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 31, 1999
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. [X]
As of April 1, 1999, 7,783,895 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 ($1.625) as of
such date on the OTC Bulletin Board) of Amarillo Mesquite Grill, Inc. held by
non-affiliates was approximately $5,291,681 (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 31, 1999
(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 31, 1999
PART I. PAGE
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 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 15
Signatures 17
Financial Statements F-1
<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. Amarillo Mesquite Grill restaurants offer a casual
dining environment serving prime rib, steaks, chicken and seafood
grilled over mesquite wood. 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 six of its
Cotton Patch Cafe restaurants to Amarillo Mesquite Grill
restaurants, converted two other buildings to Amarillo Mesquite
Grill restaurants, constructed a prototype Amarillo Mesquite Grill
restaurant and closed one location upon termination of the lease
term.
During fiscal 1999, the Company opened new restaurants in Manhattan,
Kansas and Bartlesville, Oklahoma. It also closed its restaurant
located in Overland Park, Kansas.
B) Financial Information About Industry Segments.
Not Applicable
<PAGE>
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, founded in 1982, 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 9% of the Company's net sales at each
restaurant. The Company's restaurants are open seven days a
week.
<PAGE>
The following table sets forth the location and opening or
acquisition date of the Company's Amarillo Mesquite Grill
restaurants currently in operation:
DATE OPENED
LOCATION OR PURCHASED
Wichita, Kansas #1 June 17, 1996
Wichita, Kansas #2 June 17, 1996
Hutchinson, 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
Bartlesville, Oklahoma July 27, 1998
The Company seeks to locate its restaurants in smaller cities
and suburban areas where they fill a significant market niche.
Amarillo Mesquite Grill restaurants are distinguished from
other family-oriented steakhouses in these smaller markets
(many of which are cafeteria-style) by their full table
service and attentive wait staff, full bar service,
entertaining atmosphere, distinctive decor and consistently
high-quality food. The Company distinguishes its restaurants
from other full-service restaurants through their family
orientation which is accomplished by offering lower priced
food (such as hamburgers and sandwiches) at dinner, placing
less emphasis on alcohol sales as compared to most competitors
and offering features designed to appeal to children.
Cotton Patch Cafe. During fiscal 1999, the Company owned and
operated 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 featured a
southern home-style menu with entrees including pork chops,
chicken and beef, along with vegetables, rolls and beverages.
On February 15, 1999, the Company closed its Cotton Patch
Cafe restaurant. The Company is evaluating whether to lease
this property to an unrelated third party or convert it to an
Amarillo Mesquite Grill restaurant.
ii) Developing Products and Industry Segments.
Not Applicable
<PAGE>
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. During fiscal 1999, the
Company phased in a new menu which allowed it to decrease its
costs of sales.
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 filed with the United States Patent and
Trademark Office an application for the words "Amarillo
Mesquite Grill" which has recently been approved for
registration by the trademark office. 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
<PAGE>
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-
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, 1999, the Company employed approximately 635
persons, including 10 administrative, 60 managerial, 250 full-
time and 315 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.
<PAGE>
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
$33,000 to $129,128. 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 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
$600,000 for land, $600,000 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
<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 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
Bid Price
Quarter Ended High Low
April 26, 1998 4 1/8 2
July 26, 1998 5 3/8 2 7/8
October 25, 1998 4 3/8 2 1/2
January 31, 1999 2 1/4 15/16
</TABLE>
B) Holders of Company's Common Stock.
The number of holders of record of the Company's common stock as of
January 31, 1999, was 455, 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.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended (1) January 31, January 25, January 26, January 28, January 31,
1999 1998 1997 1996 1995
Operating Data:
<S> <C> <C> <C> <C> <C>
Net sales $20,509,882 $16,022,471 $14,185,898 $10,668,573 $9,106,111
Net loss $ (490,039) $(1,270,293) $(1,586,275) $ (175,341) $ (14,300)
Net loss per share $ (.06) (.18) (.24) (.03) --
Balance Sheet Data:
Current assets $ 516,789 965,335 700,560 420,691 1,009,879
Property and
equipment 7,466,707 7,442,598 4,601,807 4,041,077 3,342,382
Other assets 798,014 873,408 1,155,327 310,012 346,314
Total assets $ 8,781,510 $ 9,281,341 $ 6,457,694 $ 4,771,780 $4,698,575
Current liabilities$ 3,456,306 $ 3,198,960 $ 2,931,011 $ 1,228,909 $ 900,991
Long-term debt,
less current
portion 5,164,077 5,618,279 1,506,421 332,475 355,062
Obligations under
capital leases,
less current
portion 1,006,142 1,046,525 1,500,618 1,457,062 1,520,544
Advances from
affiliates 81,587 -- -- -- --
Deferred credits -- -- 6,789 24,204 26,507
Stockholders'
equity (deficit) (926,602) (582,423) 512,855 1,729,130 1,895,471
Total liabilities
and stockholders'
equity (deficit) $ 8,781,510 $ 9,281,341 $ 6,457,694 $ 4,771,780 $4,698,575
(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.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
During fiscal 1997, the Company took some major steps toward reorganizing which
will change the direction of the Company in the future. Effective June 17,
1996, the Company purchased four Amarillo 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 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 Grill and one being
converted to an Amarillo 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 closing, dispositions
and conversions in the amount of $518,321 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 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, three 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 time 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.
