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 29, 2000
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 29, 2000, 8,241,137 shares of common stock $.01 par value
were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS October 29 January 30
2000 2000
<S> <C> <C>
Current assets:
Cash $ 398,888 $ 407,710
Accounts receivable 53,122 21,137
Advances to affiliate 26,368 45,655
Inventories 172,382 169,027
Prepaid expenses and other current assets 206,236 125,229
Total current assets 856,996 768,758
Property and equipment:
Buildings 1,108,129 1,108,129
Leasehold improvements 3,008,440 2,868,805
Equipment and fixtures 5,449,318 5,164,940
Leased property under capital lease 1,234,626 1,234,626
10,800.513 10,376,500
Less: accumulated depreciation and amortization 3,632,492 2,998,736
7,168,021 7,377,764
Other assets:
Cost in excess of net tangible assets of
purchased business, net of amortization
of $315,619 and $261,004 631,392 686,007
Deposits and other 43,302 40,922
674,694 726,929
$8,699,711 $8,873,451
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $6,137,458 $ 270,912
Note payable, related party 42,262 224,000
Current portion of long term debt - $ 36,075
Current portion of obligation under capital lease 45,038 45,038
Accounts payable 1,172,007 1,029,247
Accrued payroll 212,334 225,674
Other accrued liabilities 745,692 741,154
Total current liabilities 8,354,791 2,572,100
Long-term debt, less current portion - 5,904,586
Obligation under capital lease, less current
portion 927,302 961,104
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 8,301,137 shares
at July 30, 2000 and at January 30, 2000 83,011 83,011
Additional paid-in capital 7,606,002 7,532,622
Accumulated deficit (8,001,395) (7,909,972)
Treasury stock, 60,000 shares of common stock
at cost ( 270,000) ( 270,000)
Total stockholders' equity (deficit) ( 582,382) ( 564,339)
$8,699,711 $8,873,451
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
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<PAGE>
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 29 October 31 October 29 October 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $5,260,497 $4,353,939 $16,017,300 $13,414,169
Costs and expenses:
Cost of goods sold 1,839,819 1,533,171 5,514,631 4,651,218
Operating expenses 2,760,154 2,213,648 8,345,286 6,554,202
Depreciation and amortization 240,308 225,628 732,895 667,085
General and administrative 339,646 340,509 945,880 957,990
5,179,927 4,312,956 15,538,692 12,830,495
Operating income 80,570 40,983 478,608 583,674
Other income (expense)
Interest expense (170,541) (161,226) (496,651) (481,624)
Noncash expense from issuance
of stock options to related
parties pursuant to debt
guarantees ( 24,460) ( 24,460) ( 73,380) ( 73,380)
Provision for litigation settlement - (135,000) - 135,000)
(195,001) (320,686) (570,031) (690,004)
Loss before income taxes (114,431) (279,703) ( 91,423) (106,330)
Provision for income taxes - - - -
Net Loss $ (114,431) $ (279,703) $ ( 91,423) $ (106,330)
Net loss per common share-
Basic and diluted $ (.01) $ (.03) $ (.01) $ (.01)
Average shares outstanding-
Basic and diluted 8,241,137 8,056,668 8,241,137 7,866,450
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMARILLO MESQUITE GRILL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
October 29 October 31
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net Loss $( 91,423) $( 106,330)
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 732,895 667,085
Noncash expense from issuance of stock
options pursuant to debt guarantees 73,380 73,380
Changes in assets and liabilities
(Increase) decrease in accounts receivable ( 12,698) ( 22,218)
(Increase) decrease in inventories ( 3,355) 2,861
(Increase) decrease in prepaid expenses and
other current assets ( 83,387) ( 30,808)
Increase (decrease) in accounts payable 142,760 26,615
Increase (decrease) in accrued expenses ( 8,802) ( 99,228)
Other net - ( 1,540)
Cash provided by (used in) operating
activities 749,370 509,817
Cash flows from investing activities:
Purchase of property and equipment ( 468,537) ( 323,806)
Cash used in investing activities ( 468,537) ( 323,806)
Cash flows from financing activities:
Sale of common stock - 645,520
Repayment of notes payable and
note payable related party ( 255,853) -
Repayment of long-term borrowings
and capital lease obligations ( 33,802) ( 361,673)
Cash provided by financing activities ( 289,655) 262,847
Increase (decrease) in cash ( 8,822) 448,858
Cash at beginning of period 407,710 214,513
Cash at the end of period $ 398,888 $ 663,371
Supplemental disclosure of cash flow information:
Cash paid for interest $ 496,651 $ 481,674
Cash paid for income taxes $ - -
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMARILLO MESQUITE GRILL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
October 29, 2000
(1) Principles of Consolidation
The consolidated financial statements include the accounts of Amarillo
Mesquite Grill, Inc., and its wholly owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.
