10QSB
Form 10QSB for Atomic Burrito, Inc.
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 June 30, 2000
Commission File Number: 0-24058
ATOMIC BURRITO, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-1571194
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1601 NW Expressway, Suite 1910
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, $.001 par value,
Outstanding as of June 30, 2000 4,601,621
---------
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 - June 30, 2000
Consolidated Condensed Statements of Income For the three
and six months ended June 30, 2000 and 1999
Consolidated Condensed Statements of Stockholders Equity
For the six months ended June 30, 2000 and 1999
Consolidated Condensed Statements of Cash Flows For the
six months ended June 30, 2000 and 1999
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.
FORMERLY WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
<PAGE>
TABLE OF CONTENTS
Page No.
--------
FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet................................ 1
Consolidated Condensed Statements of Income......................... 3
Consolidated Condensed Statements of Stockholders' Equity........... 4
Consolidated Condensed Statements of Cash Flows..................... 5
Notes to Consolidated Condensed Financial Statements................ 7
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
Page 1 of 2
ASSETS
<TABLE>
CURRENT ASSETS:
<S> <C>
Cash $ 174,851
Accounts receivable 48,196
Accounts receivable due from related party 10,000
Current portion of note due from affiliate 170,000
Note receivable 28,642
Inventories 104,596
Prepaid expenses 52,635
----------
Total current assets 588,920
----------
PROPERTY AND EQUIPMENT: 4,375,077
Accumulated depreciation (1,671,045)
----------
2,704,032
----------
OTHER ASSETS:
Note from affiliate, net of current portion
shown above 460,000
Deferred income taxes 100,000
Goodwill, net of accumulated amortization
of $81,158 at June 30, 2000 126,157
Covenant not to compete 210,000
Deposits and other 150,937
Investment 657,400
----------
1,704,494
----------
$ 4,997,446
==========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
CURRENT LIABILITIES:
<S> <C>
Accounts payable $ 765,047
Accounts payable - affiliates 82,626
Accrued liabilities 331,786
Notes payable - related parties 78,005
Current portion of long-term debt 754,694
Current portion of capital leases 37,952
----------
Total current liabilities 2,050,110
----------
LONG-TERM DEBT, net of current portion shown above 345,925
----------
OBLIGATION UNDER CAPITAL LEASE,
net of current portion shown above 167,973
----------
MINORITY INTERESTS 218,637
----------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
10% convertible preferred stock, $10 par value,
500,000 shares authorized, 100,000 shares
issued and outstanding at June 30, 2000 1,000,000
12% convertible preferred stock, $10 par value,
100,000 shares authorized, no shares issued
and outstanding at June 30, 2000 -
Common stock, $.001 par value, 25,000,000 shares
authorized; 4,601,621 shares issued and
outstanding at June 30, 2000 4,602
Additional paid-in capital 5,028,909
Accumulated deficit (3,818,710)
----------
Total stockholders' equity 2,214,801
----------
$ 4,997,446
==========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Beverage and food sales $ 1,630,105 $ 1,345,258 $ 3,334,745 $ 2,269,633
Admission fees 245,822 401,185 516,289 763,012
Gain on sale of assets - - - 100,000
Other income 107,786 136,925 206,861 235,685
------------ ------------ ------------ ------------
1,983,713 1,883,368 4,057,895 3,368,330
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products and services 1,955,520 1,588,864 3,827,030 2,664,095
General and administrative expense 163,465 238,842 369,820 398,154
Depreciation and amortization 107,243 87,760 220,554 155,486
Interest expense 47,935 12,591 77,914 20,694
------------- ------------ ------------ ------------
2,274,163 1,928,057 4,495,318 3,238,429
------------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTERESTS (290,450) (44,689) (437,423) 129,901
INCOME TAX (EXPENSE) - - - -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTERESTS (290,450) (44,689) (437,423) 129,901
MINORITY INTERESTS IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES 34,197 16,702 45,840 3,909
------------ ------------ ------------ ------------
NET INCOME (LOSS) (256,253) (27,987) (391,583) 133,810
PREFERRED STOCK DIVIDENDS - - - (3,204)
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (256,253) $ (27,987) $ (391,583) $ 130,606
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ (0.06) $ (0.007) $ (0.09) $ 0.035
============ ============ ============ ============
DILUTED EARNINGS PER SHARE N/A $ N/A N/A $ 0.032
