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 June 30, 1999
____ 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 August 10,
1999: 1,463,604.
<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,
June 30, 1999 and September 30,1998 2
Consolidated Condensed Statements of Operations
for the Three-Months and Nine-Months Ended
June 30, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows
for the Nine-Months Ended June 30, 1999 and 1998 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
Item 3. Quantitative and Qualitative Disclosures About
Market Risk (no response required)
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 consolidated condensed financial statements included herein
have been prepared by the company without audit as of June 30,
1999 and for the three-month and nine-month periods ended June
30, 1999 and 1998 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, 1998. 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, 1999.
Deloitte & Touche LLP, independent public accountants, has made
a limited review of the consolidated condensed financial
statements as of June 30, 1999, and for the three-month and
nine-month periods ended June 30, 1999 and 1998, included herein.
page 1
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
June 30, September 30,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,158,000 $ 546,000
Accounts and notes receivable, current portion 551,000 184,000
Inventories 473,000 473,000
Prepaid expenses 297,000 443,000
Total current assets 3,479,000 1,646,000
Property, plant and equipment:
Land 1,868,000 1,867,000
Buildings 6,889,000 6,885,000
Leasehold improvements 17,583,000 17,472,000
Equipment and furniture 22,040,000 22,965,000
Construction in progress 29,000
Total 48,409,000 49,189,000
Less accumulated depreciation and amortization (33,095,000) (33,136,000)
Property, plant and equipment - net 15,314,000 16,053,000
Other assets:
Land and buildings held for sale 309,000 2,380,000
Other, including noncurrent portion of receivables 295,000 339,000
Total other assets 604,000 2,719,000
Total assets $ 19,397,000 $ 20,418,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,076,000 $ 1,227,000
Debt classified as current 148,000 490,000
Accrued wages and bonuses 1,828,000 1,420,000
Accrued insurance costs, current 1,252,000 1,150,000
Other current liabilities 1,637,000 1,864,000
Total current liabilities 5,941,000 6,151,000
Other liabilities:
Long-term debt 250,000 1,761,000
Accrued insurance costs, non-current 1,297,000 2,417,000
Restructuring reserves, non-current 334,000 365,000
Total other liabilities 1,881,000 4,543,000
Commitments and Contingencies
Stockholders' equity:
Preferred stock
Common stock 149,000 441,000
Additional paid-in capital 18,988,000 18,661,000
Retained earnings (accumulated deficit) (7,325,000) (9,085,000)
Treasury stock at cost (68,000) (68,000)
Stock notes receivable (169,000) (228,000)
Stockholders' equity 11,575,000 9,724,000
Total liabilities and stockholders' equity $ 19,397,000 $ 20,418,000
</TABLE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 14,727,000 $ 16,783,000 $ 42,844,000 $ 48,586,000
Costs and Expenses:
Food costs 3,877,000 4,668,000 11,358,000 13,244,000
Restaurant labor and related expenses 5,425,000 6,685,000 16,059,000 19,407,000
Restaurant operating expenses 2,719,000 4,220,000 8,753,000 11,471,000
Depreciation and amortization 494,000 737,000 1,479,000 2,275,000
General and administrative expenses 1,266,000 1,273,000 3,818,000 3,808,000
Asset impairment and restructuring charges 6,969,000 6,969,000
Total 13,781,000 24,552,000 41,467,000 57,174,000
Operating Income (loss) 946,000 (7,769,000) 1,377,000 (8,588,000)
Interest Expense (56,000) (22,000) (170,000)
Other, including interest income 138,000 34,000 393,000 154,000
Earnings (loss) before income taxes 1,084,000 (7,791,000) 1,748,000 (8,604,000)
Provision (benefit) for income taxes 4,574,000 (12,000) 4,305,000
Net earnings (loss) $ 1,084,000 $(12,365,000) $ 1,760,000 $(12,909,000)
Basic and diluted earnings (loss) per share $ 0.74 $ (8.44) $ 1.21 $ (8.81)
<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>
Nine Months Ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,760,000 $(12,909,000)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,479,000 2,275,000
Provision for deferred income taxes 4,305,000
Impairment of long-lived assets 6,049,000
Provision for restructuring reserves 920,000
Gain on sale of assets (359,000) (118,000)
Stock compensation to directors 35,000
Changes in operating assets and liabilities:
Accounts and notes receivable 9,000 (2,000)
Income taxes receivable 538,000
