted in a decrease in working capital for the
portion of long-term debt due within one year which was used for funding the
capital expenditures.
The Company plans to continue expansion of the Amarillo Mesquite Grill
concept in fiscal 1999. The Company intends to lease existing restaurant
properties which are suitable for conversion to the Amarillo Mesquite Grill
concept. It is expected that each conversion will require approximately
$300,000 to $500,000 for equipment and remodel costs. A ground-up proto-type
restaurant will cost approximately $1,700,000 for land, building and
equipment. The Company is holding discussions with an investment banking
firm regarding a private placement of convertible securities which would
enable the Company to open approximately eight to ten new Amarillo Grill
restaurants in fiscal 1999. The Company has no commitments for financing at
this time. In order for the Company to meet its expansion goals for fiscal
1999, it will need to raise additional funds through debt or equity
instruments, the availability and terms of which will depend upon market and
other conditions. There can be no assurance that such additional financing
will be available on terms acceptable to the Company.
This report contains certain forward-looking statements, including those
relating to the opening of additional restaurants and planned capital
expenditures. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, actual
results could differ materially from such forward-looking statements. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company that objectives and plans of the
Company will be achieved.
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YEAR 2000 COMPLIANCE
The Company is currently taking actions to provide that its computer systems
are capable of processing in the year 2000. The gross costs associated with
this are not expected to be material and are being expensed as incurred.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements that the Company is required to file under Item 8 of
this Form 10-K are presented on pages F-1 through F-24 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to this Item is included in the Company's Annual
Proxy Statement for the 1998 Annual Meeting of Stockholders under the section
entitled "Election of Directors" and under the section entitled "Section
16(a) Beneficial Ownership Reporting Compliance" and these portions of such
Proxy Statement are herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to this Item is included in the Company's Annual
Proxy Statement for the 1998 Annual Meeting of Stockholders under the section
entitled "Executive Compensation" and "Directors' Fees" and these portions of
such Proxy Statement are herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information relating to this Item is included in the Company's Annual
Proxy Statement for the 1998 Annual Meeting of Stockholders under the section
entitled "Principal Holders of Securities" and that portion of such Proxy
Statement is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to this Item is included in the Company's Annual
Proxy Statement for 1998 Annual Meeting of Stockholders under the section
entitled "Certain Relationships and Related Transactions" and that portion of
such Proxy Statement is herein incorporated by reference.
-13-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A) DOCUMENTS FILED AS A PART OF THIS REPORT.
i) FINANCIAL STATEMENTS
See "Index to Financial Statements on Page F-1 of this Report
ii) FINANCIAL STATEMENT SCHEDULES
Not Applicable
iii) EXHIBITS
See Item 14(c), "Exhibits" below.
B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended January 25, 1998.
C) EXHIBITS.
3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc.
and Change of Corporate Name to Maverick Restaurant Corporation
and Certificate of Correction to Restated Articles of
Incorporation of Grandy's of El Paso, Inc. changing the Corporate
Name to Maverick Restaurant Corporation as filed with the
Secretary of State of the State of Kansas on July 28, 1983 and
August 18, 1983, respectively (filed as Exhibit 3.1 to
Registration No. 2-86266-FW and such exhibit is hereby
incorporated by reference).
3.2 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 22,
1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the
fiscal year ended January 31, 1985, and such exhibit is hereby
incorporated by reference).
3.3 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 27,
1997 changing the corporate name to Amarillo Mesquite Grill, Inc.
(filed herewith).
-14-
<PAGE>
3.4 Bylaws of the Company (filed as Exhibit 3.2 to Registration No.
2-86266-FW and such exhibit is hereby incorporated by reference).
10.1 Asset Purchase Agreement dated June 14, 1996 between Homestead
West, Inc., Amagril, Inc. and the Company (filed as Exhibit 10.1
to the Company's Form 8-K dated June 17, 1996 and such exhibit is
hereby incorporated by reference).
10.2 Stock Option Agreement dated June 17, 1996 between the Company
and C. Howard Wilkins, Jr. and amendment thereto (filed as
Exhibit 10.2 to the Company's Form 10-K for the fiscal year ended
January 26, 1997 and such exhibit is hereby incorporated by
reference).
10.3 Stock Option Agreement dated June 17, 1996 between the Company
and Robert A. Geist and amendment thereto (filed as Exhibit 10.3
to the Company's Form 10-K for the fiscal year ended January 26,
1997 and such exhibit is hereby incorporated by reference).
10.4 Agreement dated February 23, 1998 between the Company and
Robert A. Geist, C. Howard Wilkins, Jr., the Wilkins Family
Foundation, Inc., General Resources, L.P., Tom Devlin and
Andy Mouland (filed as Exhibit 10.1 to the Company's Form 8-K
dated March 27, 1998 and such exhibit is hereby incorporated by
reference).
10.5 1994 Incentive Stock Option Plan (filed as Exhibit 10.9 to the
Company's Form 10-K for the fiscal year ended January 31, 1995
and such exhibit is hereby incorporated by reference).
10.6 1997 Incentive Stock Option Plan (filed as Exhibit A to the
Company's Proxy Statement dated April 23, 1997 and such exhibit
is hereby incorporated by reference).
23 Consent of KPMG Peat Marwick LLP (filed herewith).
________________
Management's Compensation Plan
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMARILLO MESQUITE GRILL, INC.
