<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 27, 2000: 1,464,006.
<PAGE> 2
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction 1
Consolidated Condensed Balance Sheets,
March 31, 2000 and September 30,1999 2
Consolidated Condensed Statements of Operations
for the Three Months and Six Months Ended
March 31, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended March 31, 2000 and 1999 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
</TABLE>
<PAGE> 3
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, 2000 and for the
three-month and six-month periods ended March 31, 2000 and 1999 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 accounting principles generally accepted
in the United States of America 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,
1999. In the opinion of the Company, all adjustments, consisting only of normal
recurring adjustments to the consolidated condensed financial statements,
necessary to present fairly the financial position of the Company as of March
31, 2000 and the results of operations and cash flows for the indicated periods
have been included. The results of operations for such interim period is not
necessarily indicative of the results to be expected for the fiscal year ending
September 30, 2000.
Deloitte & Touche LLP, independent public accountants, has made a
limited review of the consolidated condensed financial statements as of March
31, 2000 and for the three-month and six-month periods ended March 31, 2000 and
1999 included herein.
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PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 SEPTEMBER 30,
(UNAUDITED) 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,508,000 $ 1,242,000
Accounts and notes receivable, current portion 121,000 208,000
Inventories 521,000 469,000
Prepaid expenses 177,000 242,000
------------ ------------
Total current assets 2,327,000 2,161,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,654,000 1,868,000
Buildings 6,441,000 6,900,000
Leasehold improvements 17,557,000 17,268,000
Equipment and furniture 21,813,000 21,469,000
Construction in progress 429,000
------------ ------------
Total 47,465,000 47,934,000
Less accumulated depreciation and amortization (32,252,000) (32,392,000)
------------ ------------
Property, plant and equipment - net 15,213,000 15,542,000
------------ ------------
OTHER ASSETS:
Land and buildings held for sale 309,000 309,000
Other, including noncurrent portion of receivables 341,000 400,000
------------ ------------
Total other assets 650,000 709,000
------------ ------------
TOTAL ASSETS $ 18,190,000 $ 18,412,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,307,000 $ 701,000
Debt classified as current 136,000 139,000
Accrued wages and bonuses 1,301,000 1,734,000
Accrued insurance costs, current 425,000 1,087,000
Other current liabilities 1,736,000 1,331,000
------------ ------------
Total current liabilities 4,905,000 4,992,000
------------ ------------
OTHER LIABILITIES:
Long-term debt 147,000 222,000
Accrued insurance costs, non-current 652,000 1,149,000
Restructuring reserves, non-current 318,000 346,000
------------ ------------
Total other liabilities 1,117,000 1,717,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 149,000 149,000
Additional paid-in capital 18,988,000 18,988,000
Retained earnings (accumulated deficit) (6,734,000) (7,197,000)
Treasury stock at cost (66,000) (68,000)
Stock notes receivable (169,000) (169,000)
------------ ------------
Stockholders' equity 12,168,000 11,703,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,190,000 $ 18,412,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- ---------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 14,155,000 $ 14,350,000 $ 27,462,000 $ 28,117,000
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Food costs 3,790,000 3,801,000 7,307,000 7,481,000
Restaurant labor and related expenses 5,008,000 5,310,000 10,301,000 10,634,000
Restaurant operating expenses 2,858,000 2,974,000 6,062,000 6,034,000
Depreciation and amortization 501,000 485,000 990,000 985,000
General and administrative expenses 1,185,000 1,356,000 2,315,000 2,552,000
Preopening costs 43,000
------------ ------------ ------------ ------------
Total 13,342,000 13,926,000 27,018,000 27,686,000
------------ ------------ ------------ ------------
OPERATING INCOME 813,000 424,000 444,000 431,000
INTEREST EXPENSE (17,000) (5,000) (17,000) (22,000)
OTHER, INCLUDING INTEREST INCOME 44,000 131,000 36,000 255,000
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 840,000 550,000 463,000 664,000
BENEFIT FOR INCOME TAXES (12,000) (12,000)
------------ ------------ ------------ ------------
NET EARNINGS $ 840,000 $ 562,000 $ 463,000 $ 676,000
============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.58 $ 0.38 $ 0.32 $ 0.46
============ ============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 463,000 $ 676,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 990,000 985,000
Adjustment of insurance reserves (1,020,000) (248,000)
Gain on sale of assets (11,000) (237,000)
Stock compensation to outside directors 22,000
Other 2,000
Changes in operating assets and liabilities:
Accounts and notes receivable 88,000 (32,000)
Inventories, prepaid expenses and other assets 21,000 212,000
Accounts payable and accrued expenses 510,000 93,000
Restructuring reserves (26,000) (318,000)
------------ ------------
Net cash provided by operating activities 1,017,000 1,153,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,133,000) (391,000)
Proceeds from sale of assets 460,000 2,023,000
------------ ------------
Net cash provided (used) by investing activities (673,000) 1,632,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (3,000) (340,000)
Long-term borrowings 6,650,000
Repayments of long-term borrowings (75,000) (8,132,000)
------------ ------------
Net cash used by financing activities (78,000) (1,822,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 266,000 963,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,242,000 546,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,508,000 $ 1,509,000
============ ============
SUPPLEMENTAL INFORMATION:
Income tax refunds received $ 12,000
Interest paid, net of capitalized amounts $ 17,000 $ 35,000
</TABLE>
See notes to consolidated condensed financial statements.