Inventories, prepaid expenses and other assets 157,000 (35,000)
Accounts payable and accrued expenses (546,000) 618,000
Restructuring reserves (421,000) (474,000)
Other 56,000 65,000
Net cash provided by operating activities 2,170,000 1,232,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (777,000) (513,000)
Proceeds from sale of assets 2,072,000 207,000
Net cash provided (used) by investing activities 1,295,000 (306,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (342,000) 1,091,000
Long-term borrowings 6,650,000 14,126,000
Repayments of long-term borrowings (8,161,000) (14,792,000)
Treasury stock acquired (12,000)
Dividends paid (66,000)
Net cash provided (used) by financing activities (1,853,000) 347,000
Net increase in cash and cash equivalents 1,612,000 1,273,000
Cash and cash equivalents, beginning of period 546,000 429,000
Cash and cash equivalents, end of period $ 2,158,000 $ 1,702,000
SUPPLEMENTAL INFORMATION:
Income tax paid and refunds received, net $ 12,000 $ 541,000
Interest paid, net of capitalized amounts $ 37,000 $ 161,000
<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 EARNINGS (LOSS) PER SHARE
The company reports earnings per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." 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 1,463,000 and
1,458,000 for the three-months and nine-months ended June 30,
1999, respectively, and 1,466,000 and 1,465,000 for the same
periods in 1998. The average prices of the company's common
stock for the quarter and nine months ended June 30, 1999 were
below the strike price of all outstanding options, therefore all
the potential common shares were anti dilutive and excluded from
the earnings per share calculation for those periods. Due to
the net losses for the quarter and nine months ended June 30,
1998, the company's potential common shares were anti dilutive
and excluded from the loss per share calculations for those
periods. Therefore, there was no difference between basic and
diluted earnings (loss) per share among the periods ended June
30, 1999 and 1998. At June 30, 1999, there were 108,963 options
outstanding which represented potential common shares which
could be dilutive in the future.
2. LONG-TERM DEBT
In February 1999, the company paid off its outstanding bank
debt. In April 1999, the company terminated its revolving
credit and term loan agreement with the bank.
The company's remaining long-term debt at June 30, 1999
represents notes payable issued in 1996 - 1998 to buy out the
leases of certain closed locations. The current portion of
those notes is included in debt classified as current at June
30, 1999 and September 30, 1998.
3. INCOME TAXES
In the quarter ended June 30, 1998, the company increased its
valuation allowance for deferred tax assets to offset all of its
net deferred tax assets. This was considered necessary due to
the company's net losses for that quarter and the previous three
years.
The net deferred tax assets were reduced by $396,000 and
$639,000 for the three and nine months ended June 30, 1999 due
to the net earnings for those periods. The valuation allowance
was reduced by the same amounts to fully offset the net deferred
tax asset balance. Accordingly, the company recognized no net
tax expense in the quarter and nine months ended June 30, 1999.
The company received a $12,000 tax refund which it reported as
income tax benefit in the quarter ended March 31, 1999. At June
30, 1999, the valuation allowance of $7,500,000 offset the full
amount of net deferred tax assets.
Despite the valuation allowance, the deferred tax assets are
still available to the company for future use. If the company
maintains profitability, the company may recognize tax benefits
for all or a portion of the deferred tax assets realized. The
deferred tax assets include federal employer tax credits and net
operating loss (NOL) carryforwards which expire in years 2009
through 2013, and state NOL carryforwards which expire in years
1999 through 2013.
4. 1-FOR-3 REVERSE STOCK SPLIT
At the Annual Meeting of Stockholders on January 27, 1999, the
stockholders of the company approved a one-for-three reverse
stock split for the company's common stock, effective January
27, 1999. All common stock share data and related stock option
and earnings per share data in this report has been adjusted to
reflect the reverse split. Under the reverse split, the common
stock retained its previous par value of $.10 per share after
the reverse split. Therefore, the dollar amount of Common stock
on the balance sheet was reduced to one-third of its previous
balance, and Additional paid-in capital was increased by that
dollar amount.
