<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _____________ TO ______________
Commission file number 0-25366
AUSTINS STEAKS & SALOON, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 86-0723400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
317 Kimball Avenue, N.E.
Roanoke, Virginia 24016
(Address of principal executive offices)
(540) 345-3195
(Issuer's telephone number)
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. (1) Yes X No
--- ---
As of October 29, 1999, there were 12,103,824 shares of the issuer's common
stock outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AUSTINS STEAKS & SALOON, INC.
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 276,315 $ 643,536
Trade accounts receivable, net of allowance for doubtful accounts of
$217,939 in 1999 and $251,397 in 1998 891,932 870,552
Current installments of notes receivable 116,433 115,699
Other receivables 335,201 76,205
Inventories 344,231 298,617
Prepaid expenses 366,433 201,982
Deferred income taxes 170,737 121,883
----------- -----------
Total current assets 2,501,282 2,328,474
Notes receivable, less allowance for doubtful accounts of $158,319 in 1999
and $123,414 in 1998, excluding current installments 139,746 172,697
Property and equipment, net 9,241,742 7,440,426
Franchise royalty contracts, net of accumulated amortization of $3,624,198
in 1999 and $3,151,477 in 1998) 5,830,233 6,302,954
Goodwill, net of accumulated amortization of $1,534,518 in 1999 and
$1,179,686 in 1998 6,747,387 4,718,743
Financing and organization costs, net of accumulated amortization of
$26,827 in 1999 and $12,145 in 1998 163,476 178,158
Other assets, net 1,310,780 152,392
----------- -----------
$25,934,646 $21,293,844
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit line note payable to bank $ 473,461 $ 410,868
Current installments of long-term debt 3,522,083 1,589,928
Current installments of obligations under capital leases 35,823 46,956
Accounts payable 1,844,481 2,186,236
Accrued expenses and other 1,106,373 878,805
----------- -----------
Total current liabilities 6,982,221 5,112,793
Long-term debt, excluding current installments 5,499,433 5,915,892
Obligations under capital leases, excluding current installments 47,444 81,599
Deferred income taxes 257,588 378,494
----------- -----------
Total liabilities 12,786,686 11,488,778
----------- -----------
Stockholders' equity (note 2):
Convertible preferred stock, series A, $10 par value (involuntary
liquidation preference of $10 per share). Authorized 25,000 shares; none
issued and outstanding -- --
Convertible preferred stock, series B, $1 par value (involuntary liquidation
preference of $1 per share). Authorized 875,000 shares; issued and
outstanding 874,375 shares in 1998 -- 874,375
Common stock; $.01 par value. Authorized 20,000,000 shares; issued and
outstanding 8,678,000 shares in 1998 and 12,103,824 shares in 1999 121,038 86,780
Additional paid-in capital 8,652,644 4,652,181
Retained earnings 4,374,278 4,191,730
----------- -----------
Total stockholders' equity 13,147,960 9,805,066
----------- -----------
Commitments and contingencies
$25,934,646 $21,293,844
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Company-operated stores $ 10,246,135 $ 7,685,743 $ 27,037,876 $ 22,609,918
Franchise operations 1,461,618 1,566,377 4,391,805 4,747,535
Other 137,084 143,579 398,250 403,426
------------ ------------ ------------ ------------
Total revenues 11,844,837 9,395,699 31,827,931 27,760,879
------------ ------------ ------------ ------------
Costs and expenses:
Cost of company-operated stores 7,340,054 5,448,322 18,825,151 15,536,182
Cost of franchise operations 1,021,514 1,011,420 2,807,421 2,890,526
Other cost of operations 101,721 109,674 299,845 307,856
Restaurant operating expenses 1,675,575 1,303,739 4,325,289 3,675,038
General and administrative 1,302,720 932,278 3,350,330 2,729,268
Total costs and expenses 11,441,584 8,805,433 29,608,036 25,138,870
------------ ------------ ------------ ------------
Income from operations 403,253 590,266 2,219,895 2,622,009
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (184,791) (153,212) (571,838) (600,358)
Interest income 28,225 23,370 39,994 32,877
Other (227,350) (116,895) (1,407,903) (117,141)
------------ ------------ ------------ ------------
(383,916) (246,737) (1,939,747) (684,622)
Income before income tax ------------ ------------ ------------ ------------
expense and extraordinary item 19,337 343,529 280,148 1,937,387