On September 11, 1997, the Company and four of its stockholders formed
AMG, Inc., a Kansas corporation, to develop and own three Amarillo Mesquite
Grill restaurants. AMG, Inc. was owned 48% by the Company and 52% by four
stockholders as of January 23, 1998. The accounts and operations of AMG, Inc.
have been consolidated with the Company as entities under common control for
the year ended January 25, 1998. The Company 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
as of January 25, 1998 because such loss exceeded the capital investment made
by these stockholders and they were under no obligation to provide additional
capital to AMG, Inc.
<PAGE>
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 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.
Effective September 21, 1998, AMG, Inc. was merged into the Company and the
separate existence of AMG, Inc. ceased.
Results of Operations
For the year ended January 31, 1999, sales were $20,509,882 as compared to
$16,022,471 and $14,185,898 for fiscal 1998 and 1997 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 ending January 31, 1999.
</TABLE>
<TABLE>
<CAPTION>
Amarillo
Cotton 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
Opened 1 1
Closed (1) (1)
Converted (1) 1 -
January 31, 1999 - 1 12 13
</TABLE>
Subsequent to year-end, the Company closed the one remaining Cotton Patch Cafe
which will be converted to an Amarillo Mesquite Grill restaurant.
Cost of sales, as a percentage of total sales, was 37.2%, 37.7% and 33.3% for
fiscal 1999, 1998 and 1997, respectively. The increase in cost of sales, as a
percentage of total sales, from fiscal 1997 to fiscal 1998 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.
<PAGE>
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 49.1%, 53.4% and 59.4% for fiscal 1999, 1998 and 1997,
respectively. The decrease in operating expenses, as a percentage of total
sales, is the result of operating more Amarillo Mesquite Grills which have
higher sales volumes and lower operating costs, than the Grandy's and the
Cotton Patch Cafes which have been disposed of or converted.
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 7.5%, 10.5% and 7.6% for fiscal 1999, 1998 and 1997,
respectively. The increase in general and administrative expenses from fiscal
1997 to fiscal 1998 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.
Depreciation and amortization are directly related to the acquisition or
disposition of fixed assets. The increase in depreciation and amortization
from fiscal 1998 to fiscal 1999 is the result of operating more restaurants.
Even though the number of restaurants operated by the Company decreased from
fiscal 1997 to fiscal 1999, the investment was greater and therefore
depreciation and amortization increased.
Interest expense for fiscal 1999, 1998 and 1997 was $689,535, $511,531 and
$306,245, respectively. The increase in the dollar amount of interest expense
from fiscal 1997 to fiscal 1999 is the result of an increase in short and long-
term debt relating to new store development and the acquisition of four
Amarillo Grills.
The Company incurred noncash expenses of $97,840 in fiscal 1999 and 1998 and
$61,000 in 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 31, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $7,171,000 which, if not used, will expire
$554,000 in fiscal 2001, $984,000 in fiscal 2002, $1,193,000 in fiscal 2003,
$434,000 in fiscal 2004, $134,000 in fiscal 2005, $6,000 in fiscal 2006,
$180,000 in fiscal 2008, $45,000 in fiscal 2009, $114,000 in fiscal 2011,
$1,524,000 in fiscal 2012, and $1,385,000 in fiscal 2013 and $618,000 in fiscal
2014.
The Company's loss for the current year ended January 31, 1999, can in part be
attributed to preopening costs and first month loss of $139,530 relating to the
opening of two new restaurants during the year and to an operating loss of
$185,047 relating to one restaurant which was closed during the year and the
last Cotton Patch Cafe which was closed subsequent to year-end.
<PAGE>
Liquidity and Capital Resources
The Company's primary sources of funds to finance its business have been its
cash flow from operations and, principally during the past three years,
proceeds from long-term debt. On January 31, 1999 and January 25, 1998, the
Company had an excess of current liabilities over current assets of $2,939,517
and $2,233,624, respectively. Cash flow from operations was $712,385 for the
year ended January 31, 1999, compared to cash flow used in operations of
$626,911 for the year ended January 25, 1998. Management anticipates higher
cash flow from restaurant 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.
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.
Capital expenditures were $1,390,636 for the year ended January 31, 1999,
compared to $3,563,335 for the year ended January 25, 1998. These capital
expenditures have resulted in an increase in property and equipment and a
decrease in working capital.
