UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission File No. 0-4678
Pancho's Mexican Buffet, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1292166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 Noble Avenue, Fort Worth, Texas 76111
(Address of principal executive offices) (Zip Code)
817-831-0081
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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
Number of shares of Common Stock outstanding as of April 28,
1998: 4,394,028.
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Introduction 1
Consolidated Condensed Balance Sheets,
March 31, 1998 and September 30,1997 2
Consolidated Condensed Statements of
Operations for the Three-Months and Six-Months Ended
March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash
Flows for the Six-Months Ended
March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial
Statements 5
Independent Accountants' Review Report 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 1. Legal Proceedings (no response required)
Item 2. Changes in Securities (no response required)
Item 3. Defaults Upon Senior Securities (no
response required)
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated condensed financial statements included herein
have been prepared by the Company without audit as of March 31,
1998 and for the three-month and six-month periods ended March
31, 1998 and 1997 pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented
not misleading. It is suggested that these consolidated
condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included
in the Company's annual report on Form 10-K for the fiscal year
ended September 30, 1997. The results of operations for such
interim periods are not necessarily indicative of the results to
be expected for the fiscal year ending September 30, 1998.
Deloitte & Touche LLP, independent public accountants, has made
a limited review of the consolidated condensed financial
statements as of March 31, 1998 and for the three-month and
six-month periods ended March 31, 1998 and 1997 included herein.
page 1
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
(UNAUDITED)
March 31, September 30,
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 707,000 $ 429,000
Accounts and notes receivable - current portion 179,000 222,000
Income taxes receivable 538,000
Inventories 529,000 539,000
Prepaid expenses 271,000 117,000
Deferred income taxes 539,000 670,000
Total current assets 2,225,000 2,515,000
PROPERTY, PLANT AND EQUIPMENT :
Land 2,995,000 2,995,000
Buildings 9,546,000 9,477,000
Leasehold improvements 21,131,000 21,072,000
Equipment and furniture 26,009,000 26,115,000
Construction in progress 15,000 15,000
Total 59,696,000 59,674,000
Less accumulated depreciation and amortization (34,733,000) (33,487,000)
Property, plant and equipment - net 24,963,000 26,187,000
OTHER ASSETS:
Deferred income taxes 4,035,000 3,635,000
Other, including noncurrent portion of receivable 438,000 521,000
Total other assets 4,473,000 4,156,000
TOTAL $ 31,661,000 $ 32,858,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,090,000 $ 1,761,000
Accrued wages and bonuses 1,609,000 1,478,000
Accrued insurance costs, current 940,000 1,022,000
Other current liabilities 1,260,000 1,528,000
Total current liabilities 5,899,000 5,789,000
OTHER LIABILITIES:
Long-term debt 1,574,000 2,287,000
Accrued insurance costs, non-current 2,157,000 2,107,000
Restructuring reserves, non-current 372,000 406,000
Total other liabilities 4,103,000 4,800,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 440,000 440,000
Additional paid-in capital 18,633,000 18,633,000
Retained earnings 2,889,000 3,499,000
Treasury Stock, at cost (13,000) (13,000)
Stock notes receivable (290,000) (290,000)
Stockholders' equity 21,659,000 22,269,000
TOTAL $ 31,661,000 $ 32,858,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
SALES $16,128,000 $16,585,000 $31,803,000 $33,159,000
COSTS AND EXPENSES:
Food costs 4,423,000 4,775,000 8,576,000 9,391,000
Restaurant labor and related expenses 6,458,000 6,071,000 12,722,000 12,714,000
Restaurant operating expenses 3,536,000 3,992,000 7,251,000 8,060,000
Depreciation and amortization 759,000 924,000 1,538,000 1,858,000
General and administrative expenses 1,299,000 1,473,000 2,535,000 2,725,000
Restructuring charges 4,988,000 4,988,000
Total 16,475,000 22,223,000 32,622,000 39,736,000
OPERATING INCOME (LOSS) (347,000) (5,638,000) (819,000) (6,577,000)
INTEREST EXPENSE (65,000) (123,000) (114,000) (200,000)
OTHER, INCLUDING INTEREST INCOME 39,000 39,000 120,000 65,000