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PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. NET EARNINGS PER SHARE
The company reports earnings per share (EPS) under 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.
All per share amounts have been adjusted for the effect of the
one-for-three reverse stock split of the company's common stock,
effective January 27, 1999.
The basic weighted average shares outstanding were 1,464,000 and
1,459,000 for the three months ended March 31, 2000 and 1999,
respectively. Fully diluted weighted average shares were 1,468,000 for
the quarter ended March 31, 2000. The average price of the company's
stock for the quarter ended March 31, 1999 was below the exercise price
of all outstanding options, therefore all potential common shares were
anti dilutive.
Basic weighted average shares outstanding were 1,464,000 and 1,456,000
for the six months ended March 31, 2000 and 1999, respectively. Fully
diluted weighted average shares were 1,466,000 for the half ended March
31, 2000. For the six months ended March 31, 1999, outstanding options
had no dilutive effect because the average market price was less than
the option exercise price. At March 31, 2000, there were 124,247
options outstanding which represented potential common shares which
could be dilutive in the future.
2. INCOME TAXES
Deferred tax assets net of deferred tax liabilities decreased $181,000
in the six months ended March 31, 2000, to $7.2 million. The decrease
was due mainly to the reduction of insurance reserves. The valuation
allowance was decreased by the same amount to match the net deferred
tax asset balance. Accordingly, the company recognized no net tax
benefit in the six months ended March 31, 2000.
Despite the valuation allowance, the deferred tax assets are still
available to the
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company for future use. If the company realizes profitability, it may
recognize tax benefits for all or a portion of the deferred tax assets
in the future, when the valuation allowance is reduced or the tax
assets realized. The deferred tax assets include federal employer tax
credits and net operating loss (NOL) carryforwards which expire in
years 2009 through 2020, and state NOL carryforwards which expire in
years 2000 through 2015.
3. RESTRUCTURING RESERVES
At March 31, 2000, a total of $487,000 in restructuring reserves was
included on the company's balance sheet, split between other current
liabilities and restructuring reserves, noncurrent. The company reduced
its total restructuring reserves by $26,000 paid on restructuring costs
during the six months ended March 31, 2000.
4. INSURANCE RESERVES
At March 31, 2000, a total of $1,077,000 in insurance reserves was
included on the company's balance sheet, split between current and
noncurrent liabilities. These are reserves for estimated losses on
claims originating in prior years on the company's retrospective
insurance plans for workers' compensation and general liability, and on
the self-insured Voluntary Employee Injury Benefits (VEIB) Plan.
The company has replaced its retrospective policies and self-insured
insurance plans with guaranteed premium policies. The company obtained
guaranteed policies for workers' compensation and general liability
beginning in calendar year 1998. The company replaced its VEIB Plan
with its guaranteed workers' compensation policy effective for calendar
year 2000. Therefore, the company is no longer accruing for estimated
self-insurance and retrospective insurance losses.
Periodically, as claims are identified and resolved, the company
reassesses its insurance loss reserves. In the quarter and six months
ended March 31, 2000, the company reduced its reserves by $883,000 and
$1,020,000, respectively. In the quarter ended March 31, 1999, the
company reduced its insurance reserves by $248,000. 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.