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
$500,000 for equipment and remodel costs. A ground-up proto-type restaurant
will cost approximately $1,300,000 for land, building and equipment. The
Company has no commitments for financing at this time. In order for the
Company to meet its expansion goals for fiscal 2000, 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.
Year 2000
The Company maintains an outsourcing agreement for its accounting software and
has been advised that its outsourcer is capable of processing in the year 2000.
Three of the Company's restaurants operate on a different point of sale system
that has not been assessed, while the restaurants' point of sale system for all
the remaining restaurants is believed to be year 2000 compliant. Other various
restaurant equipment has not been assessed to determine if it is date sensitive
and possibly out of compliance. Any computer system that is not year 2000
compliant could potentially be disruptive to the Company's operations, but
actual impact has not been determined.
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.
<PAGE>
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-25 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reference is hereby made to Item 14B set forth herein.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE>
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 1999 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 1999 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 1999 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 the 1999 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.
<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.
During the fiscal quarter ended January 31, 1999, the Company filed
two reports on Form 8-K. The first Form 8-K was dated as of
November 12, 1998 and reported that the Company had dismissed KPMG
Peat Marwick LLP as its independent accounting firm. The second
Form 8-K was dated as of November 20, 1998 and reported that the
Company had retained Allen, Gibbs & Houlik, L.C. as its independent
accounting firm.
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).
<PAGE>
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 as Exhibit 3.3 to the Company's Form 10-K for the
fiscal year ended January 25, 1998, and such exhibit is hereby
incorporated by reference).
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 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).
10.2 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).*
10.3 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).*
10.4 Promissory Note dated May 12, 1998 between the Company and Chris
F. Hotze (filed herewith).
10.5 Promissory Note dated January 1, 1999 between the Company and
Chris F. Hotze (filed herewith).
16 Letter from KPMG Peat Marwick LLP dated November 16, 1998 relative
to its dismissal as the Company's independent accounting firm
(filed as Exhibit 16 to the Company's Form 8-K dated November
12, 1998 and such exhibit is hereby incorporated by
reference).
23.1 Consent of Allen, Gibbs & Houlik, L.C. (filed herewith).
23.2 Consent of KPMG LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
________________
*Management's Compensation Plan
<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 15, 1999
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.
Signature Title Date
/s/ Chris F. Hotze President, Chairman of April 15, 1999
Chris F. Hotze the Board and Director
(Principal Executive
Officer)
/s/ Linn F. Hohl Vice Presidet of April 15, 1999
Linn F. Hohl Finance, Treasurer,
Assistant Secretary and
Director (Principal
Financial and Accounting
Officer)
/s/ Alan L. Bundy Executive Vice President April 15, 1999
Alan L. Bundy and Director
/s/ C. Howard Wilkins, Jr. Director April 15, 1999
C. Howard Wilkins, Jr.
AMARILLO MESQUITE GRILL, INC.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Independent Auditors' Reports F-2
Financial Statements:
Balance Sheets F-4
Statements of Operations F-6
Statements of Stockholders' Equity (Deficit) F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Amarillo Mesquite Grill, Inc.
We have audited the accompanying balance sheet of Amarillo Mesquite Grill,
Inc. as of January 31, 1999 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present
fairly, in all material respects, the financial position of Amarillo Mesquite
Grill, Inc. as of January 31, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ALLEN, GIBBS & HOULIK, L.C.
March 19, 1999
Wichita, Kansas
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Amarillo Mesquite Grill, Inc.:
We have audited the accompanying consolidated balance sheet of Amarillo
Mesquite Grill, Inc. as of January 25, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended January 25, 1998 and January 26, 1997. 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 the results of their operations and
their cash flows for the years ended January 25, 1998 and January 26, 1997, in
conformity with generally accepted accounting principles.
KPMG LLP
Wichita, Kansas
March 20, 1998
F-3
<PAGE>
AMARILLO MESQUITE GRILL, INC.