EARNINGS (LOSS) BEFORE INCOME TAXES (373,000) (5,722,000) (813,000) (6,712,000)
PROVISION (BENEFIT) FOR INCOME TAXES (127,000) (1,635,000) (269,000) (1,951,000)
NET EARNINGS (LOSS) $ (246,000) $(4,087,000) $ (544,000) $(4,761,000)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.93) $ (0.12) $ (1.08)
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended March 31,
1998 1997
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (544,000) $ (4,761,000)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,538,000 1,858,000
Provision (benefit) for deferred income taxes (269,000) (1,685,000)
Impairment of long-lived assets 3,033,000
Provision for exit and carrying costs of closed locations 1,460,000
Realization of foreign currency translation adjustment 455,000
Loss on write off of stock notes receivable 71,000
Gain (loss) on sale of assets (92,000) (22,000)
Minority interest in net earnings (loss)
Changes in operating assets and liabilities:
Accounts and notes receivable 48,000 (29,000)
Income taxes receivable 538,000 (46,000)
Inventories, prepaid expenses and other assets (122,000) 13,000
Accounts payable and accrued expenses 362,000 346,000
Restructuring reserves (170,000)
Total adjustments 1,833,000 5,454,000
Net cash provided by operating activities 1,289,000 693,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (290,000) (247,000)
Proceeds from sale of assets 121,000 219,000
Net cash used by investing activities (169,000) (28,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (63,000) (85,000)
Long-term borrowings 8,871,000 13,780,000
Repayments of long-term borrowings (9,584,000) (13,953,000)
Dividends paid (66,000) (66,000)
Net cash used by financing activities (842,000) (324,000)
EFFECT OF FOREIGN EXCHANGE RATE
CHANGE ON CASH (1,000)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 278,000 340,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 429,000 145,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 707,000 $ 485,000
SUPPLEMENTAL INFORMATION:
Income taxes (paid) refunds received, net $ 541,000 $ 180,000
Interest paid, net of capitalized amounts $ 119,000 $ 157,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. NET LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," in fiscal 1998. This
standard replaced previous generally-accepted accounting
principles for computing and disclosing earnings per share (EPS)
information. Under SFAS No. 128, because it has potential
common shares, the Company has a complex capital structure and
must disclose both basic and diluted EPS. Basic EPS is computed
by dividing income available to common shareholders by the
weighted average number of shares outstanding. Diluted EPS adds
the effect of all dilutive potential shares to the weighted
average number of shares outstanding.
The weighted average outstanding shares were 4,394,000 and
4,392,000 for the three-months and six-months ended March 31,
1998, respectively, and 4,398,000 for the same periods in 1997.
Due to the net loss, the Company's potential common shares are
antidilutive and excluded from the loss per share calculation,
so diluted and basic loss per share are the same. At March 31,
1998, there were 406,400 options outstanding which represented
potential common shares which could be dilutive in the future.
Earnings (loss) per share reported for the quarter and six
months ended March 31, 1997 did not change due to the adoption
of SFAS No. 128.
2. LONG-TERM DEBT
The Company has a revolving credit and term loan agreement (Loan
Agreement) with a bank. In December 1997, effective December 1,
1997, the Company and the bank agreed to amend the Loan
Agreement limit-reduction schedule and loan covenants.
Under the amended agreement, the credit line limit was reduced
to $3.2 million effective March 31, 1998, and will be reduced by
varying amounts on the last day of each quarter through June 30,
2000, when the limit will be reduced to zero. At March 31,
1998, the Company had $1,850,000 of credit available under the
bank line of credit.
The amended agreement requires the Company to achieve trailing
three-months earnings before interest, taxes, depreciation and
amortization (EBITDA) to equal or exceed the sum of 125% of the
next scheduled commitment reduction plus capital expenditures
during each three-month period, beginning March 31, 1998. Cash
capital expenditures are limited by the amended agreement to
$650,000 each fiscal year. Cash dividends are prohibited until
the Company achieves trailing 12-months EBITDA of at least $3
million, and if this threshold is met, cash dividends are
limited to $150,000 per fiscal year.