By: /s/ Chris F. Hotze
--------------------------------------
Chris F. Hotze, President
Date: April 23, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons of the Registrant and in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Chris F. Hotze President, Chairman of April 23, 1998
- -------------------------- the Board and Director -----------------
Chris F. Hotze (Principal Executive
Officer)
/s/ Linn F. Hohl Vice President of April 23, 1998
- -------------------------- Finance, Treasurer, -----------------
Linn F. Hohl Assistant Secretary and
Director (Principal
Financial and Accounting
Officer)
/s/ Alan L. Bundy Executive Vice President April 23, 1998
- -------------------------- and Director -----------------
Alan L. Bundy
/s/ Andres Mouland Vice President of April 23, 1998
- -------------------------- Operations and Director -----------------
Andres Mouland
/s/ C. Howard Wilkins, Jr. Director April 23, 1998
- -------------------------- -----------------
C. Howard Wilkins, Jr.
</TABLE>
-16-
<PAGE>
AMARILLO MESQUITE GRILL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Amarillo Mesquite Grill, Inc.:
We have audited the accompanying consolidated balance sheets of Amarillo
Mesquite Grill, Inc. as of January 25, 1998 and January 26, 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended January
25, 1998. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Amarillo
Mesquite Grill, Inc. as of January 25, 1998 and January 26, 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended January 25, 1998, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
------------------------------
KPMG Peat Marwick LLP
Wichita, Kansas
March 20, 1998
F-2
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Balance Sheets
January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Current assets:
Cash $ 563,836 328,285
Accounts receivable 49,472 22,058
Inventories 167,848 219,315
Prepaid expenses and other current assets 184,179 130,902
----------- ---------
Total current assets 965,335 700,560
----------- ---------
Property and equipment (notes 3 and 4):
Buildings 1,105,229 224,178
Leasehold improvements 2,258,368 1,433,338
Equipment and fixtures 4,210,270 3,883,586
Transportation equipment 18,000 18,000
Property under capital leases 1,234,626 1,903,191
----------- ---------
8,826,493 7,462,293
Less accumulated depreciation and amortization 1,383,895 2,860,486
----------- ---------
Total property and equipment 7,442,598 4,601,807
----------- ---------
Other assets:
Cost in excess of net tangible assets of
purchased businesses, net of accumulated
amortization of $115,337 and $436,309 831,674 1,012,496
License fees, net of accumulated amortization
of $1,133 and $52,361 7,867 63,327
Deposits and other 33,867 79,504
----------- ---------
Total other assets 873,408 1,155,327
----------- ---------
Total assets $ 9,281,341 6,457,694
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Balance Sheets, Continued
January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (note 3) $ 871,936 1,014,778
Current portion of obligations under capital leases
(note 4) 36,336 95,947
Accounts payable 985,093 860,160
Construction costs payable 552,944 179,239
Accrued payroll 197,053 205,373
Other accrued liabilities 555,598 487,211
Accrual for restaurant closings (note 7) - 88,303
----------- ----------
Total current liabilities 3,198,960 2,931,011
Long-term debt, less current portion (note 3) 5,618,279 1,506,421
Obligations under capital leases, less current portion
(note 4) 1,046,525 1,500,618
Deferred credits (note 4) - 6,789
----------- ----------
Total liabilities 9,863,764 5,944,839
----------- ----------
Stockholders' equity (deficit) (note 5):
Preferred stock, $.01 par value, authorized 10,000,000
shares, none issued - -
Common stock, $.01 par value, authorized 20,000,000
shares, issued 7,183,895 shares at January 25, 1998
and 7,141,458 shares at January 26, 1997 71,839 71,414
Additional paid-in capital 6,666,574 6,491,984
Accumulated deficit (7,050,836) (5,780,543)
Treasury stock, 60,000 shares of common
stock at cost (270,000) (270,000)
----------- ----------
Total stockholders' equity (deficit) (582,423) 512,855
Commitments (note 4)
----------- ----------
Total liabilities and stockholders'
equity (deficit) $ 9,281,341 6,457,694
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Statements of Operations
Years Ended January 25, 1998, January 26, 1997 and January 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 16,022,471 14,185,898 10,668,573
------------- ---------- ----------
Costs and expenses:
Cost of sales 6,041,032 4,719,511 3,359,662
Restaurant operating expenses (note 4) 8,550,466 8,428,820 6,305,378
General and administrative 1,685,994 1,081,231 493,836
Depreciation and amortization 655,437 604,788 479,163
Provision for restaurant closings, dispositions
and conversions (note 7) - 518,321 -
------------- ---------- ----------
Total costs and expenses 16,932,929 15,352,671 10,638,039
------------- ---------- ----------
Operating income (loss) (910,458) (1,166,773) 30,534
------------- ---------- ----------
Other income (expense):
Interest income - 11 18,575
Interest expense (511,531) (306,245) (224,450)
Gain on sales of restaurants
(notes 1 and 11) 249,536 - -
Loss on sale of fixed assets - (52,268) -
Noncash expense from issuance of stock
options pursuant to debt guarantees
(notes 3 and 5) (97,840) (61,000) -
------------- ---------- ----------
Total other expense (359,835) (419,502) (205,875)
------------- ---------- ----------
Loss before income taxes (1,270,293) (1,586,275) (175,341)
Income taxes (note 6) - - -
------------- ---------- ----------
Net loss $ (1,270,293) (1,586,275) (175,341)
------------- ---------- ----------
------------- ---------- ----------
Net loss per common share -
basic and diluted $ (.18) (.24) (.03)
------------- ---------- ----------
------------- ---------- ----------
Average shares outstanding -
basic and diluted 7,103,919 6,701,458 6,081,458
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended January 25, 1998, January 26, 1997 and January 28, 1996
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
--------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1995 $61,414 6,122,984 (4,018,927) (270,000) 1,895,471
Contributed capital (note 5) - 9,000 - - 9,000
Net loss - - (175,341) - (175,341)
--------- ---------- ----------- --------- ----------
Balance, January 28, 1996 61,414 6,131,984 (4,194,268) (270,000) 1,729,130
Issuance of 1,000,000 shares of common
stock in connection with acquisition
(note 9) 10,000 290,000 - - 300,000
