<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-25366
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AUSTINS STEAKS & SALOON, INC.
-----------------------------
(Name of small business issuer in its charter)
Delaware 86-0723400
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
6940 "O" Street, Suite 334
Lincoln, Nebraska 68510
(Address of principal executive offices) (Zip Code)
(402) 466-2333
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $ .01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1997. $9,542,098.
As of March 13, 1998, the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked price of such stock, was $740,438.
As of March 13, 1998 there were 2,331,052 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held June 4, 1998
- -Part III.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
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PART I
ITEM 1. DESCRIPTION OF BUSINESS THE DISCUSSION IN THIS DOCUMENT
CONTAINS TREND ANALYSIS AND OTHER FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS
THROUGHOUT THIS DOCUMENT AS A RESULT OF THE RISK FACTORS SET FORTH BELOW IN
THE SECTION ENTITLED "FACTORS AFFECTING FUTURE RESULTS" AND ELSEWHERE IN THIS
DOCUMENT.
GENERAL
Austins Steaks & Saloon, Inc. (the "Company" or "Austins") owns and
operates eight moderately priced, casual dining full-service AustinsTM
restaurants featuring specialty prime rib dishes, a variety of fresh-cut,
aged steaks, home-cooked entrees, salads and sandwiches. Many of the beef
products are hand-cut on site, and most of the Company's menu items are
likewise prepared on site from fresh ingredients. The Company's restaurants
offer lunches and dinners of generous portions at moderate prices.
Management believes its restaurants appeal to a broad range of patrons by
emphasizing consistently high-quality appealing food and attentive service by
a well-trained, friendly staff for a moderate price. This appeal is enhanced
by wood plank floors and corrugated tin finishes in the reception and bar
areas, highlighted by wood paneling, and a western-style bar. To provide a
comfortable, homey feel, the Company encourages its customers to bring ball
caps, automobile license plates, and business cards to the restaurants for
display in bar areas.
Based upon the Company's experience in creating, refining, and
implementing its concept, Company management believes it will be able to open
additional restaurants. The short term strategy is to increase per unit
sales, continue to reduce expenses, consider closing under-performing stores,
and return to profitability. If that strategy can be accomplished, the
Company's longer term growth strategy is to open Company-owned restaurants in
rural areas within a ninety mile radius of the Omaha area in order to provide
economies of scale in advertising, purchasing and management and greater
exposure in the market area. The Company believes that its excellent name
recognition in the Omaha vicinity will ensure the success of these new
restaurants. Although competition in the restaurant industry is intense, the
Company believes its Western Roadhouse concept will compete favorably.
COMPANY HISTORY
The Company was incorporated in December 1992 as a Delaware corporation.
In July and August 1994, the Company acquired all of the outstanding stock of
its five affiliated restaurant corporations. The Company currently has eight
subsidiary restaurant corporations.
THE COMPANY'S RESTAURANT CONCEPT
The Austins concept is designed to appeal to a broad spectrum of casual
dining customers who are seeking a consistent and high-quality dining
experience attentively served in a distinctive, relaxed atmosphere for a
moderate price. Management seeks to provide this experience by serving a
limited selection of tasty and interesting dishes that are prepared largely
on site from fresh ingredients. Management believes that many multiple unit
operators have lost their distinctiveness by over-reliance on commercially
prepared foods served to consumers with too little attention to the complete
dining experience desired by their customers. Austins provides a casual and
comfortable environment and well-
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trained, enthusiastic service to its customers. The Company has focused its
efforts upon a menu of well-prepared favorite dishes served in generous
portions at moderate prices, which has attracted and expects to attract an
acceptable share of the full-service, casual dining market.
The Company believes that the Austins restaurant concept and menu are
designed to attract loyal clientele who return with a high degree of
frequency at both lunch and dinner. The decor of the Company's restaurants
emulates a "Western Roadhouse" theme which features a variety of western and
country artifacts, giving it a relaxed friendly feel. The restaurants'
atmosphere is enhanced by the decor of the restaurants, which includes wood
plank floors, subdued lighting, and upbeat country western music. In
addition, the Company also encourages its customers to bring ball caps,
automobile license plates, and business cards to the restaurant for display,
adding to Austins' distinctive identity. Austins is further distinguished by
requiring from its meat purveyors high-quality, USDA top choice Nebraska
steaks, substantially all of which are hand-cut fresh daily on site.
High-quality ingredients are used for all menu items, including gravies,
sauces and dressings, with minimal use of commercially prepared items. All
meals are served in generous portions by a well-trained friendly staff.
Austins provides full liquor and bar service at each of its restaurants,
primarily as an added service to its clientele. Alcoholic beverage service
accounted for approximately 12.7% and 13.2% of the Company's net sales for
each of the years ended December 31, 1997, and 1996, respectively.
The Company emphasizes highly attentive, friendly service by closely
supervising restaurant operations and providing ongoing employee training and
support. Company restaurants are open seven days a week, with an average per
customer check of approximately $8.35 at lunch and $13.75 at dinner.
CORPORATE STRATEGY
OPERATIONS STRATEGY - The Company believes that consistent quality in
food preparation and presentation, coupled with attentive, friendly service
delivered in a distinctive fun atmosphere at a moderate price will result in
a perceived value to the customer. According to management's philosophy,
quality food, service, atmosphere and perceived value are the four keys to
success in the restaurant industry. Accordingly, Austins differentiates its
restaurants by emphasizing the following elements:
* Consistent high-quality products using the finest available fresh
ingredients, carefully prepared, preserving a home-cooked taste,
texture, and appearance.
* High quality and attentive service, with each server generally
being assigned to no more than three tables (four at lunch) to
ensure prompt, attentive, and friendly service, assuring customer
satisfaction.
* The Western Roadhouse motif provides a unique, fun, and attractive
restaurant to people from all walks of life and economic and social
backgrounds, while welcoming children and permitting all members of
the family to enjoy a quality dining experience.
* The positioning of Austins in the full-service casual dining
segment of the industry, offering generous portions at moderate
prices.
PROFITABILITY AND GROWTH STRATEGY - Because of the factors discussed
under "Management's Discussion and Analysis for Plan of Operation", the
Company has incurred net losses of approximately $3.0 million over the past
two years. The Company's immediate and short term goal is to seek ways,
through advertising, variation of menu mix and selected variation of interior
theme, to increase per unit
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sales. The Company may determine to sell one or two restaurant units which
management does not believe can provide profitable growth to the overall
operations. The Company will also look for continuing ways to reduce
expenses, all with the goal of returning to profitability. To the extent the
Company can return to profitability over the next several years, its longer
term strategy would be to deliberately and selectively open additional
restaurants where it believes it can utilize economies of scale with existing
restaurants. There is no assurance that the Company will be successful in
increasing sales of additional restaurant units to achieve any significant
profitability.
MENU
Austin's dinner menu features a well-rounded selection of high-quality
specialty prime rib entrees. The Company's goal is to be known for its
excellent prime rib. It has reintroduced some of its original prime rib
recipes, including blackened prime rib with Cajun seasoning, shrimp stuffed
prime rib, and peppercorn prime rib. The dinner menu also features an
excellent selection of favorite steak cuts, including several oversize-cut
entrees. Prime rib and steaks are cooked to order. One of the more popular
items at both lunch and dinner is the Chicken Fried Steak, served with
homemade mashed potatoes (skins on) and a cream gravy. A variety of
home-style salads, chicken, fish, and barbecued items round out the dinner
menu and provide a tasty alternative to diners who want a lighter meal.
All dinners offer a complete meal. Choices of accompaniments include
fresh-made salad or soup, homemade sugar biscuits and honey butter, and rice
pilaf, twice-baked potato casserole, french fries, mashed potatoes with
homemade cream or brown gravy, or sauteed vegetables. The lunch menu
features burgers with many optional garnishes to "build them from scratch,"
smaller cut luncheon steaks, in addition to several favorites from the dinner
menu. The lunch and dinner menus also include a range of appetizers and
desserts. Full bar service is available as an accompaniment to both meals.
The Company now successfully serves hardwood smoked and barbecued meats
in half of its sites. The barbecued pork, sausage, and brisket items now
account for a substantial percentage of the restaurants' total food sales.
In 1997, the Company implemented a "Sadie's Catch of the Day." This special
features a variety of fresh fish including Mahi, Trout, Swordfish, etc.
Since the restaurants are located in different regions of the United States,
in 1997 the Company began catering to local consumer tastes. For example, in
the Nebraska area, the restaurants serve a Nebraska Melt which includes
shaved prime rib, cheddar cheese and sauteed onions on sourdough bread. But
the Santa Fe, New Mexico restaurant refers to the sandwich as the New Mexico
Melt and serves it with green chilies.
RESTAURANT LAYOUT
The Company believes that the decor and interior design of its
restaurants are significant factors in its success. The restaurants' planked
wood floors and the open layout of the dining area is intended to provide
dining customers an expansive view of decor features, artifacts, and other
design items and to enhance the casual dining atmosphere. The Company also
designs its kitchen space for efficiency of work flow, with the goal of
minimizing the amount of space required for production activities. Austins
restaurants average approximately 6,000 square feet and include dining areas
with seating averaging 200 customers. A bar area, typically seating an
additional 15 patrons, is located adjacent to the reception area primarily to
accommodate customers waiting for dining tables.
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RESTAURANT LOCATIONS
The following table sets forth the location, month and year of opening,
and approximate square footage of the Company's operating restaurants:
<TABLE>
<CAPTION>
LOCATION DATE OPENED APPROX. SQ. FT.
<S> <C> <C>
11224 West Dodge Road September 1989 3,620
Omaha, Nebraska
12020 Anne Street January 1992 5,200
Omaha, Nebraska
1414 South 72nd Street December 1992 10,000
Omaha, Nebraska
2400 Cerrillos Road April 1994 5,817
Santa Fe, New Mexico
3940 Village Drive December 1994 6,000
Lincoln, Nebraska
5201 San Mateo Blvd. N.E. February 1995 6,000
Albuquerque, New Mexico
3636 North Scottsdale Road December 1995 6,000
Scottsdale, Arizona
1101 Harney Street January 1996 7,450
Omaha, Nebraska
</TABLE>
On March 13, 1998, the Company sold its Lincoln, Nebraska restaurant
which was opened in December 1994. This unit was sold because its
performance was not meeting the Company's expectations.
MARKETING
Austins restaurants are positioned as destination restaurants providing
home-cooked food and full service to the casual dining market segment at a
moderate price. Management has focused on providing its customers with
superior quality, service, and perceived value in a distinctive atmosphere.
It has relied primarily on customer satisfaction and word-of-mouth to obtain
repeat customers and attract new clientele. Historically, Austins' high
perceived value has acted as word-of-mouth advertising and, therefore, the
Company has been able to maintain a minimal advertising budget of
approximately 2% of sales. Because the Company's previous marketing efforts
have been "piece-meal", the Company decided to hire Bozell Worldwide to help
strengthen its position within the Omaha market. Bozell developed a
branding campaign which is centered around the theme, "Eat Steak. Sleep
Steak. Think Steak." Included in this campaign is the Steak Lover's Club,
new employee uniforms, and sponsorship of the local college hockey team.
This marketing strategy has resulted in an increase in traffic flow and
consumer awareness. In December of 1997, after two months of implementing
the branding campaign, same-store sales for the Omaha Market increased by
2.8%. It has been at least two years since the four Omaha restaurants have
had an increase in same-store sales.