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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, 2000 and the
related consolidated condensed statements of operations for the three-month and
six-month periods ended March 31, 2000 and 1999 and the consolidated condensed
statements of cash flows for the six-month periods ended March 31, 2000 and
1999. 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, 1999, 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 12,
1999, 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, 1999 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
April 27, 2000
page 7
<PAGE> 10
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
As of March 31, 2000, the company's current ratio was 0.5 to 1, up 0.1 from
September 30, 1999. The increase was due mainly to the increase in cash and cash
equivalents of $266,000, as detailed in the cash flow statements. 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 paid
off in subsequent periods. Cash flow from operations provided $1,017,000 and
$1,153,000 in the six months ended March 31, 2000 and 1999, respectively.
The company invested $1,133,000 in property additions in the six months ended
March 31, 2000, mainly to complete the remodel of the Mesquite location. The
company realized $460,000 in cash proceeds from the sale of assets in the same
period, mainly for the sale of a warehouse and land adjacent to its corporate
headquarters. In the six months ended March 31, 1999, the company invested
$391,000 in property additions and realized $2,023,000 from the sale of land,
buildings and other property from previously closed restaurants.
Capital spending in fiscal 2000 is expected to be between $2 million and $3
million, as the company continues its reimaging campaign. The company plans to
pay for property additions this year with cash flow from operations and proceeds
from the sale of land and buildings held for sale. To increase customer counts
and total sales, the company is pursuing a reimaging strategy that includes the
development of a new appearance and atmosphere for its restaurants. In September
1999, the company began a complete remodel of its Mesquite, Texas restaurant.
That unit reopened under the banner Pancho's Buffet & Grill(TM) in December 1999
and has generated significant sales increases and positive customer response.
The company plans to spend about $1 million to remodel two more restaurants with
the same style this year.
In February 2000, the company announced plans to develop a Panchito's $3.99
Buffet (TM) format offering customers a convenient all-you-can-eat buffet at a
price of only $3.99 per person. The company plans to spend about $800,000 to
convert four of its smaller or lower volume units to this format this year.
No new restaurants were opened in the first six months of 2000 or fiscal year
1999, and none are currently planned, as management intends to remodel existing
restaurants to develop and expand its new Pancho's Buffet & Grill(TM) and
Panchito's $3.99
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Buffet(TM) formats. Other capital spending will include normal operating
replacements and upgrades.
Financing activities used $78,000 to repay debt in the six months ended March
31, 2000, versus $1,822,000 in the same period last year. Debt payments
decreased in fiscal 2000 because the company paid off its bank debt in February
1999. The company continues to make payments on notes issued in prior years to
buy out leases on closed restaurant sites.
The company does not currently have a line of credit to finance working capital
needs. Although the company expects cash flow from operations to be sufficient
to fund its anticipated operating needs in fiscal 2000, management may pursue
some form of working capital credit in the future.
The company reduced its accrued insurance costs by $1,020,000 and $248,000 in
the six months ended March 31, 2000 and 1999, 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. Effective for calendar
year 2000, the company is no longer self-insured, and is therefore no longer
accruing additional insurance loss reserves.
No dividends have been paid since December 1997. Future cash dividends will
depend on earnings, financial position, capital requirements, debt restrictions
and other relevant factors.
RESULTS OF OPERATIONS
Total sales were down $195,000 and $655,000 for the quarter and half ended March
31, 2000 compared to the same periods last year. Same-store sales decreased 1.4%
and 2.5% for the quarter and six months versus the prior year periods. Average
sales per unit were $294,000 and $567,000 for the quarter and half ended March
31, 2000 and 1999, respectively, compared with $298,000 and $585,000 for the
prior year periods.
The company implemented a price increase of about 4.5% in the quarter ended
December 31, 1999. This increase was rolled out to restaurants market by market
during that quarter, so its effect during the six months ended March 31, 2000 is
estimated at about 3.75%.
In 1999, the company initiated a reimaging project to revitalize the Pancho's
concept and improve sales trends. The reimaging initiative addresses changes in
restaurant design, recipes, food offerings and cooking and service procedures.
