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 October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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 October 31, 1999, 8,301,095 shares of common stock $.01 par value
were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMARILLO MESQUITE GRILL, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS October 31 January 31
1999 1999
<S> <C> <C>
Current assets:
Cash $ 663,371 $ 214,513
Accounts receivable 39,130 16,912
Inventories 137,553 140,414
Prepaid expenses and other current assets 175,758 144,950
Total current assets 1,015,812 516,789
Property and equipment:
Buildings 1,108,129 1,107,429
Leasehold improvements 2,699,946 2,559,658
Equipment and fixtures 4,920,542 4,737,724
Leased property under capital lease 1,234,626 1,234,626
9,963,243 9,639,437
Less: accumulated depreciation and amortization 2,785,200 2,172,730
7,178,043 7,466,707
Other assets:
Cost in excess of net tangible assets of
purchased business, net of amortization
of $242,799 and $188,184 704,212 758,827
Deposits and other 40,727 39,187
744,939 798,014
$8,938,794 $8,781,510
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current notes payable $ 250,000 $ 550,000
Current portion of long term debt 96,433 1,020,795
Current portion of obligation under capital lease 40,383 40,383
Accounts payable 948,446 921,831
Accrued payroll 186,895 140,551
Other accrued liabilities 637,174 782,746
Total current liabilities 2,159,331 3,456,306
Long-term debt, less current portion 6,138,640 5,164,077
Obligation under capital lease, less current
portion 975,855 1,006,142
Advances from affiliate - 81,587
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 8,301,095 shares
at October 31, 1999 and 7,705,895 at
January 31, 1999 83,011 77,059
Additional paid-in capital 7,499,162 6,807,214
Accumulated deficit (7,647,205) (7,540,875)
Treasury stock, 60,000 shares of common stock
at cost ( 270,000) ( 270,000)
Total stockholders' equity (deficit) ( 335,032) ( 926,602)
$8,938,794 $8,781,510
</TABLE>
[FN]
See accompanying notes to financial statements.
2
<PAGE>
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 31 October 25 October 31 October 25
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $4,353,939 $5,048,622 $13,414,169 $15,559,780
Costs and expenses:
Cost of goods sold 1,533,171 1,871,514 4,651,218 5,920,546
Operating expenses 2,213,648 2,524,031 6,554,202 7,528,677
Depreciation and amortization 225,628 221,263 667,085 637,472
General and administrative 340,509 379,089 957,990 1,193,116
4,312,956 4,995,897 12,830,495 15,279,811
Operating income 40,983 52,725 583,674 279,969
Other income (expense)
Interest expense (161,226) (171,902) (481,624) (504,504)
Related party transaction-
noncash expense from issuance
of stock options pursuant to
debt guarantees ( 24,460) ( 24,460) ( 73,380) ( 73,380)
Provision for litigation settlement (135,000) (135,000)
(320,686) (196,362) (690,004) (577,884)
Loss before income taxes (279,703) (143,637) (106,330) (297,915)
Provision for income taxes - - - -
Net Loss $ (279,703) $ (143,637) $ (106,330) $ (297,915)
Net loss per common share-
Basic and diluted $ (.03) $ (.02) $ (.01) $ (.04)
Average shares outstanding-
Basic and diluted 8,056,668 7,682,728 7,866,450 7,613,571
</TABLE>
[FN]
See accompanying notes to financial statements.
3
<PAGE>
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
October 31 October 25
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net Loss $( 106,330) $( 297,915)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 667,085 637,472
Changes in assets and liabilities
(Increase) decrease in accounts receivable ( 22,218) 11,245
(Increase) decrease in inventories 2,861 ( 886)
(Increase) decrease in prepaid expenses and
other current assets ( 30,808) ( 50,482)
Increase (decrease) in accounts payable 26,615 143,881
Increase (decrease) in accrued expenses ( 99,228) ( 21,522)
Noncash expense from issuance of stock
options pursuant to debt guarantees 73,380 73,380
Other net ( 1,540) ( 5,320)
Cash provided by (used in) operating activities 509,817 489,853
Cash flows from investing activities:
Purchase of property and equipment ( 323,806) (1,041,958)
Cash used in investing activities ( 323,806) (1,041,958)
Cash flows from financing activities:
Sale of common stock 645,520 39,020
Short-term borrowings - 628,048
Repayment of long-term borrowings
and capital lease obligations ( 361,673) ( 308,354)
Cash provided by financing activities 262,847 358,714
Increase in cash 448,858 ( 193,391)
Cash at beginning of period 214,513 563,836
Cash at the end of period $ 663,371 $ 370,445
Supplemental disclosure of cash flow information:
Cash paid for interest $ 481,674 $ 504,504
Cash paid for income taxes $ - -
</TABLE>
[FN]
See accompanying notes to financial statements.