Income tax expense 6,300 146,350 97,600 756,151
------------ ------------ ------------ ------------
Income before extraordinary item 13,037 197,179 182,548 1,181,236
Extraordinary loss on debt extinguishment (net of
income tax benefit of $31,869) -- -- -- 51,451
------------ ------------ ------------ ------------
Net income $ 13,037 $ 197,179 $ 182,548 $ 1,129,785
============ ============ ============ ============
Earnings per share:
Income before extraordinary item:
Basic -- .02 .02 .13
Diluted -- .02 .02 .13
Extraordinary item:
Basic -- -- -- (.01)
Diluted -- -- -- (.01)
Net income:
Basic -- .02 .02 .12
Diluted -- .02 .02 .12
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK, SERIES B COMMON STOCK
SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Balances, December 31, 1998 874,375 $ 874,375 4,339,000 $ 4,339,000
Restated for reverse merger acquisition -- -- 4,339,000 (4,252,220)
--------- ----------- ---------- ------------
Balances, December 31, 1998, as restated 874,375 874,375 8,678,000 86,780
Conversion of preferred stock in reverse
merger acquisition (874,375) (874,375) 1,748,750 17,488
Conversion of warrants in reverse merger
acquisition -- -- 742,500 7,425
Common stock issued in reverse merger
acquisition -- -- 861,374 8,613
Proceeds from exercise of common stock
options -- -- 155,000 1,550
Proceeds from issuance of common stock
in private placement -- -- 1,286,200 12,862
Repurchase of common stock -- -- (1,368,000) (13,680)
Net income -- -- -- --
--------- ----------- ---------- ------------
Balance, September 30, 1999 -- $ -- 12,103,824 $ 121,038
========= =========== ========== ============
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
<S> <C> <C> <C>
Balances, December 31, 1998 $ 399,961 $ 4,191,730 $ 9,805,066
Restated for reverse merger acquisition 4,252,220 -- --
------------ ------------ ------------
Balances, December 31, 1998, as restated 4,652,181 4,191,730 9,805,066
Conversion of preferred stock in reverse
merger acquisition 856,887 -- --
Conversion of warrants in reverse merger
acquisition (7,425) -- --
Common stock issued in reverse merger
acquisition 3,419,655 -- 3,428,268
Proceeds from exercise of common stock
options 230,950 -- 232,500
Proceeds from issuance of common stock
in private placement 2,906,716 -- 2,919,578
Repurchase of common stock (3,406,320) -- (3,420,000)
Net income -- 182,548 182,548
------------ ------------ ------------
Balance, September 30, 1999 $ 8,652,644 $ 4,374,278 $ 13,147,960
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 182,548 $ 1,129,785
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on debt extinguishment -- 51,451
Depreciation and amortization of property and equipment 848,008 552,462
Amortization of discount on debt -- 27,276
Amortization of franchise royalty contracts, goodwill,
financing and organization costs and other assets 903,823 974,841
Provision for bad debts 77,603 110,216
Provision for deferred taxes (169,760) (181,897)
Gain on sale/disposal of property and equipment (96,808) --
(Increase) decrease in:
Trade accounts receivable 9,824 5,046
Notes receivable 23,560 41,560
Lease receivable -- 8,579
Other receivables (258,996) (72,807)
Inventories 84,197 6,702
Prepaid expenses (86,813) (97,908)
Other assets (22,267) 161,531
Increase (decrease) in:
Accounts payable 904,048 615,499
Accrued expenses 205,828 (136,141)
------------- ------------
Net cash provided by operating activities 2,604,795 3,196,195
------------- ------------
Cash flows from investing activities:
Acquisition, net of cash received (570,813) --
Additions to property and equipment (1,873,347) (2,551,999)
Proceeds from sale of property and equipment 70,585 --
------------- ------------
Net cash used in investing activities (2,373,575) (2,551,999)
------------- ------------
Cash flows from financing activities:
Net increase (decrease) in credit line note payable 62,593 (336,820)
Proceeds from long-term debt 1,700,000 6,200,000
Payments on long-term debt and capital leases (2,093,112) (5,271,783)
Financing costs - (190,303)
Proceeds from exercise of common stock options 232,500 --
Proceeds from issuance of common stock in private placement 2,919,578 --
Repurchase of common stock (3,420,000) (1,115,000)
------------- ------------
Net cash used in financing activities (598,441) (713,906)
------------- ------------
Net increase (decrease) in cash and cash equivalents (367,221) (69,710)
Cash and cash equivalents at beginning of period 643,536 718,246
