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 March 31, 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 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, $.001 par value,
outstanding as of March 31, 2000 4,288,721
Traditional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE>
WESTERN COUNTRY CLUBS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheet - March 31, 2000
Consolidated Condensed Statements of Income -
For the Three Months Ended March 31, 2000 and 1999
Consolidated Condensed Statements of Stockholders Equity -
For the Three Months Ended March 31, 2000 and 1999
Consolidated Condensed Statements of Cash Flows -
For the Three Months Ended March 31, 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 CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
Page 1 of 2
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
2000
--------------
CURRENT ASSETS:
<S> <C>
Cash $190,757
Accounts receivable 73,869
Accounts receivable due from related party 10,000
Current portion of note due from affiliate 319,441
Note receivable 28,642
Inventories 90,192
Prepaid expenses 26,730
--------------
Total current assets 739,631
--------------
PROPERTY AND EQUIPMENT: 4,218,513
Accumulated depreciation (1,558,510)
--------------
2,660,002
--------------
OTHER ASSETS:
Note from affiliate, net of current
portion shown above (Note 3) 460,000
Deferred income taxes 100,000
Goodwill, net of accumulated amortization
of $81,158 at MARCH 31, 2000 37,415
Deposits and other 156,914
Investment 57,400
--------------
811,729
--------------
$4,211,362
==============
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
(FORMERLY WESTERN COUNTRY CLUBS, INC.)
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
2000
--------------
CURRENT LIABILITIES:
<S> <C>
Accounts payable $499,608
Accounts payable - affiliates 50,199
Accrued liabilities 360,944
Dividends payable -
Note payable - related parties 41,521
Current portion of long-term debt 721,688
Current portion of capital leases 34,285
--------------
Total current liabilities 1,708,246
--------------
LONG-TERM DEBT 373,047
--------------
OBLIGATION UNDER CAPITAL LEASE 179,241
--------------
MINORITY INTERESTS 314,448
--------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
10% convertible preferred stock,
$10 par value, 500,000 shares
authorized, 40,000 shares issued and
outstanding at March 31, 2000 400,000
12% convertible preferred stock, $10 par value,
100,000 shares authorized, no shares
issued and and outstanding at March 31,
2000 -
Common stock, $.001 par value, 25,000,000
shares authorized; 4,288,721 shares
issued and outstanding at March 31, 2000
issued and outstanding at December 31, 1999 4,289
Additional paid-in capital 4,794,547
Accumulated deficit (3,562,456)
--------------
Total stockholders' equity 1,636,380
--------------
$4,211,362
==============
</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 MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
REVENUES:
<S> <C> <C>
Beverage and food sales $1,826,243 $924,375
Admission fees 151,018 361,827
Gain on sale of assets - 100,000
Other income 96,921 98,760
-------------- --------------
2,074,182 1,484,962
-------------- --------------
COSTS AND EXPENSES:
Cost of products and services 1,843,133 1,075,231
General and administrative
expense 206,355 159,312
Depreciation and amortization 141,617 67,726
Interest expense 29,980 8,103
-------------- --------------
2,221,085 1,310,372
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTERESTS (146,904) 174,590
INCOME TAX (EXPENSE) - -
-------------- --------------
INCOME (LOSS) BEFORE MINORITY INTERESTS (146,904) 174,590
MINORITY INTERESTS IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES 11,575 (12,793)
-------------- --------------
NET INCOME (LOSS) (135,329) 161,797
PREFERRED STOCK DIVIDENDS - (3,204)
-------------- --------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $(135,329) $158,593
============== ==============
BASIC EARNINGS PER SHARE $ (0.03) $ 0.042
============== ==============
DILUTED EARNINGS PER SHARE N/A $ 0.040
============== ==============
AVERAGE COMMON AND COMMON EQUIVALENT:
BASIC SHARES 4,277,313 3,734,721
============== ==============
DILUTED SHARES 6,777,313 3,941,855
============== ==============
</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 THREE MONTHS ENDED MARCH 31, 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 Accumulate 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 $4,397,35 $(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)
Net income for the
three months ended
March 31, 1999 - - - - - - - - -
-----------------------------------------------------------------------------------------------------
Balance,
March 31, 1999 40,000 $ 400,000 - $ - 3,734,721 $ 3,735 $4,397,35 $(2,931,074) $1,870,012
=====================================================================================================
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 - - - - 53,000 53 39,696 - 39,749
Cash dividends:
Preferred -
$1 per share - - - - - - - - -
Net loss for the
three months ended
March 31, 2000 - - - - - - - - -
------------------------------------------------------------------------------------------------------
Balance,
March 31, 2000 40,000 $ 400,000 - $ - 4,288,721 $ 4,289 $4,794,54 $(3,427,127) $71,771,709
=======================================================================================================
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Page 1 of 2
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ - $ -
Adjustments to reconcile net loss to
net cash provided by operating
activities -
Depreciation and amortization 141,617 67,726
Gain on sale of assets - (100,000)