4
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Financial Statements
(Unaudited)
October 31, 1999
(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 thirty-nine week period ended October 31, 1999
are not necessarily indicative of the results that may be expected for
the year ended January 30, 2000. 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,
1999.
(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 had a net
loss available to common stockholders and the inclusion of such options
would be antidilutive. As of October 31, 1999, there are 1,293,950
options outstanding at a weighted average exercise price of $2.37 which
may become dilutive in the future.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Three Months Ended October 31, 1999 Compared to Three Months Ended October 25,
1998.
For the three months ended October 31, 1999, sales were $4,353,939 as
compared to sales of $5,048,622 for the third quarter of the prior year. As
of October 31, 1999, the Company operated thirteen Amarillo Mesquite Grills as
compared to twelve Amarillo Mesquite Grills and one Cotton Patch Cafe as of
October 25, 1998. The decrease in sales can be attributed to several factors
including increased competition in most markets and due to comparing current
sales levels with high opening sales volumes of a year ago from new
restaurants.
Cost of sales, as a percentage of total sales, was 35.2% and 37.1% for
the 1999 and 1998 periods respectively. The decrease in cost of sales, as a
percentage of sales, was the result of implementing a new menu during the
third quarter of last year resulting in an improvement in cost of sales
of 1.9%.
Operating expenses, as a percentage of total sales, were 50.8% and 50.0%
for the 1999 and 1998 periods respectively.
General and administrative expenses, as a percentage of sales, was 7.8%
for the quarter ended October 31, 1999, as compared to 7.5% for the third
quarter of the prior year.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets. Fixed assets and the related depreciation expense
remained relatively constant during the current quarter as compared to a year
ago.
Interest expense was $161,226 for the quarter ended October 31, 1999 as
compared to $171,902 for the same period a year ago. Interest expense is a
function of the interest rate and the amount of debt. While the interest rate
has remained relatively constant the amount of short and long-term debt has
decreased. Accordingly interest expense is lower.
The Company incurred noncash expenses of $24,460 for the 1999 and 1998
periods respectively, relating to the issuance of stock options pursuant to
debt guarantees.
Historically the third quarter of the year is the weakest of the year in
terms of sales and earnings and this year was no exception. For the third
quarter ended October 31, 1999, the Company reported a loss of $279,703, or
three cents per common share, as compared to a loss of $143,637, or two cents
per common share, for the third quarter of the prior year.
However, included in the loss for the current quarter is a one-time
provision for lawsuit settlement in the amount of $135,000 resulting from a
sexual harassment suit filed against our Company as a result of the actions
of a former restaurant manager. In addition, the Company incurred
approximately $70,000 in pre-opening expense and first month loss relating
to the opening of our thirteenth Amarillo Mesquite Grill.
Nine Months Ended October 31, 1999 Compared to Nine Months Ended October 25,
1998.
For the nine months ended October 31, 1999, sales were $13,414,169 as
compared to sales of $15,559.780 for the first nine months of the prior year.
The Company operated thirteen Amarillo Mesquite Grills as of October 31, 1999,
as compared to twelve Amarillo Mesquite Grills and one Cotton Patch Cafe as of
October 25, 1998. The decrease in sales can be attributed to several factors
including increased competition in most markets and due to comparing current
sales levels with high opening sales volumes of a year ago from new
restaurants.
6
<PAGE>
Cost of sales, as a percentage of total sales, was 34.7% and 38.1% for
the 1999 and 1998 periods respectively. The decrease in cost of sales, as a
percentage of total sales, was the result of implementing a new menu during
the third quarter of last year resulting in an improvement in cost of sales of
3.4%.
Operating expense, as a percentage of total sales, was 48.9% and 48.4%
for the 1999 and 1998 periods respectively.
General and administrative expense, as a percentage of total sales was
7.1% for the nine months ended October 31, 1999, as compared to 7.7% for the
first nine months of the prior year. The decrease in general and
administrative expense is the result of reducing the dollar amount of certain
expenses, principally training labor and area management expense.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets.
Interest expense was $481,624 for the nine months ended October 31, 1999,
as compared to $504,504 for the same period a year ago. Interest expense is a
function of the interest rate and the amount of debt. While the interest rate
has remained relatively constant the amount of short and long-term debt has
decreased. Accordingly interest expense is lower.