At March 31, 1998, and for the six-months then ended, the
Company was in compliance with its Loan Agreement covenants.
The Company is taking steps to comply with all of its Loan
Agreement covenants in the future. However, if the Company
failed to meet a loan covenant in the future, and the bank
declined to waive such future covenant violation, the bank would
be required under the Loan Agreement to give the Company 15 days
written notice of the violation, after which the Company would
be in default. At the bank's option it could then declare the
loan principal and all accrued interest current and payable
and/or refuse to make additional advances on the credit line.
The Company could then be forced to seek alternative sources of
financing.
The loan is secured by all of the Company's real property, and
any proceeds from real property sales must be applied against
the loan.
3. CASH DIVIDENDS
To comply with the loan restriction on dividends (described in
note 2), the Company has not declared a second cash dividend in
the current fiscal year. Future dividends may be declared at
the discretion of the company's Board of Directors, in
compliance with the restrictions of its loan agreement.
On October 17, 1997, prior to its current loan agreement
dividend restriction, the Company's Board of Directors declared
a $.015 per common share cash dividend. The dividend was paid
December 9, 1997 to holders of record on November 25, 1997.
4. STOCK OPTION PLAN
On January 28, 1998, at the Annual Meeting of Stockholders, the
stockholders of the Company approved Amendment Number One to the
1992 Stock Option Plan. This amendment increased the number of
shares which the Company may sell pursuant to options under the
plan to 600,000 shares, from 400,000 shares. The amendment also
increased the annual share grant to non-employee directors from
2,000 shares each to 4,000 shares each.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Pancho's Mexican Buffet, Inc.:
We have reviewed the accompanying consolidated condensed balance
sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of
March 31, 1998, and the related consolidated condensed
statements of operations for the three-month and six-month
periods ended March 31, 1998 and 1997 and of cash flows for the
six-month periods then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical review procedures to financial data and of
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such consolidated condensed
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of
September 30, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year
then ended (not presented herein), and in our report dated
November 14, 1997 (December 19, 1997 as to the first and second
paragraphs of Note 3 to those statements), we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of September 30, 1997,
is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Worth, Texas
April 23, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
As of March 31, 1998, the Company's current ratio was 0.4 to 1,
unchanged from September 30, 1997. Cash and cash equivalents
increased $278,000 during the six-months ended March 31, 1998,
to a balance of $707,000, as cash provided by operations more
than offset cash used by investing and financing activities.
Operations provided $1,289,000 and $693,000 cash in the
six-months ended March 31, 1998 and 1997, respectively. The
Company incurred net losses of $544,000 and $4,761,000 for the
first six months of fiscal 1998 and 1997, respectively. The
current period net loss included $1,538,000 in depreciation and
amortization charges, and a non-cash benefit of $269,000 for
deferred income taxes, and the Company received a $538,000
income tax refund in March 1998. The net loss in the first half
of fiscal 1997 included a non-cash restructuring charge of
$4,988,000, depreciation and amortization expense of $1,858,000
and non-cash benefit of $1,725,000 for deferred income taxes.
Investing activities used $169,000 and $28,000 in the first six
months of fiscal 1998 and 1997, respectively. With capital
improvements limited by debt restrictions, the Company spent
$290,000 and $247,000 on property additions for existing
restaurants in the first half of 1998 and 1997, respectively.
These expenditures were partially offset by the sale of assets.
No new restaurants were opened in fiscal 1997 or the first two
quarters of 1998, and none are currently planned, as management
intends to focus on improving sales and profitability and
reducing debt. Capital expenditures to remodel existing
restaurants and to install restaurant computer systems will
continue within the constraint of available operating cash flow
and the loan agreement restrictions (see Note 2 to the
consolidated condensed financial statements). The Company may
also enter into lease agreements to acquire restaurant computer
systems.
Financing activities used $842,000 and $324,000 during the first
six months of fiscal 1998 and 1997, respectively, mainly to
repay debt.