------------- ------------
Cash and cash equivalents at end of period $ 276,315 $ 648,536
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared by Austins Steaks & Saloon, Inc. ("Austins" or the
"Company") in accordance with generally accepted accounting
principles for interim financial reporting information and the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all material
reclassifications and adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the
results of operations, financial position and cash flows for each
period shown, have been included. Operating results for interim
periods are not necessarily indicative of the results for the full
year. The unaudited consolidated financial statements and notes
are presented as permitted by Form 10-QSB and do not contain
certain information included in the Company's annual consolidated
financial statements and notes. For further information, refer to
the consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
(2) BUSINESS COMBINATION
Effective July 1, 1999, Austins Steaks & Saloon, Inc. ("Austins"), a
Delaware corporation, merged with The WesterN SizzliN Corporation
("WesterN SizzliN"), a Tennessee corporation, located in Roanoke,
Virginia. The assets and business of WesterN SizzliN are now owned by a
wholly-owned subsidiary of Austins, The WesterN SizzliN Corporation, a
Delaware corporation. As a result of the merger, Austins' six moderately
priced, casual dining, full service restaurants located in Arizona,
Nebraska and New Mexico have been combined with WesterN SizzliN, which
operates and franchises a total of 239 restaurants in 23 states,
including 20 company-owned and 219 franchised restaurants.
Effective June 30, 1999, each of the outstanding 2,700,406 shares of
common stock were split 1 for 3.135, leaving a total of 861,374 Austins
shares outstanding prior to the merger. Upon completion of the merger,
the Austins shareholders own approximately 7 percent of the outstanding
equity and the WesterN SizzliN shareholders own approximately 93 percent
of the outstanding equity of the combined Company.
Pursuant to the merger, each share of WesterN SizzliN common and Series B
convertible preferred stock (4,339,000 and 874,375 shares, respectively)
were converted into two shares of Austin's common stock. Also effective
with the merger, each WesterN SizzliN common stock warrant (371,250
warrants) was converted into two shares of Austin's common stock.
<PAGE>
The business combination has been accounted for as a reverse acquisition
using the purchase method of accounting. In the acquisition, the
shareholders of the acquired company, WesterN SizzliN, received the
majority of the voting interests in the surviving consolidated company.
Therefore, WesterN SizzliN was deemed to be the acquiring company for
financial reporting purposes and accordingly, all of the assets and
liabilities of Austins have been recorded at fair value and the
operations of Austins have been reflected in the operations of the
combined company from July 1, 1999, the date of acquisition.
The purchase price of the business combination was determined based on
the market price of Austins' securities over a reasonable period of time
before and after the two companies reached an agreement on the purchase
price and the proposed transaction was announced. On February 23, 1999,
Austins and WesterN SizzliN signed a letter of intent agreeing on the
purchase price and announced the proposed transaction. The average
closing market price for the five business day period beginning February
19, 1999 and ending February 25, 1999 for Austins was $1.2695. Applying
this price per share to the Austins' presplit common shares issued, and
including the estimated direct costs incurred as a result of the
acquisition of $570,813, resulted in a deemed purchase price of
$3,999,081. The aggregate purchase price of the acquisition was allocated
based upon management's best estimate of the fair values of identifiable
assets and liabilities of Austins at the date of acquisition as follows:
<TABLE>
<S> <C>
Current assets $ 214,879
Property and equipment, net 2,178,226
Other assets 630,694
Favorable lease rights 661,121
Goodwill 2,383,476
Trademarks 76,283
Long-term debt (1,204,264)
Current liabilities (671,406)
Note payable to shareholder (269,928)
------------
Total $ 3,999,081
============
</TABLE>
Goodwill resulting from the acquisition is being amortized
on a straight-line basis over 15 years.
