<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number:
March 31, 1997 0-20528
AUSTIN'S INTERNATIONAL, INC.
(Name of small business issuer in its charter)
DELAWARE 65-0322000
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2400 E. Commercial Boulevard, Suite 800, Fort Lauderdale, FL 33308
(954) 772-0980
(Address, including zip code, of principal executive offices and telephone
number, including area code of Issuer)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
$.01 PAR VALUE
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $6,839,312
On June 19, 1997 the bid and asked prices of the Issuer's common stock were
$.062 and $.187, respectively, according to O.T.C. quotations furnished by the
National Quotation Bureau, Inc. The aggregate market value of voting stock of
the Issuer held by non-affiliates based on the average of the bid and ask prices
on June 19, 1997 was $495,750.
As of June 19, 1997, 10,003,550 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): [X] Yes [ ] No
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 3 through 6 of Part I, and Item 11
of Part III of this Report is incorporated by reference from the Issuer's
definitive proxy statement to be filed in accordance with Rule 14a-101 in
connection with its 1997 annual meeting of shareholders or from a subsequently
filed amendment to this Report.
<PAGE>
PART I/1/
ITEM I. DESCRIPTION OF BUSINESS
-------------------------------
Austin's International, Inc., a Delaware corporation ("Austin's" or the
"Company"), was incorporated in May 1988 to develop, own and operate a chain
of full-service restaurants specializing in Southwest-style American cuisine.
Austin's restaurants currently offer a wide variety of appetizers, salads, and
award-winning signature items such as babyback ribs and a wide variety of
steaks. The Company prides itself on high-quality cuisine and excellent
service. Austin's International, Inc., a Florida corporation ("Austin's
(Florida)"), formed in May of 1988, is a wholly-owned subsidiary of the
Company. The Company presently has 98 full-time and 36 part-time employees.
The Company, either directly or through its Florida subsidiary, owns and
operates the following restaurants:
FORT LAUDERDALE, FLORIDA--opened in October 1991, occupies 6,400 square
feet and seats approximately 225 customers. The Fort Lauderdale
restaurant also acts as an ongoing training facility for new restaurant
managers.
CORAL SPRINGS, FLORIDA--opened in January 1993, occupies 6,500 square
feet and seats approximately 210 customers.
ORLANDO, FLORIDA--opened in October 1993, occupies 6,500 square feet and
seats approximately 220 customers, and has facilities for outside dining.
PEMBROKE PINES, FLORIDA--opened in January 1994, occupies 4,800 square
feet and seats approximately 203 customers.
MERRIT ISLAND, FLORIDA--opened in June 1996, occupies 9,000 square feet
and seats approximately 245 customers.
On October 1, 1996, the Company sold its Pembroke Pines restaurant for
$330,000 less commission of 10%. The write-off, reflected in the Company's
audited financial statements dated March 31, 1997, was $88,000.
The restaurant industry is highly competitive with respect to price,
service, food quality (including taste, freshness, healthfulness and
nutritional value) and location, and there are numerous well-established
competitors with financial, marketing, personnel and other resources
substantially greater than those of the Company. These competitors include
national, regional and local restaurant chains, many of which specialize in or
offer Southwest-style and other similar menu items. Many of the Company's
competitors have achieved significant national, regional and local brand name
and product recognition and engage in extensive advertising and
- ------------------
/1/Items 1 and 2 of this Part I correspond to Items 6 and 7, respectively, of
Model B of Form 1-A.
2
<PAGE>
promotional programs, both generally and in response to efforts by additional
competitors to enter new markets or introduce new products.
The Company is subject to various federal, state and local laws and
regulations affecting the operations of its restaurants. Difficulties or
failures in obtaining required licenses or other regulatory approvals could
delay or prevent the opening of a new restaurant. The suspension of, or
inability to renew, a license could interrupt operations at an existing
restaurant. In particular, the Company's restaurants will be subject to state
and local licensing and regulation with respect to the sale and service of
alcoholic beverages and to state and federal environmental laws and
regulations. The Company does not anticipate any undue hardship or expense in
complying with such licensing and environmental requirements, laws and
regulations.