<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
June 30, 1999, and the related consolidated condensed statements
of operations for the three-month and nine-month periods ended
June 30, 1999 and 1998 and cash flows for the nine-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, 1998, 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 13, 1998, 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, 1998, 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
July 28, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
As of June 30, 1999, the company's current ratio was 0.6 to 1,
up from 0.3 to 1 on September 30, 1998. Like many restaurant
chains, the company maintains a current ratio well below 1.
Most of its current liabilities, primarily accounts payable,
accrued payroll and accrued insurance costs, flow through
operations and roll over rather than being reduced to zero in
subsequent periods. The company's cash and cash equivalents
balance has increased $1,612,000 since September 30, 1998.
Operations provided $2.2 million and $1.2 million cash in the
nine-months ended June 30, 1999 and 1998, respectively. The
cash flow from the net profit of $1,760,000 in the first nine
months of fiscal 1999 was improved by noncash depreciation and
amortization of $1,479,000, and partially reduced by the payment
of accrued liabilities and restructuring reserves.
In the first nine months of 1999, the company received $2.1
million from the sale of three closed restaurant sites and other
assets. The company sold another restaurant in late June for
which it was paid in July. It has one other closed restaurant
site held for sale. The company spent $777,000 for property
additions in the first nine months of 1999, resulting in a net
$1.3 million cash provided by investing activities.
Capital additions in 1999 include $123,000 to remodel an
existing restaurant in Fort Worth as a test site for developing
a revitalized restaurant format. The company plans to continue
to invest in developing an updated restaurant format and
appearance, with the remodel of another test location scheduled
to begin in August, 1999. The company plans to pay for remodels
and other capital projects with cash on hand, operating cash
flow and the proceeds from the sale of closed restaurant sites.
No new restaurants are currently planned as the company
continues to test changes to revitalize the restaurant format,
and none were added last year.
The company reduced its total debt by $1.9 million in the first
nine months of 1999, paid off its bank debt in February and
terminated the restrictive credit line agreement on that bank
debt in April.
The company reduced its accrued insurance costs by $790,000,
$248,000 and $212,000 in the quarters ended June 30 and March
31, 1999 and March 31, 1998, respectively. These reductions
were based on updated liability estimates derived from
additional information available in the periods involved,
including the resolution of significant claims and a general
improvement in claims experience. The company will continue to
evaluate alternatives to reduce its exposure to claims risk and
reserve fluctuations.
The company has not declared a cash dividend in 1999. Future
dividends may be declared at the discretion of the company's
board of directors.
Results of Operations
Same-store sales rose 0.3% and 0.4% for the three months and
nine months ended June 30, 1999 compared with the same periods
last year. A price increase of about .5% in April 1998
contributed to the year-to-date increase. Also, Pancho's
restaurants near those closed last year reported the most
significant volume increases.
Total sales for the quarter and nine months decreased $2.1
million and $5.8 million compared with last year's periods,
respectively. The nine units closed under the 1998
restructuring plan accounted for $2.1 million and $5.9 million
in sales in the quarter and nine months ended June 30, 1998,
respectively.
Average sales for restaurants open throughout the quarter and
nine months ended June 30, 1999 grew 4.2% and 4.7%, to $306,000
and $891,000, respectively, compared with the same periods in
1998. Average sales increased mainly due to the closing of nine
lower volume stores in 1998.
The company plans to continue its neighborhood marketing
strategy using company-wide and store-specific neighborhood
marketing tactics. Neighborhood marketing strengthens 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 and existing programs such as the Birthday
Club and School Rewards programs complement the local tactics.
Additional marketing efforts will be focused in markets which
have lagged behind in sales comparisons.
In 1999, the main company promotions have used newspaper inserts
to distribute discount coupons. The company plans to continue
using newspaper inserts with discounts to increase customer
frequency and attract new customer trials. Customer discounts
were 5.3% and 4.5% of sales for the quarter and nine months
ended June 30, 1999, compared with 6.7% and 4% for the same
periods in 1998.
Stable to lower food prices helped the company reduce food cost
1.5% and 0.8% of sales for the current quarter and nine months,
respectively, compared with the same periods in fiscal 1998.