============ ============ ============ ============
AVERAGE COMMON AND COMMON EQUIVALENT:
BASIC SHARES 4,364,214 3,735,270 4,310,499 3,734,721
============ ============ ============ ============
DILUTED SHARES 6,751,314 3,735,270 6,697,599 4,121,227
============ ============ ============ ============
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
10% Convertible 12% Convertible
Preferred Stock Preferred Stock Common Stock
-----------------------------------------------------------------
Number Value Number Value Number $0.001 Additional Total
of of of of of par Paid-In Accumulated Stockholders'
Shares Shares Shares Shares Shares Value (1) Capital (1) Deficit Equity
---------------------------------------------------------------------------------------------------------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998 40,000 $ 400,000 14,500 $ 145,000 3,734,721 $ 3,735 $ 4,397,351 $ (2,927,870) $ 2,018,216
Redemption of
preferred stock - - (14,500) (145,000) - - - - (145,000)
Cash dividends:
Preferred -
$1 per share - - - - - - - - -
$1.20 per share - - - - - - - (3,204) (3,204)
Issuance of common stock for
payment of debt 50,000 500 34,500 35,000
Net income for the
six months ended
June 30, 1999 - - - - - - - 133,810 133,810
---------------------------------------------------------------------------------------------------------
Balance,
June 30, 1999 40,000 $ 400,000 - $ - 3,784,721 $ 3,735 $ 4,431,851 $ (2,797,264) $ 2,038,822
=========================================================================================================
Balance,
December 31, 1999 40,000 $ 400,000 - $ - 4,235,721 $ 4,236 $ 4,754,851 $ (3,427,127) $ 1,731,960
Exercise of stock options - - - - 165,900 166 124,258 - 124,424
Preferred Stock issued 60,000 600,000
Common stock issued
to purchase interest
in Boots, Inc. 200,000 200 149,800
Cash dividends:
Preferred -
$1 per share - - - - - - - - -
Net loss for the
six months ended
June 30, 2000 - - - - - - - (391,583) (391,583)
---------------------------------------------------------------------------------------------------------
Balance,
June 30, 2000 100,000 $1,000,000 - $ - 4,601,621 $ 4,602 $ 5,028,909 $ (3,818,710) $ 1,464,801
=========================================================================================================
</TABLE>
(1) The common stock and additional paid-in capital have been adjusted
retroactively to reflect the change in par value from $0.1 to $.001 which
occurred on September 3, 1999.
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Page 1 of 2
<TABLE>
<CAPTION>
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(391,583) $ 133,810
Adjustments to reconcile net loss to net cash
provided by operating activities -
Depreciation and amortization 220,554 155,486
Gain on sale of assets - (100,000)
Minority interests in earnings of subsidiaries (45,840) (3,909)
Changes in assets (increase) decrease -
Accounts receivable 20,158 19,113
Inventories (8,948) (29,695)
Prepaid expenses (14,616) 84,575
Deposits and other assets (11,934) -
Changes in liabilities increase (decrease) -
Accounts payable 162,673 68,321
Accrued expenses 13,228 31,379
---------- ----------
Net cash provided by (used in)
operating activities (56,308) 359,080
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to related parties - (34,000)
Repayments of notes receivable - 153,090
Capital advance for formation of
unconsolidated investee - (29,189)
(Increase) decrease in deposits and other assets - (112,982)
Acquisition of property and equipment (331,504) (820,030)
---------- ----------
Net cash provided by (used in)
investing activities (331,504) (843,111)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions to minority interests (2,500) (3,500)
Minority interest investments in LLC's - 150,000
Sale of common stock 124,424 -
Retirement of preferred stock - (145,000)
Payments of dividends - (3,204)
Borrowings under notes payable 242,735 627,500
Repayments of notes payable (100,126) (169,119)
Borrowings under capital leases 128,142
Repayments of capital lease (2,634) -
---------- ----------
Net cash provided by (used in)
financing activities 390,041 456,677
---------- -----------
NET INCREASE (DECREASE) IN CASH 2,229 (27,354)
CASH, BEGINNING OF PERIOD 172,622 205,411
---------- -----------
CASH, END OF PERIOD $ 174,851 $ 178,057
=========== ===========
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Page 2 of 2
<TABLE>
<CAPTION>
2000 1999
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C>
Cash paid for interest $ 77,914 $ 20,694
========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During March 1999, the Company sold its rights to a note receivable,
previously written off, for a $100,000 note receivable due from the
affiliate.