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RESTAURANT OPERATIONS AND MANAGEMENT
Due to the successful retention of its managers in 1997, the Company is
positioned to further improve same-store sales in 1998. Each restaurant
employs one general manager, two to three managers, one hourly supervisor and
approximately 40 to 60 hourly employees, depending on the size of the
restaurant, many of whom work part-time. The general manager of each
restaurant carries primary responsibility for the day-to-day operation of his
or her restaurant and is required to abide by Company-established operating
standards.
The Company requires its management personnel to participate in a
seven-week training program which emphasizes the Company's operating
strategy, procedures, and standards. The executive management of the Company
regularly visits the Company's restaurants to ensure that the Company's
concept, strategy, and standards of quality are being adhered to in all
aspects of restaurant operations. The Company's executive management have
developed the restaurants' operations and management systems based upon their
prior experience in the restaurant industry.
The Company provides an incentive-based compensation plan for its
restaurant management that includes a base salary, a monthly bonus based on a
predetermined percentage of their individual store's controllable operating
profit, participation in the Company's 401(k) Plan, and annual stock option
grants for its general managers.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products to ensure consistent quality and freshness of products and to obtain
competitive prices. Food and supplies are shipped directly to the
restaurants. All shipments are inspected for quality and freshness by a
manager upon receipt. The Company does not maintain a central product
warehouse or commissary, nor has it experienced any significant delays in
receiving restaurant supplies and equipment. The Company's major suppliers
include Pegler Sysco Food Services Co., located in Lincoln, Nebraska, Ben E.
Keith located in Albuquerque, New Mexico, and Sysco Food Services of Arizona,
located in Phoenix, Arizona.
The Company has utilized short term locked-in prices for its highest
usage products, primarily beef, chicken, produce, and grocery, in order to
minimize the impact of potential fluctuations in prices.
ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS
The Company's in-store computer-based management system monitors the
sales, labor and food costs of each restaurant, including average customer
check, product mix, customer count, and a breakdown of sales between lunch
and dinner. This system generates reports to management on a daily basis to
allow management to evaluate trends in sales, labor and food costs.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location, and food quality. There are many well-established
competitors with substantially greater financial and other resources than the
Company. In the Company's view, its principal competitors are not only other
steakhouses but also other restaurants offering a casual atmosphere and
moderately priced meals. Expansion of the steakhouse concept has increased in
recent years. In addition to traditional steakhouse
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restaurants, the Company expects to face competition from new entries into
the steakhouse market. Other steakhouse chains have greater name
recognition, are more well-established, and have significantly greater
resources than the Company. Other competitors include a large number of
national and regional restaurant chains, many of which have been in existence
for a substantially longer period than the Company and may be better
established in the markets where the Company's new restaurants are or may be
located. The restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions, demographic trends,
traffic patterns, and the type, number and location of competing restaurants.
In addition, factors such as inflation, increased food, labor and benefit
costs, and a lack of experienced management and hourly employees may
adversely affect the restaurant industry in general and the Company's
restaurants in particular. A new competitor, casino gambling, has entered
the market and affected the economy in the past couple years. Many of the
casinos offer free food or inexpensive buffets to lure customers. In the
Omaha, Nebraska area, there are two riverboat casinos located within a ten
mile vicinity of the Company's four Omaha locations, which has impacted
same-store sales. Also, Omaha, Nebraska has been known to have more
restaurants per capita than any other large city in the United States. There
can be no assurance that the Company will be able to compete successfully in
the future with respect to any of the above factors.
The Company believes that its "Western Roadhouse" concept, attractive
price-value relationship, and quality of food and service enable it to
differentiate itself from its competitors. While the Company believes that
its restaurants are distinctive in design and operating concept, it is aware
of restaurants that operate with similar concepts. The Company believes that
its ability to compete effectively will continue to depend upon its ability
to offer high-quality, moderately priced food and a full-service distinctive
dining environment.
GOVERNMENT REGULATION
The Company's restaurants are subject to numerous federal, state and
local laws affecting health, sanitation and safety standards, as well as to
state and local licensing regulation of the sale of alcoholic beverages.
Each restaurant has appropriate licenses from regulatory authorities allowing
it to sell liquor, beer and wine, and each restaurant has food service
licenses from local health authorities. The Company's licenses to sell
alcoholic beverages must be renewed annually and may be suspended or revoked
at any time for cause, including violation by the Company or its employees of
any law or regulation pertaining to alcoholic beverage control, such as those
regulating the minimum age of patrons or employees, advertising, wholesale
purchasing, and inventory control. The failure of a restaurant to obtain or
retain liquor or food service licenses would have a material adverse effect
on its operations. To reduce this risk, each Company restaurant is operated
in accordance with procedures intended to ensure compliance with applicable
codes and regulations.
The Company is subject in certain states to "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its existing comprehensive general liability insurance.
The Company currently operates in New Mexico, which has a "dram-shop"
statute. Nebraska and Arizona have no such statute presently. The Company
has never been named as a defendant in a lawsuit involving "dram-shop"
statutes.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use, and environmental regulations.
The Company's restaurant operations are
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also subject to federal and state minimum wage laws governing such matters as
working conditions, overtime and tip credits, and other employee matters.
Significant numbers of the Company's food service and preparation personnel
are paid at rates related to the federal minimum wage and, accordingly,
further increases in the minimum wage could increase the Company's labor
costs.
The federal Americans With Disabilities Act (the "ADA") prohibits
discrimination on the basis of disability in public accommodations and
employment. The ADA became effective as to public accommodations in January
1992 and became effective as to employment in July 1992. The Company's
restaurants are currently designed to be accessible to the disabled. The
Company believes it is in substantial compliance with all current applicable
regulation relating to restaurant accommodations for the disabled. However,
the Company could be required to expend funds to modify its restaurants in
order to provide service to, or make reasonable accommodations for the
employment of disabled persons.
TRADEMARKS
The Company has entered into a Settlement Agreement with Equitable Life
Assurance Society of the United States ("Equitable"), which provides that the
Company and Equitable shall have concurrent use of the service mark
"Austins". The Settlement Agreement provides that the Company shall have the
right to use the service mark "Austins Steaks & Saloon," including the
distinctive script and longhorn design, in all areas laying outside an area
of 100 miles around St. Louis Park, Minnesota, said territory (the "Equitable
Territory") being reserved for use by Equitable for its mark "Austins
Steakhouse." The Settlement Agreement between the Company and Equitable was
entered into after the Company had filed its federal registration application
and had also filed a cancellation action against Equitable based upon the
Company's prior appropriation of the "Austins" designation.
The Company and Equitable have not effected the issuance of the federal
concurrent use registration but have agreed, pursuant to the Settlement
Agreement, to cooperate with one another and with the Trademark Trial and
Appeal Board of the U.S. Patent and Trademark Office ("USPTO") to finalize
such registration. If the concurrent use registrations are refused by the
Trademark Trial and Appeal Board of the USPTO, Equitable has agreed that it
will not enforce its federal service mark registration against the Company or
the Company's successors or assigns for any alleged infringement based upon
the use of the Austins Steaks & Saloon and design mark in any area laying
outside of the Equitable Territory.
The Company believes that it has substantial rights in its Austins
Steaks & Saloon design and trademark, including such territories as the
Central Midwest, South-Central Midwest, and Southwest regions of the United
States, based upon the Company's actual usage and constructive usage derived
from its pending U.S. trademark application, and intends to aggressively
protect its marks from infringement and competing claims. The Company is
aware of names and marks similar to the mark of the Company used by persons
in certain geographic areas, including, specifically, two other restaurant
service corporations located on the east coast which utilize the "AUSTINS"
name in their trademark and design. Although the Company received a notice
to cease and desist its trademark usage from one of these two corporations,
neither corporation is actively seeking to prevent the Company's trademark
usage. The Company will aggressively defend its Austins Steaks & Saloon
trademark and design.
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EMPLOYEES
As of December 31, 1997, the Company had approximately 312 employees,
five of whom are corporate personnel, 32 of whom are restaurant management,
and the remainder of whom are hourly restaurant personnel. Of the five
corporate employees, two are in management positions and three are
administrative employees. None of the Company's employees is covered by a
collective bargaining agreement. The Company considers its employee
relations to be good.
ITEM 2. DESCRIPTION OF PROPERTIES
All of the Company's current restaurants are located in leased space
averaging approximately 6,000 square feet. Leases are negotiated with
initial terms of five to twenty years, with multiple renewal options. All of
the Company's leases provide for a minimum annual rent, and three provide for
additional rent based on sales volume at the particular location over
specified minimum levels. Generally, the leases are net leases which require
the Company to pay the costs of insurance, taxes, and a pro rata portion of
lessors' common area costs.
The Company currently leases its executive offices which are located at
6940 "O" Street, Suite 334, Lincoln, Nebraska 68510. The Company believes
that there is sufficient office space available at favorable leasing terms in
the Lincoln, Nebraska area to satisfy the additional needs of the Company
that may result from any required future expansion.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company was traded on the NASDAQ Small-Cap
Market System under the symbol "STAK" from January 25, 1995 to November 19,
1997. Prior to that date, there was no public market for the Common Stock.
On November 19, 1997 the Company was delisted from NASDAQ due to the
Company's failure to meet the $1 minimum bid price requirement. The
following table sets forth for the periods indicated the high and low closing
prices for the Common Stock as reported on the NASDAQ Small-Cap Market System
and the National Quotation Bureau:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1997 and 1996 High Low
- -------------------------------------------- -------- ----------
<S> <C> <C>
First Quarter 1996 $ 2.125 $ 1.4375
2Second Quarter 1996 $ 1.75 $ .875
Third Quarter 1996 $ 1.625 $ 1.00
Fourth Quarter 1996 $ 1.375 $ .625
First Quarter 1997 $ 1.00 $ .50
Second Quarter 1997 $ 1.00 $ .625
Third Quarter 1997 $ 1.125 $ .625
Fourth Quarter 1997 $ 1.00 $ .25
</TABLE>
As of March 13, 1998, there were approximately 66 stockholders of record.
The Company has never paid or declared cash dividends on its Common
Stock and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Company expects to retain its earnings to finance
the development and expansion of its business. The payment by the Company of
cash dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's
earnings, financial condition, capital requirements, and other relevant
factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND OTHER FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF
1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS THROUGHOUT THIS DOCUMENT AS A RESULT OF THE RISK
FACTORS SET FORTH BELOW IN THE SECTION ENTITLED "FACTORS AFFECTING FUTURE
RESULTS" AND ELSEWHERE IN THIS DOCUMENT.
OVERVIEW
The Company currently operates eight steakhouse restaurants. Four are
located in Omaha, Nebraska and one is located in each of Lincoln, Nebraska,
Santa Fe, New Mexico, Albuquerque, New Mexico, and Scottsdale, Arizona. The
Omaha restaurants were opened in September 1989, January 1992, December 1992,
and January 1996. The Santa Fe restaurant was opened in April 1994, the
Lincoln restaurant in December 1994, the Albuquerque restaurant in February
1995, and the Scottsdale restaurant in December 1995. The discussion of
financial condition and results of operations included in
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the paragraphs that follow should be read in conjunction with the
consolidated financial statements contained in this report.
RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations on a historical combined basis and expressed as a percentage of
revenues, and should be used in reviewing the discussion and analysis of
results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
As a As a As a
Percent of Percent of Percent of
Statement of Operations Data: Amount Revenue Amount Revenue Amount Revenue
------ ---------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . $9,542,098 100.0% $10,440,478 100.0% $9,534,763 100.0%
Cost of Sales - Food/Beverage . . 3,832,788 40.2 4,203,556 40.3 3,741,117 39.2
Cost of Sales - Labor . . . . . . 2,887,816 30.3 3,186,378 30.5 2,769,132 29.0
Restaurant Operating Expenses . . 2,282,000 23.9 2,406,883 23.1 2,116,268 22.2
Depreciation and Amortization . . 544,899 5.7 542,752 5.2 330,064 3.5
Amortization of Pre-Opening
Costs. . . . . . . . . . . . - - - - 309,548 3.3
General and Administrative
Expenses . . . . . . . . . . 608,731 6.4 1,019,964 9.8 945,332 9.9
Loss on Restaurant Closing. . . . - - 193,998 1.8 - -
Impairment of Long-Lived 768,085 8.0 - - - -
Assets . . . . . . . . . . .
Loss from Operations. . . . . . . (1,382,221) (14.5) (1,113,053) (10.7) (676,698) (7.1)
Other Income (Expense). . . . . . (113,954) (1.2) (181,498) (1.7) 62,585 0.7
Loss Before Income
Taxes and Cumulative Effect
of Change in Accounting
Principle. . . . . . . . . . (1,496,175) (15.7) (1,294,551) (12.4) (614,113) (6.4)
Income Tax Benefit. . . . . . . . - - - - (46,414) (0.5)
Loss Before Cumulative
Effect of Change in
Accounting Principle. . . . (1,496,175) (15.7) (1,294,551) (12.4) (567,699) (6.0)
Cumulative Effect on Prior
Years of Change in
Accounting Principle. . . . - - (255,512) (2.4) - -
Net Loss . . . . . . . . . . . . (1,496,175) (15.7) (1,550,063) (14.8) (567,699) (6.0)
</TABLE>
11
<PAGE>
The Company's revenues and expenses can be significantly affected by the
number and timing of the opening of additional restaurants. The timing of
the restaurant openings can also affect net sales and other period-to-date
comparisons. Interim period results can also be affected by seasonal
changes. During recent fiscal years, the Company's sales have been higher
during the second and third quarters than during the first and fourth
quarters, although not significantly. As of January 1, 1996, the Company
changed the method of accounting for pre-opening costs. Labor costs and
certain other costs relating to opening of new restaurants are expensed as
incurred. Previously, such costs were capitalized and amortized over a
twelve-month period commencing with the restaurant opening.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1996
Net sales for the year ended December 31, 1997 were $9.5 million, a 8.6%
decrease from $10.4 million for the year ended December 31, 1996. Net sales
for the year ended December 31, 1996 include the operations of seven
restaurants for the full year, a eighth restaurant (Omaha-Old Market) for
eleven-and-a-half months and a ninth restaurant (Columbia, Missouri) for
two-and-a-half months. Net sales for the year ended December 31, 1997
include the operations of eight restaurants for the full year. Some of the
decrease in net sales is due to one additional restaurant in operation for
two-and-a-half months during 1996. Annual sales decreased by 7.8% for the
eight restaurants open during the entire year of 1997 and 1996.
Cost of sales (primarily food, beverages, and direct labor) decreased
9.1% to $6.7 million for the period ending December 31, 1997 from $7.4
million for the comparable 1996 period. This decrease is due primarily to
the decrease in sales during 1997, as described above. As a percentage of
net sales, these costs approximated 70.5% in 1997 compared to 70.8% in 1996.
This percentage decrease relates mainly to improved labor margins which are
in turn the result of better control over labor hours and manager and
employee retention levels.
Restaurant operating expenses were $2.3 million, or 23.9% of net sales,
for the year ended December 31, 1997, a 5.2% decrease from $2.4 million, or
23.1% of net sales, in the comparable period in 1996. These expenses
represent primarily the cost of occupancy, including rent, maintenance, and
utilities, and other various costs. The increase, as a percentage of net
sales, is attributed mainly to a decline in the average revenue per unit, and
the associated effect that these relatively fixed costs have on operating
margins. Increased advertising during the fourth quarter of the year also
contributed to the percentage increase in operating expenses.
General and administrative costs decreased 40.3% to $609,000 for the
year ended December 31, 1997 compared to $1 million for the comparable 1996
period. As a percentage of net sales, these costs decreased to 6.4% in 1997
from 9.8% in 1996. This decrease in absolute dollars and as a percentage of
net sales is primarily related to the Company controlling corporate overhead
costs and the decrease in one corporate employee.
Depreciation and amortization during the year ended December 31, 1997
increased slightly to $545,000 or 5.7% of net sales, from $543,000, or 5.2%
of net sales, for the year ended December 31, 1996, a 0.4% increase. This
increase in absolute dollars is attributed to one full year of depreciation
for the Old Market-Omaha restaurant in 1997. As described above, the Old
Market-Omaha restaurant was opened midway through January of 1996. The
increase as a percentage of net sales is due to the decreased average revenue
per unit and the relatively fixed nature of the depreciation and amortization
costs.
12
<PAGE>
In early 1998, the Company began negotiations to sell its Lincoln
store. The negotiated sales price indicated that the investment in this store
had been impaired at year end. Therefore, management determined that all
stores should be considered for impairment review. The Company's review
relating to assets to be held and used indicated that a second restaurant had
experienced negative cash flows, which are expected to continue. An
impairment loss was recorded based on estimated discounted future cash flows
from operations and the estimated sales value of the equipment and the liquor
license. A provision for impairment of $768,085 was booked in the fourth
quarter related to write-downs of the assets associated with these
restaurants.
Other expense approximated $114,000 for the year ended 1997 compared to
$181,000 in the same 1996 period. The decrease is due to lower interest
expense as a result of a reduction in average borrowings for 1997.
The Company's net loss before the impairment loss for the year ended
December 31, 1997 approximated $728,000. In view of the negative same-store
sale trends, the Company is controlling costs related to food, labor,
operating expenses and corporate overhead.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMBINED YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 increased 9.5% to $10.4
million from $9.5 million for the year ended December 31, 1995. Net sales
for the year ended December 31, 1995 include the operations of six
restaurants for the full year, a seventh restaurant (Albuquerque) for eleven
months, and an eighth restaurant (Scottsdale) for 10 days. Net sales for the
year ended December 31, 1996 include the operations of seven restaurants for
the full year, an eighth restaurant (Omaha-Old Market) for eleven-and-a-half
months and a ninth restaurant (Columbia, Missouri) for two-and-a-half months.
The increase in net sales is primarily due to one additional restaurant in
operation during 1996 and the full year of operations for two restaurants
opened in 1995. Annual sales decreased by 15.7% for the five restaurants open
during the entire year of 1996 and 1995.
Cost of sales increased to $7.4 million for the year ended December 31,
1996, an increase of 13.5% from $6.5 million in the comparable 1995 period.
This increase is primarily due to the additional restaurant operations in
1996 as discussed above. As a percentage of net sales, these costs increased
from 68.2% in 1995 to 70.8% in 1996. This 2.6% increase relates mainly to an
increase of in-store promotions and a greater investment in the restaurant
manager's salary and bonus program to help attract and retain employees whose
skill and dedication enable the Company to execute its concept successfully.
Restaurant operating expenses for the year ended December 31, 1996
increased to approximately $2.4 million, or 23.1% of net sales, from $2.1
million, or 22.2% of net sales in 1995, an increase of 13.7%. The increase,
as a percentage of net sales, is attributed to the relatively fixed nature of
occupancy costs of the Company's locations and lower same-store sales
volumes, as noted above.
Amortization of pre-opening costs was $310,000, or 3.3% of net sales,
for the year ended December 31, 1995. The decrease is due to the $255,512
cumulative effect of change in accounting principle as of January 1, 1996.
There were $63,348 of additional pre-opening costs expensed in the first
quarter of 1996 related to the Company's Omaha-Old Market restaurant. This
amount has been included in the restaurant operating expenses for the year
ended December 31, 1996.
13
<PAGE>
General and administrative costs increased 7.9% to $1 million in 1996
from $945,000 in 1995. As a percentage of net sales, general and
administrative expenses decreased 0.1% to 9.8% of net sales in 1996, from
9.9% in 1995. The increase in absolute dollars is primarily due to the
write-off of various abandoned assets including restaurant architectural
prototype costs, development costs incurred for sites not developed, and
receivables from the Company's former President and Chief Executive Officer
which were determined to be noncollectible at this time, including the
$50,000 note receivable from officer. The decrease as a percentage of net
sales is attributed to management controlling overhead costs and the decrease
in corporate management personnel midway through the year.
The Company closed its Columbia, Missouri restaurant on March 21, 1996
due to its operating performance not meeting the Company's expectations. The
actual closing costs for the year ended December 31, 1996 were $193,998
consisting of the non-realizable value of the equipment and leasehold
improvements, loss on lease, and the related costs to dispose the unit. Rock
Bottom, Inc. signed an agreement with the Company to purchase the equipment
in the store and assume the Columbia store lease for $154,000.
Depreciation and amortization increased to $543,000, or 5.2% of net
sales, for the year ended December 31, 1996 from $330,000, or $3.5% of net
sales, in the comparable 1995 period. The increase in absolute dollars is
attributed to the increased number of restaurants in operation during 1996.
The increase as a percentage of net sales is due to the decreased average
revenue per unit and the relatively fixed nature of the depreciation and
amortization costs.
Other expense approximated $181,000 for the year ended 1996 compared to
other income of $63,000 in the same 1995 period. Approximately $150,000 of
the 1996 expense related to interest expense. The change in other income and
expense was due to the Company borrowing funds in 1996 compared to 1995 when
the Company was earning interest income from investments.
As a result of the factors described above, 1996 loss from operations
and net loss as a percentage of sales increased in comparison to 1995. This
percentage increase reflects the decrease in same-store sales, interest
expense, restaurant closing costs and the cumulative effect of the change in
accounting principle. The negative sales trends resulted in
lower-than-anticipated contributions from the Company's more mature Omaha
stores during 1996 and increased market pressures system-wide. The Company
attributes these declines primarily to increased competition in the core
Omaha market, continued soft retail environment and expanded gambling with
two new riverboat casinos opening within a 10 mile vicinity of the four Omaha
stores.
YEAR 2000
The Company will be able to resolve the year 2000 issue by replacing the
motherboards in the computers at the Corporate office and in all of the
restaurants during 1998. The financial impact of this project will be
immaterial.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A large number of the Company's restaurant
personnel are paid at the federally established minimum wage level, and,
accordingly, changes in such wage level could affect the Company's labor
costs. To date, inflation has not had a material impact on operating margins.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $114,000 and $6,000 for
the years ended December 31, 1997 and 1996, respectively. The Company had a
working capital deficit of $796,000 and $1,088,000 at December 31, 1997 and
1996, respectively. The Company does not have significant receivables or
inventory.
The Company's capital requirements relate principally to the development
of new restaurants and the operation of existing restaurants. Capital
expenditures for the restaurant construction and related equipment were
$102,000 for the year ended December 31, 1997 and $617,000 for the year ended
December 31, 1996.