These cost factors also improved due to the relative
efficiencies from closing lower sales volume stores in 1998.
Due to effective risk and claims management, the company
recognized benefits of $326,000 and $525,000 to reduce employee
injury insurance reserves in the quarter and nine months ended
June 30, 1999. After eliminating that gain, labor and related
costs decreased 0.7% and 1.2% of sales for the three months and
nine months ended June 30, 1999, compared with the same periods
in 1998. This cost factor declined because labor costs include
a semi-fixed element which declines as a percent of sales as
sales volume increases. Therefore, closing nine lower volume
stores in 1998 helped the company reduce labor as a percentage
of sales. If the company is unable to further reduce labor cost
factors with management efficiencies and sales growth, or if the
minimum wage is increased, the company will consider additional
price increases.
Restaurant operating expenses include store marketing,
maintenance, supplies, utilities and occupancy costs. Due to
effective case and risk management, the company reduced general
liability and insurance reserves by $464,000, $49,000 and
$212,000 in the quarters ended June 30, 1999, and March 31, 1999
and 1998, respectively. Excluding those benefits, restaurant
operating expenses decreased 3.5% and 2.4% of sales for the
three months and nine months just ended, respectively. Closing
nine lower sales units in 1998 helped reduce the cost-to-sales
ratio of this category, particularly for maintenance, utilities
and occupancy costs.
Restaurant marketing and promotion costs decreased 1.6% and 1%
of sales for the third quarter and nine months of 1999,
respectively, versus 1998. The savings came mainly from reduced
outside consulting and market research costs, lower ad media
spending and efficiencies from using newspaper inserts rather
than direct mail promotions.
Due to the impairment of fixed assets for 22 locations in June
1998, depreciation and amortization decreased $243,000 and
$796,000 for the quarter and nine-months ended June 30, 1999,
respectively, compared to the same 1998 periods.
General and administrative expenses rose 1% and 1.1% of sales
for the quarter and nine months ended June 30, 1999, mainly due
to the effect of lower total sales and accrued bonuses based on
net earnings.
In the quarter ended June 30, 1998, the company increased its
valuation allowance for deferred tax assets to fully offset all
of its net deferred tax assets. This was considered necessary
due to the company's net losses for that quarter and the
previous three years.
The net deferred tax assets were reduced by $396,000 and
$639,000 in the quarter and nine months ended June 30, 1999,
respectively, due to the net earnings for those periods. The
valuation allowance was reduced by the same amounts to fully
offset the net deferred tax asset balance of $7,500,000 at June
30, 1999. Accordingly, the company recognized no net tax
expense for the quarter and nine months ended June 30, 1999.
The company received a $12,000 tax refund which it reported as
income tax benefit in the quarter ended March 31, 1999. At June
30, 1999, the valuation allowance offset the full amount of net
deferred tax assets.
Despite the valuation allowance, the deferred tax assets are
still available to the company for future use. If the company
maintains profitability, the company may recognize tax benefits
for all or a portion of the deferred tax assets. The deferred
tax assets include federal employer tax credits and net
operating loss (NOL) carryforwards which expire in years 2009
through 2013, and state NOL carryforwards which expire in years
1999 through 2013.
After excluding impairment and restructuring charges and gains
from reducing insurance reserves from all periods, the company
improved operating income by $956,000 and $2,170,000 for the
quarter and nine months ended June 30, 1999, respectively, from
significant losses for the same periods in 1998. The company's
future profitability depends on its ability to continue to
improve sales and manage costs.
Net earnings improved due to the increase in operating results
and greater gains on asset sales. Gains on sale of assets were
$122,000 and $359,000 for the quarter and nine months ended June
30, 1999, compared with $26,000 and $118,000 for the same
periods in 1998. Results of asset sales are included in Other,
including interest income on the Statement of Operations.
Market Listing of the Company's Common Stock
On March 12, 1999, the market listing of the company's common
stock was moved to the Nasdaq SmallCap Market from the Nasdaq
National Market.
Impact of Year 2000
Some computer hardware and software use only two digits to
identify the year in date information. If not corrected, such
systems could fail when processing dates for the year 2000 (Y2K)
or later. The company is in the process of evaluating its risk
and the related costs of updating its computer systems to
properly process Y2K and later dates.