During June 2000, the Company issued 60,000 shares of 10% convertible
Preferred Stock in exchange for 120,000 shares of The National Capital
Companies, Inc. common stock.
During June 2000, the Company issued 200,000 shares of its common stock in
exchange for the 20% interest in Boots, Inc. not owned by the Company,
resulting in goodwill of $89,704.
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS OPERATIONS
These consolidated condensed financial statements have been prepared by
Atomic Burrito, Inc. (the "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods,
on a basis consistent with the annual audited financial statements. All
such adjustments are of a normal recurring nature. Certain information,
accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the financial statements and information presented not
misleading. These financial statements should be read in conjunction
with the financial statements and the summary of significant accounting
policies and notes thereto included in the Company's most recent annual
report on Form 10-KSB.
Atomic Burrito, Inc. (the "Company"), was incorporated on July 19, 1999
as Western Oklahoma, Inc. On September 3, 1999, Western Oklahoma, Inc.,
a shell corporation, was merged with Western Country Clubs, Inc., a
Colorado corporation, incorporated on December 19, 1989. Western
Oklahoma, Inc. became the surviving corporation in this merger. On
September 3, 1999, Western Oklahoma, Inc. changed its name to Atomic
Burrito, Inc. These financial statements include the activity of Western
Country Clubs, Inc. prior to its merger with Western Oklahoma, Inc.
The Company's current focus is on the development of its "Atomic
Burrito" restaurants. In June 1998, the Company formed a subsidiary
corporation, Atomic Burrito, Inc., through which to develop a new
restaurant concept. 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 per location for the remodel and conversion
costs, as well as for additional equipment. Two restaurants, one in
Tulsa and one in Wichita, were opened under this joint venture
agreement. In September of 1999, the Company and New York Bagel agreed
to terminate any future development under the joint venture, and New
York Bagel gave the Company an option to purchase its interest in these
two restaurants for $175,000.
<PAGE>
The Company's subsidiaries and divisions are as follows:
Western Country Club 1, Ltd. ("Indy") is a limited partnership formed
on January 19, 1993. Indy owned and operated a nightclub in
Indianapolis, Indiana, which was sold in early 1998. As of March 31,
2000 and December 31, 1999, this partnership owns $600,000 in notes
receivable, $480,000 of which are to be distributed to the Company in
liquidation of its 80% ownership interest in this partnership.
The St. Louis division of the company was acquired on October 7,
1994. This division operates a nightclub in St. Louis, Missouri.
Entertainment Wichita, Inc. ("EWI"), a wholly owned subsidiary, owns
an 100% interest in In Cahoots, Ltd. ("In Cahoots"). In Cahoots is a
limited partnership that owns and operates a nightclub in Wichita,
Kansas (Notes 6 and 12).
Atomic Development, Inc. ("Development"), formerly known as Atomic
Burrito, Inc., a wholly owned subsidiary formed in 1998 to develop a
"Fresh-Mex" restaurant featuring a Mexican menu emphasizing fresh
ingredients and made-to-order burritos.
AB of Tulsa-I, L.L.C., was formed in 1998 to operate an Atomic
Burrito restaurant in Tulsa, Oklahoma. The Company owns 57% of this
limited liability company.