Minority interests in earnings of
subsidiaries - 12,793
Deferred tax provisions - -
Changes in assets (increase) decrease -
Accounts receivable - 30,808
Inventories - (11,457)
Prepaid expenses - 34,800
Deposits and other assets - -
Changes in liabilities increase
(decrease) -
Accounts payable - 89,144
Accrued expenses - 29,603
-------------- -------------
Net cash provided by operating
activities 141,616 153,417
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to related parties - (13,000)
Repayments of notes receivable - 105,110
(Increase) decrease in deposits and
other assets - (51,691)
Acquisition of property and equipment - (700,248)
-------------- -------------
Net cash provided by (used in)
investing activities (659,829)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions to minority
interests - (1,250)
Minority interest investments in LLC's - 150,000
Sale of common stock 1
Retirement of preferred stock - (145,000)
Payments of dividends - (3,204)
Borrowings under notes payable (150,579) 475,000
Repayments of notes payable 150,579 (72,700)
Repayments of notes payable, related parties 0 -
Borrowing under capital lease - -
Repayments of capital lease - -
-------------- ------------
Net cash provided by (used in)
financing activities - 402,846
-------------- ------------
NET INCREASE (DECREASE) IN CASH 141,616 (103,566)
CASH, BEGINNING OF PERIOD - 205,411
-------------- ------------
CASH, END OF PERIOD $ 141,616 $101,845
============== ============
</TABLE>
See accompanying notes and accountants' report.
<PAGE>
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Page 2 of 2
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
<S> <C> <C>
Cash paid for interest $ - $ 8,103
============== =============
</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.
<PAGE>
ATOMIC BURRITO, INC.
FORMERLY WESTERN COUNTRY CLUBS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
ON FINANCIAL STATEMENTS............................................. 1
FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet................................ 2
Consolidated Condensed Statements of Income......................... 4
Consolidated Condensed Statements of Stockholders' Equity........... 5
Consolidated Condensed Statements of Cash Flows..................... 6
Notes to Consolidated Condensed Financial Statements................ 8
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and
Shareholders of Atomic Burrito, Inc.
We have reviewed the accompanying consolidated condensed balance sheet of Atomic
Burrito, Inc. as of March 31, 2000, and the related consolidated condensed
statements of income, stockholders' equity and cash flows for the three month
periods ended March 31, 2000 and 1999, included in the accompanying Securities
and Exchange Commission Form 10Q for the period ended March 31, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Base on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated March
24, 2000, we expressed an unqualified opinion on these consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 31, 1999 is fairly stated in
all material respects in relation to the balance sheet form which it was
derived.
May 12, 2000
<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.
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 80% interest in In Cahoots, Ltd. ("In Cahoots"). In Cahoots
is a limited partnership that owns and operates a nightclub in
Wichita, Kansas (Notes 6).
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 (Note 11).
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.
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.
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.
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
March 31, 2000, the Company had no uninsured deposits.
(3) NOTES AND LOANS RECEIVABLE
At March 31, 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 March 31, 2000:
<TABLE>
<CAPTION>
2000
---------
6% note receivable due from a
<S> <C>
corporation in March 2001 $ 100,000
6% note receivable due from a corporate
officer in December 1999 149,441
6% note receivable due from
a corporation 100,000
8% note receivable due from a
corporation 480,000
Total notes receivable - affiliates $ 769,441
=========
Current portion $ 319,441
=========
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.
(5) NOTES PAYABLE
As of March 31, 2000, the Company had a note payable to a related party
at 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 corporation totaling
$41,521.
Long-term debt consists of the following at March 31, 2000:
<TABLE>
<CAPTION>
2000
----------
8.25% note payable to a bank, due in monthly
installments of $12,000 including interest
through February 2002, secured by personal guarantees
<S> <C>
of stockholders, and equipment $ 481,368
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 295,882
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 176,559
11% note payable to a partnership, due
in monthly installments of $1,663 through
July 2000, secured by equipment 6,163
10% note payable to a limited
partnership, due in monthly installments
of $7,500 through September 2000 75,970
18% note payable to a financial institution,
due in monthly installments of $3,744, through
March 2000, secured by Wichita-furniture, fixtures,
inventory and accounts receivable -
16% note payable to a financial institution,
due April, 2000 25,000
10.75% note payable to a bank, due in monthly
installments of $1,500 through February, 2001,
secured by equipment 33,793
Total long-term debt 1,094,735
Less current portion 721,688
-----------
Noncurrent portion $ 373,047
==========
</TABLE>
(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 $41,521 at March 31,
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.