On May 10, 1996, the Company issued $500,000 principal amount of its 8%
convertible notes, entitling the holders to convert such notes into newly-
issued shares of common stock of the Company at the stated conversion price of
$.50 per share, subject to certain adjustments. Also effective May 10, 1996,
holders of $1,645,000 aggregate principal amount of the Company's outstanding
8% convertible notes (including those issued on May 10, 1996) converted such
notes into a total of 3,290,000 newly-issued unregistered shares of Common
Stock at the stated conversion price of $.50 per share.
Effective September 26, 1996, the Company accepted the resignation of
Edwin M. Freakley as a Director, Chairman of the Board and Chief Executive
Officer incident to the termination of the related management agreement
between the Company and Worrell Enterprises, Inc. ("Worrell"), under which Mr.
Freakley served the Company in such capacities. The Company and Worrell
waived the 60 days' prior written notice termination requirement under such
agreement.
Effective January 9, 1997, the Company elected Nikos Pharasles to the
Board of Directors, and subsequently, on January 23, 1997, to the Executive
Committee. Mr. Pharasles is currently President of Shelter Ruppert's
Management, Inc., a restaurant group in New York City. He was instrumental in
creating the first unit in 1975. Since then, the Group has developed several
concepts, one of which has grown into a successful multi-unit New York City
take-out, delivery and catering operation. Mr. Pharasles also has extensive
experience in the securities and investment management industries. From July
1980 to January 1985, he held the position of President of Trade Holdings,
Ltd, a U.S.-based holding company with interests in oil and gas exploration,
commodity trading, equity management and venture capital. Previously, he held
executive positions as Deputy Division Head of the Institutional Asset
Management Division of the United States Trust Company, New York. Prior to
that he was a marketing executive with Oppenheimer Capital Corporation.
Effective January 23, 1997, the Board of Directors accepted the
resignation of Elie Sopas as President, Director and member of the Executive
Committee of the Board of Directors, and appointed Larry E. Graybill
President. Mr. Graybill also continues in his capacity as Chief Financial
Officer of the Company.
3
<PAGE>
ITEM 2. PROPERTIES.
------------------
The Company leases space for its office and restaurants and makes
leasehold improvements on the restaurants. The Company leases 4,784 square
feet for its executive offices in Fort Lauderdale, Florida for yearly rental
of $73,438. The restaurant lease in Fort Lauderdale covers 6,400 square feet,
initial leasehold improvements are valued at $394,000 and the annual rental is
$140,000 plus 5% of annual gross sales in excess of $2,800,000. The lease
term expires July 31, 2001. The restaurant lease in Coral Springs, Florida
covers 6,500 square feet, initial leasehold improvements are valued at
$656,700 and the annual rental is $104,640. The initial term expires December
12, 2002 and the Company has one 10-year option to extend the lease. The
Company's restaurant lease in Orlando covers 6,500 square feet. The Company
owns the building subject to a ground lease and the initial leasehold
improvements are valued at $1,244,250. The annual rental under the ground
lease is $150,000 plus 4.5% of annual gross sales in excess of $3,300,000.
The initial term of the ground lease expires August 18, 2022 and the Company
has one five-year option to extend the lease. The Merrit Island lease covers
9,000 square feet, the initial term of the lease is for five years expiring on
May 31, 2001, and the Company has options to extend the lease for three
additional five-year terms. Initial leasehold improvements are valued at
$220,000 and the initial rental is $69,000 plus 4.5% of annual gross sales in
excess of $2,000,000.
PART II/2/
ITEM 7. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
----------------------------------------------------------------
The Company's common stock is quoted on the O.T.C. under the trading
symbol "AUST." The following table indicates the range of high and low bid
prices for the common stock for each full quarterly period within the two most
recent fiscal periods ended March 31, 1997 and March 31, 1996. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Bid Prices
Fiscal Year/1/ Quarter Ending High Low
- ---------------- ------------------ ---- ---
<S> <C> <C> <C>
1995-1996 June 30, 1995 $1.25 0.50
September 30, 1995 1.13 1.00
December 31, 1995 1.13 0.63
March 31, 1996 1.13 0.75
</TABLE>
- ----------------
/2/Items 7 through 12 of this Part II correspond to Items 1 through 6,
respectively, of Alternative Part II of Form 10-KSB.
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
1996-1997 June 30, 1996 $1.06 $ .50
September 30, 1996 0.56 0.38
December 31, 1996 0.38 0.06
March 31, 1997 0.34 0.13
</TABLE>
- ------------
/1/The Company's fiscal year ends March 31 of each year.