AB of Wichita-I, L.L.C. was formed in 1998 to operate an Atomic
Burrito restaurant in Wichita, Kansas. The Company owns 60% of the
limited liability company.
AB of Houston-I, L.L.C. was formed in 1999 to operate an Atomic
Burrito restaurant in Houston, Texas. The Company owns 50% of the
limited liability company.
AB of OKC-I, L.L.C. was formed in 1999 to operate an Atomic Burrito
restaurant in Oklahoma City, Oklahoma. The Company owns 100% of the
limited liability company.
AB of Norman-I, L.L.C. was formed in 1999 to operate an Atomic
Burrito restaurant in Norman, Oklahoma. The Company owns 100% of the
limited liability company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Company:
Cash and cash equivalents - The company considers all highly
liquid investments with original maturities of three months or
less to be cash equivalents.
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 disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts or revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
<PAGE>
Consolidation - The consolidated financial statements include the
accounts of the Company and all of its wholly owned and majority
owned subsidiaries, limited liability companies and partnerships
as described in Note 1 above. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Investments - Investments in partnerships in which the company
owns less than a 20% interest are accounted for on the cost basis
reduced by any permanent impairments in the investments carrying
value.
Inventories - Inventories consist of liquor, wine, beer, boutique
items, and food items. Inventories are stated at the lower of
cost (first-in, first-out) or market.
Depreciation and amortization - Property and equipment are stated
at cost. Depreciation is provided using the straight-line method
over the assets' estimated useful lives as follows: land
improvements, 10-15 years; building and improvements, 10-30
years; leasehold improvements, 7-10 years; equipment, 7-10 years;
furniture and fixtures, 7-10 years.
Intangibles - Organization costs, liquor license costs and
goodwill are amortized over five years. The covenant not to
compete is amortized over 15 years.
Marketable Equity Securities - Marketable securities which are
available-for-sale are recorded at fair value in investments on
the balance sheet, with the change in fair value during the
period excluded from earnings and recorded net of tax as a
component of other comprehensive income.
Measurement of impairment - At each balance sheet date, the
Company reviews the amount of recorded goodwill, covenant not to
compete, related nightclub assets and the related restaurant
assets (separately by club and restaurant) for impairment.
Whenever events or changes in circumstances indicate that the
carrying amount of the expected cash flows from these assets is
less than the carrying amount of these assets, the Company will
recognize an impairment loss in such period in the amount by
which the carrying amount of the assets exceeds the fair value of
the assets.
Repairs and maintenance - Normal costs incurred to repair and
maintain fixed assets are charged to operations as incurred.
Repairs and betterments, which extend the life of an asset, are
capitalized and subsequently depreciated on a straight-line basis
over the remaining useful life of the asset. When assets are sold
or retired, the cost and accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in
operations.
Income taxes - Income taxes are provided based on earnings
reported in the financial statements. The company follows
Statement of Financial Accounting Standards No. 109 whereby
deferred income taxes are provided on temporary differences
between reported earnings and taxable income. See note 10 for
further detail.
Earnings (Loss) Per Share - Basic earnings (loss) per share
computations are calculated on the weighted-average of common
shares and common share equivalents outstanding during the year.
Common stock options and warrants are considered to be common
share equivalents and are used to calculate diluted earnings per
common and common share equivalents except when they are
anti-dilutive.
<PAGE>
Concentration of credit risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
are primarily cash and temporary cash investments. The Company
places its cash investments in highly rated financial
institutions. At times, the Company may have bank deposits in
excess of Federal Deposit Insurance Commission (FDIC) limits. At
June 30, 2000, the Company had no uninsured deposits.
(3) NOTES AND LOANS RECEIVABLE
At June 30, 2000, the Company had an 8% note receivable due from an
individual, payable in monthly installments of $7,500, including
interest, due April 1999, totaling $75,642 less an allowance for
doubtful accounts of $47,000, resulting in a net book value of $28,642.