This reimaging includes the Mesquite location remodel under the Pancho's Buffet
& Grill(TM) banner and a streamlined Panchito's $3.99 Buffet(TM) format to be
developed in fiscal 2000.
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The Mesquite remodel features an exciting new design with rich, bold colors,
softer lighting and a high-energy atmosphere. The Mesquite restaurant reopened
as Pancho's Buffet & Grill(TM) in December 1999, and has maintained strong early
sales gains and customer response. Management plans to remodel two more existing
restaurants this year based on the Mesquite prototype.
The company is also developing a Panchito's $3.99 Buffet(TM) format offering
customers a convenient all-you-can-eat buffet for only $3.99 per person. The
company plans to remodel four existing units to the express format in 2000. This
format is designed to reinvigorate certain smaller or lower sales units.
The company has thus developed a strategy to boost sales and improve margins by
remodeling some units with the Pancho's Buffet & Grill(TM) prototype and by
developing its Panchito's $3.99 Buffet(TM) format in other locations. As it
rolls out these two divergent formats, the company will evaluate their return on
investment potential for remodeling other Pancho's locations.
Management views these two alternative formats as brand extensions of its
existing Pancho's Mexican Buffet(R) restaurants. It will continue to operate and
promote its traditional Pancho's Mexican Buffet(R) units as it develops the
potential for these brand extensions.
The company continues to emphasize a neighborhood marketing strategy to
strengthen Pancho's ties to each restaurant's community. A portfolio of specific
tactics is developed for each location and complemented by company programs such
as the Birthday Club and School Rewards programs and Seniors Club.
Food costs rose 0.3% of sales for the quarter ended March 31, 2000 compared with
the same quarter last year. Food costs were the same as a percentage of sales
for the six months ended March 31, 2000 and 1999.
Due to settlement of claims for substantially less than reserved, the company
reduced its reserves for workers' injury insurance by $647,000 and $809,000 in
the quarter and six months ended March 31, 2000. The company also reduced these
reserves by $199,000 in the quarter and six months ended March 31, 1999. After
eliminating the benefit of these adjustments, labor costs rose 1.6% and 2.0% of
sales for the quarter and half ended March 31, 2000. Wage rate inflation and the
effect of lower sales were the main reasons for this cost increase.
Restaurant operating expenses include occupancy costs, utilities, liability
insurance, maintenance expense, supplies, restaurant marketing and other costs.
Due to the settlement of claims for substantially less than reserved, liability
insurance reserves were reduced by $236,000 and $211,000 for the quarter and
half ended March 31, 2000, and by $49,000 in the quarter and half ended March
31, 1999. After eliminating
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these adjustments, restaurant operating costs rose 0.8% and 1.2% of sales for
the quarter and six months ended March 31, 2000 versus the same period last
year.
Restaurant marketing and promotion expenses were 0.2% and 0.6% of sales more
than the 1999 quarter and half, respectively. Supply costs were also up, mainly
due to the purchase of new uniforms and smallwares for the roll out of new
recipes and salsa bars during the quarter. Many other operating costs, notably
utilities, maintenance and occupancy costs, do not vary directly with sales
volume, so lower sales exerts upward pressure on the cost-to-sales ratio.
The company's Mesquite restaurant was closed from September through November
1999 for a complete reimaging remodel and was reopened in December 1999 under
the new name Pancho's Buffet & Grill(TM). Preopening costs of $43,000 for this
unit were recorded in the first quarter of fiscal 2000, and no preopening costs
were recorded in the prior year because no new or rebranded units were opened in
the prior period. Preopening costs include labor related costs prior to opening,
including recruiting expenses, food costs for preopening testing and training,
and construction supplies.
Other, including interest income includes gains of $30,000 and $11,000 on the
sale of assets in the quarter and half ended March 31, 2000, versus $127,000 and
$237,000 for the same periods last year.
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.
Deferred tax assets net of deferred tax liabilities decreased $181,000 in the
six months ended March 31, 2000, to $7.2 million, due mainly to the reduction in
insurance reserves. The valuation allowance was decreased by the same amount to
match the net deferred tax asset balance. Accordingly, the company recognized no
net tax benefit in the half ended March 31, 2000.