(3) LEGAL SETTLEMENT AND PRIVATE PLACEMENT OF COMMON STOCK
On September 10, 1999, the Company completed its settlement agreement
with David K. Wachtel, Jr. with respect to long-standing litigation
initiated in February 1995. Under the terms of the settlement agreement,
Austins paid Mr. Wachtel $1,000,000 in settlement of all claims he had in
the litigation. Additionally, Mr. Wachtel withdrew his notice to dissent
from the merger between Austins and the WesterN SizzliN with respect to
the 684,000 WesterN SizzliN shares (premerger) owned by him, and Austins
repurchased these shares for the sum of $3,420,000.
<PAGE>
In order to obtain the funds with which to pay Mr. Wachtel under the
settlement agreement, the Company conducted a private placement of its
common stock at prices ranging from $2.25 to $2.50 per share to qualified
shareholders, principally former WesterN SizzliN stockholders. On the
closing date of September 10, 1999, the Company had received
approximately $2.9 million of proceeds which it used, along with
approximately $1.5 million of bank and other financing to complete the
settlement with Mr. Wachtel.
As a part of the private placement, Austins issued 1,286,200 shares of
its common stock to the qualified investors-purchasers. The holders of a
majority of the stock ultimately acquired in the private placement have
the right, for the one-year period commencing March 15, 2000, to request
Austins to file a registration statement with the Securities and Exchange
Commission to permit the resale of the stock. The registration must
remain effective for 45 days and Austins must cover the costs of the
registration. If any investor may resell all of his or her shares in a
single three-month period utilizing Rule 144, then the registration
rights will not apply to that investor.
(4) EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company. Stock options for shares of common stock were
not included in computing diluted earnings per share for the three and
nine months ended September 30, 1998 because these effects are
anti-dilutive. Convertible preferred stock and common stock warrants are
not included in computing diluted earnings per share, prior to their
conversion in connection with the reverse merger acquisition, since the
conditions for their issuance, such as an initial public offering or
registration of the Company's common stock, had not taken place.
<PAGE>
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for the years
indicated:
<TABLE>
<CAPTION>
WEIGHTED
INCOME AVERAGE EARNINGS
(LOSS) SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net income - basic $ 13,037 8,955,022 $ .00
==========
Effect of dilutive stock options -- 114,539
----------- -------------
Net income - diluted $ 13,037 9,069,561 $ .00
=========== ============= ==========
THREE MONTHS ENDED SEPTEMBER 30, 1998
Income before extraordinary item - basic and diluted $ 197,179 9,457,109 $ .02
Extraordinary item - basic and diluted -- -- --
----------- ------------- ----------
Net income 197,179 9,457,109 $ .02
=========== ============= ==========
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net income - basic $ 182,548 $ 8,772,491 $ .02
Effect of dilutive stock options 38,599 --
----------- ------------- ----------
Net income - diluted $ 182,548 8,811,090 $ .02
=========== ============= ==========
NINE MONTHS ENDED SEPTEMBER 30, 1998
Income before extraordinary item - basic and diluted $ 1,181,236 9,303,899 .13
Extraordinary item - basic and diluted (51,451) 9,303,899 (.01)
----------- ------------- ----------
Net income - basic and diluted $ 1,129,785 9,303,899 $ .12
=========== ============= ==========
</TABLE>
(5) REPORTABLE SEGMENTS
Effective January 1, 1998, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131
establishes standards for the way the Company reports information about
operating segments in its financial statements.
The Company has defined two reportable segments: Company-operated
restaurants and franchising. The Company-operated restaurant segment
consists of the operations of all Company-operated restaurants and
derives its revenues from the operations of "WesterN SizzliN Steakhouse,"
"Great American Steak & Buffet," "WesterN SizzliN Wood Grill" and
"Austins Steaks & Saloon." The franchising segment consists of franchise
sales and support activities and derives its revenues from sales of
franchise and development rights and collection of royalties from
franchisees.
<PAGE>
Generally, the Company evaluates performance and allocates resources
based on income (loss) from operations before income taxes and
eliminations. Administrative and capital costs are allocated to segments
based upon predetermined rates or actual or estimated resource usage. The
Company
<PAGE>
accounts for intercompany sales and transfers as if the sales or
transfers were with third parties and eliminates the related
profit in consolidation.
Reportable segments are business units that provide different products or
services. Separate management of each segment is required because each
business unit is subject to different operational issues and strategies.
