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 December 31, 1997
____ 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 February 3,
1998: 4,389,159.
<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,
December 31, 1997 and September 30,1997 2
Consolidated Condensed Statements of
Operations for the Three-Months Ended
December 31, 1997 and 1996 3
Consolidated Condensed Statements of Cash
Flows for the Three-Months Ended
December 31, 1997 and 1996 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 (no response required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated financial statements included herein
have been prepared by the Company without audit as of December
31, 1997 and for the three-month periods ended December 31, 1997
and 1996 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 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 condensed consolidated financial
statements as of December 31, 1997 and for the three-month
periods ended December 31, 1997 and 1996 included herein.
page 1
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, September 30,
1997 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 344,000 $ 429,000
Accounts and notes receivable, current portion 265,000 222,000
Income taxes receivable 538,000 538,000
Inventories 537,000 539,000
Prepaid expenses 257,000 117,000
Deferred income taxes 573,000 670,000
Total current assets 2,514,000 2,515,000
PROPERTY, PLANT AND EQUIPMENT:
Land 2,995,000 2,995,000
Buildings 9,484,000 9,477,000
Leasehold improvements 21,090,000 21,072,000
Equipment and furniture 26,072,000 26,115,000
Construction in progress 13,000 15,000
Total 59,654,000 59,674,000
Less accumulated depreciation and amortization (34,128,000) (33,487,000)
Property, plant and equipment, net 25,526,000 26,187,000
OTHER ASSETS:
Deferred income taxes 3,874,000 3,635,000
Other, incl. noncurrent portion receivables 469,000 521,000
Total other assets 4,343,000 4,156,000
TOTAL $ 32,383,000 $ 32,858,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,098,000 $ 1,761,000
Accrued wages and bonuses 1,734,000 1,478,000
Accrued insurance costs, current 1,022,000 1,022,000
Other current liabilities 1,891,000 1,528,000
Total current liabilities 5,745,000 5,789,000
OTHER LIABILITIES:
Long-term debt 2,154,000 2,287,000
Accrued insurance costs, non-current 2,173,000 2,107,000
Restructuring reserves, non-current 406,000 406,000
Total other liabilities 4,733,000 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 3,135,000 3,499,000
Treasury Stock at cost (13,000) (13,000)
Stock notes receivable (290,000) (290,000)
Stockholders' equity 21,905,000 22,269,000
TOTAL $ 32,383,000 $ 32,858,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
December 31,
1997 1996
<S> <C> <C>
SALES $15,675,000 $16,574,000
COSTS AND EXPENSES:
Food costs 4,153,000 4,616,000
Restaurant labor and related expenses 6,264,000 6,643,000
Restaurant operating expenses 3,715,000 4,068,000
Depreciation and amortization 779,000 934,000
General and administrative expenses 1,236,000 1,252,000
Total 16,147,000 17,513,000
OPERATING INCOME (LOSS) (472,000) (939,000)
INTEREST EXPENSE (49,000) (77,000)
OTHER, INCLUDING INTEREST INCOME 81,000 26,000
EARNINGS (LOSS) BEFORE INCOME TAXES (440,000) (990,000)
PROVISION (BENEFIT) FOR INCOME TAXES (142,000) (316,000)
NET EARNINGS (LOSS) $ (298,000) $ (674,000)
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.15)
<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>
Three Months Ended December 31,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (298,000) $ (674,000)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 779,000 934,000
Provision (benefit) for deferred income taxes (142,000) (229,000)
(Gain) on sale of assets (74,000) (11,000)
Changes in operating assets and liabilities:
Accounts and notes receivable (41,000) (51,000)
Income taxes receivable (87,000)
Inventories, prepaid expenses and other assets (118,000) (38,000)
Accounts payable and accrued expenses 41,000 373,000
Restructuring reserves, current (119,000)
Total adjustments 326,000 891,000
Net cash provided by operating activities 28,000 217,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (129,000) (152,000)
Proceeds from sale of assets 95,000 45,000
Net cash used by investing activies (34,000) (107,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net 120,000 (39,000)
Long-term borrowings 4,141,000 6,900,000
Repayments of long-term borrowings (4,274,000) (6,871,000)
Dividends paid (66,000) (66,000)
Net cash used by financing activities (79,000) (76,000)
EFFECT OF FOREIGN EXCHANGE RATE
CHANGE ON CASH (2,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (85,000) 32,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 429,000 145,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 344,000 $ 177,000
SUPPLEMENTAL INFORMATION:
Interest paid, net of capitalized amounts $ 52,000 $ 84,000
<FN>
See notes to consolidated condensed financial statements.