The Company has a revolving credit and term loan agreement (Loan
Agreement) with a bank. Effective December 1, 1997, the Company
and the bank agreed to amend the Loan Agreement limit-reduction
schedule and loan covenants.
<PAGE>
Under the amended agreement, the credit line limit was reduced
to $3.2 million effective March 31, 1998, and will be reduced by
varying amounts on the last day of each quarter through June 30,
2000, when the limit will be reduced to zero. At March 31,
1998, the Company had $1,850,000 of credit available under the
bank line of credit.
The amended agreement requires the Company to achieve trailing
three-months earnings before interest, taxes, depreciation and
amortization (EBITDA) to equal or exceed the sum of 125% of the
next scheduled commitment reduction plus capital expenditures
during each three-month period, beginning March 31, 1998. Cash
capital expenditures are limited by the amended agreement to
$650,000 each fiscal year. Cash dividends are prohibited until
the Company achieves trailing 12-months EBITDA of at least $3
million, and if this threshold is met, cash dividends are
limited to $150,000 per fiscal year.
At March 31, 1998, and for the six months then ended, the
Company was in compliance with its Loan Agreement covenants.
The Company is taking steps to comply with all of its Loan
Agreement covenants in the future. However, if the bank
declined to waive a future covenant violation, the bank would be
required under the Loan Agreement to give the Company 15 days
written notice of the violation, after which the Company would
be in default. At the bank's option it could then declare the
loan principal and all accrued interest current and payable
and/or refuse to make additional advances on the credit line.
The Company could then be forced to seek alternative sources of
financing.
The loan is secured by all of the Company's real property, and
any proceeds from real property sales must be applied against
the loan.
To comply with the loan restriction on dividends (described in
note 2), the Company has not declared a second cash dividend in
the current fiscal year. Future dividends may be declared at
the discretion of the Company's Board of Directors, in
compliance with the restrictions of its loan agreement.
On October 17, 1997, prior to its current loan agreement
dividend restriction, the Company's Board of Directors declared
a $.015 per common share cash dividend. The dividend was paid
December 9, 1997 to holders of record on November 25, 1997.
Significant deferred income tax benefits were recognized in the
six months ended March 31, 1998, resulting primarily from the
operating loss. Net deferred tax assets increased $269,000, due
mainly to the increase in the federal net operating loss (NOL)
carryforward.
The Company believes it will realize substantial benefits from
the use of federal employer tax credits and federal and state
NOL carryforwards to reduce future federal and state income tax
liabilities. Full realization of these and other deferred tax
assets depends on the Company achieving certain levels of
taxable income in the future. If the Company's results of
operations do not timely achieve the levels needed to use the
employer tax credits or the NOL carryforwards, they could expire
before use, resulting in charges against income. The Company
has established a valuation allowance to offset the amount of
deferred tax assets it believes are more likely than not to
expire before realization. If the Company does not return to
profitability, the Company may be required to write off all or a
portion of the deferred tax assets at a future date.
Results of Operations
Same-store sales for the three months and six months ended March
31, 1998 were up 5.3% and 4.0% compared with the same periods
last year. The Company has reported improved same-store sales
for three consecutive quarters, since a 5.2% price increase
effective July 1, 1997, and smaller subsequent price increases.
Another small price increase was made effective April 1, 1998.
Total sales for the quarter and half-year were down $457,000 and
$1,356,000, respectively, due to fewer restaurants open this
year. Under the restructuring plan adopted in the quarter ended
March 31, 1997, eight restaurants were closed or disposed of in
the quarter ended June 30, 1997. Those eliminated locations
accounted for $1.3 million and $2.6 million in sales in the
quarter and half-year ended March 31, 1997, respectively.
Average sales for restaurants open throughout the quarter and
half-year ended March 31, 1998 were $282,000 and $557,000,
significantly higher than the averages of $255,000 and $509,000
for the same periods last year. Average sales grew due to the
price increases as well as the elimination of eight low volume
stores under the restructuring plan for the quarter ended March
31, 1997.
The Company plans to continue its neighborhood marketing
strategy using company-wide and store-specific neighborhood
marketing tactics based on detailed market research and
analysis, supported by intensive planning and training.