The above prices represent inter-dealer quotations, without adjustment
for retail markups, markdowns or commissions and do not necessarily represent
actual transactions. Because of the limited trading activity in the Company's
common stock during the period indicated, the prices may not be representative
of the prices at which the shares would have been traded if there had been a
more active trading market in the shares.
As of June 19, 1997, there were approximately 550 holders of record of
Common Stock. On June 19, 1997, the closing bid and asked prices for the
Company's common stock were $0.62 and $.187 respectively.
On February 12, 1997, the Company's common stock, trading under the
symbol AUST, was delisted from the Nasdaq SmallCap Market as a result of the
Company's failure to meet the minimum bid price requirement as stated in
Nasdaq Marketplace Rule 4310(c)(04). The Company's Board of Directors decided
it would not be in the best interest of the Company and its stockholders to
undertake a reverse split of the Company's outstanding stock solely to regain
compliance with Nasdaq. The Board also devoted considerable efforts to
attract brokers to address the Company's stock price and trading volume
problems, but to date such efforts have been unsuccessful.
Under the Company's 1995 Employee Stock Option Plan, the Company is
authorized to grant options to eligible participants for the purchase of up
3,850,000 shares of Common Stock. Such shares have been registered for
issuance under the Securities Act of 1933, as amended, pursuant to a
Registration Statement on Form S-8 filed by the Company with the Securities
and Exchange Commission on May 17, 1996.
ITEM 8. LEGAL PROCEEDINGS.
-------------------------
None.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------------------------------------------------------------
None.
5
<PAGE>
ITEM 12. REPORTS ON FORM 8-K.
----------------------------
The Company filed an 8-K Current Report dated September 26, 1996, with
the Commission on October 7, 1996. The report covered the resignation of
Edwin M. Freakley as a Director, Chairman of the Board and Chief Executive
Officer of the Company.
The Company filed an 8-K Current Report dated January 23, 1997, with the
Commission on February 7, 1997. The report covered the resignation of Elie
Sopas as President, Director and member of the Executive Committee and the
appointment of Larry E. Graybill as the new President. It also covered the
appointment of Nikos Pharasles to the vacant seat on the Executive Committee
of the Company's Board of Directors.
6
<PAGE>
PART F/S
<TABLE>
<CAPTION>
Page No.
----------
<S> <C>
Report of Independent Accountants........... F-1
Financial Statements:
Consolidated Balance Sheet - As of
March 31, 1996 and March 31, 1997........... F-2
Consolidated Statements of Operations -
For the Fiscal Years Ended
March 31, 1996 and March 31, 1997........... F-3
Consolidated Statements of Changes in
Shareholder's Equity - For the
Fiscal Years Ended March 31, 1996
and March 31, 1997.......................... F-4
Consolidated Statements of Cash Flows -
For the Fiscal Years Ended
March 31, 1996 and March 31, 1997........... F-5
Notes to Consolidated Financial Statements.. F-6 - F-13
</TABLE>
PART III/3/
ITEM 13. INDEX TO EXHIBITS.
--------------------------
Exhibits included herein or incorporated by reference:
<TABLE>
<CAPTION>
<S> <C>
2 Certificate of Incorporation, as amended, and Bylaws,
as amended, of Austin's International, Inc./1/
3 Instruments defining the rights of security holders:
3(a) Specimen Stock Certificates/2/
10 Material Contracts:
10(a) Employment Agreement with Philip R. Connor, Jr. dated
March 4, 1993/1/
10(b) Escrow Agreement dated June 29, 1992/1/
10(c) Lease for Fort Lauderdale restaurant/2/
</TABLE>
- --------------
/3/Items 13 and 14 of this Part III correspond to Items 1 and 2 of
Alternative Part III of Form 10-KSB.