BALANCE SHEETS
January 31, 1999 and January 25, 1998
<TABLE>
ASSETS
<CAPTION>
1999 1998
CURRENT ASSETS
<S> <C> <C>
Cash $ 214,513 $ 563,836
Accounts receivable 16,912 49,472
Inventories 140,414 167,848
Prepaid expenses and other current assets 144,950 184,179
Total current assets 516,789 965,335
PROPERTY AND EQUIPMENT
Buildings 1,107,429 1,105,229
Leasehold improvements 2,559,658 2,258,368
Equipment and fixtures 4,719,724 4,210,270
Transportation equipment 18,000 18,000
Property under capital leases 1,234,626 1,234,626
9,639,437 8,826,493
Less accumulated depreciation and amortization 2,172,730 1,383,895
Total property and equipment 7,466,707 7,442,598
OTHER ASSETS
Cost in excess of net tangible assets of
purchased businesses, net of accumulated
amortization of $188,184 and $115,337 758,827 831,674
License fees -- 7,867
Deposits and other 39,187 33,867
Total other assets 798,014 873,408
Total assets $ 8,781,510 $ 9,281,341
</TABLE>
F-4
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
1999 1998
CURRENT LIABILITIES
<S> <C> <C>
Current notes payable $ 550,000 $ --
Current portion of long-term debt 1,020,795 871,936
Current portion of obligations under
capital leases 40,383 36,336
Accounts payable 921,831 985,093
Construction costs payable -- 552,944
Accrued payroll 140,551 197,053
Other accrued liabilities 782,746 555,598
Total current liabilities 3,456,306 3,198,960
Long-term debt, less current portion 5,164,077 5,618,279
Obligations under capital leases, less
current portion 1,006,142 1,046,525
Advances from affiliate 81,587 --
Total liabilities 9,708,112 9,863,764
COMMITMENTS
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 7,705,895 shares
at January 31, 1999 and 7,183,895 shares
at January 25, 1998 77,059 71,839
Additional paid-in capital 6,807,214 6,666,574
Accumulated deficit (7,540,875) (7,050,836)
Treasury stock, 60,000 shares of common
stock, at cost (270,000) (270,000)
Total stockholders' equity (deficit) (926,602) (582,423)
Total liabilities and stockholders'
equity (deficit) $ 8,781,510 $ 9,281,341
</TABLE>
[FN]
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF OPERATIONS
Years Ended January 31, 1999, January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net sales $20,509,882 $16,022,471 $14,185,898
Costs and expenses:
Cost of sales 7,637,278 6,041,032 4,719,511
Restaurant operating expenses 10,067,446 8,550,466 8,428,820
General and administrative 1,613,525 1,685,994 1,081,231
Depreciation and amortization 894,297 655,437 604,788
Provision for restaurant
closings, dispositions
and conversions -- -- 518,321
Total costs and expenses 20,212,546 16,932,929 15,352,671
Operating income (loss) 297,336 (910,458) (1,166,773)
Other income (expense):
Interest expense (689,535) (511,531) (306,234)
Gain on sales of restaurants -- 249,536 --
Loss on sale of fixed assets -- -- (52,268)
Noncash expense from issuance
of stock options pursuant to
debt guarantees (97,840) (97,840) (61,000)
Total other expense (787,375) (359,835) (419,502)
Loss before income taxes (490,039) (1,270,293) (1,586,275)
Income taxes -- -- --
Net loss $ (490,039) $(1,270,293) $(1,586,275)
Net loss per common share -
basic and diluted $ (.06) $ (.18) $ (.24)
Average shares outstanding -
basic and diluted 7,545,395 7,103,919 6,701,458
</TABLE>
[FN]
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended January 31, 1999, January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Treasury
Stock Capital Deficit Stock Total
<S> <C> <C> <C> <C> <C>
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 10,000 290,000 -- -- 300,000
Contributed capital -- 9,000 -- -- 9,000
Noncash expense from issuance
of stock options pursuant to
debt guarantees -- 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 -- 9,000 -- -- 9,000
Noncash expense from issuance
of stock options pursuant to
debt guarantees -- 97,840 -- -- 97,840
Issuance of 42,437 shares of
common stock pursuant to stock
option plans 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)
Contributed capital -- 9,000 -- -- 9,000
Noncash expense from issuance
of stock options pursuant to
debt guarantees -- 97,840 -- -- 97,840
Issuance of 72,000 shares of
common stock pursuant to stock
option plans 720 38,300 -- -- 39,020
Acquisition of AMG, Inc. 4,500 (4,500) -- -- --
Net loss -- -- (490,039) -- (490,039)
Balance, January 31, 1999 $ 77,059 $6,807,214 $(7,540,875) $(270,000) $ (926,602)
</TABLE>
[FN]
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE>
AMARILLO MESQUITE GRILL, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31, 1999, January 25, 1998 and January 26, 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (490,039) $(1,270,293) $(1,586,275)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 894,297 655,437 604,788
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 stockoptions pursuant to
debt guarantees 97,840 97,840 61,000
Increase (decrease) in cash,
net of effects of acquisitions
and dispositions:
Accounts receivable 32,560 (27,414) (9,052)
Inventories 27,434 (19,943) (26,727)
Prepaid expenses 39,229 (47,792) (27,655)
Accounts payable (63,262) 124,933 375,031
Accrued expenses 170,646 60,067 295,248
Other (5,320) 40,790 (71,950)
Net cash provided by
(used in) operating activities 712,385 (626,911) 193,997
Cash flows from investing activities:
Additions to property and equipment (1,390,636) (3,563,335) (696,168)
Business acquisition -- -- (1,500,000)
Proceeds from sale of property
and equipment -- -- 253,274
Proceeds from sale of restaurants -- 428,300 --
Additions to license fees -- -- (9,000)
Net cash used in investing
activities (1,390,636) (3,135,035) (1,951,894)
Cash flows from financing activities:
Issuance of common stock pursuant
to stock option plan 39,020 68,175 --
Proceeds from long-term debt 200,000 4,330,000 2,425,000
Proceeds from notes payable 550,000 -- --
Advances from affiliate 81,587 -- --
Repayment of long-term debt and
capital lease obligations (541,679) (400,678) (534,183)
Net cash provided by financing
activities 328,928 3,997,497 1,890,817
(Decrease) increase in cash (349,323) 235,551 132,920
Cash at beginning of year 563,836 328,285 195,365
Cash at end of year $ 214,513 $ 563,836 $ 328,285
Cash paid during the year for:
Interest $ 665,483 $ 515,527 $ 302,250
Income taxes -- -- --
</TABLE>
[FN]
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
1. OPERATIONS
Amarillo Mesquite Grill, Inc. (the Company) owns and operates twelve
Amarillo Grill restaurants in Kansas, Oklahoma, Missouri and Arkansas
and one franchised Cotton Patch Cafe located in Oklahoma. Amarillo
Grill is a casual, full-service restaurant specializing in mesquite-
grilled steaks. 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.