The company has identified all significant hardware and
applications that it believes will require modification to
provide Y2K processing compliance. Internal and external
resources are being used to make the required modifications and
test Y2K processing. The key company systems for which Y2K
problems might pose a significant risk are the company's
restaurant point-of-sale (POS) register systems and the
company's corporate accounting system. The company plans to
complete the testing process for all significant applications by
September 30, 1999.
The company's stores depend on the POS systems for recording
sales data, credit card processing, labor scheduling, time and
attendance tracking, and certain order entry and inventory
functions. Other technology-dependent functions at the stores
are not significant. If the POS software is not fully
remediated by December 31, 1999, current contingency plans call
for using the existing software, which tests indicate is Y2K
capable for the most significant functions. Restaurant
management might have to perform labor scheduling manually, as
was done for years, and do without certain management reports
until complete remediation is achieved.
If the company's corporate accounting system is not judged
adequately remediated by October 31, 1999, the current
contingency plan calls for the company to acquire alternate
accounting software which is certified Y2K compliant.
Conversion to new accounting software under such time pressure
would increase the company's accounting costs, but would not be
expected to affect the operations of the company's restaurants.
The company has communicated with others with whom it does
significant business to determine their Y2K readiness and the
extent to which the company may be vulnerable to third-party Y2K
problems. However, there can be no guarantee that the systems
of other companies will be converted timely, or that a failure
to convert by another company will not have a material adverse
effect on the company. Any material disruption in utility
services or the general economy due to Y2K problems could
adversely affect the company's operations.
The total cost to the company of these Y2K compliance activities
has not been and is not expected to be material to its financial
position, results of operations or cash flows. These costs and
the date on which the company plans to complete the Y2K
modifications and testing are based on management's best
estimates, which were derived using numerous assumptions about
future events, including the continued availability of certain
resources, third-party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved, and actual results could differ from those plans.
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
Certain statements in this report are forward-looking statements
which represent the company's expectations or beliefs concerning
future events, including, but not limited to the following:
statements regarding restaurant format or concept changes, plans
to sell assets, unit growth, future capital expenditures, future
borrowings, future cash flows, claims and payments related to
the company's insurance reserves, future results of operations
and Year 2000 remediation. 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; the results of
claims on the company's insurance reserves and related
adjustments to those reserves; laws and regulations affecting
labor and employee benefit costs; and the availability and
performance of internal and external Year 2000 remediation
resources.
<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
3 Certificate of Amendment to Certificate of
Incorporation
4 Not applicable
10 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 in the quarter ended June
30, 1999.
<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.
August 10, 1999 /s/ Hollis Taylor
Hollis Taylor, President and Chief Executive Officer
(Principal Executive Officer)
August 10, 1999 /s/ W. Brad Fagan
Brad Fagan, Vice President, Treasurer, Chief Financial Officer
and Assistant Secretary (Principal Financial and Accounting
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 and nine-month
periods ended June 30, 1999 and 1998, as indicated in our report
dated July 28, 1999; 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 June 30, 1999, 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.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
July 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheets as of June 30, 1999 and the consolidated
condensed statements of operations for the nine months then ended and is
qualified in its entirety by reference to such consolidated condensed financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,158,000
<SECURITIES> 0
<RECEIVABLES> 551,000
<ALLOWANCES> 0
<INVENTORY> 473,000
<CURRENT-ASSETS> 3,479,000
<PP&E> 48,409,000
<DEPRECIATION> 33,095,000
<TOTAL-ASSETS> 19,397,000
<CURRENT-LIABILITIES> 5,941,000
<BONDS> 0
0
0
<COMMON> 149,000
<OTHER-SE> 11,426,000
<TOTAL-LIABILITY-AND-EQUITY> 19,397,000
<SALES> 42,844,000
<TOTAL-REVENUES> 42,844,000
<CGS> 11,358,000
<TOTAL-COSTS> 37,649,000
<OTHER-EXPENSES> 3,818,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> 1,748,000
<INCOME-TAX> (12,000)
<INCOME-CONTINUING> 1,760,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,760,000
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.21
</TABLE>