7
<PAGE>
<TABLE>
<S> <C>
10(d) Lease for Coral Springs restaurant/1/
10(e) Lease for Orlando restaurant/1/
10(f) Lease for Pembroke Pines Restaurant/3/
10(j) Austin's International, Inc. 1993 Employee Incentive
Stock Option Plan and Stock Option Plan Agreement
dated June 23, 1993/1/
10(k) Management Consulting Agreement and Escrow
Agreement dated July 1, 1993, with MDC Group Inc./4/
10(l) Termination Agreement with MDC Group, Inc. dated
June 24, 1995/5/
10(m) Agreement with Philip R. Connor, Jr./6/
10(n) Lease for corporate office/6/
10(o) Stock Purchase Agreement dated December 7, 1995,
among Philip R. Connor, Jr., Good Hope Developments
S.A., Miyako Management Pacific Corp., Voleon
Shipping Corporation, ICSOS S.A., and Austin's
International, Inc./7//
10(p) Form of Two-Year 8% Convertible Note/8/
10(q) Form of Subscription Agreement for Two-Year 8%
Convertible Note/8/
10(r) Agreement dated April 4, 1996 between Austin's
International, Inc. and Worrell Enterprises, Inc./9/
10(s) Austin's International, Inc. 1995 Employee Incentive
Stock Option Plan/9/
10(t) Lease for Merrit Island restaurant/9/
*23.1 Consent of Independent Accountants
*27(1) Financial Data Schedule
</TABLE>
*Filed as exhibits to this Report.
8
<PAGE>
/1/ Incorporated by reference from Registrant's Annual Report on Form 10-
KSB for its fiscal year ending March 31, 1993.
/2/ Incorporated by reference from Registrant's Registration Statement on
Form S-18 (No. 33-47357-A).
/3/ Incorporated by reference from Registrant's Annual Report on Form 10-
KSB for its fiscal year ending March 31, 1994.
/4/ Incorporated by reference from Registrant's Current Report on Form 8-K
dated July 27, 1993.
/5/ Incorporated by reference from Registrant's Annual Report on Form 10-
KSB for its fiscal year ending March 31, 1994.
/6/ Incorporated by reference from Registrant's Annual Report on Form 10-
KSB for its fiscal year ending March 31,1995.
/7/ Incorporated by reference from Registrant's Current Report on Form 8-K
dated December 13,1995.
/8/ Incorporated by reference from Registrant's Current Report on Form 8-K
dated May 10, 1996.
/9/ Incorporated by reference from Registrant's Annual Report on Form 10-
KSB for its fiscal year ending March 31, 1996.
ITEM 14. DESCRIPTION OF EXHIBITS.
--------------------------------
23.1 Auditor's Consent for Form S-8
27(1) Financial Data Schedule
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AUSTIN'S INTERNATIONAL, INC.
By: /s/ Larry E. Graybill
------------------------------
Larry E. Graybill
President
June 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Larry E. Graybill President, Chief June 26, 1997
- ----------------------- Financial
Larry E. Graybill Officer and Director
/s/ Panayiotis Kontos Director June 26, 1997
- -----------------------
Panayiotis Kontos
/s/ Nikos Pharasles Director June 26, 1997
- -----------------------
Nikos Pharasles
/s/ James C. Sargent Director June 25, 1997
- -----------------------
James C. Sargent
10
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
FT. LAUDERDALE, FLORIDA
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
<PAGE>
Table of Contents
Pages
Report of Independent Accountants F-1
Consolidated Financial Statements:
Balance Sheets F-2
Statements of Operations F-3
Statements of Changes in Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F6-F13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
of Austin's International, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Austin's
International, Inc. (the "Company") and Subsidiary as of March 31, 1997 and
1996, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Austin's
International, Inc. and Subsidiary as of March 31, 1997 and 1996 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations,
has a working capital deficiency as of March 31, 1997 and has indebtedness
maturing within fiscal 1998 with limited capital resources to meet obligations
as they become due without forebearance on the part of creditors. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans with regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Fort Lauderdale, Florida
May 28, 1997
F-1
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
---------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 171,724 $ 446,497
Accounts receivable 36,473 66,653
Current portion of notes receivable 13,892 0
Inventories 120,785 137,789
Other current assets 83,563 135,457
----------- -----------
Total current assets 426,437 786,396
----------- -----------
Property, equipment and leasehold improvements:
Building and leasehold improvements 2,544,992 2,867,874
Restaurant equipment 1,009,254 1,047,447
Other equipment 133,642 112,162
----------- -----------
3,687,888 4,027,483
Less: accumulated depreciation and amortization (1,332,756) (1,111,175)
----------- -----------
2,355,132 2,916,308
----------- -----------