(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.
(8) INCOME TAXES
As of March 31, 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 loss from impairment of long-lived assets 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 impairment of long-lived assets 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.
(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 4,343,221 in 2000.
(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 March 31, 2000.
Minimum future lease payments under capital leases as of March 31, 2000
for each of the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Twelve months ending March 31, Amount
---------
<S> <C>
2001 $ 72,198
2002 72,198
2003 69,459
2004 55,759
2005 52,705
Subsequent to 2005 -
--------
Total minimum lease payments 322,319
Less amount representing interest (108,793)
---------
$ 213,526
</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) CONTINGENCIES
On March 29, 2000, the Company entered into a letter of intent to
acquire a privately held California corporation for 1,500,000 shares of
the Company's common stock. In addition to the common shares to be
issued for the corporation, the Company will issue 2,500,000 common
shares to the shareholders of the California corporation, plus 3,000,000
common stock warrants over the next three years. Subsequent to the
merger, the Company anticipates receiving $3,000,000 in new equity, from
sources other than the exercise of the outstanding stock options.
<PAGE>
PART 1 - Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART I
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 Western Country Clubs, 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; availability, 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 referenced in the Form 10-QSB. The use in this Form 10-KSB 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 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.
In December 1999 the Company entered into an agreement with the licensee which
owned the Norman, Oklahoma, "Atomic Burrito" restaurant, to purchase the
restaurant from the licensee for the assumption of certain liabilities and the
issuance to the licensee of 360,000 shares of the Company's restricted common
stock.
In March 2000, the Company entered into a letter of intent with Unhatched.com, a
privately held internet incubator located in Irvine, California, whereby the
Company would acquire Unhatched.com and its various subsidiaries for 1,500,000
shares of the Company's restricted common stock, with an additional 2,500,000
shares subject to certain performance requirements by Unhatched.com including
revenue generation, increasing equity capital in the Company, and per share
market price requirements. In addition, Unhatched.com would receive warrants to
purchase 3.0 million shares of the Company at prices ranging from $2.50 to
$7.50. Completion of the proposed acquisition requires approval of the boards of
directors of both companies and the approval of the Company's shareholders, with
an expected closing in July 2000. The Company is in the process of completing
its due diligence regarding the proposed transaction, and it is expected that
the Company's board of directors will review the due diligence and make a
recommendation in early June. However, there is no assurance that the
transaction will be completed, or that if completed, that the transaction will
be as outlined herein, since it is possible that certain terms of the
transaction could change.
<PAGE>
Liquidity and Capital Resources
As of March 31, 2000, the Company had cash of $190,757, which was generated from
operating activities, financing activities and investing activities. This amount
represented an increase $18,135 or 10% from cash at year end 1999, and a
decrease of $72,885 from the first quarter of 1999. The slight increase in cash
from year end reflects the opening of an additional restaurant during the first
quarter of 2000.
As of March 31, 2000, the Company's working capital position (current assets
minus current liabilities) was a negative $968,612 compared to a negative
$669,659 at year end 1999. The increase of $298,953 was due almost totally to an
increase from year end 1999 of $318,079 in the current portion of the Company's
long-term debt, resulting from the completion of financing for the new Oklahoma
City restaurant which opened in February, 2000, along with an increase in the
current portion of capital leases of $23,600 from year end due to the addition
of capital leases entered into in connection with the opening of the Oklahoma
City restaurant during the quarter. Accounts payable decreased by $89,494 from
year end 1999, and accrued liabilities increased by $42,386 from year end 1999.
Because of the structure of the Company's financing for its restaurants and
because of the expansion of the restaurants by the Company, management does not
believe the decrease in working capital position will have any material effect
on its ability to service its debts and continue the expansion of its restaurant
division.
Property and equipment primarily consists of assets required for the operation
of the St. Louis and Wichita nightclubs, as well as the five Atomic Burrito
restaurants in Tulsa, Wichita, Houston, Norman and Oklahoma City. Property and
equipment increased from year end 1999 by $174,940, primarily reflecting the
opening of the Oklahoma City restaurant during the quarter.
The Company's total liabilities increased from $2,059,432 at year end to
$2,260,534, reflecting the financing structure of the Oklahoma City restaurant,
along with an increase of $109,519 in capital lease obligations, and a decrease
of $214,278 in long-term debt, again all related to the opening of the Oklahoma
City restaurant. During the quarter, the Company's accounts payable decreased by
$89,494, while accrued liabilities increased slightly from year end to $360,944.
As of March 31, 2000, the Company is current on all of its bank debt and capital
lease obligations.