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. was owned 48% by the Company and 52% by
the four stockholders as of January 25, 1998. The accounts and
operations of AMG, Inc. were consolidated with the Company as entities
under common control for the year ended January 25, 1998. The Company
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 as of January 25, 1998 because such
loss exceeded the capital investment made by these stockholders and
they were under no obligation to provide additional capital to AMG, Inc.
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 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 resulted in no additional assets or liabilities being
established, and stockholders' equity reflects the issuance of the
shares of common stock at par value, with an offsetting reduction to
additional paid-in capital. Effective September 21, 1998, AMG, Inc.
was merged into the Company and the separate existence of AMG, Inc.
ceased.
(Continued)
F-9
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company's fiscal year is the fifty-two or fifty-three
week period ending on the last Sunday in January.
Cash - The Company maintains cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes they are
not exposed to any significant credit risk on cash and cash
equivalents.
Cash Equivalents - For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out) or market.
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 asset 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 98 months - 20 years
Leasehold improvements 3 - 20 years
Equipment and fixtures 5 - 10 years
Autos 3 years
Property under capital leases 20 years
</TABLE>
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).
(Continued)
F-10
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
Pre-Opening Costs - Pre-opening costs are charged to operations as
incurred.
Advertising - The Company expenses advertising costs as incurred.
Advertising expense was $287,949, $366,097 and $509,583 during fiscal
years 1999, 1998 and 1997, respectively.
Income Taxes - Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards; and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment.
Use of Estimates - The preparation of financial statements requires
management to make estimates and assumptions that affect: 1) the
reported amounts of assets and liabilities, 2) disclosures such as
contingencies, and 3) the reported amounts of revenues and expenses
included in such financial statements. Actual results could differ
from those estimates.
(Continued)
F-11
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 January 31, 1999, there are
1,289,453 options outstanding at a weighted average exercise price of
$2.48 which may become dilutive in the future. As of January 25, 1998,
there were 1,273,613 options outstanding at a weighted average exercise
price of $2.11. As of January 26, 1997, there were 1,305,805 options
outstanding at a weighted average price of $1.92.
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).
(Continued)
F-12
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Reclassifications - Certain reclassifications have been made to the
1997 amounts to conform to the 1998 presentation, consisting primarily
of recruiting and training expenses of $110,000 for 1997, which have
been reclassified from restaurant operating expenses to general and
administrative expenses.
3. FINANCING ARRANGEMENTS
Advances from Affiliate - The Company has received an advance from Red
Apple Corporation which has a balance of $81,587 at January 31, 1999.
The note has an implied interest rate of 8% and is considered long-
term.
Current Notes Payable - As of January 31, 1999, current notes payable
consists of a 10% unsecured demand note in the amount of $250,000
payable to the President of the Company, which is due January 1, 2000,
and a 7.75% note payable to a bank in the amount of $300,000 which is
due June 18, 1999.