Contributed capital (note 5) - 9,000 - - 9,000
Noncash expense from issuance of stock
options pursuant to debt guarantees
(note 5) - 61,000 - - 61,000
Net loss - - (1,586,275) - (1,586,275)
--------- ---------- ----------- --------- ----------
Balance, January 26, 1997 71,414 6,491,984 (5,780,543) (270,000) 512,855
Contributed capital (note 5) - 9,000 - - 9,000
Noncash expense from issuance of stock
options pursuant to debt guarantees
(note 5) - 97,840 - - 97,840
Issuance of 42,437 shares of common
stock pursuant to stock option plans
(note 5) 425 67,750 - - 68,175
Net loss - - (1,270,293) - (1,270,293)
--------- ---------- ----------- --------- ----------
Balance, January 25, 1998 $71,839 6,666,574 (7,050,836) (270,000) (582,423)
--------- ---------- ----------- --------- ----------
--------- ---------- ----------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Statements of Cash Flows
Years Ended January 25, 1998, January 26, 1997 and January 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,270,293) (1,586,275) (175,341)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 655,437 604,788 479,163
Loss on sale of equipment - 52,268 -
Gain on sale of restaurants (249,536) - -
Noncash provision for restaurant closings,
dispositions and conversions - 518,321 -
Noncash compensation expense 9,000 9,000 9,000
Noncash expense from issuance of stock
options pursuant to debt guarantees (note 5) 97,840 61,000 -
Increase (decrease) in cash, net of effects of
acquisitions and dispositions:
Accounts receivable (27,414) (9,052) 17,076
Inventories (19,943) (26,727) 2,395
Prepaid expenses (47,792) (27,655) (36,347)
Accounts payable 124,933 375,031 48,070
Accrued expenses 60,067 295,248 78,243
Other 40,790 (71,950) (930)
----------- ----------- -----------
Cash provided by (used in) operating
activities (626,911) 193,997 421,329
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (3,563,335) (696,168) (1,054,920)
Business acquisition (note 9) - (1,500,000) -
Proceeds from sale of property and equipment - 253,274 18,691
Proceeds from sale of restaurants 428,300 - -
Additions to license fees - (9,000) (18,000)
----------- ----------- -----------
Cash used in investing activities (3,135,035) (1,951,894) (1,054,229)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock pursuant to stock option plan 68,175 - -
Proceeds from long-term debt 4,330,000 2,425,000 210,000
Repayment of long-term debt and capital lease
obligations (400,678) (534,183) (183,164)
----------- ----------- -----------
Cash provided by financing activities 3,997,497 1,890,817 26,836
----------- ----------- -----------
(Continued)
</TABLE>
F-7
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Consolidated Statements of Cash Flows, Continued
Years Ended January 25, 1998, January 26, 1997 and January 28, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash $ 235,551 132,920 (606,064)
Cash at beginning of year 328,285 195,365 801,429
----------- ----------- -----------
Cash at end of year $ 563,836 328,285 195,365
----------- ----------- -----------
----------- ----------- -----------
Cash paid during the year for:
Interest $ 515,527 302,250 224,450
Income taxes - - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements
January 25, 1998, January 26, 1997 and January 28, 1996
(1) OPERATIONS
Amarillo Mesquite Grill, Inc. (the Company) owns and operates two
franchised Cotton Patch Cafes located in Oklahoma and eleven Amarillo
Grill restaurants in Kansas, Oklahoma, Missouri and Arkansas. Cotton
Patch Cafe is a casual, full service family-style restaurant specializing
in home-style cooking. The Cotton Patch Cafe concept features a variety of
full entree meals all prepared to order. Amarillo Grill is a casual, full
service restaurant specializing in mesquite-grilled steaks.
During fiscal 1998, the Company changed the corporate name from Maverick
Restaurant Corporation to Amarillo Mesquite Grill, Inc.
Effective March 24, 1997, the Company sold to Red Apple Corporation all of
the assets of the eight Grandy's restaurants owned and operated by the
Company. Red Apple Corporation also assumed the obligations under existing
leases for each restaurant location. Red Apple Corporation is owned by
five individuals, three of which are officers and directors of the Company
and one of which is a significant stockholder of the Company. The
consideration received for these assets consisted of $435,000 in cash. The
Company recognized a gain of $249,536 on this disposition in fiscal 1998.
On September 11, 1997, the Company and four of its stockholders formed AMG,
Inc., a Kansas corporation, to develop and own three Amarillo Grill
restaurants. AMG, Inc. is owned 48% by the Company and 52% by the four
stockholders (see note 12). The accounts and operations of AMG, Inc. have
been consolidated with the Company as entities under common control.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Amarillo Mesquite Grill, Inc. (Amarillo) and its common controlled
subsidiary, AMG, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company has included the amount of AMG, Inc.'s loss otherwise
attributable to the stockholders who own the 52% interest in AMG, Inc.,
of $166,652, in the consolidated financial statements because such loss
exceeds the capital investment made by these stockholders and they are
under no obligation to provide additional capital to AMG, Inc.
F-9
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(b) FISCAL YEAR
The Company's fiscal year is the fifty-two or fifty-three week period
ending on the last Sunday in January.
(c) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
(d) PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is computed
by the straight-line method based on the estimated useful life of the
asset. Leasehold improvements are amortized over the lesser of the
useful life of the assets or the remaining lease term. Maintenance and
repairs are charged to expense as incurred; renewals and betterments
are capitalized. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 20 years
Leasehold improvements 3 - 20 years
Equipment and fixtures 5 - 10 years
Autos 5 years
Property under capital leases 20 years
</TABLE>
(e) LICENSE FEES
A license fee for each franchised Grandy's or Cotton Patch Cafe
restaurant is payable on commencement of construction. Amortization is
provided, beginning when the restaurant is opened, on the straight-line
method over the initial term of the related restaurant lease. In
fiscal 1998, the Company reduced capitalized license fees by $106,688
due to the sale of Grandy's restaurants (note 1) and store closings.