Results of Operations - Quarter Ended March 31, 2000, Compared to the Quarter
Ended March 31, 1999
For the period ended March 31, 2000, total revenue of the Company increased by
$589,220 or 40% to $2,074,182 compared with total revenues of $1,484,962 for the
first quarter of 1999. This increase in revenue reflects increasing revenues at
the Company's two nightclubs, as well as the effect of having four Atomic
<PAGE>
Burrito restaurants open during the quarter and the Oklahoma City restaurant
open for part of the quarter compared to the same quarter of 1999 when the
Company had just opened the Tulsa restaurant during March of 1999. The effect of
the restaurants on total revenues was actually more than the increase because of
a non-recurring item in 1999, as well as a reduction in admission fees of
$210,809.
Total costs and expenses during the current period increased from $1,310,372 for
the first quarter of 1999 to $2,221,085. Costs of products and services
increased by $767,902 to $1,843,133 for the period compared to $1,075,231 for
the same period in 1999. Depreciation and amortization increased by $73,891 or
110% to $141,617 compared to $67,726 for the same period in 1999. Interest
expense increased by $21,787 to $29,980 from $8,103 for the first quarter of
1999. General and administrative expense increased by $47,043 to $206,355 as
compared to $159,312 for the same period in 1999. All of these increased costs
and expenses are directly attributable to the Atomic Burrito restaurants open
and operating during the current quarter as compared to the same period in 1999,
when only the Tulsa restaurant was open for a short time.
The Company's net income for the current period was a negative $135,329 compared
to income of $158,593 for the same period in 1999. The difference reflects the
increased costs of the infrastructure the Company has developed to implement the
Atomic Burrito restaurant operation, as well as the associated opening costs of
the Oklahoma City restaurant which were written off during the current quarter.
In addition, the previous period's income included a non-recurring item of
$100,000. Management believes that as the restaurants mature they will become
more profitable, and notes that the Company has operated only the Tulsa
restaurant for a full year. Generally, restaurants like the Atomic Burrito
restaurants will take from a few months to a year or so to become efficient and
settle into consistent profitability. In addition, so long as the Company
continues to open more Atomic Burrito restaurants, there will be downward
pressure on net income because of the write-off of the costs associated with the
opening of the new restaurants. Management does believe, however, that as
additional restaurants reach maturity and have been open for one year or more,
that more profitability will be realized. Management expects for earnings to
improve during the rest of the year 2000 for this reason.
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 first quarter of 2000, the Company did not submit any matter to a
vote of its shareholders.
<PAGE>
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 principle to acquire untlatched.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.
November 13, 1998 Western Country Clubs, Inc.
By:/s/ James E. Blacketer
------------------------
James E. Blacketer
President and Chief Financial Officer
ATOMIC BURRITO, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
------------ -----------
<S> <C> <C>
BASIC EARNINGS PER SHARE:
Net income $ (135,329) $ 161,797
Dividends on preferred stock - (3,204)
------------ ------------
Net income applicable to
common stock $ (135,329) $ 158,593
============ ============
Shares used in computing basic earnings
per share 4,277,313 3,734,721
============ ============
Basic earnings per common share $ (.03) $ 0.042
============ ============
DILUTED EARNINGS PER SHARE:
Net income $ N/A $ 161,797
============ ============
Shares used in computing basic earnings
per share * 3,734,721
Effect of shares issuable under conversion
of preferred stock * 49,422
Effect of shares issuable under common stock
warrants under treasury stock method * 94,160
Effect of shares issuable under common stock
options using treasury stock method * 63,552
------------ -----------
Shares used in computing diluted earnings
per share * -
------------ -----------
Diluted earnings per common share $ N/A $ .03
============ ===========
</TABLE>
* Anti-dilutive
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 190,757
<SECURITIES> 0
<RECEIVABLES> 73,869
<ALLOWANCES> 0
<INVENTORY> 90,192
<CURRENT-ASSETS> 739,631
<PP&E> 4,218,513
<DEPRECIATION> 1,558,510
<TOTAL-ASSETS> 4,211,362
<CURRENT-LIABILITIES> 1,708,246
<BONDS> 0
0
400,000
<COMMON> 4,289
<OTHER-SE> 1,232,091
<TOTAL-LIABILITY-AND-EQUITY> 4,211,362
<SALES> 1,826,243
<TOTAL-REVENUES> 2,074,182
<CGS> 1,843,133
<TOTAL-COSTS> 1,813,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,980
<INCOME-PRETAX> (135,329)
<INCOME-TAX> 0
<INCOME-CONTINUING> (135,329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,320)
<EPS-BASIC> (.03)
<EPS-DILUTED> 0
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