Through September 30, 1999, all revenues for each business segment were
derived from business activities conducted with customers located in the
United States. No single external customer accounted for 10 percent or
more of the Company's consolidated revenues.
The following table summarizes reportable segment information:
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER 30,
---------------------------- -------------------------
1999 1998 1999 1998
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from reportable segments:
Restaurants $ 10,246,135 7,685,743 27,037,876 22,609,918
Franchising and other 1,598,702 1,709,956 4,790,055 5,150,961
------------ --------- ---------- ----------
Total revenues $ 11,844,837 9,395,699 31,827,931 27,760,879
============ ========= ========== ==========
Depreciation and amortization:
Restaurants 447,545 286,102 1,153,001 824,009
Franchising and other 199,610 240,355 598,830 730,570
------------ --------- ---------- ----------
Total depreciation and
amortization $ 647,155 526,457 1,751,831 1,554,579
============ ========= ========== ==========
Interest expense:
Restaurants 172,344 145,065 495,006 497,598
Franchising and other 12,447 8,147 76,832 102,760
------------ --------- ---------- ----------
Total interest expense $ 184,791 153,212 571,838 600,358
============ ========= ========== ==========
Interest
income:
Restaurants 11,876 17,360 21,183 20,320
Franchising and other 16,349 6,010 18,811 12,559
------------ --------- ---------- ----------
Total interest income $ 28,225 23,370 39,994 32,877
============ ========= ========== ==========
Income (loss) before income taxes and extraordinary item:
Restaurants (225,749) 78,585 136,289 692,962
Franchising and other 245,086 264,944 143,859 1,244,425
------------ --------- ---------- ----------
Total income before income taxes
and extraordinary item $ 19,337 343,529 280,148 1,937,387
============ ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------ --------------
<S> <C> <C>
Gross fixed assets:
Restaurants 12,927,921 6,940,445
Franchising and other 1,407,537 1,581,782
------------ --------------
Total gross fixed assets $ 14,335,458 8,522,227
============ ==============
Expenditures for fixed assets (including acquisition):
Restaurants 4,648,829 2,509,875
Franchising and other 133,658 42,124
------------ --------------
Total expenditures for fixed assets $ 4,782,487 2,551,999
============ ==============
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Austins Steaks & Saloon, Inc. (the Company) underwent a reverse merger
acquisition, effective July 1, 1999, with the WesterN SizzliN Corporation (WSC).
A further description of the transaction is provided in note 2 to the
consolidated financial statements included in this quarterly report.
The Company currently operates and franchises a total of 241 restaurants located
in 23 states, including 26 company-owned and 215 franchise restaurants. The
restaurants include a family steakhouse concept, a steak and buffet concept, and
the casual dining steakhouse concept.
From time to time, the Company may publish forward-looking statements relating
to certain matters, including anticipated financial performance, business
prospects, the future opening of Company-operated and franchised restaurants,
anticipated capital expenditures, and other matters. All statements other than
statements of historical fact contained in this Form 10-QSB or in any other
report of the Company are forward-looking statements. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of that safe harbor, the Company
notes that a variety of factors, individually or in the aggregate, could cause
the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements including, without limitation, the following: the
ability of the Company or its franchises to obtain suitable locations for
restaurant development; consumer spending trends and habits; competition in the
restaurant segment with respect to price, service, location, food quality and
personnel resources; weather conditions in the Company's operating regions; laws
and government regulations; general business and economic conditions;
availability of capital; success of operating initiatives and marketing and
promotional efforts; factors associated with Year 2000 evaluation and
modification efforts; and changes in accounting policies. In addition, the
Company disclaims any intent or obligation to update those forward-looking
statements.
RESULTS OF OPERATIONS
Net income for the three and nine-month periods ended September 30, 1999 was
$13,037 and $182,548, respectively, as compared to $197,179 and $1,129,785 for
the same 1998 periods. The results for the nine months ended September 30, 1999
have been affected by a $1,000,000 charge related to the settlement of
litigation with the former president of WSC. The results for the three months
ended September 30, 1999 have been effected by various expenses, totaling
approximately $200,000, associated with the merger and closing of corporate
offices in Knoxville, Tennessee and Lincoln, Nebraska.
