U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number: 0-24058
ATOMIC BURRITO, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1131343
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1601 NW Expressway, Suite 1610
Oklahoma City, Oklahoma 73118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 848-0996
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 at
least the past 90 days. Yes [X] No [ ]
Shares of Common Stock, $.01 par value,
outstanding as of November 19, 1999 4,814,721
Traditional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE>
ATOMIC BURRITO, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheet - September 30, 1999
Consolidated Condensed Statements of Income -
For the Three Months and Nine Months Ended September 30,
1999 and 1998
Consolidated Condensed Statements of Stockholders' Equity -
For the Nine Months Ended September 30, 1999 and 1998
Consolidated Condensed Statements of Cash Flows -
For the Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Condensed Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Exhibits and Reports on Form 8-K
<PAGE>
ATOMIC BURRITO, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 116,664
Accounts receivable 43,143
Notes and loans receivable 775,642
Notes receivable from related parties 190,340
Inventories 110,369
Prepaid expenses 49,203
Deferred income taxes 102,000
---------------
Total Current Assets 1,387,361
PROPERTY AND EQUIPMENT, at cost
Land and improvements 77,010
Leasehold improvements 1,875,918
Equipment 676,133
Furniture and fixtures 428,865
---------------
3,057,926
Less accumulated depreciation (1,359,895)
---------------
NET PROPERTY AND EQUIPMENT 1,698,031
---------------
OTHER ASSETS:
Deferred income taxes 265,740
Deposits and other 248,370
Investments 231,403
---------------
Total other assets 745,513
---------------
Total Assets $ 3,830,905
===============
</TABLE>
<PAGE>
See accompanying notes.
ATOMIC BURRITO, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 314,261
Accrued expenses 320,344
Notes payable - related parties 45,082
---------------
Notes payable 817,958
---------------
Total current liabilities 1,497,645
Minority Interests 327,154
Stockholders' Equity
Preferred Stock (Note 2) 400,000
Common Stock, $.01 par value; 25,000,000 shares
authorized, 3,814,721 shares issued and outstanding 38,147
Additional paid in capital 4,420,439
Retained (deficit) (2,852,480)
---------------
Total stockholders' equity 2,006,106
---------------
Total liabilities and stockholders' equity $ 3,830,905
===============
</TABLE>
<PAGE>
See accompanying notes.
ATOMIC BURRITO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Beverage and food sales $ 1,358,585 $ 794,031 $ 3,628,218 $ 2,354,196
Admission fees 366,404 407,171 1,129,416 1,055,756
Other revenues 85,104 78,887 320,789 276,963
Sale of partnership
interest (Note 3) -- -- -- 220,000
Sale of fixed assets (Note 3) -- -- 100,000 64,861
------------- ------------- ------------- -------------
TOTAL REVENUES 1,810,093 1,280,089 5,178,423 3,971,776
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of products and services 455,728 305,317 1,280,459 860,172
Depreciation and amortization 88,431 67,821 243,917 202,956
Interest 24,043 6,911 44,737 28,035
General and administrative
expenses 1,273,682 780,933 3,511,200 2,335,655
------------- ------------- ------------- -------------
TOTAL COSTS AND
EXPENSES 1,841,884 1,160,982 5,080,313 3,426,818
INCOME (LOSS) BEFORE TAXES
AND MINORITY INTERESTS (31,791) 119,107 98,110 544,958
PROVISION (BENEFIT) FOR
INCOME TAXES (10,809) -- 33,357 49,670
CHANGE IN VALUATION
ALLOWANCE 10,809 -- (33,357) --
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE
MINORITY INTERESTS (31,791) 119,107 98,110 495,288
MINORITY INTERESTS IN NET
(INCOME) OF CONSOLIDATED
SUBSIDIARIES (13,424) (5,708) (9,515) (33,970)
------------- ------------- ------------- -------------
NET INCOME (LOSS) (45,215) 113,399 88,595 461,318
PREFERRED STOCK DIVIDEND (10,001) (14,800) (13,205) (42,000)
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (55,216) $ 98,599 $ 75,390 $ 419,318
============= ============= ============= =============
EARNINGS (LOSS) PER SHARE $ (.014) $ .026 $ .020 $ .113
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,805,917 3,734,721 3,758,897 3,717,138
============= ============= ============= =============
EARNINGS (LOSS) PER SHARE
ASSUMING DILUTION $ (.014) $ .026 $ .018 $ .113
============= ============= ============= =============
WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING DILUTION 3,805,917 3,734,721 4,235,325 3,717,138
============= ============= ============= =============
</TABLE>
<PAGE>
See accompanying notes.