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 October 31, 1999 and January 31, 1999, the Company had an excess of current
liabilities over current assets of $1,143,519 and $2,939,517, respectively.
Management anticipates being able to sustain the current level of trade payable
financing and higher cash flow from operations in fiscal 2000 and that such
higher operating cash flow will enable the Company to meet its financial
obligations in fiscal 2000 as they come due. Cash flow from operations was
$509,817 for the first nine months of fiscal 2000 compared to cash flow of
$484,853 for the first nine months of fiscal 1999.
On May 12, 1998, the President of the Company loaned the Company $250,000
to fund construction cost overages. The note was an unsecured 10% demand note
due January 1, 1999 which has been renewed with a due date of January 1, 2000.
Although the Company's President has made loans to the Company in the past,
there is no assurance that he will make additional loans in the future.
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.
The Company plans to continue expansion of the Amarillo Mesquite Grill
concept in fiscal 2000. 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 $700,000 for equipment and remodel costs. A ground-up proto-type
restaurant will cost approximately $1.3 million for the land, building and
equipment. In order to fund this expansion, the Company completed a private
placement of restricted common stock on September 17, 1999 in the amount of
$600,000. In addition, the Company renegotiated the repayment terms on
approximately $6.0 million of bank debt to provide for interest only payments
for a period of eighteen months commencing October 15, 1999 and ending
April 15, 2001. This refinancing will allow the Company to use its cash flow
to develop additional restaurants that would otherwise be used to reduce bank
debt. Management views this as a way to continue our growth, that should
result in increased earnings and cash flow, but do so without increasing our
bank debt.
7
<PAGE>
Year 2000
The "Year 2000 Issue" is the result of manufactured equipment and computer
programs using two digits rather than four to define the applicable year. If
the Company's equipment and computer programs with date-sensitive functions are
not Year 2000 compliant, they may recognize a date using "00" as the Year 1900
rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, but not limited
to, a temporary inability to process transactions, generate invoices or engage
in similar normal business practices.
The Company has almost completed its assessment of the Year 2000 impact
for both information technology ("IT") and Non-IT systems. In regard to IT
systems, the Company has identified the following as the main areas of Year
2000 focus: payroll systems, financial systems, and register systems.
Register systems are the point-of-sale systems used within each restaurant to
accumulate employee hours worked and as an order entry system from the server
to the kitchen.
The Company does not rely heavily on internal computer technology. While
the Company believes it is taking all appropriate steps to assure Year 2000
compliance, it is dependent on key vendor compliance. The Company maintains an
outsourcing agreement for its payroll and financial systems and has been
advised that its outsourcer is capable of processing the Year 2000. Three of
the Company's restaurants operate on a different point of sale system that has
not been assessed. The restaurants' point-of-sale system for all remaining
restaurants is believed to be 2000 compliant. In addition, as part of our
normal operating procedure, each restaurant has been supplied with a so called
"crash kit" containing the tools necessary to do manually what our point-of-
sale system does electronically.
In addition to the above IT systems, the Company has identified the
following as the primary Non-IT systems subject to the Year 2000 Issue: ovens,
alarms, proofers, HVAC-Freezers, and safes. The Company is currently in contact
with vendors in order to assess the potential impact. Based on initial review
the Company believes the potential impact of the Year 2000 Issue pertaining
to Non-IT systems to be minor.
Since the Company does not rely heavily on internal computer technology
the cost of addressing the Year 2000 Issue has been nominal to date.
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
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not Applicable.
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.
Not Applicable.
9
<PAGE>
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 December 6, 1999 /s/LINN F. HOHL
Linn F. Hohl - Vice President
of Finance,
Secretary and
Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
FINANCIAL STATEMENTS OF AMARILLO MESQUITE GRILL, INC. FOR THE FISCAL
QUARTER ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 663,371
<SECURITIES> 0
<RECEIVABLES> 39,130
<ALLOWANCES> 0
<INVENTORY> 137,553
<CURRENT-ASSETS> 1,015,812
<PP&E> 9,963,243
<DEPRECIATION> 2,785,200
<TOTAL-ASSETS> 8,938,794
<CURRENT-LIABILITIES> 2,159,331
<BONDS> 0
0
0
<COMMON> 83,011
<OTHER-SE> 7,499,162
<TOTAL-LIABILITY-AND-EQUITY> 8,938,794
<SALES> 4,353,939
<TOTAL-REVENUES> 4,353,939
<CGS> 1,533,171
<TOTAL-COSTS> 4,312,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,226
<INCOME-PRETAX> (279,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,703)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
