<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 26, 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 0-12145
AMARILLO MESQUITE GRILL, INC.
Exact name of registrant as specified in its charter)
Kansas 48-0936946
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 200
302 North Rock Road
Wichita, Kansas 67206
(Address of principal executive offices)
(Zip Code)
(316) 685-7286
(Registrant's telephone number, including area code)
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 .
As of April 26, 1998, 7,576,395 shares of common stock $.01 par value were
outstanding.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS April 26 January 25
----------- -----------
1998 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 612,520 $ 563,836
Accounts receivable 47,306 49,472
Inventories 185,655 167,848
Prepaid expenses and other current assets 140,168 184,179
----------- -----------
Total current assets 985,649 965,335
----------- -----------
Property and equipment:
Buildings 1,105,229 1,105,229
Leasehold improvements 2,258,368 2,258,368
Equipment and fixtures 4,361,202 4,228,270
Leased property under capital lease 1,234,626 1,234,626
----------- -----------
8,959,425 8,826,493
Less: accumulated depreciation and amortization 1,579,486 1,383,895
----------- -----------
7,379,939 7,442,598
----------- -----------
Other assets:
Cost in excess of net tangible assets of purchased
business, net of amortization of $133,542 and $115,337 813,469 831,674
License fees, net of amortization 7,867 7,867
Deposits and other 39,187 33,867
----------- -----------
860,523 873,408
----------- -----------
$ 9,226,111 $ 9,281,341
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long term debt $ 1,098,737 $ 871,936
Current portion of obligation under capital lease 36,336 36,336
Accounts payable 999,031 985,093
Construction costs payable 285,739 552,944
Accrued payroll 202,953 197,053
Other accrued liabilities 535,195 555,598
----------- -----------
Total current liabilities 3,157,991 3,198,960
----------- -----------
Long-term debt, less current portion 5,577,127 5,618,279
Obligation under capital lease, less current portion 1,037,396 1,046,525
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized 10,000,000
shares, none issued - -
Common stock, $.01 par value, authorized 20,000,000 shares,
issued 7,636,395 shares at April 26, 1998 and
7,183,895 at January 25, 1998 76,364 71,839
Additional paid-in capital 6,691,974 6,666,574
Accumulated deficit (7,044,741) (7,050,836)
Treasury stock, 60,000 shares of common stock at cost (270,000) (270,000)
----------- -----------
Total stockholders' equity (deficit) (546,403) (582,423)
----------- -----------
$ 9,226,111 $ 9,281,341
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
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AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 26 APRIL 27
---------- ----------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $5,431,041 $3,902,648
---------- ----------
Costs and expenses:
Cost of goods sold 2,060,679 1,425,504
Operating expenses 2,554,854 2,198,648
Depreciation and amortization 212,095 147,557
General and administrative 413,732 450,847
---------- ----------
5,241,360 4,222,556
---------- ----------
Operating income (loss) 189,681 (319,908)
---------- ----------
Other income (expense)
Interest expense (159,126) ( 94,358)
Noncash expense from issuance
of stock options pursuant to
debt guarantees ( 24,460) ( 24,460)
Gain on sale of assets - 254,328
---------- ----------
(183,586) 135,510
---------- ----------
Earnings (loss) before income taxes 6,095 (184,398)
Provision for income taxes - -
---------- ----------
Net earnings (loss) $ 6,095 $ (184,398)
---------- ----------
---------- ----------
Net earnings (loss) per common share-
basic and diluted $ - $ (.03)
---------- ----------
---------- ----------
Average shares outstanding-
basic and diluted 7,454,724 7,088,691
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 26 April 27
--------- ---------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 6,095 $(184,398)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 212,095 147,557
Changes in assets and liabilities
(Increase) decrease in accounts receivable 2,166 (11,967)
(Increase) decrease in inventories (17,807) (11,174)
(Increase) decrease in prepaid expenses and
other current assets 44,011 80,347
Increase (decrease) in accounts payable 13,938 112,029
Increase (decrease) in accrued expenses (14,503) (132,205)
Gain on sale of assets - (254,328)
Noncash expense from issuance of stock
options pursuant to debt guarantees 24,460 24,460
Other net (3,620) (6,854)
--------- ---------
Cash provided by (used in) operating activities 266,835 (236,533)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (400,136) (784,039)
Proceeds from sale of assets - 435,000
--------- ---------
Cash used in investing activities (400,136) (349,039)
--------- ---------
Cash flows from financing activities:
Sale of common stock 5,465 5,918
Short-term borrowings - 750,000
Long-term borrowings 260,000 -
Repayment of long-term borrowings
and capital lease obligations (83,480) (94,145)
--------- ---------
Cash provided by financing activities 181,985 661,773
--------- ---------
Increase in cash 48,684 76,201
Cash at beginning of period 563,836 328,285
--------- ---------
Cash at the end of period $ 612,520 $ 404,486
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 159,126 $ 94,358
Cash paid for income taxes - -
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
April 26, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended
April 26, 1998 are not necessarily indicative of the results that may
be expected for the year ended January 31, 1999. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's 10-K and Annual Report to
Stockholders as filed on April 23, 1998.