Despite the valuation allowance, the deferred tax assets are still available to
the company for future use. If the company realizes profitability, it may
recognize tax benefits for all or a portion of the deferred tax assets in the
future, when the valuation allowance is reduced or the tax assets realized. The
deferred tax assets include federal employer tax credits and net operating loss
(NOL) carryforwards which expire in years 2009 through 2020, and state NOL
carryforwards which expire in years 2000 through 2015.
For the reasons detailed above, the company had net earnings of $840,000 and
$463,000 for the quarter and half ended March 31, 2000, respectively, compared
with $562,000 and $676,000 for the same periods last year. The company's future
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profitability depends on increasing restaurant revenues and reducing the key
cost factors, particularly labor costs. Management plans to address these issues
with its remodeling brand extension program.
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, remodeling plans, plans to sell assets, ability to pay debt, unit
growth, capital expenditures, future borrowings, future cash flows, claims,
payments and adjustments related to the company's insurance reserves, 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:
the effects of changes in the company's restaurant format or concept; consumer
spending trends and habits; increased competition in the restaurant industry;
weather conditions; the results of claims on the company's insurance reserves;
and laws and regulations affecting labor and employee benefit costs. The company
does not expect to update such forward-looking statements continually as
conditions change, and readers should consider that such statements pertain only
to the date hereof.
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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 February 2, 2000.
Proxies were solicited by the company pursuant to Regulation 14A 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, 1999, and all such
nominees were elected, as detailed below.
<TABLE>
<CAPTION>
Name For Withheld
-------------- ------------- --------
<S> <C> <C>
Hollis Taylor 1,152,734 84,484
Robert L. List 1,155,512 81,706
George Riordan 1,155,442 81,776
</TABLE>
The names of other directors whose terms of office continued after the
meeting are: Jesse Arrambide, III, Tomas Orendain, Rudolph Rodriguez, Jr.,
Samuel L. Carlson and David Oden.
(c) Effective January 1, 1998, the Board of Directors adopted the 1998
Restricted Stock Plan for Nonemployee Directors. The proposal to approve
this plan and to approve the prior issuance of common stock pursuant to the
terms of this plan was voted on at the annual meeting. The plan provides
for the granting of common stock to nonemployee directors of the company.
The proposal to approve this plan and the prior issuance of common stock
under the plan was approved by a vote of stockholders at the meeting, as
detailed below.
<TABLE>
<CAPTION>
Proposal For Against Abstain Not Voted
-------------------------- -------- ------- ------- ---------
<S> <C> <C> <C> <C>
1998 Restricted Stock Plan 587,698 87,968 5,141 556,411
</TABLE>
No other items were voted on at the annual meeting.
(d) not applicable.
page 13
<PAGE> 16
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 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, 2000.
page 14
<PAGE> 17
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.
May 9, 2000 /s/ Hollis Taylor
-----------------------------------
Hollis Taylor, President and Chief
Executive Officer (Principal
Executive Officer)
May 9, 2000 /s/ W. Brad Fagan
-----------------------------------
Brad Fagan, Vice President,
Treasurer, Chief Financial Officer
and Assistant Secretary (Principal
Financial and Accounting Officer)
page 15
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2 Not applicable
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
</TABLE>
<PAGE> 1
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, 2000 and 1999, as indicated in
our report dated April 27, 2000; 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, 2000, is
incorporated by reference in Registration Statements No. 2-86238 and 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
April 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF MARCH 31, 2000 AND THE CONSOLIDATED
CONDENSED STATEMENTS 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-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,508,000
<SECURITIES> 0
<RECEIVABLES> 121,000
<ALLOWANCES> 0
<INVENTORY> 521,000
<CURRENT-ASSETS> 2,327,000
<PP&E> 47,465,000
<DEPRECIATION> 32,252,000
<TOTAL-ASSETS> 18,190,000
<CURRENT-LIABILITIES> 4,905,000
<BONDS> 0
0
0
<COMMON> 149,000
<OTHER-SE> 12,019,000
<TOTAL-LIABILITY-AND-EQUITY> 18,190,000
<SALES> 27,462,000
<TOTAL-REVENUES> 27,462,000
<CGS> 7,307,000
<TOTAL-COSTS> 24,703,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 463,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 463,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463,000
<EPS-BASIC> .32
<EPS-DILUTED> .32
</TABLE>