</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 4,389,000 and
4,398,000 for the three-months ended December 31, 1997 and 1996,
respectively. 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 December 31, 1997, there were 403,800 options
outstanding which represented potential common shares which
could be dilutive in the future. Earnings (loss) per share
reported for the quarter ended December 31, 1996 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 $3.3 million effective December 31, 1997, 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. The limit will
be reduced to $3.2 million effective March 31, 1998. At
December 31, 1997, the Company had $1,218,000 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 threshhold is met, are limited to $150,000
per fiscal year.
At December 31, 1997, and for the three-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
On October 17, 1997, the Company's board of directors declared a
$.015 per common share semi-annual 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 Shareholders, 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
2000 shares each to 4000 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
December 31, 1997 and the related consolidated condensed
statements of operations and cash flows for the three-month
periods ended December 31, 1997 and 1996. 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.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
January 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 December 31, 1997, the Company's current ratio was 0.4 to
1, unchanged from September 30, 1997. Cash and cash equivalents
decreased $85,000 during the three-month period to a balance of
$344,000 at December 31, 1997, as cash provided by operations
was more than offset by debt payments and dividend payments.
Operations provided $28,000 and $217,000 cash in the quarters
ended December 31, 1997 and 1996, respectively. The Company
incurred net losses of $298,000 and $674,000 for the first
quarters of fiscal 1998 and 1997, respectively. The current
period net loss included $779,000 in depreciation and
amortization charges and a non-cash benefit of $142,000 for
deferred tax assets. Increases in operating assets and payment
of restructuring reserves used $278,000 in cash in the first
quarter of fiscal 1998. The net loss in the first quarter of
fiscal 1997 included depreciation and amortization expense of
$934,000 and non-cash benefit of $229,000 for deferred tax
assets. First quarter 1997 operating cash flow was boosted by a
$373,000 increase in accounts payable and accrued expenses and a
$176,000 reduction in operating assets.
Investing activities used $34,000 and $107,000 in the first
quarters of fiscal 1998 and 1997, respectively. With capital
improvements limited by debt restrictions, the Company spent
$129,000 and $152,000 on property additions for existing
restaurants in the first quarter of 1998 and 1997, respectively.
No new restaurants were opened in the first quarter of 1998 or
1997, 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 $79,000 and $76,000 during the first
three-months of fiscal 1998 and 1997, respectively, primarily
to pay dividends in each period.
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.
Under the amended agreement, the credit line limit was reduced
to $3.3 million effective December 31, 1997, 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. Effective
March 31, 1998, the limit will be reduced to $3.2 million. At
December 31, 1997, the Company had $1,218,000 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 threshhold is met, are limited to $150,000
per fiscal year.
At December 31, 1997, and for the three-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.
On October 17, 1997, the Company's board of directors declared a
$.015 per common share semi-annual cash dividend. The dividend
was paid December 9, 1997 to holders of record on November 25,
1997. Future cash dividends will depend on earnings, financial
position, capital requirements, debt restrictions and other
relevant factors.
Significant deferred income tax benefits were recognized in the
quarter ended December 31, 1997, resulting primarily from the
operating loss. Net deferred tax assets increased $142,000, due
primarily to the increase in the federal net operating loss
(NOL) carryforward, partially offset by a $25,000 increase in
the valuation allowance. The income tax receivable of
$538,000 is expected to be received in March 1998.
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 were up 2.7% for the current quarter compared
to the same period last year, but total sales were down $899,000
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 in sales in the quarter ended December 31, 1996.
Same-store and average sales both benefited from a price
increase of about 5.2% in July 1997 and a smaller increase in
September 1997, as well as the elimination of the eight
underperforming restaurants in the quarter ended June 30, 1997.
The price increases have more than offset lower customer counts,
generating two consecutive quarters of same-store sales
increases compared with the prior year quarters.
Average sales for restaurants open throughout the quarter ended
December 31, 1997 were $275,000 up 7.9% from $255,000 for the
prior year quarter.
The Company plans to continue its emphasis on a focused
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 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 combined with relatively
stable wholesale prices to reduce food cost 1.4% of sales for
the current quarter compared with the same period in fiscal 1997.