In addition, the Company had the following notes receivable due from
affiliates as of June 30, 2000:
<TABLE>
<CAPTION>
2000
----------
6% note receivable due from a
<S> <C>
corporation in March 2001 $ 100,000
6% note receivable due from
a corporation 50,000
8% note receivable due from a
corporation 480,000
----------
Total notes receivable - affiliates $ 630,000
==========
Current portion $ 170,000
==========
Long-term portion $ 460,000
==========
</TABLE>
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, short-term notes receivable, commercial
paper and accounts payable approximate fair value because of the
short-term maturity of these instruments.
The carrying value of long-term debt, including the current portion in
the financial statements, approximates fair value.
<PAGE>
(5) NOTES PAYABLE
The Company had the following notes payable to a related parties at June
30, 2000:
<TABLE>
1% over prime, payable in monthly installments
of $6,250 plus interest through July 2000,
secured by the ownership interest of a
stockholder and the guarantee of a financial
<S> <C>
corporation $ 28,005
10% note payable to a corporation, due
November 2000 50,000
-----------
Total notes payable - related parties $ 78,005
===========
Long-term debt consists of the following at June 30, 2000:
8.25% note payable to a bank, due in monthly
installments of $12,000 including interest through
February 2002, secured by personal guarantees
of stockholders, and equipment $ 472,888
8.25% note payable to a bank, due in monthly
installments of $6,172 including interest
through February 2001, secured by personal guarantees
of stockholders, and equipment 291,936
8.5% note payable to a bank, due in monthly
installments of $4,116 including interest through
August 2000, secured by personal guarantees of
stockholders, and equipment 168,008
11% note payable to a partnership, due
in monthly installments of $1,663 through
July 2000, secured by equipment 3,163
10% note payable to a limited
partnership, due in monthly installments
of $7,500 through September 2000 113,265
16% note payable to a financial institution,
due November 2000 20,000
10.75% note payable to a bank, due in monthly
installments of $1,500 through February, 2001,
secured by equipment 31,359
-----------
Total long-term debt 1,100,619
Less current portion 754,694
-----------
Noncurrent portion $ 345,925
===========
</TABLE>
<PAGE>
(6) RELATED PARTY TRANSACTIONS
On October 1, 1996, EWI assumed $150,000 of debt when it acquired
control of In Cahoots. The remaining balance of $28,005 at June 30, 2000
is due to a former limited partner of the Company.
During March 1999, the Company sold its rights to a fully reserved
receivable to an affiliate for a $100,000 note receivable from the
affiliate.
During the second quarter of 2000 the Company entered into an agreement
with its former president. Calling for a payment of $210,000 in return
for a covenant not to compete. This payment was capitalized for
financial reporting purposes and is to be amortized over the life of the
covenant.
(7) STOCKHOLDERS' EQUITY
Omnibus Equity Compensation Plan - On March 9, 2000, the Board of
Directors approved an Omnibus Equity Compensation Plan for employees and
consultants. The aggregate number of common shares as to which options
and awards may be granted shall not exceed 572,208. At the time of
grant, the Company will determine the exercise price and the vesting
period. The Company's existing equity-based compensation plans shall be
incorporated into this Plan.
On June 23, 2000 the Company issued 60,000 share of 10% convertible
preferred stock in exchange for 120,000 shares of common stock of
The National Capital Companies, Inc. The 120,000 shares of The National
Capital Companies, Inc. was recorded on the Company's books at $600,000,
its estimated fair market value on the date of the exchange. This stock
is considered available-for-sale for financial reporting purposes. At
June 30, 2000 this stock had a quoted value of $765,000, however,
because it is a thinly traded stock management estimates the true fair
market value of this stock equals its $600,000 carrying value as of that
date.
(8) INCOME TAXES
As of June 30, 2000, the Company's deferred tax assets were as follows:
<TABLE>
<CAPTION>
2000
--------------
Tax over book basis of fixed and
<S> <C>
intangible assets $ 295,262
Leases with scheduled rent increases 36,293
Net operating loss carryforwards 959,865
Charitable contribution carryforwards 1,549
-------------
1,292,969
Valuation allowance (1,192,969)
Net deferred tax asset 100,000
Current asset -
------------
Long-term asset $ 100,000
============
</TABLE>
Realization of the deferred tax asset is dependent upon the Company
generating sufficient future taxable income against which its loss
carryforward and other timing differences can be offset. Management has
determined that it is not likely that the Company will be able to
realize all the tax benefits from the net operating loss carryforward
and other timing differences and has therefore reduced the deferred tax
asset by a valuation allowance.