Non-current portion of notes receivable 60,658 0
Security deposits and other assets 71,394 49,061
----------- -----------
Total assets $ 2,913,621 $ 3,751,765
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 233,608 $ 356,598
Notes payable - current portion 1,068,000 0
Accrued expenses 108,239 204,168
----------- -----------
Total current liabilities 1,409,847 560,766
----------- -----------
Notes payable, less current portion 0 2,013,000
Other liabilities 122,209 137,409
----------- -----------
Total liabilities 1,532,056 2,711,175
----------- -----------
Commitments and contingencies (Notes 1 and 5)
Shareholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized;
10,003,550 and 6,713,550 shares issued and outstanding,
respectively 100,035 67,135
Additional paid-in capital 8,471,553 6,859,453
Accumulated deficit (7,190,023) (5,885,998)
----------- -----------
Total shareholders' equity 1,381,565 1,040,590
----------- -----------
Total liabilities and shareholders' equity $ 2,913,621 $ 3,751,765
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Net sales $ 6,810,456 $ 7,447,591
Other revenues 19,253 8,397
Interest 9,603 9,059
----------- -----------
6,839,312 7,465,047
----------- -----------
Costs and expenses:
Food and beverage 2,534,372 2,829,786
Payroll and related 2,407,022 2,450,539
Other restaurant operating 2,011,166 2,227,134
General and administrative 562,982 496,645
Depreciation and amortization 448,566 361,176
Interest 91,497 156,016
Loss on sale of restaurant 87,732 0
----------- -----------
8,143,337 8,521,296
----------- -----------
Net loss $(1,304,025) $(1,056,249)
=========== ===========
Net loss per share $ (0.14) $ (0.16)
=========== ===========
Weighted average common shares outstanding 9,643,002 6,458,765
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Par Paid-in Accumulated Shareholders'
Shares Value Capital Deficit Equity
----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 6,713,550 $ 67,135 $ 6,529,620 $ (4,829,749) $ 1,767,006
Retirement of stock (1,000,000) (10,000) (160,167) 0 (170,167)
Conversion of debt 1,000,000 10,000 490,000 0 500,000
Net loss 0 0 0 (1,056,249) (1,056,249)
----------- ---------- ------------ ------------ -----------
Balance, March 31, 1996 6,713,550 67,135 6,859,453 (5,885,998) 1,040,590
Conversion of debt 3,290,000 32,900 1,612,100 0 1,645,000
Net loss 0 0 0 (1,304,025) (1,304,025)
----------- ---------- ------------ ------------ -----------
Balance, March 31, 1997 10,003,550 $ 100,035 $ 8,471,553 $(7,190,023) $ 1,381,565
=========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,304,025) $(1,056,249)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss on sale of restaurant 87,732 0
Depreciation and amortization of property, equipment and
leasehold improvements 360,506 361,176
Amortization of pre-opening costs 88,060 0
Changes in operating assets and liabilities:
Accounts receivable 30,180 (31,089)
Inventories 17,004 (7,676)
Other current assets 51,894 69,029
Security deposits and other assets (592) (12,031)
Accounts payable and accrued expenses (218,919) 72,095
Note receivable 5,450 0
Other non-current liabilities (15,200) 6,410
------------ -----------
Net cash used in operating activities (897,910) (598,335)
------------ -----------
Cash flows from investing activities:
Expenditures for property, equipment and leasehold improvements (181,930) (125,987)
Proceeds from sale of restaurant 214,868 0
Pre-opening costs (109,801) 0
------------ -----------
Net cash used in investing activities (76,863) (125,987)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 700,000 843,000
Payments to retire common stock 0 (170,167)
------------ -----------
Net cash provided by financing activities 700,000 672,833
------------ -----------
Net decrease in cash and cash equivalents (274,773) (51,489)
Cash and cash equivalents at beginning of year 446,497 497,986
------------ -----------
Cash and cash equivalents at end of year $ 171,724 $ 446,497
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 101,776 $ 156,109
============ ===========
</TABLE>
Other noncash activities:
In May 1996, noteholders converted $1,645,000 of convertible debt to
3,290,000 shares of common stock.
In October 1996, the Company received an $80,000 promissory note in
connection with the sale of its Pembroke Pines restaurant (Note 10)
During fiscal 1996, noteholders converted $500,000 of convertible debt to
1,000,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Going Concern:
The Company's financial statements for the year ended March 31, 1997 have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal
course of business. The Company incurred net losses of $1,304,025 and
$1,056,249 for the years ended March 31, 1997 and 1996, respectively, and as
of March 31, 1997 had an accumulated deficit and working capital deficiency
of $7,190,023 and $983,410, respectively.