ATOMIC BURRITO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- Preferred Paid-in Retained Stockholders'
Shares Amount Stock Capital (Deficit) Equity
----------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,634,721 $ 36,347 -- $ 4,314,739 $(3,147,227) $ 1,203,859
Preferred stock issued -- -- 560,000 -- -- 560,000
Preferred stock redeemed -- -- (7,500) -- -- (7,500)
Common stock issued for
investment 100,000 1,000 -- 49,000 -- 50,000
Preferred stock dividends -- -- -- -- (42,000) (42,000)
Net income for the nine months
ended September 30, 1998 -- -- -- -- 461,318 461,318
----------- ---------- ---------- ----------- ------------ -------------
Balance, September 30, 1998 3,734,721 $ 37,347 $ 552,500 $ 4,363,739 $(2,727,909) $ 2,225,677
=========== ========== ========== =========== ============ =============
Balance December 31, 1998 3,734,721 $ 37,347 $ 545,000 $ 4,363,739 $(2,927,870) $ 2,018,216
Preferred stock redemption -- -- (145,000) -- -- (145,000)
Preferred stock dividends -- -- -- -- (13,205) (13,205)
Issuance of common stock 30,000 300 -- 22,200 -- 22,500
Issuance of common stock for
payment of debt 50,000 500 -- 34,500 -- 35,000
Net income for the nine months
ended September 30, 1999 -- -- -- -- 88,595 88,595
----------- ---------- ---------- ----------- ------------ -------------
Balance September 30, 1999 3,814,721 $ 38,147 $ 400,000 $ 4,420,439 $(2,852,480) $ 2,006,106
----------- ---------- ---------- ----------- ------------ -------------
</TABLE>
<PAGE>
See accompanying notes.
ATOMIC BURRITO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 88,595 $ 461,318
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 243,917 202,956
Minority interest in earnings (loss) of subsidiaries 9,515 33,970
Gain on sales of assets (100,000) (284,861)
Deferred tax provision -- 49,670
Changes in assets and liabilities, net of effects of sales of assets
(Increase) decrease in account receivables 24,660 (22,169)
(Increase) decrease in inventories (53,855) 9,068
Decrease in prepaid expenses 56,343 10,639
Increase in deposits and other (208,359) (16,995)
Increase (decrease) in accounts payable 87,177 (101,786)
Increase (decrease) in accrued expenses 14,005 (18,992)
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 161,998 322,818
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated entities (174,003) --
Sale of assets -- 10,000
Net change in notes receivable 105,596 (75,992)
Purchase of property and equipment (792,738) (13,827)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (861,145) (79,819)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 22,500 --
Payments on notes payable (245,145) (160,451)
Proceeds from issuance of notes payable 850,000 88,000
Dividends paid on preferred stock (13,205) (42,000)
Partnership distributions to minority interests (8,750) (10,000)
Redemption of preferred stock (145,000) (7,500)
Minority investment in LLC's 150,000 --
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES 610,400 (131,951)
------------ ------------
NET INCREASE (DECREASE) IN CASH (88,747) 111,048
CASH AT BEGINNING OF PERIOD 205,411 85,949
------------ ------------
CASH AT END OF PERIOD $ 116,664 $ 196,997
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid during the period $ 44,737 $ 21,409
============ ============
Income taxes paid during the period $ -- $ --
============ ============
</TABLE>
<PAGE>
See accompanying notes.