At December 31, 1999, the Company has a net operating loss carryforward
of approximately $2,823,133, which expires in 2013.
<PAGE>
(9) EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would
be outstanding assuming conversion of the Series A Preferred Stock and
the Series B Preferred Stock, which are considered to be common stock
equivalents. Net income has been adjusted for dividends on the
convertible preferred stock. The number of shares used in the
computations were 4,364,214 and 4,310,499 for the three and six months
ended June 30, 2000, respectively.
(10) LEASE COMMITMENTS
Capital Leases
The Company is the lessee of restaurant equipment under various capital
leases expiring in 2005. The assets and liabilities under the capital
lease are recorded at the fair value of the asset. The assets are
amortized over the estimated productive lives. Amortization of assets
under the capital lease is included in depreciation expenses for the
three months ended June 30, 2000.
Minimum future lease payments under capital leases as of June 30, 2000
for each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Twelve months ending June 30, Amount
----------------------------- ----------
<S> <C> <C>
2001 $ 72,198
2002 72,198
2003 69,459
2004 55,759
2005 45,104
Subsequent to 2005 -
--------
Total minimum lease payments 314,718
Less amount representing interest (108,793)
--------
$ 205,925
========
</TABLE>
(11) LITIGATION
The Company is involved in various other claims and legal proceedings of
a nature considered normal to its business, principally personal injury
claims resulting from incidents occurring on the premises of the
Company's nightclubs. While it is not feasible to predict or determine
the financial outcome of these proceedings, management does not believe
that they will result in a materially adverse effect on the Company's
financial position, results of operations or liquidity.
(12) ACQUISITION OF REMAINING 20% INTEREST IN IN CAHOOTS, LTD.
On June 30, 2000, the Company acquired the remaining 20% interest in In
Cahoots, Ltd. in exchange for the issuance of 200,000 shares of the
Company's common stock. This transaction was treated as a purchase for
financial reporting purposes with the purchase price valued at $150,000,
of which $89,704 was allocated to Goodwill.
<PAGE>
PART 1 - ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART 1
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10- QSB under "Item 1. Description of
Business", "Item 3. Legal Proceedings", "Item 6. Management's Discussion and
Analysis" and elsewhere 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 Atomic Burrito Inc. (the "Company") and its subsidiaries and
affiliated partnerships 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; advisability, locations and terms of
sites for nightclub development; the development of 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 referred in the Form 10QSB. 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 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 stores.
General
The Company operates two country-western nightclubs, one located in St. Louis
Missouri and one located in Wichita, Kansas. Commencing in 1999 the Company
commenced operating Atomic Burrito restaurants which feature a "Fresh-Mex"
concept. As of June 30, 2000 the Company owns all or part of five Atomic Burrito
restaurants, one each in Tulsa Oklahoma, Wichita Kansas, Oklahoma City Oklahoma,
Norman Oklahoma, and Houston Texas.
<PAGE>
Comparison of three months ended June 30, 2000 with three months ended June 30,
1999
Revenues - Revenues increased by 5% from $1,883,368 in 1999 to $1,983713 in
2000. This increase is due primarily to a 21% increase in food and beverage
sales offset in part by a 39% decrease in admissions fees. The increase in food
and beverage sales is attributable to sales at the five Atomic Burrito
restaurants which were not in operation in 1999. The decrease in admissions fees
is due to a policy change at the Company's night clubs which allows admission
fees to go directly to entertainers in lieu of paying them a fixed entertainment
fee.
Cost of Goods and Services - The cost of goods and services increased by 23%
from $1,588,864 in 1999 to $1,955,520 for the same period in 2000. This increase
was due primarily to increased food and beverage costs associated with the 21%
increase in food and beverage sales.