Long-Term Debt - As of January 31, 1999 and January 25, 1998, long-term
debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to bank, due in monthly
installments of $41,161, including interest,
at the Wall Street Journal prime rate (7.75%
at January 31, 1999) with final installments
due May 2003. $ 1,892,293 $ 2,000,000
Note payable to bank, due in monthly
installments of $30,871, including interest,
at the Wall Street Journal prime rate (7.75%
at January 31, 1999) with final installment
due May 2003. 1,421,730 1,500,000
</TABLE>
(Continued)
F-13
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to bank, due in monthly
installments of $32,929, including interest,
at the Wall Street Journal prime rate (7.75%
at January 31, 1999) with final installment
due May 2003. $ 1,513,834 $ 1,400,000
Note payable to bank, due in monthly
installments of $27,000, including interest,
at the Wall Street Journal prime rate (7.75%
at January 31, 1999) with final installment
due June 2003. 1,254,235 1,393,832
Note payable to bank, due in monthly
installments of $4,000, including interest,
at the Bank's prime rate plus 1% (9.5% at
January 31, 1999) with final installment due
November 2000. 78,263 116,068
Note payable to bank, due in monthly
installments of $5,043, including interest,
at the Wall Street Journal prime rate (7.75%
at January 31, 1999) with final installment
due June 1999. 24,517 80,315
6,184,872 6,490,215
Less current portion 1,020,795 871,936
Long-term debt, less current portion $ 5,164,077 $ 5,618,279
</TABLE>
In October 1998, the Company negotiated with its bank to make interest-
only payments on the above notes through March 1999. Principal amounts
payable on the notes under these revised terms are as follows:
<TABLE>
<S> <C>
2000 $ 1,020,795
2001 1,265,370
2002 1,327,893
2003 1,434,538
2004 1,136,276
$ 6,184,872
</TABLE>
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.
(Continued)
F-14
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
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 31, 1999, under operating leases are as follows:
<TABLE>
<S> <C>
2000 $ 932,148
2001 808,046
2002 760,395
2003 768,529
2004 724,519
Thereafter 3,907,881
$7,901,518
</TABLE>
Minimum annual rentals under operating leases were $871,672, $688,784
and $928,051 for the fiscal years ended January 31, 1999, January 25,
1998, and January 26, 1997, respectively. In addition, the Company
made percentage rental payments in the amount of $46,769, $33,631 and
$28,748 for the fiscal years ended January 31, 1999, January 25, 1998,
and January 26, 1997, respectively.
(Continued)
F-15
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. LEASE AGREEMENTS (CONTINUED)
Property and accumulated depreciation accounts at January 31, 1999
include $1,234,626 and $380,824, 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 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 $ 151,102
2001 151,102
2002 151,102
2003 151,102
2004 151,102
Thereafter 1,332,819
2,088,329
Less amount representing interest 1,041,804
Total obligations under
capital leases 1,046,525
Less current portion 40,383
Obligations under capital leases,
less current portion $1,006,142
</TABLE>
The Company, as lessor, subleases two properties to outside third
parties. Property and accumulated depreciation accounts at January 31,
1999 include $210,308 and $66,648, respectively, related to these
properties.
Future minimum lease payments to be received subsequent to January 31,
1999 are as follows:
<TABLE>
<S> <C>
2000 $ 108,600
2001 113,600
2002 115,000
2003 116,000
2004 116,000
Thereafter 118,000
$ 687,200
</TABLE>
(Continued)
F-16
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. STOCKHOLDERS' EQUITY
The Company's President worked on behalf of the Company during 1999,
1998 and 1997 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
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 the 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 granted 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 years ended January 31, 1999, January 25,
1998 and January 26, 1997 was $97,840, $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 and 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.
At January 31, 1999, the weighted average remaining contractual life of
the 500,000 outstanding options under the Stock Option Agreements was
4.38 years.
(Continued)
F-17
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
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 31, 1999:
<TABLE>
<CAPTION>
Per Share
Number Exercise Price
of Weighted
Shares Range Average
<S> <C> <C> <C>
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
Exercised (69,000) .47 .47
Balance, January 31, 1999 77,000 $ .29 $ .29
Exercisable at January 26, 1997 151,000 $ .29 - .47 $ .37
Exercisable at January 25, 1998 146,000 $ .29 - .47 $ .38
Exercisable at January 31, 1999 77,000 $ .29 $ .29
</TABLE>
At January 31, 1999, there were no additional shares available for
grant under the 1984 plan and the weighted average remaining
contractual life of outstanding options was .08 years.
(Continued)
F-18
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO 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 31, 1999:
<TABLE>
<CAPTION>
Per Share
Number Exercise Price
of Weighted
Shares Range Average
<S> <C> <C> <C>
Balance, January 28, 1996 146,704 $ .84 - 2.88 $ 1.26
Granted 436,776 .50 - 2.19 1.90
Canceled (88,675) .84 - 1.81 1.13
Balance, January 26, 1997 494,805 .50 - 2.88 1.85
Canceled (135,505) .50 - 2.88 1.12
Exercised (39,937) .50 - 2.88 1.69
Balance, January 25, 1998 319,363 1.81 - 2.19 2.17
Granted 189,740 1.87 - 4.25 3.77
Canceled (25,900) 4.06 - 4.25 4.17
Exercised (2,500) 2.19 2.19
Balance, January 31, 1999 480,703 $ 1.81 - 4.25 $ 2.70
Exercisable at January 26, 1997 8,490 $ .84 - 2.88 $ 1.74
Exercisable at January 25, 1998 31,936 $ 1.81 - 2.19 $ 2.17
Exercisable at January 31, 1999 306,504 $ 1.81 - 2.19 $ 2.19
</TABLE>
At January 31, 1999, there were 119,297 additional shares available for
grant under the 1994 Plan and the weighted average remaining
contractual life of outstanding options was 8.12 years.