<PAGE>
The following table sets forth for the periods presented the percentage
relationship to total revenues of certain items included in the consolidated
statements of operations and certain restaurant data for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Company-operated stores 86.5% 81.8% 85.0% 81.4%
Franchise royalties and fees 12.3 16.7 13.8 17.1
Other sales 1.2 1.5 1.2 1.5
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of company-operated stores 62.0 58.0 59.1 56.0
Cost of franchise operations 8.6 10.8 8.8 10.4
Other cost of operations 0.9 1.2 0.9 1.1
Restaurant operating expenses 14.1 13.9 13.6 13.2
General and administrative 11.0 9.9 10.5 9.8
------- ------- ------- -------
Income from operations 3.4 6.2 7.0 9.5
Other income (expense) (3.2) (2.6) (6.1) (2.5)
Income before income tax expense
and extraordinary item 0.2 3.6 0.9 7.0
Income tax expense 0.1 1.5 0.3 2.7
------- ------- ------- -------
Income before extraordinary
item 0.1 2.1 0.6 4.3
Extraordinary loss on debt extinguishment,
net of tax - - - 0.2
------- ------- ------- -------
Net income 0.1% 2.1% 0.6% 4.1%
======= ======= ======= =======
RESTAURANT DATA
Number of company-operated stores, beginning
of period 26 17 20 17
Number of company-operated stores, end of
period 26 18 26 18
Number of franchised restaurants, beginning of
period 219 229 225 229
Number of franchised restaurants, end of period 215 228 215 228
</TABLE>
QUARTER AND YEAR-TO-DATE ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER AND
YEAR-TO-DATE ENDED SEPTEMBER 30, 1998
Total revenues increased 26 percent to $11.8 million for the three-months ended
September 30, 1999 as compared to $9.4 million for the comparable three-month
period ended September 30, 1998. Total revenues for the nine-month period ended
September 30, 1999 increased 15 percent to $31.8 million from $27.8 million for
the nine months ended September 30, 1998. The three-month increase is
attributable to an increase in company-operated stores revenues from $7.7
million for the 1998 three-month period to $10.2 million for the 1999
three-month period offset by decreases in franchise operations revenue from $1.6
million in 1998 to $1.5 million for the comparable 1999 period and a decrease in
other revenue from $144 thousand in 1998 to $137 thousand in 1999. The
nine-month periods ended September 30, 1999 and 1998 showed
<PAGE>
similar trends with revenues from company-operated stores increasing to $27.0
million in 1998 from $22.6 million in 1998 with a decrease in franchise
operations revenue from $4.7 million in 1998 to $4.4 million in 1999 and a
decrease in other revenue from $403 thousand for 1998 to $398 thousand in 1999.
The increase in company-operated stores revenue for the three-month period ended
September 30, 1999 over September 30, 1998 is attributable to an increase in the
number of company-operated stores from 18 for 1998 to 26 in 1999. This increase
is primarily attributable to the reverse merger acquisition which was effective
July 1, 1999. The increase in company-operated stores revenue for the nine-month
period ended September 30, 1999 over September 30, 1998 is a combination of the
increase in stores previously referred to above and an increase in comparable
store sales in 1999 over 1998. The decrease in franchise operations revenue for
both the three and nine-month periods ended September 30, 1999 over September
30, 1998 is a combination of two factors, including a slight decline in
franchise store sales on a comparable store basis as well as the closing and
temporary shutdowns of certain franchise stores during 1999 resulting in a
decrease in the total number of units operating in the system. The Company's
systemwide revenues are comparable to industry trends. Other revenue consists of
seasoning and marinade sales to franchises and the overall decreases are
consistent with decreases in the number of franchised units within the system.
COSTS AND EXPENSES
Total costs and expenses increased from $8.8 million for the three months ended
September 30, 1998 to $11.4 million for the three months ended September 30,
1999. Total costs and expenses increased from $25.1 million for the nine months
ended September 30, 1998 to $29.6 million for the nine months ended September
30, 1999.