In fiscal 1997, the Company recorded a write-down of $16,288 on license
fees due to store closings (see note 7).
(f) INTANGIBLE ASSETS
Cost in excess of net tangible assets of purchased businesses is
amortized on a straight-line basis over thirteen years which
approximates the remaining life of the building leases. The Company
periodically assesses the recoverability of intangible assets by
determining whether the amortization of the intangible asset balance
over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows. The assessment of the recoverability of
intangible assets will be impacted if estimated future operating cash
flows are not achieved. In fiscal 1997, the Company recorded a
write-down of $60,331 on intangible assets due to store closings (see
note 7).
F-10
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(g) PRE-OPENING COSTS
Pre-opening costs are charged to operations as incurred.
(h) INCOME TAXES
Deferred income taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's assets
and liabilities and operating loss and tax credit carryforwards based
on enacted tax laws and statutory tax rates applicable to the periods
in which the differences are expected to affect taxable income.
(i) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) NET EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
EARNINGS PER SHARE (Statement 128) which replaces the prior accounting
standard regarding computation and presentation of earnings per share.
Statement 128 requires a dual presentation of basic earnings per share
(based on the weighted average number of common shares outstanding) and
diluted earnings per share which reflects the potential dilution that
could occur if contracts to issue securities (such as stock options)
were exercised. The Company has adopted Statement 128 as of January
25, 1998 and, accordingly, earnings per share data for all periods
presented has been computed in accordance with Statement 128. The
adoption of Statement 128 had no impact on the Company's previously
reported loss per share data.
Options to purchase common stock were not included in the computation
of diluted earnings (loss) per common share because the Company had a
net loss available to common stockholders and the inclusion of such
options would be antidilutive. As of January 25, 1998, there are
1,273,613 options outstanding at a weighted average exercise price of
$2.11 which may become dilutive in the future.
F-11
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(k) STATEMENTS OF CASH FLOWS
Noncash investing and financing activities included the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Increase in construction costs payable $373,705 90,539 88,700
Addition to capital leases $ - 385,804 -
Issuance of common stock in business acquisition $ - 300,000 -
Noncash expense from issuance of stock options
pursuant to debt guarantees $ 97,840 61,000 -
</TABLE>
(l) STOCK AWARDS
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As such, compensation
expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. In
addition, SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
requires that pro forma net income and pro forma income per share
disclosures for employee stock option grants made in fiscal years that
begin after December 15, 1994 be provided as if the fair-value-based
cost measurement method defined in SFAS No. 123 had been applied.
The Company accounts for its stock options issued to persons other
than employees in accordance with the provisions of SFAS No. 123. As
such, expense is determined on the date of grant and is charged to
operations over the period the services are provided, based on the
fair-value-based cost measurement method defined in SFAS No. 123 (see
note 5).
(m) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. See
note 7.
F-12
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(n) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996
amounts to conform to the 1998 presentation, consisting
primarily of recruiting and training expenses of $110,000 and
$75,000 for 1997 and 1996, respectively, which have been
reclassified from restaurant operating expenses to general
and administrative expenses.
(3) LONG-TERM DEBT
As of January 25, 1998 and January 26, 1997, long-term debt consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Note payable to bank, due in monthly installments of $41,161,
including interest, beginning June 1998, at prime rate (8.5% at
January 25, 1998) with final installment due May 2003 $2,000,000 -
Note payable to bank, due in monthly installments of $30,871,
including interest, beginning June 1998, at prime rate (8.5% at
January 25, 1998) with final installment due May 2003 1,500,000 -
Note payable to bank, due in monthly installments of $32,929,
including interest, beginning June 1998, at prime rate (8.5% at
January 25, 1998) with final installment due May 2003 1,400,000 -
Note payable to bank, due in monthly installments of $27,000,
including interest, at prime rate (8.5% at January 25, 1998)
with final installment due June 2003 1,393,832 1,589,296
Note payable to bank, due in monthly installments of $4,000,
including interest, at prime rate plus 1% (9.5% at January 25, 1998)
with final installment due November 2000 116,068 148,877
Note payable to bank, due in monthly installments of $5,043,
including interest, at prime rate (8.5% at January 25, 1998)
with final installment due June 1999 80,315 -
Note payable to bank repaid in fiscal 1998 - 650,000
Note payable to bank repaid in fiscal 1998 - 110,000
Mortgage note, repaid in fiscal 1998 - 23,026
---------- ---------
6,490,215 2,521,199
Less current portion 871,936 1,014,778
---------- ---------
Long-term debt, less current portion $5,618,279 1,506,421
---------- ---------
---------- ---------
</TABLE>
F-13
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(3) LONG-TERM DEBT, CONTINUED
Principal amounts payable on the above notes during each of the next five
fiscal years and thereafter are as follows: 1999 - $871,936; 2000 -
$1,207,900; 2001 - $1,278,703; 2002 - $1,352,215; 2003 - $1,393,736 and
thereafter - $385,725.
The Company has entered into loan agreements with its bank which are
represented by individual promissory notes that provide specific terms.
Notes issued pursuant to these loan agreements are secured by substantially
all of the Company's assets. The loan agreements have been personally
guaranteed by certain stockholders, officers and directors of the Company.
The Company had $200,000 available under the loan agreements at January 25,
1998.