(Continued)
F-19
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO 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 three years ended January 31, 1999:
<TABLE>
<CAPTION>
Per Share
Number Exercise Price
of Weighted
Shares Range 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
Granted 50,000 2.63 - 3.94 3.30
Canceled (126,000) 2.75 - 4.13 3.41
Exercised (500) 2.75 2.75
Balance, January 31, 1999 231,750 $ 2.63 - 4.13 $ 3.43
Exercisable at January 26, 1997 -- $ -- $ --
Exercisable at January 25, 1998 8,500 $ 2.75 $ 2.75
Exercisable at January 31, 1999 41,625 $ 2.75 - 4.13 $ 3.48
</TABLE>
At January 31, 1999, there were 468,250 additional shares available for
grant under the 1997 plan and the weighted average remaining
contractual life of outstanding options was 8.51 years.
(Continued)
F-20
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
The per share weighted average fair value of stock options granted
under the 1994 and 1997 Plans during fiscal 1999, 1998 and 1997 was
$3.09, $3.29, and $1.94, respectively, on the date of grant using the
Black Scholes option-pricing model using the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Volatility factor 119.77% 136.0% 145.0%
Risk free interest rate 5.33% 6.15% 6.47%
Expected life 5 years 5 years 5 years
</TABLE>
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 1997
Plan based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's fiscal 1999, 1998 and 1997 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>
1999 1998 1997
<S> <C> <C> <C>
Net loss As reported $ (490,039) $(1,270,293) $(1,586,275)
Pro forma for SFAS No. 123 (917,769) (1,547,009) (1,681,310)
Loss per
share As reported $ (.06) $ (.18) $ (.24)
Pro forma for SFAS No. 123 (.12) (.22) (.25)
</TABLE>
The above pro forma disclosure reflects only options granted during
fiscal years 1999, 1998 and 1997. 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.
(Continued)
F-21
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES
As of January 31, 1999, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$7,171,000 which, if not used, will expire as follows:
<TABLE>
<CAPTION>
Operating
Loss
Expires in fiscal year ending Carryforward
<S> <C>
2001 $ 554,000
2002 984,000
2003 1,193,000
2004 434,000
2005 134,000
2006 6,000
2008 180,000
2009 45,000
2011 114,000
2012 1,524,000
2013 1,385,000
2014 618,000
Total $ 7,171,000
</TABLE>
The Company also has approximately $81,000 of investment tax credit
carryforwards available and, if not used, $72,000 will expire in fiscal
2000 and $9,000 will expire in fiscal 2001.
The total provision for income taxes varied from the Federal statutory
rate for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
<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>
(Continued)
F-22
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
January 31, 1999 and January 25, 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,010,234 $ 2,460,880
Investment tax credits 81,700 108,000
Capital leases 73,235 62,825
Debt guarantee expense 97,538 37,179
Other 20,173 14,392
Total gross deferred tax assets 3,282,880 2,683,276
Less valuation allowance (3,021,540) (2,518,904)
Net deferred tax assets 261,340 164,372
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (261,340) (164,372)
Net deferred tax assets (liabilities) $ -- $ --
</TABLE>
7. PROVISION FOR RESTAURANT CLOSINGS, DISPOSITIONS AND CONVERSIONS
During fiscal 1999, the Company closed one and converted another
restaurant to an Amarillo Grill. There were no related conversion or
closure costs recorded for these restaurants. Subsequent to January 31,
1999, the Company closed its last Cotton Patch Cafe. No closure
costs were recorded as the facility will be converted or subleased.
During fiscal year 1998, the Company converted three restaurants to
Amarillo Grills. Conversion costs were provided for during fiscal year
1997 at the time decisions were made.
During fiscal year 1997, the Company sold, converted or planned the
closing of five restaurants. 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.
(Continued)
F-23
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
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. STATEMENTS OF CASH FLOWS
Noncash investing and financing activities included in the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Increase in construction costs payable $ -- $373,705 $ 90,539
Addition to capital leases -- -- 385,804
Issuance of common stock in
business acquisition -- -- 300,000
</TABLE>
10. 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 were
issued at an estimated fair value of $.30 per share. The acquisition
was 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 was 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.
(Continued)
F-24
<PAGE>
AMARILLO MESQUITE GRILL, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. BUSINESS ACQUISITION (CONTINUED)
The following table summarizes the pro forma results of operations for
the fifty-two weeks ended January 26, 1997 as if the acquisition had
been consummated at the beginning of fiscal 1997. 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
<S> <C>
Net sales $ 16,257,436
Net earnings (loss) ( 1,470,582)
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.