(2) 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 29, 2000
are not necessarily indicative of the results that may be expected for
the year ended January 28, 2001. 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,
2000.
(3) Net Earnings Per Share
The Company, as required under FASB Statement no. 128, Earnings Per Share,
calculates and presents both a basic and diluted earnings per share in
the financial statements. Earnings per common share is computed on the
basis of the weighted-average number of common shares outstanding during
each period presented. The Company has granted options to employees to
purchase 1,261,350 shares of common stock at a weighted average exercise
price of $1.97 per share. These options were not included in the
computation of diluted earnings per share because the exercise price of
those options exceeded the average market price of the common shares
during the quarter. Also, since the Company had a net loss available to
common stockholders, inclusion of these options would be antidilutive to
earnings per share.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Three Months Ended October 29, 2000 Compared to Three Months Ended October 31,
1999.
For the three months ended October 29, 2000, sales were $5,260,497 as
compared to sales of $4,353,939 for the third quarter of the prior year. As of
October 29, 2000, the Company operated fifteen Amarillo Mesquite Grills as
compared to thirteen Amarillo Mesquite Grills as of October 31, 1999.
Cost of sales, as a percentage of total sales, was 35.0% and 35.2% for the
2000 and 1999 periods respectively.
Operating expenses, as a percentage of total sales, were 52.5% and 50.8%
for the 2000 and 1999 periods respectively. The increase in operating expense
is due to an increase in promotional costs related to various programs designed
to increase customer counts and same store sales. In addition, the Company
opened its fifteenth restaurant on the first day of the third quarter and
incurred higher labor expenses as a result of this.
General and administrative expenses, as a percentage of sales, was 6.5% for
the quarter ended October 29, 2000, as compared to 7.8% for the third quarter
of the prior year. The decrease in general and administrative, as a percentage
of sales is the result of increasing sales while maintaining the dollar amount
of expense at a fairly constant level for both periods.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets. Two restaurants were opened between the end of
the third quarter of 1999 and the third quarter of the current year, thereby
accounting for the increase in depreciation and amortization.
Interest expense was $170,541 for the quarter ended October 29, 2000 as
compared to $161,226 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 has remained relatively constant.
The Company incurred noncash expenses of $24,460 for the 2000 and 1999
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 29, 2000, the Company reported a loss of $114,431, or one
cent per common share, as compared to a loss of $279,703, or three cents per
common share, for the third quarter of the prior year.
Nine Months Ended October 29, 2000 Compared to Nine Months Ended October 31,
1999.
For the nine months ended October 29, 2000, sales were $16,107,300 as
compared to sales of $13,414,169 for the first nine months of the prior year.
The Company operated fifteen Amarillo Mesquite Grills as of October 29, 2000,
as compared to thirteen Amarillo Mesquite Grills as of October 31, 1999.
Cost of sales, as a percentage of total sales, was 34.4% and 34.7% for the
2000 and 1999 periods respectively.
6
<PAGE>
Operating expense, as a percentage of total sales, was 52.1% and 48.9% for
the 2000 and 1999 periods respectively. The increase in operating expense is
due to an increase in promotional costs related to various programs designed to
increase customer counts and same store sales. In addition, the Company opened
its fifteenth restaurant on the first day of the third quarter and incurred
higher labor expenses as a result of this.
General and administrative expense, as a percentage of total sales was 5.9%
for the nine months ended October 29, 2000, as compared to 7.1% 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, along with increasing
sales.
Depreciation and amortization is directly related to the acquisition and
disposition of fixed assets.
Interest expense was $496,651 for the nine months ended October 29, 2000, as
compared to $481,624 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 increased over the past few months, the amount of short and long-term debt
has decreased. Consequently, interest expense has remained relatively
constant.
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 29, 2000 and January 30, 2000, the Company had an excess of current
liabilities over current assets of $7,497,793 and $1,803,342, respectively.
However included as a current liability as of October 29, 2000 is a bank note
payable in the amount $5,904,586 which is due April 15, 2001. Management
expects to renew the note on April 15, 2001 and commence making monthly
principal payments based on a 60 month amortization period. Cash flow from
operations, was $749,370 and $509,817 for 2000 and 1999 respectively.
Management anticipates higher cash flow from operations in fiscal 2001 and that
such higher operating cash flow will enable the Company to meet its financial
obligations in fiscal 2001 as they come due.
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 3, 2001. As of October 29, 2000, the note had a balance of $42,262.
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 2001. 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 $1.3 million for the 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 2001, it may 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.
7
<PAGE>
The Company has restructured its long-term bank debt to provide for interest
only payments through April 15, 2001. The purpose of the restructuring is to
use cash flow to open additional restaurants that would otherwise be used to
retire long term debt. Management views this as a way to continue our growth,
that should result in increased future earnings and cash flow, but do so
without increasing bank debt.
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 8, 2000 /s/CHRIS F. HOTZE
Chris F. Hotze - President
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