(4) LEASE AGREEMENTS
The Company leases its restaurant facilities under agreements with lease
terms of 10 to 20 years generally with a provision for one or two renewal
options of five years each. These agreements provide for minimum annual
rentals and, in certain instances, contingent rentals based on sales
performance. The Company is obligated to pay real estate taxes, insurance
and maintenance.
The Company has also entered into a lease agreement for its Corporate
offices. The lease agreement has a term of five years with a provision for
two renewal options of three years each. The lease agreement provides for
minimum annual rentals and additional rentals based on operating costs
incurred by the lessor. The Company is obligated to pay real estate taxes,
insurance and maintenance.
Future minimum lease payments required for the years subsequent to
January 25, 1998, under operating leases are as follows:
<TABLE>
<S> <C>
1999 $ 624,463
2000 456,088
2001 440,288
2002 435,688
2003 441,559
Thereafter 3,552,313
-----------
$ 5,950,399
-----------
-----------
</TABLE>
F-14
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(4) LEASE AGREEMENTS, CONTINUED
Minimum annual rentals under operating leases were $688,784, $928,051 and
$745,441 for the fiscal years ended January 25, 1998, January 26, 1997 and
January 28, 1996, respectively. In addition, the Company made percentage
rental payments in the amount of $33,631, $28,748 and $880 for the fiscal
years ended January 25, 1998, January 26, 1997 and January 28, 1996,
respectively.
Property and accumulated amortization accounts at January 25, 1998 include
$1,234,626 and $319,093, respectively, for leases that have been
capitalized. Generally, the building portions of such leases are
capitalized whereas the land portion of such leases are considered
operating leases. The future minimum lease payment obligations under
capital leases for the years subsequent to January 25, 1998, are as
follows:
<TABLE>
<S> <C>
1999 $ 150,778
2000 150,778
2001 150,778
2002 150,778
2003 150,778
Thereafter 1,472,401
----------
2,226,291
Less amount representing interest 1,143,430
----------
Total obligations under capital leases 1,082,861
Less current portion 36,336
----------
Obligations under capital leases, less
current portion $1,046,525
----------
----------
</TABLE>
Deferred credits at January 26, 1997 consist of gains on the sale-leaseback
of properties which have been deferred and are being amortized over the
term of the respective lease.
The Company, as lessor, leases two properties to outside third parties.
Property and accumulated depreciation accounts at January 25, 1998 include
$310,308 and $40,189, respectively, related to these properties.
F-15
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(4) LEASE AGREEMENTS, CONTINUED
Future minimum lease payments to be received subsequent to January 25, 1998
are as follows:
<TABLE>
<S> <C>
1999 $ 103,600
2000 108,600
2001 113,600
2002 115,000
2003 116,000
Thereafter 234,000
---------
$ 790,800
---------
---------
</TABLE>
(5) STOCKHOLDERS' EQUITY
The Company's President worked on behalf of the Company during 1998, 1997
and 1996 without receiving compensation from the Company. The Company
determined that the President performed services valued at $9,000 which was
paid by a corporation owned by a major stockholder of the Company.
Accordingly, such amount has been recorded as compensation expense with a
corresponding credit to additional paid-in capital in the accompanying
consolidated financial statements.
On June 17, 1996, the Company entered into Stock Option Agreements with a
director of the Company and a principal stockholder of the Company, whereby
it agreed to grant stock options as consideration for the guarantee of the
note payable to bank of $1,589,296 at January 26, 1997 (see note 3) by such
individuals for the benefit of the Company. These two individuals were
each granted options to purchase 250,000 shares of the Company's common
stock. The exercise price of options granted pursuant to this agreement is
$2.19 per share, and all options granted are exercisable immediately and
expire seven years from the date of grant. Total noncash debt guarantee
expense aggregating $684,875 is based on the fair value of the stock
options issued pursuant to the Stock Option Agreements which is being
recognized as expense over the period of time the related debt is
outstanding. The amount of noncash expense recorded during the year
ended January 25, 1998 and January 26, 1997 was $97,840 and $61,000,
respectively.
The per share weighted average fair value of stock options granted under
the Stock Option Agreements during fiscal 1997 was $1.37 on the date of
grant using the Black Scholes option-pricing model using the following
weighted average assumptions: expected dividend yield 0%, expected
volatility of 145.0%, risk-free interest rate of 6.72% and an expected
life of five years.
F-16
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
At January 25, 1998, the weighted average remaining contractual life of the
500,000 outstanding options under the Stock Option Agreements was 5.38
years.
In March 1984, the Company adopted an Employee Incentive Stock Option
Plan (the 1984 Plan) for a ten-year term to grant options for the
purchase of up to 475,000 shares of common stock. The 1984 Plan
provides that the Company may grant options to certain employees at the
fair market value of the stock at the grant date. One-half of the
option is exercisable six months after the grant date and one-half
eighteen months after the grant date. Following is a summary of the
activity in the 1984 Plan for the three years ended January 25, 1998:
<TABLE>
<CAPTION>
Per Share Exercise Price
Number of ------------------------------
Shares Range Weighted Average
------ ----- ----------------
<S> <C> <C> <C>
Balance, January 31, 1995 237,300 $ .29 - 2.81 1.06
Canceled (51,300) .29 - 2.81 2.60
------- ----------- -----
Balance, January 28, 1996 186,000 .29 - 1.75 .63
Canceled (35,000) 1.75 1.75
------- ----------- -----
Balance, January 26, 1997 151,000 $ .29 - .47 .37
Canceled (2,500) .29 - .47 .33
Exercised (2,500) .29 .29
------- ----------- -----
Balance, January 25, 1998 146,000 $ .29 - .47 .38
------- ----------- -----
------- ----------- -----
Exercisable at January 26, 1997 151,000 .29 - .47 .37
------- ----------- -----
------- ----------- -----
Exercisable at January 25, 1998 146,000 $ .29 - .47 .38
------- ----------- -----
------- ----------- -----
</TABLE>
At January 25, 1998, there were no additional shares available for grant
under the 1984 Plan and the weighted average remaining contractual life
of outstanding options was .85 years.