(2) 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 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's net
earnings for the three month period ended April 26, 1998 were nil and
the Company had a net loss for the three month period ended April 27,
1997 and the inclusion of such options would be antidilutive. As of
April 26, 1998, there are 1,273,613 options outstanding at a weighted
average exercise price of $2.11 which may become dilutive in the
future.
(3) ACQUISITION OF INTEREST IN COMMON CONTROLLED SUBSIDIARY
Effective February 23, 1998, the Company purchased the remaining shares of
AMG, Inc., a common controlled subsidiary, by issuing 450,000 chares of
the Company's common stock in a transaction accounted for as a
combination of entities under common control.
The interest in AMG, Inc. acquired by the Company had no book value.
Accordingly, the fair value of the Company's common stock of
$1,327,500 was recorded, and a corresponding deemed dividend was
recognized as a reduction to stockholders' equity (deficit). The pro
forma effects of such tranaction was not significant.
(4) LIQUIDITY
At April 26, 1998, the Company had current liabilities in excess of current
assets of $2,172,342 and a stockholders' deficit of $546,403. The
Company reported net earnings of $6,095 and cash flow from operations
of $266,835 for the three month period ended April 26, 1998.
5
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(4) LIQUIDITY CONTINUED
Management believes the Amarillo Grill restaurants opened in fiscal 1998
and an additional Amarillo Grill restaurant opened in the first
quarter of fiscal 1999 will generate sufficiently increased cash flow
from operations which, together with continuing trade payable
financing at current levels, will enable the company to meet its
financial obligations in fiscal 1999 as they come due. The Company
has no additional borrowing capacity under its existing loan
agreements. In the event operating cash flow, including a
continuation of the current level of trade payable financing, is 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
GENERAL
Over the past eighteen months the Company has taken major steps toward
reorganizing and changing the direction of the Company in terms of moving away
from fast food restaurants and towards full service restaurants which generate
higher sales with a lower gross margin and operating expenses. Due to
differences in volume and the nature of the business the operating results,
expressed as percentage of sales, can be substantially different for fast food
restaurants as compared to a full service restaurant.
For the current quarter ended April 26, 1998, the Company began the quarter
with eleven Amarillo Mesquite Grills and two Cotton Patch Cafes. During the
quarter the Company opened one new Amarillo Mesquite Grill and closed one Cotton
Patch Cafe which will be converted to an Amarillo Mesquite Grill.
For the prior year quarter ended April 27, 1997, the Company began the
quarter with five Amarillo Mesquite Grills, eight Grandy's restaurants and five
Cotton Patch Cafes. During the quarter, the Company sold its eight Grandy's
restaurants, converted one Cotton Patch Cafe to an Amarillo Mesquite Grill and
opened one additional Amarillo Mesquite Grill.
RESULTS OF OPERATIONS
Three Months Ended April 26, 1998 Compared to Three Months Ended April 27, 1997.
For the three months ended April 26, 1998, sales increased 39.2% to
$5,431,041 as compared to sales of $3,902,648 for the first quarter of the prior
year. As of April 26, 1998, the Company operated twelve Amarillo Mesquite
Grills and one Cotton Patch Cafe as compared to seven Amarillo Mesquite Grills
and four Cotton Patch Cafes as of April 27, 1997.
Cost of sales, as a percentage of total sales, was 37.9% and 36.5% for the
1998 and 1997 periods 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 such as our Grandy's which historically have had a
31.0% cost of sales to an upscale, full service restaurant concept, Amarillo
Mesquite Grill, which has a higher cost of sales.