The Company currently has $236,006 borrowed under an agreement with
First National Bank of Omaha, at a variable interest rate which was 10.50% at
December 31, 1997. The Company is paying $5,000 a month in principal plus
interest. This bank agreement is guaranteed by a shareholder and matures on
January 31, 1999 at which time it is expected that the agreement will be
renewed, or a new agreement will be negotiated.
The Company has borrowed $269,928 from The Schorr Family Company, Inc.
due December 31, 1999 with an interest rate equal to the First National Bank
of Omaha "Base Rate."
The Company obtained a line of credit from First Bank, N.A. on January
27, 1997 in the amount of $395,000 at a variable interest rate which was
8.50% at December 31, 1997. The line of credit is guaranteed by a stockholder
and is collateralized by the Rio Rancho land held for sale. The Company
currently has $395,000 borrowed against the line to pay off existing debt.
This line of credit is guaranteed by a shareholder and matures on January 27,
1999.
On November 3, 1997, the Company entered into another line of credit
with First Bank, N.A. in the amount of $210,000 at an initial interest rate
of 8.50%. As of December 31, 1997, there was $55,000 outstanding under this
agreement. This line of credit is also guaranteed by a shareholder and
matures on January 3, 1999.
Currently, the Company is in the process of selling a liquor license in
New Mexico and the Rio Rancho real estate which were purchased in
anticipation of opening new stores. These sales will increase working
capital, support the renovation needed for the mature Omaha stores and repay
the related debt collateralized by these two assets and other various debt
listed on the balance sheet. Management believes the Company has the
financial resources in light of projected cash flows to maintain its current
level of operations throughout 1998. There can be no assurance that the
Company will be successful in its attempt to sell the assets offered for sale
at a profit and maintain profitable operations to the extent necessary to
meet existing debt service requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS - FACTORS AFFECTING FUTURE RESULTS
The Company currently operates eight steakhouse restaurants in five
different cities. The Company's strategy at the time that it went public in
January, 1995 was to achieve significant profitability and use proceeds from
the public offering as well as other internally and externally generated funds
to expand its steakhouse restaurant concept to sixteen to twenty restaurants
over a several year period. Intense and significant competition from other
national and regional steakhouse restaurant chains and
15
<PAGE>
from "subsidized" food offerings by newly opened gambling establishments
adjacent to the Omaha, Nebraska market have created significant operational
and expansion difficulties for the Company. National steakhouse chains such
as Lone Star and Outback have expanded significantly in Albuquerque, New
Mexico and the Omaha, Nebraska market where the Company has half of its
restaurants. Riverboat and fixed site gambling institutions in Council
Bluffs, Iowa, directly across the river from Omaha, Nebraska, not only draw
discretionary food dollars to gambling, but offer similar type prime rib and
steak dinners at subsidized prices. Because the number of restaurants
operated by the Company is relatively small, significant declines in per unit
sales, such as the Company has experienced over the past two years, have a
significant impact on operating results because there are fewer restaurants
over which to spread fixed operating costs. Although the national steakhouse
chains such as Lone Star and Outback are also affected by the gambling
operations, those organizations have significantly greater resources to
withstand such competition, including the ability to "coupon" and advertise.
The Company has significantly reduced its management and operational
costs over the past year to try to lessen the impact of lower per unit sales.
Management is also working vigorously to explore changes in menu mix,
pricing, advertising and limited restaurant theme modification to meet this
competition and increase per unit sales. There can be no assurance that the
Company will be able to achieve these goals.
On March 13, 1998 the Company sold its Lincoln, Nebraska restaurant
which was opened in December, 1994. This unit was sold due to the unit's
operating performance not meeting the Company's expectations. The Company
may seek to close or sell other restaurant units if their operating
performance does not appear to be capable of meeting the company's
expectations.
Over the short term, the Company's objectives are to return to
profitability and enhance shareholder value. If profitability can be
achieved, the Company believes it will be in a position to obtain additional
funds to finance expansion. Current management intends, however, to be
cautious and deliberate in expansion and will look for opportunistic
situations. Management cannot predict when the Company may return to any
significant profitability and further cannot predict whether, in such event,
it will be able to obtain additional financing and expand according to its
strategies. The inability of the Company to expand its restaurant operations
will make it difficult to achieve and grow significant shareholder value.
In addition to the competitive factors cited above, the restaurant
business is one of the most highly competitive in the United States and has
one of the highest failure rates. Restaurant business is affected by changes
in consumer tastes, national, regional and local economic conditions,
demographic trends, traffic patterns, and the type, number and location of
competing restaurants. In addition, factors such as inflation, increased
food, labor and employee benefit costs and the availability of experienced
management and hourly employees may also adversely affect the restaurant
industry in general and the Company's restaurants in particular. Any adverse
changes in any of these factors may impact the Company's ability to achieve
profitability even if it is able to increase per unit sales. In the Omaha,
Nebraska market, the Company's results are also affected by adverse weather
conditions. Adverse weather conditions not only may affect basic food costs,
but during periods of extreme cold and snow, consumers do not eat out as much.
The restaurant business is subject to various federal, state, and local
regulations, including those relating to the sale of food and alcoholic
beverages. While the Company to date has not experienced any material
difficulties in obtaining necessary governmental approvals, the failure to
obtain or retain food and
16
<PAGE>
liquor licenses or any other governmental approvals could have a material
adverse effect on the Company's results of operations. In addition,
restaurant operating costs are affected by increases in the minimum hourly
wage, unemployment tax rates, sales taxes, and similar matters over which the
Company has no control. The Company is also subject in certain states to
"dram shop" statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. The Company
carries liquor liability coverage as a part of its existing comprehensive
general liability insurance in all states, including any possible "dram shop"
statutes. Although, the Company has never been named as a defendant in a
lawsuit involving "dram shop" statutes, if the Company is named a defendant
in any such lawsuits, and the plaintiff prevails, the Company could face
significant liability. Any such liability could have a material adverse
effect on the Company's results of operations.
The name "Austins" in various formats is subject to substantial use
around the country and is the subject of several competing registrations with
the U.S. Patent and Trademark Office ('USPTO"). The Company is in the
process of completing a concurrent use registration with the USPTO.
Nonetheless, should other restaurant operators using names including
"Austins" commence and prevail in proceedings to preclude the Company's use
of the name in new markets, the short-term cost to the Company to change
names, signage, menus, and other advertising material could be significant.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is incorporated by reference to
the financial statements set forth on pages F-1 through F-16 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
17
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated by reference from the Company's Proxy Statement for Annual
Meeting of Stockholders to be held June 4, 1998 ("1998 Proxy Statement")
under the captions "Election of Directors" and "List of Current Officers of
the Company."
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons
who own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership of Form 3 and changes in ownership
on Form 4 or Form 5 with the Securities and Exchange Commission (the "SEC").
Such officers, directors and 10% stockholders are also required by SEC rules
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
10% stockholders were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference from the Company's 1998 Proxy Statement under
the caption "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Company's 1998 Proxy Statement under
the caption "General" and "Election of Directors."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Company's 1998 Proxy Statement under
the caption "Related Party Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1* Certificate of Incorporation of the Company, as amended
3.2* Bylaws of the Company
10.2* Stock Purchase Agreement among the Company, The Schorr
Family Company, Inc. and Norman A. Lies
10.5* Lease dated January 18, 1989, between John Kai-Chee Moy
and Cindie Suk-Ching Moy and Missouri Development Company
10.7* Lease Agreement dated October 16, 1992, between Central
Investment Co., Ltd. and Austins 72nd, Inc.
10.7.1 Lease Extension Agreement dated April 25, 1997 between Central
Investment Co., Ltd. and Austin 72nd, Inc.
18
<PAGE>
10.9* Standard Commercial Shopping Center Lease dated August 1, 1993,
between Kinder-Crow L.P. and Austins of New Mexico, Inc.
10.10* Commercial Lease dated March 10, 1994, between Jack Irwin and
Austins Lincoln, Inc.
10.11* 1994 Austins Steaks & Saloon, Inc. Incentive and Nonqualified
Stock Option Plan, as amended
10.13* Settlement Agreement dated March 24, 1994, between Missouri
Development Company and Equitable Life Assurance Society of
the United States
10.15** Lease Agreement dated August 15, 1994, between Jacob Alcon and
Petrita Alcon and Austins of Albuquerque, Inc.
10.16*** Lease Agreement dated July 19, 1995 between 1101 Harney LLC
and Austins Old Market, Inc.
10.17*** Sublease Agreement dated May 17, 1995 between Collins
Properties, Inc. and the Company
10.18 Third Amendment Real Estate Mortgage Note dated October 28, 1997
between AMREP SOUTHWEST, INC. and the Company
10.19 Fourth Amendment to Commercial Note dated January 31, 1998
between First National Bank of Omaha and the Company
10.20 Commercial Note dated January 27, 1998 between U.S. Bank National
Association d/b/a First Bank N.A. and the Company
10.21 Note Payable to Shareholder dated March 26, 1997 between
Paul C. Schorr III and the Company
10.22 Commercial Note dated February 20, 1998 between U.S. Bank
National Association d/b/a First Bank N.A. and the Company
21 Subsidiaries of the Issuer:
Missouri Development Company
Austins Albuquerque, Inc.
Austins Omaha, Inc.
Austins 72nd, Inc.
Austins Lincoln, Inc.
Austins New Mexico, Inc.
Austins Old Market, Inc.
Austins Scottsdale, Inc.
Austins Rio Rancho, Inc.
Austins Albuquerque East, Inc.
23.1 Consent of Coopers & Lybrand L.L.P.
- --------------
* Incorporated by reference to the specific exhibit to the Form SB-2
Registration Statement, as filed with the Securities and Exchange
Commission on January 23, 1995, Registration No. 33-84440-D.
** Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
*** Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1997.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AUSTINS STEAKS & SALOON, INC.
Dated: 3/26/98 By: /s/ Trisha N. Gade-Jones
--------------- ----------------------------
Trisha N. Gade-Jones
Chief Financial Officer
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Paul C. Schorr III Chairman of the Board 3/26/98
----------------------
Paul C. Schorr III
/s/ Scott Ball Director 3/26/98
----------------------
B. Scott Ball
/s/ Roger D. Sack Director 3/26/98
----------------------
Roger D. Sack
20
<PAGE>
AUSTIN STEAKS & SALOON, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Austin Steaks & Saloon, Inc.
Report of Coopers & Lybrand L.L.P. . . . . . . . . . . . . . F-2
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholder's Equity . F-5
Consolidated Statements of Cash Flows. . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . F-7
F-1
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Austins Steaks & Saloon, Inc.
We have audited the accompanying consolidated balance sheets of Austins
Steaks & Saloon, Inc. and its subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Austins Steaks
& Saloon, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for pre-opening costs in 1996.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND, L.L.P.