11. LIQUIDITY
At January 31, 1999, the Company had current liabilities in excess of
current assets of $2,939,517 and a stockholders' deficit of $926,602.
The Company reported a net loss of $490,039 and cash provided by
operating activities of $712,385 for fiscal 1999.
Management believes the Amarillo Grill Restaurants opened in fiscal
1998 and 1999 will generate sufficiently increased cash flow from
operations which will enable the Company to meet its financial
obligations in fiscal 2000 as they come due.
12. 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 and January 26, 1997.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $ 803,734 $ 5,102,205
Operating income 47,227 36,013
</TABLE>
F-25
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 as Exhibit 3.3 to the Company's Form 10-K for the fiscal
year ended January 25, 1998, and such exhibit is hereby
incorporated by reference
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 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).
10.2 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).*
10.3 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).*
10.4 Promissory Note dated May 12, 1998 between the Company and Chris F.
Hotze (filed herewith).
10.5 Promissory Note dated January 1, 1999 between the Company and Chris
F. Hotze (filed herewith).
16 Letter from KPMG Peat Marwick LLP dated November 16, 1998 relative
to its dismissal as the Company's independent accounting
firm (filed as Exhibit 16 to the Company's Form 8-K dated
November 12, 1998 and such exhibit is hereby incorporated by
reference).
23.1 Consent of Allen, Gibbs & Houlik, L.C. (filed herewith).
23.2 Consent of KPMG LLP (filed herewith).
27 Financial Data Schedule (filed herewith).
________________
*Management's Compensation Plan
<PAGE>
EXHIBIT 10.4
May 12, 1998
PROMISSORY NOTE
Amarillo Mesquite Grill, Inc. promises to pay to Chris F. Hotze the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) with interest thereon at a rate of
interest of 10% per annum.
The note with interest due from the date hereof shall become due and payable on
January 1, 1999 or upon demand by Chris Hotze or his successors.
Amarillo Mesquite Grill, Inc.
By: /s/ Linn F. Hohl
Linn F. Hohl - Vice President of Finance
Witnessed and notarized this 12th day of May 1998 by /s/ Arlene M. Bogle.
My Commission expires 1/22/2002
<PAGE>
EXHIBIT 10.5
January 1, 1999
PROMISSORY NOTE
Amarillo Mesquite Grill, Inc. promises to pay to Chris F. Hotze the sum of Two
Hundred Fifty Thousand Dollars ($250,000.00) with interest thereon at a rate of
interest of 10% per annum.
The note with interest due from the date hereof shall become due and payable on
January 1, 2000 or upon demand by Chris Hotze or his successors.
Amarillo Mesquite Grill, Inc.
By: /s/ Linn F. Hohl
Linn F. Hohl - Vice President of Finance
Witnessed and notarized this 12th day of May 1998 by /s/ Arlene M. Bogle.
My Commission expires 1/22/2002
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Amarillo Mesquite Grill, Inc:
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (nos. 33-95480 and 333-44227), of our report, dated
March 19, 1999, relating to the financial statements of Amarillo Mesquite
Grill, Inc., included in the annual report on Form 10-K, as of and for the
year ended January 31, 1999.
Allen, Gibbs & Houlik, L.C.
Wichita, Kansas
April 15, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Amarillo Mesquite Grill, Inc:
We consent to incorporation by reference in the registration statement (no. 33-
95480 and 333-44227) on Form S-8 of Amarillo Mesquite Grill, Inc. of our report
dated March 20, 1998, relating to the balance sheet of Amarillo Mesquite
Grill, Inc. as of January 25, 1998, and the related statements of operations,
stockholders' equity and cash flows for the years ended January 25, 1998 and
January 26, 1997, which report appears in the January 31, 1999 annual report on
Form 10-K of Amarillo Mesquite Grill, Inc.
KPMG LLP
Wichita, Kansas
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of Amarillo Mesquite Grill, Inc. for the fiscal year ended
January 31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 214,513
<SECURITIES> 0
<RECEIVABLES> 16,912
<ALLOWANCES> 0
<INVENTORY> 140,414
<CURRENT-ASSETS> 516,789
<PP&E> 9,639,437
<DEPRECIATION> 2,172,730
<TOTAL-ASSETS> 8,781,510
<CURRENT-LIABILITIES> 3,456,306
<BONDS> 0
0
0
<COMMON> 77,059
<OTHER-SE> 6,807,214
<TOTAL-LIABILITY-AND-EQUITY> 8,781,510
<SALES> 20,509,882
<TOTAL-REVENUES> 20,509,882
<CGS> 7,637,278
<TOTAL-COSTS> 20,212,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 689,535
<INCOME-PRETAX> (490,039)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,039)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