F-17
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
On July 25, 1994, the Company adopted an Employee Incentive Stock Option
Plan (the 1994 Plan) for a ten-year term to grant options for the
purchase of up to 600,000 shares of common stock. The 1994 Plan
provides that the Company may grant options to certain employees at the
fair market value at the grant date. The vesting period is at the sole
discretion of the Board of Directors. Generally, 10% of the option can
be exercised after one year, an additional 15% after the second year and
25% in each of the next three years. Following is a summary of the
activity in the 1994 Plan for the three years ended January 25, 1998:
<TABLE>
<CAPTION>
Per Share Exercise Price
Number of ------------------------------
Shares Range Weighted Average
------ ----- ----------------
<S> <C> <C> <C>
Balance, January 31, 1995 51,467 $ 1.50 - 2.875 2.43
Granted 155,366 .84 - 1.940 1.19
Canceled (60,129) 1.44 - 2.875 2.08
------- ------------- ----
Balance, January 28, 1996 146,704 .84 - 2.875 1.26
Granted 436,776 .50 - 2.190 1.90
Canceled (88,675) .84 - 1.810 1.13
------- ------------- ----
Balance, January 26, 1997 494,805 .50 - 2.875 1.85
Canceled (135,505) .50 - 2.875 1.12
Exercised (39,937) .50 - 2.875 1.69
------- ------------- ----
Balance, January 25, 1998 319,363 $ 1.81 - 2.19 2.17
------- ------------- ----
------- ------------- ----
Exercisable at January 26, 1997 8,490 $ .84 - 2.875 1.74
------- ------------- ----
------- ------------- ----
Exercisable at January 25, 1998 31,936 $ 1.81 - 2.19 2.17
------- ------------- ----
------- ------------- ----
</TABLE>
At January 25, 1998, there were 105,195 additional shares available for
grant under the 1994 Plan and the weighted average remaining contractual
life of outstanding options was 8.48 years.
F-18
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
On January 1, 1997, the Company adopted an Employee Incentive Stock
Option Plan (the 1997 Plan) for a ten-year term to grant options for the
purchase of up to 700,000 shares of stock. The 1997 Plan provides that
the Company may grant options to certain employees at the fair market
value at the grant date. The vesting period is at the sole discretion
of the Board of Directors. Generally, 10% of the option can be
exercised after one year, an additional 15% after the second year and
25% in each of the next three years. Following is a summary of the
activity in the 1997 Plan for the two years ended January 25, 1998:
<TABLE>
<CAPTION>
Per Share Exercise Price
Number of ------------------------------
Shares Range Weighted Average
------ ----- ----------------
<S> <C> <C> <C>
Balance, January 28, 1996 - $ - -
Granted 160,000 2.75 2.75
-------- ------------ ----
Balance, January 26, 1997 160,000 2.75 2.75
Granted 253,250 2.75 - 4.13 3.70
Canceled (105,000) 2.75 - 4.13 3.00
-------- ------------ ----
Balance, January 25, 1998 308,250 $ 2.75 - 4.13 3.44
-------- ------------ ----
-------- ------------ ----
Exercisable at January 26, 1997 - $ - -
-------- ------------ ----
-------- ------------ ----
Exercisable at January 25, 1998 8,500 $ 2.75 2.75
-------- ------------ ----
-------- ------------ ----
</TABLE>
At January 25, 1998, there were 286,750 additional shares available for
grant under the 1997 Plan and the weighted average remaining contractual
life of outstanding options was 9.38 years.
The per share weighted average fair value of stock options granted under
the 1994 and 1997 Plans during fiscal 1998, 1997 and 1996 was $3.29,
$1.94 and $1.08, respectively, on the date of grant using the Black
Scholes option-pricing model using the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Volatility factor 136.0% 145.0% 145.0%
Risk free interest rate 6.15% 6.47% 6.22%
Expected life 5 years 5 years 5 years
</TABLE>
F-19
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(5) STOCKHOLDERS' EQUITY, CONTINUED
The Company applies APB Opinion No. 25 in accounting for its stock
options issued to employees and, accordingly, no compensation cost has
been recognized for its stock options in the financial statements. Had
the Company determined compensation cost for the 1994 Plan and the 1997
Plan based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's fiscal 1998, 1997 and 1996 pro forma
net loss and pro forma net loss per common share would have been
adjusted to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss As reported $(1,270,293) (1,586,275) (175,341)
Pro forma for SFAS No. 123 (1,547,009) (1,681,310) (188,907)
Loss per share As reported $ (.18) (.24) (.03)
Pro forma for SFAS No. 123 (.22) (.25) (.03)
</TABLE>
The above pro forma disclosure reflects only options granted during
fiscal years 1998, 1997 and 1996. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation cost is reflected over the options' vesting period of five
years and compensation cost for options granted prior to February 1,
1995 is not considered.
(6) INCOME TAXES
As of January 25, 1998, the Company has net operating loss carryforwards
for income tax purposes of approximately $6,476,000 which, if not used,
will expire $552,000 in fiscal 2001, $984,000 in fiscal 2002, $1,193,000
in fiscal 2003, $434,000 in fiscal 2004, $134,000 in fiscal 2005, $7,000
in fiscal 2006, $180,000 in fiscal 2008, $44,000 in fiscal 2009,
$116,000 in fiscal 2011, $1,524,000 in fiscal 2012, and $1,308,000 in
fiscal 2013.
The Company also has approximately $108,000 of investment tax credit
carryforwards available which, if not used, will expire $27,000 in
fiscal 1999, $72,000 in fiscal 2000 and $9,000 in fiscal 2001.