The Company's ability to continue as a going concern is dependent upon its
success in obtaining additional funding and returning the Company to
profitability. In this regard, management has retained an investment banking
firm to assist the Company in pursuing a private placement of up to
$3,000,000 in conjunction with a potential strategic partner. In addition,
unprofitable lunch service has been discontinued totally at two restaurants
and partially at the other two restaurants, and the Merritt Island
Restaurant will be changed to an upscale sports bar, which is expected to
generate increased revenues and profitable operations. However, it is
uncertain whether management's plans will be successful.
2. Organization and Business:
Austin's International, Inc. (the "Company") commenced operations on April
11, 1991. The Company owns and operates Austin's restaurants. There were
four restaurants open in the State of Florida as of March 31, 1996, all of
which are company-owned. On June 1, 1996, the Company opened an additional
restaurant in Merritt Island, Florida. On October 1, 1996, the Company sold
substantially all assets associated with its restaurant in Pembroke Pines,
Florida (See Note 10).
3. Summary of Significant Accounting Policies:
Consolidation Policy
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less from
the date of purchase are considered cash equivalents.
Inventories
Inventories, which consist of food, beverages and supplies, are stated at
the lower of cost (first-in, first-out method) or market.
F-6
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Summary of Significant Accounting Policies, Continued:
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Additions, major renewals and betterments are capitalized, while normal
repairs and maintenance are expensed as incurred. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. Leasehold improvements are amortized on a
straight-line basis over the lease terms or useful lives of the assets,
whichever is shorter. When items are sold or otherwise disposed of, the
related costs and accumulated depreciation are removed from the accounts and
any resulting gains or losses are recognized.
Long-lived assets to be held and used are reviewed for impairment whenever
changes in circumstances indicate that the related carrying amounts may not
be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the asset. The Company does
not believe impairment charges are warranted as of March 31, 1997 and 1996.
Income Taxes
The Company utilizes the liability method of accounting for deferred income
taxes. This method requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Deferred tax assets are also established for the future tax
benefits of loss and credit carryovers. The liability method of accounting
for deferred income taxes requires a valuation allowance against deferred
tax assets if, based on the weight of available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Loss Per Common Share
Loss per common share has been computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the
period. The shares issuable upon the exercise of warrants or vested stock
options have been excluded from the computation since the effect of their
inclusion would be anti-dilutive. Shares issuable upon conversion of the 8%
convertible debt are considered potentially dilutive securities. They have
not been considered in the computation of loss per common share as the
effect would be anti-dilutive.
Advertising and Promotion Expenses
Production costs of future media advertising are deferred until the first
time the advertising takes place. Other advertising and promotion costs are
expensed as incurred.
F-7
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Summary of Significant Accounting Policies, Continued:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amount of notes payable approximates fair value due to the short
term maturities of these notes.
New Accounting Pronouncement
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share ("EPS").
SFAS No. 128 specifies new standards for the computation, presentation and
disclosure requirements for EPS. SFAS No. 128 is intended to improve the EPS
information provided in financial statements by simplifying the existing
computational guidelines, by revising the disclosure requirements to provide
more consistent and meaningful information and by increasing the
comparability of EPS data on an international basis. Some of the changes made
to simplify the EPS computation include: (a) eliminating the presentation of
primary EPS and replacing it with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic
EPS; (b) eliminating the modified treasury stock method and the three percent
materiality provision; and (c) revising the contingent share provisions and
the supplemental EPS data requirements. SFAS No. 128 also makes a number of
changes to existing disclosure requirements. SFAS No. 128 is effective for
financial statements issued for interim and annual periods ending after
December 15, 1997. Due to the anti-dilutive impact of common stock
equivalents, FAS No. 128 should have no impact on the reported earnings per
share.
4. Notes Payable:
During 1996, the Company issued an additional $843,000 in two year 8%
convertible notes payable and exchanged $600,000 of one year 8% convertible
debt for two year debt. As of March 31, 1996, the Company's balance of 8% two
year uncollateralized convertible debt was $2,013,000. Also during fiscal
1996, $500,000 of notes payable were converted into 1,000,000 shares of
common stock. At March 31, 1996, $1,145,000 of the balance of notes payable
were held by related parties.