Omaha, Nebraska
March 6, 1998, except as to the information presented in Note 13,
for which the date is March 13, 1998
F-2
<PAGE>
AUSTINS STEAKS & SALOON, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Inventories $ 119,068 $ 127,885
Prepaid Expenses and Other Current Assets 168,397 272,297
----------- -----------
Total Current Assets 287,465 400,182
----------- -----------
Equipment 1,479,162 1,790,354
Leasehold Improvements 2,308,802 2,960,973
----------- -----------
3,787,964 4,751,327
Accumulated Depreciation and Amortization (1,388,183) (1,150,501)
----------- -----------
2,399,781 3,600,826
Intangibles, Net 605,612 654,229
Other Assets 786,599 825,552
----------- -----------
$ 4,079,457 $ 5,480,789
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Cash Overdraft $ 53,224 $ 48,071
Accounts Payable 817,157 566,635
Unredeemed Gift Certificates 85,070 89,135
Interest Payable 8,858 10,236
Current Portion of Long-term Debt 119,330 774,533
----------- -----------
Total Current Liabilities 1,083,639 1,488,610
----------- -----------
Long-term Debt, Net of Current Portion 699,361 262,205
Note Payable to Shareholder 269,928 207,270
----------- -----------
969,289 469,475
----------- -----------
Commitments (Note 9)
Stockholders' Equity:
Common Stock ($.01 Par Value; 7,500,000 Shares
Authorized; And 2,331,052 Shares Issued and
Outstanding) 23,311 23,311
Additional Paid-in Capital 5,487,511 5,487,511
Accumulated Deficit (3,484,293) (1,988,118)
----------- -----------
Total Stockholders' Equity 2,026,529 3,522,704
----------- -----------
$ 4,079,457 $ 5,480,789
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
AUSTINS STEAKS & SALOON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net Sales $ 9,542,098 $ 10,440,478
Costs and Expenses:
Cost of Sales 6,720,604 7,389,934
Restaurant Operating Expenses 2,826,899 2,949,635
General and Administrative 608,731 1,019,964
Impairment of Long-lived Assets 768,085 0
Loss on Restaurant Closing 0 193,998
----------- -----------
10,924,319 11,553,531
----------- -----------
Loss From Operations (1,382,221) (1,113,053)
Other Income (expenses):
Loss on Disposition of Fixed Assets 0 (31,441)
Interest Income (expense), Net (113,954) (150,057)
----------- -----------
Loss Before Cumulative Effect of Change in
Accounting Principle (1,496,175) (1,294,551)
Cumulative Effect of Change in Accounting
Principle 0 (255,512)
----------- -----------
Net Loss $(1,496,175) $(1,550,063)
----------- -----------
----------- -----------
Weighted Average Shares Outstanding 2,331,052 2,145,946
----------- -----------
----------- -----------
Basic and Diluted Net Loss Per Share Before
Cumulative Effect of Change
in Accounting Principle $ (0.64) $ (0.60)
Cumulative Effect of Change in Accounting
Principle 0 (0.12)
----------- -----------
Basic and Diluted Net Loss Per Common Share $ (0.64) $ (0.72)
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
AUSTINS STEAKS & SALOON, INC.
CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------- Paid-in Earnings
Shares Dollars Capital (deficit) Total
--------- ------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,910,000 $19,100 $ 4,991,722 $ (438,055) $ 4,572,767
Issuance of Shares 421,052 4,211 495,789 0 500,000
Net Loss 0 0 0 (1,550,063) (1,550,063)
--------- ------ --------- ---------- ----------
Balance, December 31, 1996 2,331,052 23,311 5,487,511 (1,988,118) 3,522,704
Net Loss 0 0 0 (1,496,175) (1,496,175)
--------- ------ --------- ---------- ----------
Balance, December 31, 1997 2,331,052 $23,311 $ 5,487,511 $ (3,484,293) $ 2,026,529
--------- ------ --------- ---------- ----------
--------- ------ --------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
AUSTINS STEAKS & SALOON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,496,175) $(1,550,063)
Adjustments to Reconcile Net Loss to Net Cash
Provided By Operating Activities:
Cumulative Effect of Change in Accounting
Principle 0 255,512
Depreciation and Amortization 591,536 590,007
Loss on Sale of Restaurant and Fixed Assets 3,741 157,513
Loss on Sale of Liquor License 5,248 0
Impairment of Long-lived Assets 768,085 0
Writeoff of Note Receivable and Advances
To Officer 0 130,855
Writeoff of Other Assets and Equipment 0 101,077
Change in Assets and Liabilities:
Inventories 8,817 (15,972)
Prepaid Expenses and Other Current Assets (11,905) 215,841
Accounts Payable 250,522 147,455
Unredeemed Gift Certificates (4,065) (36,642)
Interest Payable (1,378) 10,236
----------- -----------
Net Cash Flows Provided by Operating
Activities 114,426 5,819
Cash Flows From Investing Activities:
Proceeds From Sale of Restaurant and Fixed
Assets 3,183 163,145
Purchase of Equipment and Leasehold Improvements (101,709) (616,564)
Proceeds From Sale Of Liquor License 110,557 0
(Increase) Decrease in Other Assets 23,779 (87,530)
Additions to Intangible Assets 0 (1,050)
----------- -----------
Net Cash Flows Provided By (used in)
Investing Activities 35,810 (541,999)
Cash Flows From Financing Activities:
Change in Cash Overdraft 5,153 (257,779)
Proceeds From Debt 542,658 1,052,184
Payments on Debt (698,047) (258,225)
----------- -----------
Net Cash Flows Provided By (used in)
Financing Activities (150,236) 536,180
----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents 0 0
Cash and Cash Equivalents, Beginning of Period 0 0
----------- -----------
Cash and Cash Equivalents, End of Period $ 0 $ 0
----------- -----------
----------- -----------
Cash Paid For Interest $ 114,864 $ 144,116
----------- -----------
----------- -----------
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Issuance of Stock in Repayment of Debt $ 0 $ 500,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
AUSTIN'S STEAKS & SALOON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Austins Steaks & Saloon, Inc. (the "Company") was incorporated under the
laws of the state of Delaware in December 1992. The Company owns and
operates moderately priced, casual dining restaurants featuring specialty
prime rib dishes, a variety of fresh-cut, aged steaks, home-cooked
entrees, salads and sandwiches. The Company's restaurants are located in
the Midwest and Southwest Regions of the United States.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of nine restaurant
corporations, eight of which were open as of December 31, 1997. All
significant accounts and transactions between the restaurants have been
eliminated in consolidation. The following table summarizes the history
of restaurant openings and the formation of related corporations:
<TABLE>
<CAPTION>
CORPORATIONS RESTAURANT LOCATION OPENING DATE
- ------------------------- ------------------------ -----------------------
<S> <C> <C>
Missouri Development Co. Omaha, Nebraska September 1989
Austins Omaha, Inc. Omaha, Nebraska January 1992
Austins 72nd, Inc. Omaha, Nebraska December 1992
Austins New Mexico, Inc. Santa Fe, New Mexico April 1994
Austins Lincoln, Inc. Lincoln, Nebraska Opened December 1994,
Closed March 1998
Austins of Albuquerque, Inc. Albuquerque, New Mexico February 1995
Austins of Scottsdale, Inc. Scottsdale, Arizona December 1995
Austins Old Market, Inc. Omaha, Nebraska January 1996
Austins Columbia, Inc. Columbia, Missouri Opened November 1993,
Closed March 1996
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories consist primarily of food and beverages for sale in the
restaurants. Inventories are stated at the lower of cost or market. Cost
is determined using the average cost method, which is recalculated monthly.
F-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Equipment is
depreciated using the straight-line method over five to seven years.
Leasehold improvements are amortized using the straight-line method over
the lesser of the term of the lease or the estimated useful lives of the
assets.
UNREDEEMED GIFT CERTIFICATES
The Company records a liability for outstanding gift certificates at the
time they are issued. Upon redemption, sales are recorded and the
liability is reduced by the amount of the certificates redeemed.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets considered for impairment are grouped at the "lowest
level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups." The Company believes the
appropriate application of this standard is obtained by evaluating
individual restaurants where circumstances indicate that an impairment
issue may exist. It is at the individual restaurant level that most
investment and closure decisions are made on an ongoing basis. The
Company estimates undiscounted future cash flows to determine if assets
are recoverable.
MANAGEMENT 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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(FAS 128) which replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants and convertible securities. There
was no impact on net loss per share because the Company's options are
antidilutive.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current
year presentation.
F-8
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
2. CHANGE IN METHOD OF ACCOUNTING:
As of January 1, 1996, the Company changed the method of accounting for
pre-opening costs. Labor costs and certain other costs relating to
opening new restaurants are expensed as incurred. Previously, such costs
were capitalized and amortized over a 12-month period on a straight-line
basis. The Company believes expensing such costs as incurred is
preferable and results in a more meaningful presentation of the Company's
working capital. The cumulative effect of the change of $255,512
represents the reversal of the capitalized pre-opening costs as of
December 31, 1995.
3. LOSS ON CLOSING OF RESTAURANT:
On March 21, 1996, the Company closed its Columbia, Missouri restaurant.
This restaurant was closed due to its operating performance not meeting
the Company's expectations. Rock Bottom, Inc. signed an agreement with
the Company on July 16, 1996 to purchase the equipment in the store and
the Columbia lease. The loss on closing was $193,998, consisting of the
nonrealizable value of the equipment and leasehold improvements, loss on
lease, and the related costs to dispose of the unit.
4. IMPAIRMENT OF LONG-LIVED ASSETS:
The Company's review of all stores indicated that two of its eight
operating restaurants had met the Company's criteria for impairment
review. In early 1998, the Company began negotiations to sell its Lincoln
store (see Note 13). The negotiated sales price indicated that the
investment in this store had been impaired at year end. A second
restaurant had experienced negative cash flows, which are expected to
continue. An impairment loss was recorded based on estimated discounted
future cash flows from operations and the estimated sales value of the
equipment and the liquor license. A provision for impairment of $768,085
was booked in the fourth quarter related to write-downs of the assets
associated with these restaurants.
Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly
from such estimates.
As a result of the reduced carrying amount of the impaired assets,
depreciation and amortization expense for fiscal 1998 is expected to be
reduced by approximately $45,000.
F-9
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets include the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Liquor licenses held for sale $ 142,250 $ 258,055
Rent 1,739 1,739
Insurance 8,413 4,519
Other 15,995 7,984
---------- ----------
$ 168,397 $ 272,297
---------- ----------
---------- ----------
</TABLE>
The Company is in negotiations for the sale of the remaining liquor license
held for sale at December 31, 1997.
6. INTANGIBLE ASSETS:
The Company's intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Trademarks 15 years $ 113,336 $ 113,336
Goodwill 15 years 119,266 119,266
Leasehold interests Life of leases 185,810 185,810
Lease rights Life of lease 326,050 326,050
---------- ----------
744,462 744,462
Less accumulated
amortization (138,850) (90,233)
---------- ----------
$ 605,612 $ 654,229
---------- ----------
---------- ----------
</TABLE>
The intangible assets are amortized using the straight-line method over
the estimated useful lives as indicated above.
The lease rights represent payment for favorable lease terms which
includes decelerating rent payments over the life of the lease. The
amount is being amortized on a straight-line basis over the life of the
lease.
F-10
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
7. OTHER ASSETS:
Other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land held for sale $ 535,039 $ 535,039
Liquor licenses 193,183 193,183
Deposits 36,115 59,894
Organization costs, net 22,262 37,436
---------- ----------
$ 786,599 $ 825,552
---------- ----------
---------- ----------
</TABLE>
Liquor licenses acquired in certain states are considered to have
unlimited lives due to state regulations and, accordingly, the
acquisition cost of these licenses has been capitalized and is not
amortized. Organization costs incurred to establish new legal entities
are capitalized and amortized over five years. The land held for sale
is actively being marketed for sale.