The increases in costs of company-operated stores and restaurant operating
expenses are attributable to a variety of factors including an increase in the
number of company stores and the corresponding sales increases. Additionally,
the Company has made investments in recruiting additional personnel to staff
these operations and provide trained replacements in the pipeline to respond to
the tight labor market within the industry. The costs of franchise operations
show a slight increase for the quarter-to-date as compared to 1998 while the
year-to-date amounts show a slight decrease from $2.9 million in 1998 to $2.8
million in 1999. The increase in the quarter-to-date amounts represent expenses
for increased franchise marketing efforts. The Company hired a director of
franchise sales, a new position, in late June of 1999 and is actively stepping
up its efforts to increase the number of units in the franchise system. The
decrease in the year-to-date amounts represent the completion of amortization
during 1998 of organization and transaction costs associated with the initial
formation of WSC in 1993.
Other cost of operations represent the cost of seasoning and marinade sales and
the reductions in cost are consistent with the reductions in actual sales.
General and administrative increased from $932 thousand for the three months
ended September 30, 1998 to $1.3 million for the three months ended September
30, 1999. General and administrative increased from $2.7 million for the nine
months ended September 30, 1998 to $3.4 million for the nine months ended
September 30, 1999. The Company continues to make investments aimed at building
the infrastructure to support continued growth and expansion. The addition of
various personnel to the corporate staff, including a chief operating officer,
upgrading technology, as well as general expenses of the corporation account for
the increased levels of spending.
OTHER INCOME (EXPENSE)
<PAGE>
The largest single item affecting other income and expense is the settlement of
long-standing litigation with WSC's former president. The settlement, including
$1,000,000 related to the lawsuit, is more fully discussed
in note 3 to the consolidated financial statements and is included in other
expense. Additionally, the Company has closed corporate offices in Knoxville,
Tennessee and Lincoln, Nebraska and combined these operations in the corporate
headquarters in Roanoke, Virginia. These closings took place in the quarter
ending September 30, 1999 and increased expenses approximate $200,000 for the
quarter. The Company expects to generate future cost savings from the
combination of these offices.
The increase in interest expense for the three-month period ended September 30,
1999 as compared to September 30, 1998 is attributable to debt assumed in the
reverse merger acquisition effective July 1, 1999 and to debt incurred to
finance part of the lawsuit settlement and repurchase of stock held by the
former president of WSC. The decrease in interest expense for the nine months
ended September 30, 1999 as compared to the nine months ended September 30, 1998
is attributable to the refinancing of certain debt in March 1998 as well as
normal principal curtailments resulting in decreased balances outstanding on
comparable 1999 and 1998 borrowings. Interest income fluctuates according to the
levels of available and investable cash balances. The Company employs a cash
management system whereby available balances are invested on an overnight basis.
Income tax expense is directly affected by the levels of pretax income. The
Company's effective tax rate was 35 percent in 1999 as compared to 40.5 percent
on annualized basis for 1998.
LIQUIDITY AND CAPITAL RESOURCES
As is customary in the restaurant industry, the Company has operated with
negative working capital and has not required large amounts of working capital.
Historically, the Company has leased the majority of its restaurants and through
a strategy of controlled growth has financed expansions from operating cash
flow, proceeds from the sale of common stock, the utilization of the Company's
line of credit and long-term debt provided by various lenders.
During the nine months ended September 30, 1999 and 1998, the Company had net
cash provided by operating activities of $2,604,795 and $3,196,195,
respectively. Cash flows from operations were the primary source of capital
expenditures and debt repayments during the period. In addition, the Company was
able to obtain approximately $4,852,000 through the private placement of stock,
exercise of stock options, and additional lender financing. The Company used
this cash to fund the settlement with WSC's former president and the repurchase
of his stock for a total of $4,420,000. The remainder of this cash was used for
general corporate purposes. Management is actively reviewing available financing
alternatives to provide cash for future expansion, restructure existing debt,
and provide additional working capital; however, no final agreements have been
reached on these matters.
YEAR 2000 ISSUE
We utilize management information systems and software technology that may be
affected by Year 2000 issues throughout their operation. During fiscal 1998, we
began to implement plans to ensure those systems continue to perform as expected
and according to requirements. Our Year 2000 Project is proceeding on schedule.
During fiscal 1998, we began by updating the computer systems at the Corporate
level. The Corporate office network was updated at the beginning of 1998. In
addition to the new computers and server, we updated their software to Windows
95. All accounting and processing software bought during 1998 and 1999 is
"packaged software" which is certified compliant. The cost of the hardware and
software for the
<PAGE>
Corporate office was approximately $15,000. During 1999, the Company will
complete the Year 2000 Project and update the computers at the store level.