F-8
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Notes Payable, Continued:
On May 10, 1996, the Company issued to related parties an additional
$500,000 in 8% convertible notes payable and converted $1,645,000 of
convertible notes payable into 3,290,000 shares of common stock at the
stated conversion price of $.50. As of March 31, 1997, the Company's balance
of 8% unsecured convertible debt was $868,000 maturing between October 10,
1997 and February 26, 1998. All of the remaining convertible notes can be
converted into unregistered common shares at a conversion price of $.50. The
number of shares reserved for issuance of common stock upon conversion of
the convertible debt equals the number of shares that may be converted. As
of March 31, 1997, no convertible debt was held by related parties.
In September 1996, the Company issued $100,000 of 90 day uncollateralized
promissory notes. In January 1997, the Company renewed the notes for an
additional 90 days and issued an additional $100,000 of 90 day promissory
notes all of which were due on April 28, 1997. On May 12, 1997, $145,000 of
promissory notes were extended for a 90 day period and additional 90 day
promissory notes were issued for $125,000. On June 9, 1997, $55,000 of
promissory notes were extended for a 90 day period and an additional 90 day
promissory note was issued for $25,000. All promissory notes were issued to
related parties and bear interest at 8% per annum.
5. Commitments and Contingencies:
The Company has entered into noncancelable operating lease agreements
involving land, buildings and equipment relating to its administrative
offices and restaurants. Certain leases include scheduled base rent
increases over the terms of the leases. The total amount of the base rent
payments is being charged to expense on a straight-line basis over the terms
of the respective leases. The Company has recorded a deferred credit to
reflect the excess of rent expense over cash payments since inception of the
leases. Certain leases also provide for contingency rentals based upon a
percentage of sales above specified levels. The following summarizes the
approximate future minimum lease commitments under these operating leases:
Years ending March 31,
1998 $ 544,000
1999 562,000
2000 508,000
2001 497,000
2002 411,000
Thereafter 3,352,000
-----------
$ 5,874,000
===========
Rent expense was approximately $657,000 and $667,000 for the
years ended March 31, 1997 and 1996, respectively.
F-9
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Income Taxes:
A provision for income taxes was not required for the years ended March 31,
1997 and March 31, 1996 due to operating losses.
The significant components of the net deferred tax asset as of March 31,
1997 and 1996 were as follows:
March 31, March 31,
1997 1996
----------- -----------
Deferred tax assets:
Prepaid and other assets $ 37,000 $ 60,000
Net operating loss carryforwards 3,003,000 $ 2,482,000
----------- -----------
3,040,000 2,542,000
Valuation allowance (2,920,000) (2,422,000)
----------- -----------
Deferred tax asset 120,000 120,000
Deferred tax liability:
Depreciation and amortization (120,000) (120,000)
----------- -----------
Net deferred tax liability $ 0 $ 0
=========== ===========
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. The Company has established a
valuation allowance against deferred tax assets of $2,920,000 at March 31,
1997. It is management's belief that it is more likely than not that a
portion of the deferred tax assets will not be realized.
F-10
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Income Taxes, Continued:
The reconciliation between the statutory provision (benefit) for income
taxes and the actual provision is as follows:
March 31, March 31,
1997 1996
---------- ----------
Income tax benefit computed at federal
statutory rate (35%) $ (456,000) $ (369,000)
State tax net of federal benefit (47,000) (38,300)
Net increase in valuation allowance 498,000 564,000
Other, net 5,000 (156,700)
---------- ----------
Income tax provision $ 0 $ 0
========== ==========
The change in valuation allowance from 1996 to 1997 is primarily due to the
increase in the net operating losses for federal and state income tax
purposes.
As of March 31, 1997, the Company had a net operating loss carryforward of
approximately $7,980,000. This loss carryforward begins to expire in 2007.
7. Common Stock:
The Company has sold warrants to purchase up to 95,000 shares of common
stock at an exercise price of $5.64 per share. The warrants expire on August
5, 1997. As of March 31, 1997, no warrants had been exercised.
In connection with two private placements, the Company issued 1,700,000 of
shares of common stock with one detachable warrant for every ten shares of
common stock. Additionally, 100,000 warrants were issued in 1992 for
financial and other services rendered to the Company. All warrants expired
on January 2, 1996.
During 1996, the Company purchased and subsequently retired 1,000,000 shares
of common stock from the former president. The purchase was effected with a
cash payment of $170,167.