8. INCOME TAXES:
Deferred tax liabilities (assets) are derived from differences in the
book and tax bases of the following assets and liabilities at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Intangibles $ 97,974 $ 96,585
---------- ----------
Fixed assets (445,834) (48,966)
Preopening costs (81,068) (111,920)
Loss carryforwards (882,850) (661,635)
Tax credit carryforwards (103,322) (46,272)
Less valuation allowance 1,415,100 772,208
---------- ----------
(97,974) (96,585)
---------- ----------
$ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
At December 31, 1997 and 1996, the Company had no deferred tax assets or
liabilities reflected on its financial statements and recorded no income
tax benefit for the two years then ended since the net deferred tax
assets are completely offset by a valuation allowance. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
F-11
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
8. INCOME TAXES, CONTINUED:
The net increase of $642,892 and $627,975 in 1997 and 1996, respectively,
in the valuation allowance for deferred tax assets relate primarily to
federal tax credits and federal and state net operating loss
carryforwards. Benefit has been recognized for these items only to the
extent deferred tax liabilities exist.
The differences between the effective income tax rate and the federal
statutory income tax rate (34%) for the year ended December 31, 1997 and
1996 are summarized below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Statutory federal income tax benefit $ 508,700 $ 527,021
Add (deduct) tax effect of:
State income tax benefit, net of
federal benefit 52,235 46,084
Net operating losses and tax credits
for which no benefit is currently
available (215,295) (564,607)
Impairment loss not deductible for
taxes (290,843) 0
Nondeductible payroll taxes (21,603) (6,058)
Other, net (33,194) (2,440)
---------- ----------
$ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
For the year ended December 31, 1997, the Company has a net operating
loss for federal income tax purposes of approximately $2.2 million. The
net operating loss will be available to offset future taxable income
through the years 2009 to 2012.
9. LEASES:
The Company has entered into long-term operating leases for the use of
restaurant buildings and land. The minimum annual lease payments,
excluding renewal options, required under these agreements are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 488,756
1999 384,506
2000 325,275
2001 324,476
2002 and thereafter 883,821
------------
Total $ 2,406,834
------------
------------
</TABLE>
These amounts exclude lease payments on the Lincoln store subsequent to
its sale on March 13, 1998 (see Note 13).
Rent expense incurred during 1997 and 1996 on these leases (including the
Lincoln store) amounted to $592,746 and $579,487, respectively.
F-12
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
10. LONG-TERM DEBT AND NOTE PAYABLE TO SHAREHOLDER:
Long-term debt and note payable to shareholder at December 31 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to bank, due in monthly installments of
$5,000, including interest at 1% above the bank's prime
rate (10.50% at December 31, 1997), with the unpaid
principal balance due on January 31, 1999, collateralized
by substantially all assets of the Company and $ 236,006 $ 454,725
guaranteed by a shareholder
Note payable to bank, due January 27, 1999, interest only
payable monthly at the bank's prime rate (8.50% at December
31, 1997), with principal due upon maturity, collateralized
by real estate and guaranteed by a shareholder 395,000 0
Bank line of credit in the amount of $210,000, due January
3, 1999, interest only payable monthly at the bank's prime
rate (8.50% at December 31, 1997), with principal due upon
maturity, guaranteed by a shareholders
55,000 0
Note payable to bank, due March 17, 2000, payable in monthly
installments of $945, including interest at 8.25% per annum,
with balance of principal due upon maturity
23,177 0
Note payable to bank, due March 25, 2000, payable in monthly
installments of $1,000, including interest at 2% above the
WALL STREET JOURNAL prime rate (10.50% at December 31, 1997),
with a balance of principal due upon maturity, collateralized
by a liquor license. 65,367 85,139
Note payable to bank, principal and interest at 2% above the
WALL STREET JOURNAL prime rate due March 10, 1997,
collateralized by a liquor license. 0 70,775
Real estate mortgage note payable, due in quarterly
installments of $100,000 beginning February 1, 1997, plus
interest at 11% per annum, with the unpaid principal balance
due on January 31, 1998, collateralized by real estate. 44,141 394,141
Note payable to corporation, due November 1, 2001, payable
in monthly installments of $856, including interest at 2%
above the NY composite Prime Lending Rate. 0 31,958
---------- ----------
818,691 1,036,738
Less current portion (119,330) (774,533)
---------- ----------
Total long-term debt $ 699,361 $ 262,205
---------- ----------
---------- ----------
Note payable to shareholder, principal and simple
interest at 10.25% due on December 31, 1999 $ 269,928 $ 207,270
---------- ----------
---------- ----------
Weighted average interest rate at December 31 9.58% 10.27%
---------- ----------
---------- ----------
</TABLE>
The due dates of the notes payable to bank were extended subsequent to year
end. the revised maturities are reflected in the financial statements at
December 31, 1997.
F-13
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
11. COMMON STOCK OPTIONS:
The Company has stock option plans under which incentive and nonqualified
stock options may be granted to key employees and directors of the Company.
As of December 31, 1997, the Company has provided for the delivery of up to
275,000 shares of common stock, including 100,000 shares granted to a former
executive officer outside of the plans. Options are granted at a price not
less than the fair market value of the shares on the date of the grant. The
options may be granted for terms up to but not exceeding 10 years and are
generally fully vested from two years to four years from the date granted. At
December 31, 1997, there were 62,500 shares available for future grants.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (FAS 123). Accordingly, no compensation cost has been
recorded for the stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date
for awards in 1996 and 1997 consistent with the provisions of FAS 123, the
effect on the Company's pro forma net loss and loss per share would have
been:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pro forma loss $(1,501,954) $(1,555,744)
Pro forma basic and diluted
net loss per share (0.64) (0.72)
</TABLE>
The pro forma effect on net income for 1996 and 1997 is not fully
representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation
expense related to the vesting of grants made prior to 1996.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for all grants in 1997 and 1996:
dividend yield of zero percent; expected volatility of 84% and 70%,
respectively; risk-free interest rates ranging from 6.5 to 6.7 percent;
and expected lives of the options of six years from the date of vesting.
The weighted average fair values at date of grant for options granted
during 1997 and 1996 were $0.70 and $0.80, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
11. COMMON STOCK OPTIONS, CONTINUED:
The status of stock options under the plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE OPTIONS
SHARES PRICE PER SHARE EXERCISABLE
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995 140,000 $ 2.86 115,000
Granted 111,000 1.18
Exercised 0 0
Forfeited (40,000) 3.13
--------- ------
Balance at December 31, 1996 211,000 1.92 106,000
Granted 7,000 0.94
Exercised 0 0
Forfeited (5,500) 1.08
--------- ------
Balance at December 31, 1997 212,500 $ 1.91 150,875
--------- ------
--------- ------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISABLE OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
PRICES DECEMBER 31 LIFE PRICE DECEMBER 31 PRICE
- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.94 6,000 9.2 years $ 0.94 0 $ 0.94
1.00 4,000 3.6 years 1.00 4,000 1.00
1.19 102,500 8.5 years 1.19 46,875 1.19
2.75 100,000 1.6 years 2.75 100,000 2.75
---------------- ---------------- ---------------- -----------------
$0.94 to 2.75 212,500 5.2 years $ 1.91 150,875 $ 2.22
---------------- ---------------- ---------------- -----------------
---------------- ---------------- ---------------- -----------------
</TABLE>
12. MAJOR SUPPLIERS:
Purchases from one supplier were approximately $1,400,000 and $2,000,000 for
the years ended December 31, 1997 and 1996, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATES FINANCIAL STATEMENSTS, CONTINUED
13. SUBSEQUENT EVENT:
On March 13, 1998, the Company finalized an agreement which results in
assignment of the lease on the Lincoln store and transfer of certain
personal property to a family-run restaurant business ("buyer") at a
sales price of $40,000. The conditions of assignment include a guarantee
to the lessor by the Company of performance of the lease for the duration
of the lease term, which runs through February 2014. Remaining minimum
lease payments were approximately $1,569,000 at December 31, 1997.
Additionally, the lessor has secured a personal guarantee by a majority
shareholder of the Company in the amount of $40,000. The Lincoln store
operations ceased on March 17, 1998.
F-16
<PAGE>
LEASE EXTENSION AGREEMENT
This Agreement is made as of the 25 day of April, 1997, by and between
Central Investment Co., Ltd., a limited partnership (hereinafter referred to as
the "Landlord") and Austins 72nd, Inc., a Nebraska corporation (hereinafter
referred to as the "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a written Lease Agreement
dated October 16, 1992, covering the real property and improvements located
at 1414 South 72nd Street, Omaha, Nebraska (the "Lease Agreement"); and
WHEREAS, the original term of the Lease Agreement ends on October 31,
1997, and the Lease Agreement provides that the Tenant shall have the right
to extend the original term for two (2) successive periods of five (5) years
upon the terms and conditions provided in the Lease Agreement; and
WHEREAS, Tenant will not exercise said rights to extend the original
term for five (5) years, but wants to extend the original term from November
1, 1997 through April 30, 1998, and Landlord is willing to so extend the
original term on the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
1. The original term of the Lease Agreement is hereby extended from
November 1, 1997 through April 30, 1998.
2. Tenant shall have no right to further extend the term of the Lease
Agreement.
3. Rent payable during the extended term shall be adjusted to $5,000.00
per month plus the cost of living adjustment, as provided in Section
4 of the Lease Agreement.
21
<PAGE>
4. All other terms and provisions of the Lease Agreement, as modified
by this Agreement, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
AUSTIN 72ND, INC. CENTRAL INVESTMENT., LTD.
a Nebraska corporation a limited partnership,
BY: /s/ Trisha Gade-Jones BY: /s/ Andrew C. Nelsen,
------------------------ ------------------------
Trisha Gade-Jones Andrew C. Nelsen,
Its President/CFO General Partner
22
<PAGE>
THIRD AMENDMENT TO
REAL ESTATE MORTGAGE NOTE
THIS THIRD AMENDMENT is made as of the this 28 day of October, 1997, by
and between AUSTINS STEAKS AND SALOON, INC., a Delaware corporation
(hereinafter "Maker"), and AMREP SOUTHWEST, INC. a New Mexico corporation
(hereinafter "Holder").
WHEREAS, Maker executed a Real Estate Mortgage Note (hereinafter the
"Note") in favor of Maker dated October 30, 1995 in the original principal
amount of $400,049.20 which was amended by a First Amendment dated August 27,
1996, and a Second Amendment dated January 31, 1997; and
WHEREAS, the Note is due and payable in full on October 31, 1997; and
WHEREAS, Maker desires to extend the term of the Note and Holder is
willing to do so.
NOW, THEREFORE, in consideration of the mutual covenants hereinbelow,
Maker and Holder agree and covenant as follows:
1. The principal balance of the Note currently outstanding is
$94,140.80 The Note is current through July 31, 1997.
2. Holder agrees to extend the Note until January 31, 1998 at which
time the remaining principal balance plus any and all accrued interest on the
Note shall be due and payable in full.
3. Maker agrees to make a principal payment to Holder in the amount of
$50,000.00 and a payment of $2,610.15 towards accrued interest on October 31,
1997.
23
<PAGE>
In addition to such principal and interst payment, Maker agrees to pay to
Holder interst only payments in the amount of $412.38 each on November 30,
1997, and December 31, 1997.
4. Except as specifically modified herein, the remining terms and
provisions of the Note shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment on
the date and year first above written.
AUSTINS STEAKS AND SALOON, INC.