Neighborhood marketing will strengthen Pancho's ties to each
restaurant's immediate community with a portfolio of specific
tactics developed for each location. A series of Company-wide
tactics will complement existing Company programs such as the
Birthday Club and School Rewards programs. The results of all
marketing tactics will be carefully measured to evaluate their
impact on sales.
The Company's menu price increases reduced food cost 1.4% and
1.3% of sales for the current quarter and half-year,
respectively, compared with the same periods in fiscal
1997.
The first half of fiscal 1997 benefited from credits of $558,000
to adjust employee injury and health insurance costs. After
removing those unusual gains from the 1997 amounts, labor and
related costs represented 40.0% of sales for the three- and
six-month periods ended March 31, 1998 and 1997.
Significantly higher hourly wage rates due to the September 1997
federal minimum wage rate hike were offset as a percentage of
sales by the Company's menu price increases. Due to the
increased federal minimum wage and a tight labor market, the
Company's average hourly wage cost was $0.37 and $0.36 per hour
higher in the three-months and six-months ended March 31, 1998,
respectively, than in the same periods of 1997. This hourly
wage inflation would have increased labor costs about 2.1% of
sales, without the benefit of the price increases. If the
Company is unable to reduce labor cost factors with management
efficiencies and sales growth, the Company will consider
additional price increases.
Restaurant operating expenses include marketing costs, repairs
and maintenance, supplies, and utilities and occupancy costs.
These costs were down 2.2% and 1.5% of sales for the three
months and six months ended March 31, 1998 versus the same
periods last year. The largest cause was a benefit of $212,000
in the quarter ended March 31, 1998 to reduce general liability
insurance reserves, thanks to positive risk and case management
results. Excluding this unusual gain, restaurant operating
expenses were down 0.9% and 0.8% of sales for the three months
and six months just ended, respectively. The price increases
and the elimination of eight low sales units last year helped
lower the cost-to-sales ratio of this category, particularly for
utilities and occupancy costs.
Due to earlier implementation of the spring marketing plan this
year, store marketing costs were up 1.1% and 0.4% of sales for
the quarter and half-year ended March 31, 1998 compared with the
same periods last year. Savings on print media, primarily
newspaper ads, were eclipsed by higher spending for direct mail
advertising, promotions and in-store ads. The Company invested
3.0% and 2.9% of sales on marketing in the current three-months
and six-months, respectively, versus 1.9% and 2.5% for the same
periods last year.
Due to the impairment of fixed assets for 12 locations under the
1997 restructuring, depreciation and amortization decreased
$165,000 and $320,000 for the quarter and six-months ended March
31, 1998, respectively, compared to the same prior year periods.
For the current quarter and six-months, general and
administrative expenses were down 0.8% and 0.2% of sales.
Due to debt reduction, interest expense was $58,000 and $86,000
lower in the three months and six months ended March 31, 1998,
respectively, than in the same periods in 1997.
The benefit for income taxes was $127,000 and $269,000 for the
quarter and half-year ended March 31, 1998, which resulted in
effective rates of 34% and 33.1%, respectively. The six-month
benefit was reduced by an increase in the valuation allowance
for state tax net operating loss carryforwards more likely than
not to expire before realization. For the year ended September
30, 1997, the income tax benefit rate was 28.2% of the loss
before taxes. The 1997 benefit rate was reduced by increases in
the valuation allowance.
<PAGE>
Due to the factors discussed above, the Company reported net
losses of $246,000 and $544,000 for the three months and six
months ended March 31, 1998, compared with net losses of
$4,087,000 and $4,761,000 for the same periods in 1997,
respectively. The 1997 price increases and restructuring helped
significantly improve operating margins compared with the same
periods last year. The Company's future profitability depends
on improving unit sales and reducing the key cost factors,
particularly labor costs.
Other Uncertainties and Trends
SFAS No. 121 requires the Company to review long-lived assets
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company considers a history of operating
losses or negative cash flows to be its main indicators of
potential impairment. Assets are generally evaluated for
impairment at the restaurant level. If a restaurant continues
to incur negative cash flows or operating losses, an impairment
or restaurant closing charge may be recognized in future periods.