General and administrative expense - General and administrative expenses
decreased by 32% from $238,842 in 1999 to $163,465 for the same period in 2000.
This decrease is due primarily to managements efforts to reduce administrative
expenses.
Depreciation and Amortization - Depreciation and amortization increased by 22%
from $87,760 in 1999 to $107,243 for the same period in 2000. This increase was
due to additional depreciated associated with the five Atomic Burrito
restaurants.
Interest Expense - Interest expense increased by 280% from $12,591 in 1999 to
$47,935 for the same period in 2000. This increase in interest expense is due to
the increased debt load assumed by the Company in connection with acquiring and
opening its five Atomic Burrito restaurants.
Minority interest in losses of Consolidated Subsidiaries - The reduction in
losses associated with the minority interest in consolidated subsidiaries
increased by 105% from $16,702 in 1999 to $34,197 for the same period in 2000.
This reduction is due to losses from certain Atomic Burrito restaurants which
had minority owners.
Comparison of six months ended June 30, 2000 with six months ended June 30, 1999
Revenues - Revenues increased by 20% from $3,368,330 in 1999 to $4,057,894 in
2000. This increase is due primarily to a 47% increase in food and beverage
sales offset in part by a 32% decrease in admissions fees and a $100,000 gain on
the sale of assets which took place in 1999. The increase in food and beverage
sales is attributable to sales at the five Atomic Burrito restaurants which were
not in operation in 1999. The decrease in admissions fees is due to a policy
change at the Company's night clubs which allows admission fees to go directly
to entertainers in lieu of paying them a fixed entertainment fee.
<PAGE>
Cost of Goods and Services - The cost of goods and services increased by 44%
from $2,664,095 in 1999 to $3,827,030 for the same period in 2000. This increase
was due primarily to increased food and beverage costs associated with the 47%
increase in food and beverage sales.
General and administrative expense - General and administrative expenses
decreased by 7 % from $398,154 in 1999 to $369,820 for the same period in 2000.
This decrease is due primarily to managements efforts to reduce administrative
expenses.
Depreciation and Amortization - Depreciation and amortization increased by 42%
from $155,486 in 1999 to $220,554 for the same period in 2000. This increase was
due to additional depreciated associated with the five Atomic Burrito
restaurants.
Interest Expense - Interest expense increased by 277% from $20,694 in 1999 to
$77,914 for the same period in 2000. This increase in interest expense is due to
the increased debt load assumed by the Company in connection with acquiring and
opening its five Atomic Burrito restaurants.
Minority interest in losses of Consolidated Subsidiaries - The reduction in
losses associated with the minority interest in consolidated subsidiaries
increased by 1073% from $3,909 in 1999 to $45,840 for the same period in 2000.
This reduction is due to losses from certain Atomic Burrito restaurants which
had minority owners.
Liquidity and Capital Resources
As of June 30, 2000 the Company had cash of $174,851 and a working capital
deficit of $1,265,549. During the six months ended June 30, 2000, the Company
generated a cash flow deficit of $58,173 from operating activities.
The cash flow deficit from operations results from operating losses generated by
certain of the Atomic Burrito restaurants. Management intends to reevaluate the
Atomic Burrito restaurants and their operations prior to adding any additional
restaurants. Management intends to refocus on the operations of its profitable
nightclubs.
During the quarter ended June 30, 2000 the Company issued 600 shares of 10%
cumulative preferred stock in exchange for 120,000 shares of National Capital
Companies, Inc. common stock. The Company is holding this stock for investment
purposes.
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.
<PAGE>
The Company is involved in various legal actions associated with the normal
conduct of its business operations. No 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
During the second quarter of 2000, the Company did not submit any matters to a
vote of its shareholders.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Re: Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
On March 30, 2000 the Company filed a form 8-K to announce an
agreement in principal to acquire Unhatched.com, Inc.
<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.
August 21, 2000 Atomic Burrito, Inc.
By:/s/ Joe R. Love
--------------------------
Joe R. Love
Chairman of the Board