ATOMIC BURRITO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1
In the opinion of Atomic Burrito, Inc. (formerly Western Country Clubs,
Inc.) (the "Company"), the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1999 and the results of operations and cash flow for the three
months and nine months ended September 30, 1999 and September 30, 1998. These
statements are condensed and, therefore, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The statements should be read in conjunction with the
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998. The results of
operations for the nine months ended September 30, 1999 and September 30, 1998
are not necessarily indicative of the results to be expected for the full year.
Note 2
On January 1, 1998, two notes payable to a major stockholder totaling
$378,275 with accrued interest of $21,725 were converted to 40,000 shares of the
Company's Series A 10% cumulative convertible preferred stock. On February 18,
1998, a note payable of $160,000 was converted to 16,000 shares of the Company's
Series B 12% cumulative convertible preferred stock.
During February 1999, $145,000 of Series B preferred stock was redeemed at
face value. The Company issued 50,000 shares of common stock in payment for
$35,000 of professional fees effective June 30, 1999. In July 1999, stock
options for 30,000 shares of common stock were exercised at a price of $ .75 per
share.
Note 3
Effective January 9, 1998, the Company sold its interest in a limited
partnership for $10,000 in cash and a $210,000 note. Due to extensive losses of
the partnership, the investment in the partnership had been reduced to zero in
1995. The sale resulted in a gain of $192,869, net of the tax effect of $27,131.
On February 6, 1998, the Company sold its Indianapolis club to a major
stockholder of the Company for a $600,000 note and the assumption of $490,426 of
long-term debt and $56,341 of accrued interest and taxes, less $13,000 to be
refunded to the buyer. The sale resulted in a gain of $43,890, net of the tax
effect of $7,999 and minority interests of $12,972.
During March 1999, the Company sold two notes receivable totaling $155,000
plus accrued interest thereon, (previously reserved 100%), for a $100,000 note
receivable due March 25, 2000, bearing interest at 6% per annum. This
transaction resulted in a gain of $100,000.
<PAGE>
EXHIBIT 11
ATOMIC BURRITO, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income (loss) $ (45,215) $ 113,399 $ 88,595 $ 461,318
Dividends on preferred stock (10,001) (14,800) (13,205) (42,000)
------------ ------------ ------------ -----------
Net income applicable to common stock $ (55,216) $ 98,599 $ 75,390 $ 419,318
============ ============ ============ ===========
Shares used in computing basic earnings per share 3,805,917 3,734,721 3,758,897 3,717,138
============ ============ ============ ===========
Basic earnings per common share $ (.014) $ .026 $ .020 $ .113
============ ============ ============ ===========
DILUTED EARNINGS PER SHARE:
Net income (loss) $ (55,216) $ 98,599 $ 75,390 $ 419,318
============ ============ ============ ===========
Shares used in computing basic earnings per share 3,805,917 3,734,721 3,758,897 3,717,138
Effect of shares issuable under:
Conversion of preferred stock * * * *
Common stock warrants under treasury stock method * * 295,588 *
Common stock options under treasury stock method * * 180,840 *
------------ ------------ ------------ -----------
Shares used in computing diluted earnings per share 3,805,917 3,734,721 4,235,325 3,717,138
============ ============ ============ ===========
Diluted earnings per common share $ (.014) $ .026 $ .018 $ .113
============ ============ ============ ===========
*Anti-dilutive
</TABLE>
<PAGE>
PART 1 - Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB under "Part I, Item 2. Management's
Discussion and Analysis" constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other facts which may cause the actual results, performance or
achievements of Western Country Clubs, Inc. (the "Company") and its nightclubs
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions;
competition; success of operating initiatives; development and operating costs;
advertising and promotional efforts; adverse publicity; customer appeal and
loyalty; availability, locations and terms of sites for the "Atomic Burrito"
concept; changes in business strategy or development plans; quality of
management; availability, terms and development of capital; business abilities
and judgment of personnel; availability of qualified personnel; food, labor and
employee benefit costs; changes in, or the failure to comply with, government
regulations; regional weather conditions; construction schedules; and other
factors. The use in this Form 10-QSB of such words as "believes," "anticipates,"
"expects," "intends," and similar expressions are intended to identify
forward-looking statements, but they are not the exclusive means of identifying
such statements. The success of the Company is dependent on the efforts of the
Company and its management and personnel and the manner in which they operate
and develop the Company's core business of nightclubs and restaurants.