Special Note Regarding Forward-Looking Information
The foregoing section contains various forward-looking
statements which represent the Company's expectations or beliefs
concerning future events, including, but not limited to the
following: statements regarding unit growth, future capital
expenditures, future borrowings, future cash flows and future
results of operations. The Company warns that many factors
could, individually or in aggregate, cause actual results to
differ materially from those included in the forward-looking
statements, including, without limitation, the following:
consumer spending trends and habits; increased competition in
the restaurant industry; weather conditions; and laws and
regulations affecting labor and employee benefit costs.<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on
January 28, 1998. Proxies were solicited by the Company
pursuant to Regulation 14 under the Securities and Exchange Act
of 1934.
(b) There was no solicitation in opposition to management's
nominees for directors in the proxy statement dated December 22,
1997, and all such nominees were elected, as detailed below.
Name For Withheld
Rudolph Rodriguez 3,746,991 69,687
Samuel L. Carlson 3,742,603 74,075
The following directors were not subject to election at this
meeting and their terms continued after the meeting: Hollis
Taylor, Robert List, George N. Riordan, Jesse Arrambide, III,
and Tomas Orendain.
(c) On October 17, 1997, the Board of Directors unanimously
approved two amendments to the Company's 1992 Stock Option Plan
("1992 Plan"), subject to stockholders' approval. The proposal
for stockholders to approve those amendments was voted on at the
annual meeting. The first amendment increased the number of
shares available under the 1992 Plan to 600,000 shares, up from
400,000 shares. The second amendment increased the annual grant
of options to non-employee Directors of the Company to 4,000
shares each, up from 2,000 shares. The proposal to approve both
amendments was approved by a vote of stockholders at the
meeting, as detailed below.
Proposal For Against Abstained Not Voted
Proposed Amendments 3,250,459 388,273 27,838 150,108
No other items were voted on at the annual meeting.
(d) not applicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number
2 Not applicable
4 Not applicable
11 Not required--explanation of net earnings (loss) per
share computation is contained in notes to consolidated
condensed financial statements.
15 Letter re: unaudited interim financial
information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
<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.
PANCHO'S MEXICAN BUFFET, INC.
April 30, 1998 /s/ Hollis Taylor
Hollis Taylor, President and Chief Executive Officer (Principal
Executive Officer)
April 30, 1998 /s/ W. Brad Fagan
Brad Fagan, Vice President, Treasurer, Chief Financial Officer
and Assistant Secretary (Principal Financial and Accounting
Officer)
EXHIBIT 15
Pancho's Mexican Buffet, Inc.:
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Pancho's Mexican
Buffet, Inc. and subsidiaries for the three-month and six-month
periods ended March 31, 1998 and 1997, as indicated in our
report dated April 23, 1998; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, is incorporated by reference in
Registration Statements No. 2-86238, No. 33-60178 as amended,
and No. 333-48295 on Form S-8.
We are also aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Worth, Texas
April 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheets as of march 31, 1998 and the consolidated
condensed statement of operations for the six months then ended, and is
qualified in its entirety by reference to such consolidated condensed financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 707,000
<SECURITIES> 0
<RECEIVABLES> 179,000
<ALLOWANCES> 0
<INVENTORY> 529,000
<CURRENT-ASSETS> 2,225,000
<PP&E> 59,696,000
<DEPRECIATION> 34,733,000
<TOTAL-ASSETS> 31,661,000
<CURRENT-LIABILITIES> 5,899,000
<BONDS> 0
0
0
<COMMON> 440,000
<OTHER-SE> 21,219,000
<TOTAL-LIABILITY-AND-EQUITY> 31,661,000
<SALES> 31,803,000
<TOTAL-REVENUES> 31,803,000
<CGS> 8,576,000
<TOTAL-COSTS> 30,087,000
<OTHER-EXPENSES> 2,535,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,000
<INCOME-PRETAX> (813,000)
<INCOME-TAX> (269,000)
<INCOME-CONTINUING> (544,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