By: /s/ Paul C. Schorr, III
------------------------------------
Paul C. Schorr, III
Chairman of the Board of Directors
AMREP SOUTHWEST, INC.
By: /s/ James Wall
------------------------------------
James Wall, President
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
This instrument was ackowledged before me on October 29, 1997 by Paul C.
Schorr, III, Chairman of the Board of Directors of AUSTINS STEAKS AND SALOON,
a Delaware corporation, on behalf of said corporation.
[stamp] /s/ Karolynn S. Mizell
------------------------------
Notary Public
My Commission Expires
7-22-2000
- ------------------
24
<PAGE>
STATE OF NEW MEXICO )
) ss.
COUNTY OF SANDOVAL )
This instrument was acknowledged before me on November 6, 1997 by James
Wall, President of AMREP SOUTHWEST, INC., a New Mexico corporation, on behalf
of said corporation.
/s/ Barbara D. MacDonald
----------------------------------------
Notary Public
My Commission Expires:
11-19-98
- ----------------------
25
<PAGE>
Exhibit 10.19
FOURTH AMENDMENT TO AGREEMENT
This Agreement made as of the 31st day of January, 1998, by and among First
National Bank of Omaha ("BANK"), a national banking association with
principal offices in Omaha, Nebraska, and Austins Steaks & Saloon, Inc.
("BORROWER"), a Delaware corporation.
Whereas, BANK and BORROWER executed a written Agreement dated as of
August 31, 1996, which was subsequently amended by written Amendments to
Agreement dated February 7, 1997, March 21, 1997 and October 7, 1997 (the
Agreement, together with all amendments thereto is collectively called the
"AGREEMENT").
Now, Therefore, in consideration of the AGREEMENT, and their mutual
promises made herein, BANK and BORROWER agree as follows:
1. Unless otherwise defined in this Amendment, terms which defined in
the AGREEMENT shall have the same meanings herein.
2. Paragraph 1. of the AGREEMENT is hereby amended to read, effective
immediately:
1. ACKNOWLEDGEMENT OF DEBT. The principal balance of the
OBLIGATION is $231,006.35 as of January 31, 1998. In addition, the OBLIGATION
consists of accrued interest, costs and attorney fees incurred by BANK.
3. Paragraph 3. of the AGREEMENT is hereby amended to read, effective
immediately:
3. PAYMENTS AND INTEREST. Attached hereto, marked Exhibit "A", and
made a part hereof by this reference, is a true copy of the NOTE. BORROWER
shall make the payments of principal and interest set forth therein. Such
payments shall be applied by BANK first to costs, fees and charges, next to
accrued interest, and finally to principal of the OBLIGATION.
4. The AGREEMENT is amended, effective immediately, by adding the
following Paragraph 7., immediately following Paragraph 6. of the AGREEMENT:
7. ASSIGNMENT OF NOTE AND COLLATERAL. Paul Schorr has executed and
delivered to BANK a written guaranty of the OBLIGATION. In the event Paul
Schorr is required to pay the OBLIGATION to BANK as the result of such
guaranty, BANK agrees to endorse, assign and transfer the NOTE and all
security agreements and collateral documents securing the same, to Paul
Schorr, without recourse.
26
<PAGE>
5. BORROWER certifies by its execution hereof that the representations
and warranties set forth in the AGREEMENT are true as of this date, and that
no EVENT OF DEFAULT under the AGREEMENT, and no event which, with the giving
of notice or passage of time or both, would become such an EVENT OF DEFAULT,
has occurred as of this date.
6. Except as amended hereby the parties ratify and confirm as binding
upon them all of the terms of the AGREEMENT.
In witness whereof the parties set their hands as of the date first written
above.
First National Bank of Omaha Austins Steaks & Saloon, Inc., a/k/a
Austins Steaks and Saloon, Inc.
By /s/ Mark M. Miller By /s/ Trisha Gade-Jones
----------------------------------- -------------------------------------
Its Second Vice President Its Chief Financial Officer
---------------------------------- ------------------------------------
ACKNOWLEDGMENT BY GUARANTORS
The undersigned corporations each guarantee the indebtedness of Austins
Steaks & Saloon, Inc. to First National Bank of Omaha by written guaranty
agreements. By their execution hereof, each of the undersigned hereby
acknowledges, consents, and agrees to the above and foregoing Third Amendment
to Agreement, and each ratifies and confirms their existing guaranty of
BORROWER's OBLIGATION.
Austins of Albuquerque, Inc. Austins of Scottsdale, Inc.
By /s/ Trisha Gade-Jones By /s/ Trisha Gade-Jones
----------------------------------- -------------------------------------
Its Chief Financial Officer Its Chief Financial Officer
---------------------------------- ------------------------------------
Austins Old Market, Inc. Missouri Development Company
By /s/ Trisha Gade-Jones By /s/ Trisha Gade-Jones
----------------------------------- -------------------------------------
Its Chief Financial Officer Its Chief Financial Officer
---------------------------------- ------------------------------------
27
<PAGE>
Austins of New Mexico, Inc. Austins 72nd, Inc.
By /s/ Trisha Gade-Jones By /s/ Trisha Gade-Jones
----------------------------------- -------------------------------------
Its Chief Financial Officer Its Chief Financial Officer
---------------------------------- ------------------------------------
Austins Lincoln, Inc. Austins Omaha, Inc.
By /s/ Trisha Gade-Jones By /s/ Trisha Gade-Jones
----------------------------------- -------------------------------------
Its Chief Financial Officer Its Chief Financial Officer
---------------------------------- ------------------------------------
By: /s/ Paul C. Schorr III
----------------------------------
Paul C. Schorr III, Individually
as Guarantor
28
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$395,000.00 01-27-1998 01-27-1999 012798 1735053866 B91
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
BORROWER: Austins Steak & Saloon, Inc. LENDER: U.S. Bank National Association
6940 "O" Street, Suite 334 d/b/a First Bank N.A.
Lincoln, NE 68510 1700 Farnam Street
Omaha, NE 68102
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: INITIAL RATE: DATE OF NOTE:
$395,000.00 8.500% JANUARY 27, 1998
PROMISE TO PAY. AUSTINS STEAK & SALOON, INC. ("BORROWER") PROMISES TO PAY TO
U.S. BANK NATIONAL ASSOCIATION D/B/A FIRST BANK N.A. ("LENDER"), OR ORDER, IN
LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF THREE
HUNDRED NINETY FIVE THOUSAND & 00/100 DOLLARS ($395,000.00), TOGETHER WITH
INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM JANUARY 27, 1998 UNTIL PAID IN
FULL.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PRINCIPAL PAYMENT OF $395,000.00
PLUS INTEREST ON JANUARY 27, 1999. THIS PAYMENT DUE JANUARY 27, 1999, WILL BE
FOR ALL PRINCIPAL AND ACCRUED INTEREST NOT YET PAID. IN ADDITION, BORROWER
WILL PAY REGULAR MONTHLY PAYMENTS OF ALL ACCRUED UNPAID INTEREST DUE AS OF
EACH PAYMENT DATE, BEGINNING FEBRUARY 27, 1999, WITH ALL SUBSEQUENT INTEREST
PAYMENTS TO BE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. The annual
interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender
at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from the time to time based on changes in an index which is the First Bank
National Association Reference Rate (the "Index"). The Index is not
necessarily the lowest rate charged by the Lender on its loans and is set by
Lender in its sole discretion. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute Index after notifying
the Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.500.% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL
TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500% PER ANNUM. NOTICE: Under
no circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier than
it is due. Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower's obligation to continue to make payments under
the payment schedule. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (d) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
29
<PAGE>
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on the
Note to 3.000 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF NEBRASKA. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF DOUGLAS COUNTY, THE STATE OF NEBRASKA. THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUCTED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEBRASKA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
COLLATERAL. This Note is secured by Deed of Trust dated 1/27/97 and
Commercial Pledge Agreement from Jane S. Schorr dated 11/3/97.
PURPOSE OF LOAN. Business.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who sings this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
30
<PAGE>
Austins Steak & Saloon, Inc.
By: /s/ Paul C. Schorr By: /s/ Tim Griggs
-------------------------------------- ------------------------------
Paul C. Schorr III, President/Chairman Tim Griggs, Vice President
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Variable Rate, Single Pay. LASER PRO. Reg. U.S. Pat. & T.M. Off.,
Ver. 3.24(e). CFI ProServices, Inc. All
rights reserved. (NE-D20 F3.24a 004812.LN C10.OVL)
31
<PAGE>
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Office Initials
- ----------- ----------- ---------- ---------- ------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$395,000.00 01-27-1998 01-27-1999 012798 1735053866 B91
- -------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
Borrower: Austins Steak and Lender: U.S. Bank National Association
Saloon, Inc. d/b/a First Bank N.A.
6940 "O" Street, Suite 334 1700 Farnam Street
Lincoln, NE 68510 Omaha, NE 68102
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTICE - WRITTEN AGREEMENTS. A credit agreement must be in writing to be
enforceable under Nebraska law. To protect you and us from any
misunderstandings or disappointments, any contract, promise, undertaking or
offer to forbear repayment of money or to make any other financial
accommodation in connection with this loan of money or grant or extension of
credit, or any amendment of, cancellation of, waiver of, or substitution
for any or all of the terms or provisions of any instrument or document
executed in connection with this loan of money or grant or extension of
credit must be in writing to be effective.
- ------------------------------------------------------------------------------
By signing this document each Party represents and agrees that: (a) The
written Loan Agreement represents the final agreement between the Parties.
(b) There are no unwritten oral agreements between the Parties, and (c) The
written Loan Agreement may not be contradicted by evidence of any prior,
contemporaneous, or subsequent oral agreements or understandings of the
Parties.
As used in this Notice, the following terms have the following meanings:
LOAN. The term "Loan" means the following described loan: a Variable Rate
(at First Bank National Association Reference Rate, making an initial
rate of 8.500%). Nondisclosable Single Pay Line of Credit Loan to a
Corporation for $395,000.00 due on January 27, 1999. This is a secured
renewal loan.
PARTIES. The term "Parties" means U.S. Bank National Association d/b/a
First Bank N.A. and any and all entities or individuals who are
obligated to repay the loan or have pledged property as security for the
Loan, including without limitation the following:
Borrower: Austins Steak and Saloon, Inc.
Guarantor: The Schorr Family Company, Inc.
LOAN AGREEMENT. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds
of trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
<TABLE>
<S> <C>
Promissory Note / Change in Terms Agr. Commercial Guaranty
Disbursement Request and Authorization Notice of Final Agreement
</TABLE>
32
<PAGE>
OPTIONAL FORMS
Amortization Schedule
- ------------------------------------------------------------------------------
Each party who signs below, other than U.S. Bank National Association
d/b/a First Bank N.A., acknowledges, represents, and warrants to U.S.
Bank National Association d/b/a First Bank N.A. that it has received,
read and understood this Notice of Final Agreement. This Notice is dated
January 27, 1998.
BORROWER:
Austins Steak and Saloon, Inc.
By: /s/ Paul C. Schorr By: /s/ Tim Griggs
--------------------------------- -----------------------------------
Paul C. Schorr III, Tim Griggs, Vice President
President/Chairman
GUARANTOR:
The Schorr Family Company, Inc.
By: /s/ Paul C. Schorr III,
-----------------------------------
Paul C. Schorr III, President
LENDER:
U.S. Bank National Association d/b/a First Bank N.A.