The following discussion and analysis should be read in conjunction with
the Company's unaudited Consolidated Condensed Financial Statements and Notes
thereto appearing elsewhere in this Report.
General
The Company commenced operations in April 1993 with a country-western nightclub
in Indianapolis, Indiana (the "Indy Club"). In April 1994 the company opened a
nightclub in a suburb of St. Louis, Missouri (the "St. Louis Club"). The Company
financed these clubs through limited partnerships in which it was the general
partner. In May 1994 the Company completed its initial public offering of
securities and subsequently purchased the partners' interest in the St. Louis
Club and purchased and/or developed nightclubs in Tucson, Arizona and in
Atlanta, Georgia. Subsequently, all of these clubs except the St. Louis Club
were closed and sold due to a lack of profitability.
Today the Company's focus is on the development of its "Fresh-Mex" restaurant
concept, Atomic Burrito, which the Company began in 1998 through the efforts of
current management. The concept has been successful in the initial restaurants
which have been opened. The Company has also applied for trademark protection
from the United States Trademark and Patent Office, with no final determination
made as of June 30, 1999. As of that date, the Company has five (5) Atomic
Burrito restaurants in operation, three of which are "licensed" to third-party
owner/operators, and the other two being joint-ventures wherein the Company has
a 60% ownership interest. In addition, a sixth Atomic Burrito restaurant is
under construction in Houston, Texas, in which the Company will have a 50%
joint-venture ownership interest. The Company also currently operates two
country-western themed nightclubs known as "InCahoots" in St. Louis and in
Wichita, Kansas.
Current management came into control of the Company in September 1996 when then
President and largest shareholder Troy H. Lowrie entered into a Stock Purchase
Agreement whereby (i) Red River Concepts, Inc., a Delaware corporation ("Red
River"), or its designees would acquire in three installments 1,300,000 shares
of Mr. Lowrie's common stock; (ii) new management assumed control of the
operations of the Company; and (iii) James E. Blacketer, current Company
President, and Joe R. Love, current Company Board Chairman, both directors at
the time of Red River, were appointed to the Company's Board of Directors. The
change of control was completed in October 1996.
Subsequently, on December 16, 1996, new management acquired a nightclub in
Wichita, Kansas (the "Wichita Club") for 400,000 shares of the Company's Common
Stock and assumption of $150,000 in debt. The Wichita Club was owned in part by
entities affiliated with Blacketer and Love, directors of the Company. See Item
12, "Certain Relationships and Related Transactions."
In June 1998, the Company formed a subsidiary corporation, Atomic Burrito, Inc.
through which to develop its new restaurant concept. Subsequently, Atomic
Burrito, Inc. entered into license agreements for two "Atomic Burrito"
restaurants to be located in Stillwater and in Norman, Oklahoma, and entered
into a third license agreement for a restaurant in Longview, Washington. In
addition, in October 1998, the Company entered into a joint venture agreement
with New York Bagel Enterprises, Inc., ("New York Bagel") for the joint
development of "Atomic Burrito" restaurants. The agreement provides for New York
Bagel to contribute certain of its restaurant locations, including leases,
leasehold improvements and equipment for a 40% interest in the operation, while
the Company would contribute up to $150,000 for the remodel and conversion
costs, as well as for additional necessary equipment. The agreement also
provides for the joint development of a minimum of four and maximum of eight
"Atomic Burrito" restaurants over an 18 month period. The first Atomic Burrito
restaurant pursuant to this agreement opened in March 1999 in Tulsa, Oklahoma,
while the second restaurant opened in April 1999 in Wichita, Kansas.