Operating expenses, as a percentage of total sales, were 47.0% and 56.3%
for the 1998 and 1997 periods 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 volume and lower operating costs than
the Grandy's restaurants which were sold during the first quarter of last year.
General and administrative expenses, as a percentage of sales, was 7.6% for
the quarter ended April 26, 1998, as compared to 11.6% for the first quarter of
the prior year. The decrease in general and administrative, as a percentage of
total sales, is the result of substantially increasing sales while maintaining
or reducing the dollar amount of general and administrative expenses.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets. The increase in depreciation and amortization from
1997 to 1998 is the result of operating more restaurants with a greater
investment.
Interest expense was $159,126 for the quarter ended April 26, 1998 as
compared to $94,358 for the same period a year ago. The increase in the dollar
amount of interest expense from first quarter 1997 to first quarter 1998 is the
result of an increase in long-term debt relating to new store development.
The Company incurred noncash expenses of $24,460 for the 1998 and 1997
periods respectively, relating to the issuance of stock options pursuant to debt
guarantees.
7
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During the quarter ended April 27, 1997, the Company sold to Red Apple
Corporation all of the assets of eight Grandy's restaurants previously owned and
operated by the Company. The Company received cash of $435,000 and recognized a
gain of $249,536 in the transaction. Red Apple Corporation, which 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, also assumed the
obligations under the existing leases of each of the restaurants.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funding to finance its business have been
its cash flow from operations, and proceeds principally from long term debt. On
April 26, 1998 and January 25, 1998, the Company had an excess of current
liabilities over current assets of $2,172,342 and $2,233,624, respectively.
Management anticipates being able to sustain the current level of trade payable
financing and higher cash flow from operations in fiscal 1999 and that such
higher operating cash flow will enable the Company to meet its financial
obligations in fiscal 1999 as they come due. The Company has no remaining
available borrowing capacity under its existing loan agreements. Cash flow from
operations was $266,835 in the first quarter of fiscal 1999 compared to cash
used of $236,533 in the first quarter of fiscal 1998. In the event operating
cash flow is not sufficient to enable the Company to meets 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.
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 operations are not significant.
Additions to property and equipment 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
$400,136 for the three months ended April 26, 1998, compared to $784,039 for the
three months ended April 27, 1997. These expenditures were funded primarily
with cash flow from operations and proceeds from long-term debt for the quarter
ended April 26, 1998, and proceeds from short-term debt for the quarter ended
April 27, 1997.
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 $1.7 million for the 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. 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.
8
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YEAR 2000
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.
9
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities.
Restricted securities were issued to stockholders of AMG, Inc. on March 27,
1998 in exchange for shares of AMG, Inc. This transaction was previously
reported on Form 8-K dated March 27, 1998 and such report is hereby
incorporated by reference. Due to the limited number of stockholders
involved in the exchange of securities, the Company relied on Section 4 (2)
of the Securities Act of 1933 for an exemption from registration.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 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 Andres 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).
27 Financial Data Schedule
(b) Reports on Form 8-K.
On March 27, 1998, the Company filed a Form 8-K with respect to the exchange of
its restricted stock for all outstanding shares of AMG, Inc.
10
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SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date June 8, 1998 /s/LINN F. HOHL
-------------------------------
Linn F. Hohl - Vice President
of Finance,
Secretary and
Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF MAVERICK RESTAURANT CORPORATION FOR THE THREE
MONTHS ENDED APRIL 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-26-1998
<PERIOD-END> APR-26-1998
<CASH> 612,520
<SECURITIES> 0
<RECEIVABLES> 47,306
<ALLOWANCES> 0
<INVENTORY> 185,655
<CURRENT-ASSETS> 985,649
<PP&E> 8,959,425
<DEPRECIATION> 1,579,486
<TOTAL-ASSETS> 9,226,111
<CURRENT-LIABILITIES> 3,157,991
<BONDS> 0
0
0
<COMMON> 76,364
<OTHER-SE> 6,691,974
<TOTAL-LIABILITY-AND-EQUITY> 9,226,111
<SALES> 5,431,041
<TOTAL-REVENUES> 5,431,041
<CGS> 2,060,679
<TOTAL-COSTS> 5,241,360
<OTHER-EXPENSES> 24,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,126
<INCOME-PRETAX> 6,095
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,095
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