F-20
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(6) INCOME TAXES, CONTINUED
The total provision for income taxes varied from the Federal statutory rate
for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit (34.0)% (34.0)% (34.0)%
Increase in income taxes resulting from:
Losses producing no financial statement
tax benefit 34.0% 34.0% 34.0%
----- ----- -----
-% -% -%
----- ----- -----
----- ----- -----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January
25, 1998 and January 26, 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,460,880 2,037,075
Investment tax credits 108,000 108,000
Capital leases 62,825 124,380
Accrual for restaurant closing - 33,555
Debt guarantee expense 37,179 23,180
Other 14,392 13,280
----------- ----------
Total gross deferred tax assets 2,683,276 2,339,470
Less valuation allowance (2,518,904) (2,189,918)
----------- ----------
Net deferred tax assets 164,372 149,552
----------- ----------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation $ (164,372) (149,552)
----------- ----------
Net deferred tax assets (liabilities) $ -- --
----------- ----------
----------- ----------
</TABLE>
F-21
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(7) PROVISION FOR RESTAURANT CLOSINGS, DISPOSITIONS AND CONVERSIONS
The Company closed three Cotton Patch Cafe restaurants during fiscal 1998,
all of which have been converted to Amarillo Grill restaurants as of
January 25, 1998.
The Company closed three Cotton Patch Cafe restaurants during 1997, one of
which was sold, one of which was converted to an Amarillo Grill restaurant
which opened in fiscal 1997 and one was converted to an Amarillo Grill
restaurant which opened in fiscal 1998. The Company also decided during
fiscal 1997 to discontinue operations of two Grandy's restaurants in fiscal
1998. Provision for restaurant closings, dispositions and conversions in
the accompanying 1997 statement of operations of $518,321 relates
principally to the write-off of property and equipment, license fees and
intangible assets.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined the fair value of its financial instruments in
accordance with Statement of Financial Accounting Standards No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying
amounts of variable rate debt instruments approximate their fair value
because the interest rates on these instruments change with market interest
rates. For all other financial instruments including cash, accounts
receivable, accounts payable and other accrued liabilities, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
(9) BUSINESS ACQUISITION
Effective June 17, 1996, the Company purchased substantially all of the
operating assets and business operations of Homestead West, Inc. and
Amagril, Inc. for an initial cash payment of $1,500,000. In addition,
1,000,000 shares of the Company's $.01 par value common stock was issued at
an estimated fair value of $.30 per share. The acquisition has been
accounted for by the purchase method of accounting and, accordingly, the
operations of Homestead West, Inc. and Amagril, Inc. have been included in
the accompanying statements of operations subsequent to June 17, 1996. The
initial purchase price has been allocated to the assets acquired based on
their estimated fair values at the date of acquisition. Cost in excess of
fair value of net tangible assets of purchased businesses arising from the
acquisition amounted to $947,011.
F-22
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(9) BUSINESS ACQUISITION, CONTINUED
The following table summarizes the pro forma results of operations for the
fifty-two weeks ended January 26, 1997 and January 28, 1996 as if the
acquisition had been consummated at the beginning of fiscal 1997 and 1996.
The pro forma results do not necessarily reflect what would have occurred
if the acquisition had been made at the beginning of the respective periods
or the results that may occur in the future.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 16,257,436 16,113,185
Net earnings (loss) $ (1,470,582) 1,149
Net earnings (loss) per common share -
basic and diluted $ (.21) --
</TABLE>
In connection with the acquisition, the Company entered into an Option to
Purchase Agreement with the seller which grants the seller the option to
purchase the assets acquired after four years from the date of the
acquisition. The option is exercisable for a 90-day period and the
purchase price will be equal to the price paid by the Company plus all
amounts expended by the Company for capital improvements on the restaurants
during the four-year period.
(10) LIQUIDITY
At January 25, 1998, the Company had current liabilities in excess of
current assets of $2,233,625 and a stockholders' deficit of $582,423. The
Company reported a net loss of $1,270,293 and cash used in operating
activities of $626,911 for fiscal 1998.
Management believes the Amarillo Grill restaurants opened in fiscal 1998
will generate sufficiently increased cash flow from operations which,
together with remaining available borrowing capacity (see note 3), will
enable the Company to meet its financial obligations in fiscal 1999 as they
come due. In the event operating cash flow and remaining borrowing
capacity are not sufficient to enable the Company to meet its financial
obligations in fiscal 1999, an individual who is a major stockholder and
director of the Company has committed to provide up to $1,000,000 of
additional capital or guarantees of additional indebtedness on behalf of
the Company.
F-23
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements, Continued
(11) SALE OF GRANDY'S RESTAURANTS
As noted in note 1, the Company sold all of the assets of the eight
Grandy's restaurants owned and operated by the Company.
The following presents the net sales and operating income, before
allocation of corporate overhead, of the above restaurants which are
included in the accompanying statements of operations for the fiscal
years ended January 25, 1998, January 26, 1997 and January 28, 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $803,734 5,102,205 5,204,724
Operating income $ 47,227 36,013 209,504
</TABLE>
The significant financial statement amounts related to Grandy's which are
included in the balance sheet at January 26, 1997 are as follows:
<TABLE>
<S> <C>
Assets:
Net property and equipment $ 464,696
Goodwill, net $ 107,975
License fees, net $ 10,228
Liabilities:
Obligations under capital leases $ 481,055
Deferred credits $ 6,789
</TABLE>
(12) SUBSEQUENT EVENT
Effective February 23, 1998, the Company purchased the remaining shares of
AMG, Inc. by issuing 450,000 shares of the Company's common stock in a
transaction accounted for as a book value purchase.