All stores will be converted by December 1999. All
hardware and software has been purchased for these upgrades and the total cost
for these upgrades was less than $15,000. All of the "point-of-sale" software at
the restaurant level is also "packaged software" which is certified compliant.
We have also initiated communications with vendors and other third parties whose
computer systems' functionality could impact our operations. Currently, major
vendors have responded with favorable confirmation of being Year 2000 compliant.
As we are not electronically interfaced with any vendors at this time, any Year
2000 issues not resolved by our vendors are not anticipated to have a material
impact on our computer systems. Other third parties have responded that they are
also resolving the Year 2000 problem. The credit card processors understand the
Year 2000 issues, and with these communications, we will facilitate coordination
of the Year 2000 solutions and will determine the extent to which we may be
vulnerable to failures of third parties to address their own Year 2000 issues.
Based on the progress we have made in addressing our Year 2000 issues and our
plan and time line to complete the compliance program, we do not foresee
significant risks associated with Year 2000 compliance at this time. The Company
believes it has in place a plan that will resolve its year 2000 issue in a
timely manner. Due to the forward looking nature and lack of historical
experience with year 2000 issues, it is difficult to predict with certainty the
results of year 2000 compliance issues after December 31, 1999. It is likely,
despite the Company's efforts, that there will be disruptions and unexpected
business problems during the year 2000. In addition, despite the Company's
efforts, it may experience unanticipated third-party failures, general public
infrastructure failures and or failures to successfully conclude its remediation
and contingency efforts as planned. The Company may be required to utilize
manual processing of certain otherwise automated processes primarily related to
payroll and cash management. While the Company does not presently anticipate any
material adverse impacts, any of these unforeseen events could have a material
adverse impact on the Company's results of operations, financial condition, and
or cash flows in 1999 and beyond. The amount of potential loss cannot be
reasonably estimated at this time.
IMPACT OF INFLATION
The impact of inflation on the costs of food and beverage products, labor and
real estate can affect the Company's operations. Over the past few years,
inflation has had a lesser impact on the Company's operations due to the lower
rates of inflation in the nation's economy and economic conditions in the
Company's market areas.
Management believes the Company has historically been able to pass on increased
costs through certain selected menu price increases and has offset increased
costs by increased productivity and purchasing efficiencies, but there can be no
assurance that the Company will be able to do so in the future. Management
anticipates that the average cost of restaurant real estate leases and
construction cost could increase in the future which could affect the Company's
ability to expand. In addition, mandated health care or additional increases in
the federal or state minimum wages could significantly increase the Company's
costs of doing business.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - The Company settled previous litigation
outstanding with WSC's former president. For further discussion,
see Management's Discussion and Analysis.
Item 2. CHANGE IN SECURITIES AND USE OF PROCEEDS - N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES - N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - N/A
Item 5. OTHER INFORMATION - N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed August 25, 1999
Form 8-K filed September 24, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Austins Steaks & Saloon, Inc.
Date: November 15, 1999 By: /s/ Robert N. Collis, II
------------------------------ -----------------------------
Robert N. Collis, II
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 276,315
<SECURITIES> 0
<RECEIVABLES> 1,524,369
<ALLOWANCES> 376,258
<INVENTORY> 344,231
<CURRENT-ASSETS> 2,501,282
<PP&E> 14,335,458
<DEPRECIATION> 5,093,716
<TOTAL-ASSETS> 25,934,646
<CURRENT-LIABILITIES> 6,982,221
<BONDS> 9,578,244
0
0
<COMMON> 121,038
<OTHER-SE> 13,026,922
<TOTAL-LIABILITY-AND-EQUITY> 25,934,646
<SALES> 31,827,931
<TOTAL-REVENUES> 31,867,925
<CGS> 26,257,706
<TOTAL-COSTS> 29,608,036
<OTHER-EXPENSES> 1,407,903
<LOSS-PROVISION> 77,603
<INTEREST-EXPENSE> 571,838
<INCOME-PRETAX> 280,148
<INCOME-TAX> 97,600
<INCOME-CONTINUING> 182,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,548
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