The Company has also entered into a letter of intent which was announced
publicly on May 10, 1999, whereby the Company intends to acquire substantially
all of the assets of New York Bagel. However, many of the terms of the letter of
intent have been, or are anticipated to be, modified as a result of further
discussions between the Company and New York Bagel. The Company and New York
Bagel are in the process of negotiating the structure of the proposed
transaction, and the consummation of the transaction is subject to many
contingencies, including without limitation, negotiation and execution of a
definitive agreement, approval of the respective Boards of Directors of both
parties to the proposed transaction, approval of the shareholders of New York
Bagel, and completion of due diligence. On September 29, 1999 both companies
entered into an agreement terminating both the letter of intent and the joint
venture agreement. This agreement also provided for the purchase by the Company
of New York Bagel's minority interests of 38% and 40%, respectively, in the
Tulsa and Wichita restaurants for $175,000, contingent upon the Company
obtaining acceptable financing. At September 30, 1999, such financing had not
been obtained. The Company filed an FORM 8-K on October 7, 1999 disclosing this
agreement.
On August 31, 1999 at a shareholders meeting, approval was obtained from the
shareholders to reincorporate the Company in the State of Oklahoma and to change
the name of the Company from Western Country Clubs, Inc. to Atomic Burrito, Inc.
These changes were subsequently accomplished in early September, 1999. At the
same time, the company's subsidiary Atomic Burrito, Inc. changed its name to
Atomic Development, Inc. and the Company's stock symbol was changed by NASDAQ
from WCCI to ATOM.
Liquidity and Capital Resources
As of September 30, 1999, the Company had cash of $116,664, which was generated
from operating activities, financing activities, and investing activities. This
amount represents a decrease of $61,393 or 34% from cash at the end of the
second quarter of 1999, which resulted primarily from increased expenditures for
the construction of the Atomic Burrito unit in Houston during the quarter, as
well as continuing costs of developing the Atomic Burrito concept, the cost of
the annual shareholders meeting and the cost of changing the Company's name to
Atomic Burrito, Inc., and the cost of hiring and training additional personnel
for the future Atomic Burrito restaurants.
As of September 30, 1999, the Company's working capital position (current assets
minus current liabilities) was a negative $110,284, compared to $38,726 at the
end of the second quarter of 1999. This decrease is primarily due to the
associated costs incurred in the construction and opening of the Atomic Burrito
restaurant in Houston during the quarter, the increased payables and short-term
liabilities which resulted therefrom, and the increased amount of financing for
construction of the Houston Atomic Burrito unit, which financing was classified
as a current liability, while the corresponding use of the cash is in the
Company's investment in the Houston Atomic Burrito joint venture, which is not
classified as a current asset. This negative working capital position is an
expected result of continued development of the Atomic Burrito concept and
results from the method of financing used by the Company for such development,
and management does not believe that there is any problem with the Company's
ability to continue its business as a result.
Property and equipment primarily consists of assets required for the operation
of the St. Louis and Wichita nightclubs, as well as the Atomic Burrito
restaurants in Tulsa, Wichita, and Houston. Leasehold improvements totaled
$1,875,918 at the end of the quarter, furniture, fixtures and equipment totaled
$1,104,998; and land and improvements totaled $77,010. These items are
substantially the same as at the end of the second quarter.
The Company's total liabilities at September 30,1999 were $1,497,645, an
increase of $147,956 from the end of the second quarter. The total liabilities
reflect accounts payable, accrued expenses and notes payable. The notes payable
of $817,958 primarily reflect the Company's borrowings from banks to finance the
construction of the Atomic Burrito restaurants in Tulsa, Wichita and Houston.
The Company continues to have no long term debt at the end of the third quarter,
though it is expected that some of the financing will be restructured by the
banks during the fourth quarter thus causing some of the notes payable to be
classified as long term debt in the future, which will also have a positive
effect on the Company's working capital position. The increase in total
liabilities during the quarter from the end of the second quarter resulted
almost totally from the additional financing for the Houston Atomic Burrito
restaurant. The Company's accounts payable increased by only $18,856 during the
quarter, indicating continued ability of the Company to pay its bills during the
quarter.