The interest in AMG, Inc. acquired by the Company had no book value after
consideration of the losses absorbed by the Company in fiscal 1998.
Accordingly, this book value purchase will result in no additional assets
or liabilities being established, and consolidated stockholders' equity
will reflect the issuance of the shares of common stock at par value, with
an offsetting reduction to additional paid-in capital.
F-24
<PAGE>
EXHIBIT INDEX
3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc.
and Change of Corporate Name to Maverick Restaurant Corporation
and Certificate of Correction to Restated Articles of
Incorporation of Grandy's of El Paso, Inc. changing the Corporate
Name to Maverick Restaurant Corporation as filed with the
Secretary of State of the State of Kansas on July 28, 1983 and
August 18, 1983, respectively (filed as Exhibit 3.1 to
Registration No. 2-86266-FW and such exhibit is hereby
incorporated by reference).
3.2 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 22,
1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the
fiscal year ended January 31, 1985, and such exhibit is hereby
incorporated by reference).
3.3 Certificate of Amendment to Articles of Incorporation as filed
with the Secretary of State of the State of Kansas on May 27,
1997 changing the corporate name to Amarillo Mesquite Grill, Inc.
(filed herewith).
3.4 Bylaws of the Company (filed as Exhibit 3.2 to Registration No.
2-86266-FW and such exhibit is hereby incorporated by reference).
10.1 Asset Purchase Agreement dated June 14, 1996 between Homestead
West, Inc., Amagril, Inc. and the Company (filed as Exhibit 10.1
to the Company's Form 8-K dated June 17, 1996 and such exhibit is
hereby incorporated by reference).
10.2 Stock Option Agreement dated June 17, 1996 between the Company
and C. Howard Wilkins, Jr. and amendment thereto (filed as
Exhibit 10.2 to the Company's Form 10-K for the fiscal year ended
January 26, 1997 and such exhibit is hereby incorporated by
reference).
10.3 Stock Option Agreement dated June 17, 1996 between the Company
and Robert A. Geist and amendment thereto (filed as Exhibit 10.3
to the Company's Form 10-K for the fiscal year ended January 26,
1997 and such exhibit is hereby incorporated by reference).
10.4 Agreement dated February 23, 1998 between the Company and
Robert A. Geist, C. Howard Wilkins, Jr., the Wilkins Family
Foundation, Inc., General Resources, L.P., Tom Devlin and
Andy Mouland (filed as Exhibit 10.1 to the Company's Form
8-K dated March 27, 1998 and such exhibit is hereby
incorporated by reference).
(i)
<PAGE>
10.5 1994 Incentive Stock Option Plan (filed as Exhibit 10.9 to the
Company's Form 10-K for the fiscal year ended January 31, 1995
and such exhibit is hereby incorporated by reference).
10.6 1997 Incentive Stock Option Plan (filed as Exhibit A to the
Company's Proxy Statement dated April 23, 1997 and such exhibit
is hereby incorporated by reference).
23 Consent of KPMG Peat Marwick LLP (filed herewith).
___________________
Management's Compensation Plan
(ii)
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
MAVERICK RESTAURANT CORPORATION
We, Chris F. Hotze, President and Linn F. Hohl, Secretary, of Maverick
Restaurant Corporation, a corporation organized and existing under the laws of
the State of Kansas, do hereby certify that at a meeting of the Board of
Directors of the corporation, the board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declaring its
advisability:
FIRST: The name of this Corporation is AMARILLO MESQUITE GRILL, INC.
We further certify that thereafter, pursuant to the resolution and in accordance
with the bylaws of the corporation and the laws of the State of Kansas, the
Board of Directors called a meeting of stockholders for consideration of the
proposed amendment, and thereafter, pursuant to notice and in accordance with
the statutes of the State of Kansas, the stockholders entitled to vote voted in
favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
In Witness Whereof, we have hereunto executed this amendment this 23rd day of
May, 1997.
/s/Chris F. Hotze, President
/s/Linn F. Hohl, Secretary
State of Kansas )
) SS.
County of Sedgwick )
Be it remembered that before me, a Notary Public in and for the aforesaid county
and state, personally appeared Chris F. Hotze, President, and Linn F. Hohl,
Secretary, of Maverick Restaurant Corporation, who are known to me to the same
persons who executed the foregoing certificate and duly acknowledged its
execution of the same this 23rd day of May, 1997.
/s/Notary Public
My appointment or commission expires on January 1, 2001.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Amarillo Mesquite Grill, Inc:
We consent to incorporation by reference in the registration statements (nos.
33-72320, 33-95480 and 333-44227) on Form S-8 of Amarillo Mesquite Grill, Inc.
of our report dated March 20, 1998, relating to the consolidated balance sheets
of Amarillo Mesquite Grill, Inc. as of January 25, 1998 and January 26, 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
January 25, 1998, which report appears in the January 25, 1998 annual report on
Form 10-K of Amarillo Mesquite Grill, Inc.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Wichita, Kansas
April 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-27-1997
<PERIOD-END> JAN-25-1998
<CASH> 563,836
<SECURITIES> 0
<RECEIVABLES> 49,472
<ALLOWANCES> 0
<INVENTORY> 167,848
<CURRENT-ASSETS> 965,335
<PP&E> 8,826,493
<DEPRECIATION> 1,383,895
<TOTAL-ASSETS> 9,281,341
<CURRENT-LIABILITIES> 3,198,960
<BONDS> 0
0
0
<COMMON> 71,839
<OTHER-SE> 6,666,574
<TOTAL-LIABILITY-AND-EQUITY> 9,281,341
<SALES> 16,022,471
<TOTAL-REVENUES> 16,022,471
<CGS> 6,041,032
<TOTAL-COSTS> 16,932,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 511,531
<INCOME-PRETAX> (1,270,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,270,293)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