By: [ILLEGIBLE] AVP
----------------------------------
Authorized Officer
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LASER PRO. Reg. U.S. Pat. & T.M. Off., Ver. 3.24 (c) 1998 CFLProServies, Inc.
All rights reserved. (NE-121 004812.LN C10.OVL)
33
<PAGE>
[LETTERHEAD]
March 26, 1997
To Whom It May Concern,
I am the President and Chief Executive Officer of ComCor Holding, Inc., a
consulting firm. During the calendar years, 1996 and 1997, ComCor Holding,
Inc. loaned Austins Steak and Saloon, Inc., $269,927.62. The maturity date
for the entire sum, $269,927.62, is December 31, 1999.
Sincerely,
/s/ Paul C. Schorr III
Paul C. Schorr III
President and Chief Executive Officer
34
<PAGE>
CHANGE IN TERMS AGREEMENT
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$210,000.00 03-03-1999 110398 1735053866 897
</TABLE>
References in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or item.
<TABLE>
<S> <C>
Borrower: Austin's Steak and Saloon, Inc. Lender: U.S. Bank National Association d/b/a First Bank N.A.
6940 "O" Street, Suite 334 1700 Farnom Street
Lincoln, NE 68510 Omaha, NE 68102
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $210,000.00 DATE OF AGREEMENT: February 20, 1998
</TABLE>
DESCRIPTION OF EXISTING INDEBTEDNESS. Disbursement Promissory Note date
November 3, 1997 in the original amount of $250,000.000 with a current
outstanding balance of $110,000.00 and $1000,000.00 funds left to be
disbursed.
DESCRIPTION OF COLLATERAL. FS/SA and Commercial Pledge Agreements from June
S. Schorr and The Schorr Family Company, Inc.
DESCRIPTION OF CHANGE IN TERMS. The current maturity date of November 3,
1998, has been extended to become due January 3, 1999. Change Note from a
Single Pay to Multiple Advance Line of Credit. All other terms and
conditions remain the same.
PROMISE TO PAY. Austin's Steak and Saloon, Inc. ("Borrower") promises to pay
to U.S. Bank National Association d/b/a First Bank N.A. ("Lender"), or order,
in lawful money of the United States of America, the principal amount of Two
Hundred Ten Thousand and 00/100 Dollars ($210,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on January 3, 1999. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest
beginning March 3, 1998, and all subsequent interest payments are due on the
same day of each month after that. The annual interest rate for this
Agreement is computed on a 365/360 basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual the actual number of
days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate
in writing. Unless otherwise agreed or required by applicable law, payments
will be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to
change from time to time based on changes in an index which is the First Bank
National Association Reference Rate (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans and is set by
Lender in its sole discretion. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute Index after notifying
Borrower. Lender will tell Borrower the current Index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other
rates as well. The interest rate change will not occur more often than each
day. The Index currently is 8.500% per annum. The interest rate to be
applied to the unpaid principal balance of this Agreement will be at a rate
equal to the Index, resulting in an initial rate of 8.500% per annum.
NOTICE: Under no circumstances will the interest rate on this Agreement be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier
than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
35
<PAGE>
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other
agreement or loan Borrower has with Lender. (c) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf is
false or misleading in any material respect either now or at the time made or
furnished. (d) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Agreement. (g)
A material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this
Agreement within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance
as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Agreement and all accrued unpaid interest
immediately due, without notice, and then Borrower will pay that amount.
Upon default, including failure to pay upon final maturity. Lender, at its
option, may also, if permitted under applicable law, increase the variable
interest rate on this Agreement to 3.000 percentage points over the Index.
The interest rate will not exceed the maximum rate permitted by applicable
law. Lender may hire or pay someone else to help collect this Agreement if
Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Nebraska. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
Douglas County, the State of Nebraska. This Agreement shall be governed by
and construed in accordance with the laws of the State of Nebraska.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account).
Including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
this Agreement against any and all such accounts.
LINE OF CREDIT. This Agreement evidence is straight line of credit. Once
the total amount of principal has been advanced, Borrower is not entitled to
further loan advances. Advances under this Agreement may be requested by
Borrower by an authorized person. Lender may, but need not, require that all
oral requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shown above written notice of revocation of their authority:
Paul C. Schorr III, President; and Timothy Griggs, Vice President. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Agreement
at any time may be evidenced by endorsements on this Agreement or by Lender's
internal records, including daily computer print-outs. Lender will have no
36
<PAGE>
obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement
that Borrower or any guarantor has with Lender, including any agreement made
in connection with the signing of this Agreement; (b) Borrower or any
guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Agreement or any other loan with Lender; (d) Borrower has
applied funds provided pursuant to this Agreement for purposes other than
these authorized by Lender; or (e) Lender in good faith deems itself insecure
under this Agreement or any other agreement between Lender and Borrower.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the
terms of the original obligation or obligations, including all agreements
evidenced or securing the obligation(s), remain unchanged and in full force
and effect. Consent by Lender to this Agreement does not waive Lender's
right to strict performance of the obligation(s) as changed, nor obligate
Lender to make any future change in terms. Nothing in this Agreement will
constitute a satisfaction of the obligation(s). It is the intention of
Lender to retain as liable parties all makers and endorsers of the original
obligation(s), including accommodation parties, unless a party is expressly
released by Lender in writing. Any maker or endorser, including
accommodation makers, will not be released by virtue of this Agreement. If
any person who signed the original obligation does not sign this Agreement
below, then all persons signing below acknowledge that this Agreement is
given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
PURPOSE OF LOAN. Operating Capital
37
<PAGE>
02-20-1998 CHANGE IN TERMS AGREEMENT Page 2
Loan No 110398 (Continued)
- ------------------------------------------------------------------------------
MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Agreement without losing them. Borrower and
any other person who signs, guarantees or endorses this Agreement, to the
extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Agreement, and
unless otherwise expressly stated in writing, no party who signs this
Agreement, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may
renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lender's security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom
the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
Austin's Steak and Saloon, Inc.
By: /s/ Paul C. Schorr By: /s/ Timothy Griggs
--------------------------------- -----------------------------------
Paul C. Schorr III, President Timothy Griggs, Vice President
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Variable Rate. Line of Credit. LASER PRO. Reg. U.S. Pat. & T.M. Off.,
Ver. 3.24 (c) 1998 CFLProServices, Inc. All rights reserved.
(NE-121 004812.LN C10.OVL)
38
<PAGE>
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
- ---------- ----------- ---------- ---------- ------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$210,000.00 01-03-1999 110398 1735053866 B91
- -------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------
Borrower: Austin's Steak and Lender: U.S. Bank National Association
Saloon, Inc. d/b/a First Bank N.A.
6940 "O" Street, Suite 334 1700 Farnam Street
Lincoln, NE 68510 Omaha, NE 68102
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTICE - WRITTEN AGREEMENTS. A credit agreement must be in writing to be
enforceable under Nebraska law. To protect you and us from any
misunderstandings or disappointments, any contract, promise, undertaking or
offer to forbear repayment of money or to make any other financial
accommodation in connection with this loan of money or grant or extension of
credit, or any amendment of, cancellation of, waiver of, or substitution
for any or all of the terms or provisions of any instrument or document
executed in connection with this loan of money or grant or extension of
credit must be in writing to be effective.
- ------------------------------------------------------------------------------
By signing this document each Party represents and agrees that: (a) The
written Loan Agreement represents the final agreement between the Parties,
(b) There are no unwritten oral agreements between the Parties, and (c) The
written Loan Agreement may not be contradicted by evidence of any prior,
contemporaneous, or subsequent oral agreements or understandings of the
Parties.
As used in this Notice, the following terms have the following meanings:
LOAN. The term "Loan" means the following described loan: a Variable Rate
(at First Bank National Association Reference Rate, making an initial
rate of 8.500%). Nondisclosable Non-Revolving Line of Credit Loan to a
Corporation for $210,000.00 due on January 3, 1999. This is a secured
renewal loan.
PARTIES. The term "Parties" means U.S. Bank National Association d/b/a
First Bank N.A. and any and all entities or individuals who are
obligated to repay the loan or have pledged property as security for the
Loan, including without limitation the following:
Borrower: Austin's Steak and Saloon, Inc.
Grantor #1: June S. Schorr
Grantor #2: The Schorr Family Company, Inc.
Guarantor #1: June Schorr
Guarantor #2: The Schorr Family Company, Inc.
LOAN AGREEMENT. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds
of trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
<TABLE>
<S> <C>
Corporate Resolution to Guarantee Corporate Resolution to Grant Collateral
Promissory Note / Change in Terms Agr. Commercial Guaranty
39
<PAGE>
Security Agreement Commercial Pledge Agreement
Acknowledgment Pledge & Security Interest UCC - 1
Disbursement Request and Authorization Notice of Final Agreement
</TABLE>
OPTIONAL FORMS
Amortization Schedule
- ------------------------------------------------------------------------------
40
<PAGE>
02-20-1998 NOTICE OF FINAL AGREEMENT Page 2
Loan No 110398 (Continued)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Each party who signs below, other than U.S. Bank National Association
d/b/a First Bank N.A., acknowledges, represents, and warrants to U.S.
Bank National Association d/b/a First Bank N.A. that it has received,
read and understood this Notice of Final Agreement. This Notice is dated
February 20, 1998.
BORROWER:
Austin's Steak and Saloon, Inc.
By: /s/ Paul C. Schorr By: /s/ Timothy Griggs
--------------------------------- -----------------------------------
Paul C. Schorr III, President Timothy Griggs, Vice President
GRANTOR:
X /s/ June S. Schorr
-----------------------------------
June S. Schorr
GRANTOR:
By: /s/ Paul C. Schorr
---------------------------------
Paul C. Schorr III, President
GUARANTOR:
X /s/ June S. Schorr
-----------------------------------
June S. Schorr
GUARANTOR:
By: /s/ Paul C. Schorr
---------------------------------
Paul C. Schorr III, President
LENDER:
U.S. Bank National Association d/b/a First Bank N.A.
By: /s/ [ILLEGIBLE]
----------------------------------
Authorized Officer
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LASER PRO. Reg. U.S. Pat. & T.M. Off., Ver. 3.24 (c) 1998 CFLProServices, Inc.
All rights reserved. (NE-121 004812.LN C10.OVL)
41
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Austins Steaks & Saloon, Inc. on Form S-8 (File No. 33-92196) of our report
dated March 6, 1998, on our audit of the consolidated financial statements of
Austins Steaks & Saloon, Inc. as of December 31, 1997 and 1996 and for the
years then ended, which report is included in this Annual Report on Form
10-KSB.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 27, 1998
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLDIATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 119,068
<CURRENT-ASSETS> 287,465
<PP&E> 3,787,964
<DEPRECIATION> 1,388,183
<TOTAL-ASSETS> 4,079,457
<CURRENT-LIABILITIES> 1,083,639
<BONDS> 0
0
0
<COMMON> 23,311
<OTHER-SE> 2,003,218
<TOTAL-LIABILITY-AND-EQUITY> 4,079,457
<SALES> 9,542,098
<TOTAL-REVENUES> 9,542,098
<CGS> 9,547,503
<TOTAL-COSTS> 9,547,503
<OTHER-EXPENSES> 1,376,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,954
<INCOME-PRETAX> (1,496,175)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,496,175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,496,175)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> 0
</TABLE>