Based on the results of the third quarter of 1999, Company management is
comfortable that the existing operations can adequately support the Company's
debt level in the future and also support future expansion, assuming adequately
structured financing.
Results of Operations - Quarter Ended September 30, 1999, Compared to the
Quarter Ended September 30, 1998
For the period ended September 30, 1999, total revenue of the Company increased
by $530,004 or 41% to $1,810,093 as compared to $1,280,089 for the same period
in 1998. This increase resulted primarily from the additional revenues generated
by the Tulsa, Wichita Atomic Burrito restaurants, which were not open during the
same period in 1998, as well as increased revenue from the Company's two
nightclubs. The increase in revenue at the nightclubs continues a trend started
earlier this year and is indicative of management's continued improvement in the
operations at the nightclubs. The Atomic Burrito restaurants continue to perform
well and generate revenues for the Company.
The Company's total costs and expenses during the current period increased by
$680,902 or 58% to $1,841,884 as compared with $1,160,982 during the same period
in 1998, reflecting additional costs associated with the opening of the Houston
Atomic Burrito unit during the quarter, as well as the costs associated with the
operation of the Tulsa and Wichita Atomic Burrito units during the quarter. In
addition, the Company experienced additional costs of hiring and training
personnel for the future Atomic Burrito restaurants. Also, increased business at
the nightclubs resulted in increased expenses as well. The increase in costs and
expenses for the quarter is normal and was anticipated by management since there
were no Atomic Burrito units open during the same period a year ago.
The Company's net loss for the current period of ($45,215) is substantially less
than the profit of $113,399 the Company made during the third quarter of 1998.
The primary reasons for the loss and the decline from the same period a year ago
were the costs of developing the Atomic Burrito concept, start-up costs and
pre-opening expenses of the Houston Atomic Burrito restaurant, as well as
additional hiring and training costs of new personnel for the Atomic Burrito
restaurants. Management does not believe that the loss during the quarter is
material nor does management believe that the loss reflects any problem with the
Company's basic operations, including its nightclubs and the Atomic Burrito
restaurants. On the contrary, management believes that the future of the Atomic
Burrito concept is bright and expects to see additional Atomic Burrito units
developed in the future. The Atomic Burrito units continue to perform well and
generate cash flow for the Company and the Company's nightclubs also show
increased profitability. Management expects a bright future and expects the
Company to return to profitability in the fourth quarter of 1999.
Results of Operations - Nine Months Ended September 30, 1999 Compared to
the Nine Months Ended September 30, 1998
For the nine months ended September 30, 1999, total revenues increased by
$1,206,647 or 30% to $5,178,423 compared to $3,971,776 for the same nine month
period in 1998. This increase in revenues is primarily due to the three Atomic
Burrito restaurants which opened during 1999 and were not open in the prior
period, as well as to the increased revenues generated by the Company's two
nightclubs. Total costs and expenses during the nine months ended September 30,
1999 increased by $1,653,495 to $5,080,313 compared to $3,426,818 in the prior
period, again reflecting primarily the increased cost and expense of opening and
operating the Atomic Burrito restaurants.
The Company's income for the first nine months of 1999 was $88,595 compared with
income of $461,318 for the first nine months of 1998. This decrease in net
income can be partly attributed to the sale in 1998 of a partnership interest
owned by the Company whereby a gain of $220,000 was recognized. This
non-recurring transaction represented almost 50% of the Company's income during
the first nine months of 1998 and affects a comparison with 1999 income for the
same period. The Company's income for the first nine months of 1999 does reflect
the continued cost of expanding the Atomic Burrito concept, and the cost of
building an infrastructure to support the growing needs of the concept. Company
management believes that the reduction in income for the period as compared to
the prior year generally reflects the growth of the Atomic Burrito concept, with
three new restaurants built during 1999 to date, with another expected to be
built during the fourth quarter of 1999. While management is not pleased with
the lower income, it is pleased with the development of the Atomic Burrito
concept and believes that the future of the Company is dependent upon continued
growth and expansion of the Atomic Burrito concept. In that regard, management
recognizes that the Company is sacrificing some profitability in the short term
in exchange for long term growth and profitability with the expansion of the
Atomic Burrito concept. Therefore, the Company continues to put much of its
resources, both monetary and human, into the continued development of the Atomic
Burrito concept. Management believes this direction and emphasis will ultimately
lead to increased profitability. The ability of the Company to continue to raise
capital for the expansion of this concept will determine future profitability of
the Company, and management believes it will continue to have success in
attracting and generating financing for such expansion.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Special Note: Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" for additional factors relating to
such statements.