F-11
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Option Plans:
On June 2, 1995, the Company adopted a new employee stock option plan,
Austin's Employee Incentive Stock Option Plan (the "Plan"). The Plan
replaced a prior employee stock option plan which was terminated during
fiscal 1996 and resulted in the granting of replacement options under the
new plan. The Plan provides for the granting of options to purchase the
Company's common stock to officers and other employees of the Company. The
Plan, which is administered by the Company's Board of Directors, permits the
granting of incentive stock options at an exercise price per share not less
than the fair market value per share of the Company's common stock on the
date the option is granted. The options, which expire six years from the
date of grant, vest at the rate of 20% per year, the first 20% of which
vests on the grant date. A maximum of 700,000 shares may be issued under the
Plan during the first consecutive twelve month period and 350,000 shares may
be issued during any subsequent consecutive twelve month period. Any options
which are authorized in a period, but not granted, may be granted in any
subsequent period in addition to the options authorized during that period.
The Board of Directors may, however, designate different vesting periods.
The options are nontransferable and are canceled upon termination of
employment. In the event that an employee is terminated or resigns, to the
extent that the options have vested prior to termination of employment, such
options may be exercised within thirty days of termination or resignation of
employment. In addition to the Plan, the Board of Directors has also granted
options to certain other individuals who are not employees.
<TABLE>
<CAPTION>
Austin's Employee Incentive
Option Plan (1995) Non-Plan Options
-------------------------------- -------------------------------
Weighted Weighted
Shares Under Average Shares Under Average
Option Exercise Price Option Exercise Price
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Granted 547,200 $ .88 127,500 $ 0.88
Exercised 0 0.00 0 0.00
Cancelled or expired (17,000) 0.88 0 0.00
Outstanding March 31, 1996 530,200 0.88 127,500 0.88
Granted 330,500 0.38 160,000 0.38
Exercised 0 0.00 0 0.00
Canceled or expired (411,700) 0.68 (100,000) 0.38
----------- ------- -------- --------
Outstanding March 31, 1997 449,000 $ 0.69 187,500 $ 0.69
=========== ======= ======== ========
</TABLE>
At March 31, 1997, 206,700 shares were exercisable under the Plan. In
addition, 90,000 shares were exercisable as a result of non-plan options.
F-12
<PAGE>
AUSTIN'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Stock Option Plans, Continued:
During fiscal 1997, the Company adopted the disclosure provisions of
Statement on Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation". Pro forma information regarding the compensatory impact
of stock options has not been presented since such impact is not considered
material.
9. Termination Agreements:
During 1996, a stock purchase agreement was entered into with the former
president. Pursuant to the agreement, 1,000,000 of his shares were purchased
by the Company and retired. The remaining shares were purchased by existing
shareholders.
10. Sale of Restaurant:
On October 1, 1996, the Company sold substantially all of the assets
associated with its restaurant located in Pembroke Pines, Florida, for
$215,000 in cash and an $80,000 five year promissory note bearing interest
at 8.5% per annum. In connection with this sale, the Company recognized a
loss of $88,000.
F-13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Austin's International, Inc. on Form S-8 (File No. 33-47357 A) of
our report dated May 28, 1997, on our audits of the financial statements of
Austin's International, Inc. as of March 31,1997 and 1996, and for the years
ended March 31, 1997 and 1996, which report is included in this Annual Report
on Form 10-KSB.
Coopers & Lybrand L.L.P.
Miami, Florida
June 25,1997
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 171,724
<SECURITIES> 0
<RECEIVABLES> 50,365
<ALLOWANCES> 0
<INVENTORY> 120,785
<CURRENT-ASSETS> 426,437
<PP&E> 3,687,888
<DEPRECIATION> 1,332,756
<TOTAL-ASSETS> 2,913,621
<CURRENT-LIABILITIES> 1,409,847
<BONDS> 0
0
0
<COMMON> 100,035
<OTHER-SE> 1,281,530
<TOTAL-LIABILITY-AND-EQUITY> 2,913,621
<SALES> 6,810,456
<TOTAL-REVENUES> 6,839,312
<CGS> 2,534,372
<TOTAL-COSTS> 6,952,560
<OTHER-EXPENSES> 1,011,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,497
<INCOME-PRETAX> (1,304,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,304,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,304,025)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)<F1>
<FN>
<F1>See Notes to Consolidated Financial Statements for Fiscal Year ended
March 31, 1997 Note 3. - Loss Per Common Share.
</FN>
</TABLE>