Restaurant labor and related expenses were down 0.1% of sales
for the quarter, as 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 $0.46 per
hour higher in the first quarter of 1998 than the first quarter
of 1997. Hourly wage inflation increased labor costs about 2.7%
of sales, before the benefit of the price increases. If the
Company is unable to reduce labor cost factors with management
efficiencies and sales increases, the Company will consider
additional price increases.
Restaurant operating expenses, which include marketing costs,
decreased $353,000, 0.8% of sales, for the current quarter
versus the same period last year. The Company spent 2.8% and
3.2% of sales on marketing in the first quarter of fiscal 1998
and 1997, respectively. Due to the strategic shift from mass
media advertising to neighborhood marketing, the Company spent
$205,000 less on print media in the current quarter.
Due to the impairment of fixed assets at four locations kept
open under the 1997 restructuring, depreciation and amortization
decreased $155,000 for the quarter ended December 31, 1997
compared to the prior year quarter.
For the quarter, general and administrative expenses increased
0.3% of sales despite a $16,000 decrease, due to lower total
sales.
Interest expense was $49,000 for the first quarter of fiscal
1998, down slightly from the 1997 quarter due to lower
outstanding debt.
The benefit for income taxes was $142,000, about 32.3% of the
loss before taxes. The benefit rate was reduced by an increase
of $25,000 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 valuation
allowance.
Due to the factors discussed above, the Company reported net
losses of $298,000 and $674,000 for the first quarters of fiscal
1998 and 1997, respectively. The 1997 price increases and
restructuring helped improve operating margins compared with the
same period 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>
PART II. OTHER INFORMATION
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
10(aa) Amendment Number One to Pancho's Mexican Buffet,
Inc. 1992 Stock Option Plan -- filed herewith.
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
December 31, 1997.
<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.
February 10, 1998 /s/ Hollis Taylor
Hollis Taylor, President and Chief Executive Officer
(Principal Executive Officer)
February 10, 1998 /s/ W. Brad Fagan
Brad Fagan, Vice President, Treasurer, Chief Financial
Officer and Assistant Secretary (Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 10 (aa)
AMENDMENT NUMBER ONE
TO PANCHO'S MEXICAN BUFFET, INC. 1992 STOCK OPTION PLAN
WHEREAS, on October 17, 1997, the Board of Directors of
Pancho's Mexican Buffet, Inc. (the "Company") unanimously
approved two amendments to the Company's 1992 Stock Option Plan
(the "1992 Plan"); and
WHEREAS, on January 28, 1998, at the Annual Meeting of
Shareholders, the stockholders of the Company approved, by the
affirmative vote of a majority of the common shares present, or
represented by proxy, the same two amendments to the 1992 Plan;
NOW, THEREFORE, EFFECTIVE January 28, 1998, the 1992 Plan is
amended as follows:
1. The first sentence of Section 3 of the 1992 Plan is amended
in its entirety so as to provide as follows:
"Subject to the provisions of paragraph 7 (relating to the
adjustment upon changes in stock), the number of shares which
may be sold pursuant to options under the Plan shall not exceed
in the aggregate 600,000 shares of Common stock of the Company."
2. The second sentence of Section 4(b) of the 1992 Plan is
amended to reflect the increase in the annual grant
from 2000 to 4000 shares each.
Other than as set forth in the preceding two amendments, the
1992 Plan remains unchanged and in full force and effect.
SIGNED this 28th day of January, 1998.
/s/ Hollis Taylor
Hollis Taylor
President and Chief Executive Officer
<PAGE>
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 periods ended
December 31, 1997 and 1996, as indicated in our report dated
January 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 December 31, 1997, is incorporated by reference in
Registration Statements No. 2-86238 and No. 33-60178 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.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
January 23, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets as of December 31, 1997 and the condensed
consolidated statement of operations for the three-months then ended, and is
qualified in its entirety by reference to such condensed consolidated financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 344,000
<SECURITIES> 0
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<PP&E> 59,654,000
<DEPRECIATION> (34,128,000)
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<BONDS> 0
0
0
<COMMON> 440,000
<OTHER-SE> 21,465,000
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<SALES> 15,675,000
<TOTAL-REVENUES> 15,675,000
<CGS> 4,153,000
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<INTEREST-EXPENSE> 49,000
<INCOME-PRETAX> (440,000)
<INCOME-TAX> (142,000)
<INCOME-CONTINUING> (298,000)
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<CHANGES> 0
<NET-INCOME> (298,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