InCahoots Limited Partnership ("InCahoots"), owner of the Wichita Club, was
a party to a lawsuit claiming negligence on the owner/operator's part, which
action resulted in a jury award in the fall of 1997 in favor of the plaintiff in
the amount of $771,000 plus court costs, expenses and interest. Shortly
thereafter, the partnership's insurance carrier won a declaratory judgment
against the partnership declaring that the carrier was not obligated to provide
coverage against the plaintiff's claims. In February of 1998, the Company and
the partnership entered into an Agreement and "Covenant Not to Execute," whereby
InCahoots agreed to pay the plaintiff $166,808 over two years, plus 100,000
shares of the Company's common stock and 200,000 warrants to purchase the
Company's common stock in exchange for a covenant by the plaintiff not to
attempt collection of the judgment against InCahoots so long as the agreed
payments were made. The Agreement and Covenant allow the plaintiff to pursue
collection of the judgment against the insurance carrier. The Company recorded
settlement costs of $216,808 for the year ended December 31, 1997, to reflect
the impact of this Agreement.
The Company is involved in various other legal actions associated with the
normal conduct of its business operations. No other such actions involve known
material gain or loss contingencies not reflected in the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
On March 31, 1999 at a specially called Meeting of the Shareholders of the
Company, the Shareholders approved a resolution allowing the Board of Directors
of the Company to effect a reverse split of the Company's common stock. The need
for such authority arose from concern of Company management regarding the
Company's ability to continue the listing of its Common Stock on the Nasdaq
SmallCap Market. Subsequent to the shareholder vote, the Company met all
requirements of Nasdaq SmallCap Market for continued listing and no action was
taken by the Company's Board of Directors. However, the authority granted the
Board of Directors to effect such a reverse split of the Company's Common Stock
extended through the end of calendar 1999. At the present time, the Company has
no plans to take any action pursuant to the authority granted by the
Shareholders. However, the Company's Board of Directors continues to monitor the
Company's listing status with Nasdaq SmallCap Market.
On August 31, 1999 at the Annual Meeting of the Shareholders of the Company, the
shareholders elected four directors to serve until the 2000 Annual Meeting of
Shareholders, approved a resolution allowing the Company to reincorporate into
Oklahoma, and changing the name of the Company to Atomic Burrito, Inc. In
addition, the shareholders approved the Company's Omnibus Equity Compensation
Plan.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
November 19, 1999 ATOMIC BURRITO, INC.
/s/ James E. Blacketer
-------------------------
By: James E. Blacketer
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 116,664
<SECURITIES> 0
<RECEIVABLES> 43,143
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,387,361
<PP&E> 3,057,926
<DEPRECIATION> 1,359,895
<TOTAL-ASSETS> 3,830,905
<CURRENT-LIABILITIES> 1,497,645
<BONDS> 0
0
400,000
<COMMON> 38,147
<OTHER-SE> 1,567,959
<TOTAL-LIABILITY-AND-EQUITY> 3,830,905
<SALES> 3,628,218
<TOTAL-REVENUES> 5,178,423
<CGS> 1,280,459
<TOTAL-COSTS> 5,080,313
<OTHER-EXPENSES> 3,755,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,737
<INCOME-PRETAX> 98,110
<INCOME-TAX> 33,357
<INCOME-CONTINUING> 98,110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,595
<EPS-BASIC> 0.020
<EPS-DILUTED> 0.018
</TABLE>
