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AUSTINS STEAKS & SALOON INC
10QSB, 2000-11-14
EATING PLACES

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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, 2000

/ /  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)

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 November 3, 2000, there were 12,079,900 shares of the issuer's common stock outstanding.

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AUSTINS STEAKS & SALOON, INC.
Form 10-Q Index
Nine Months Ended September 30, 2000

						Page
PART I.		FINANCIAL INFORMATION
		Item 1.		Financial Statements
				Consolidated Balance Sheets — September 30, 2000 and December 31, 1999		2
				Consolidated Statements of Operations — Three Months and Nine Months Ended September 30, 2000 and 1999		3
				Consolidated Statement of Changes in Stockholders' Equity — Nine Months Ended September 30, 2000		4
				Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2000 and 1999		5
				Notes to Consolidated Financial Statements		6-9
		Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		10-13
PART II.		OTHER INFORMATION
		Item 1.		Legal Proceedings		14
		Item 2.		Change in Securities and Use of Proceeds		14
		Item 3.		Defaults Upon Senior Securities		14
		Item 4.		Submission of Matters to a Vote of Security Holders		14
		Item 5.		Other Information		14
		Item 6.		Exhibits and Reports on Form 8-K		14

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

AUSTINS STEAKS & SALOON, INC.
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999

				September 30, 2000			December 31, 1999
				(unaudited)
Assets
Current assets:
	Cash and cash equivalents			$	565,330		$	510,833
	Trade accounts receivable, net of allowance for doubtful accounts of $220,833 in 2000 and $185,062 in 1999				939,086			910,552
	Current installments of notes receivable				76,784			131,584
	Other receivables				701,618			421,728
	Inventories				329,280			383,281
	Prepaid expenses				423,272			242,556
	Deferred income taxes				202,372			202,372
		Total current assets			3,237,742			2,802,906
Notes receivable, less allowance for doubtful accounts of $128,822 in 2000 and $148,902 in 1999, excluding current installments					47,925			106,249
Property and equipment, net					9,342,437			9,820,221
Franchise royalty contracts, net of accumulated amortization of $4,254,494 in 2000 and $3,781,772 in 1999)					5,199,937			5,672,659
Goodwill, net of accumulated amortization of $1,864,335 in 2000 and $1,603,760 in 1999					4,959,467			5,220,042
Favorable lease rights, net of accumulated amortization of $116,343 in 2000 and $35,383 in 1999					437,490			518,450
Deferred income taxes					873,418			873,418
Financing costs, net of accumulated amortization of $43,020 in 2000 and $30,875 in 1999					147,283			159,428
Other assets, net					260,193			369,161
				$	24,505,892		$	25,542,534
Liabilities and Stockholders' Equity
Current liabilities:
	Bank overdraft			$	—		$	149,305
	Credit line note payable to bank				476,707			446,139
	Current installments of long-term debt				1,217,912			2,686,973
	Current installments of obligations under capital leases				45,547			39,851
	Accounts payable				2,571,937			2,780,388
	Accrued expenses and other				1,178,534			676,202
		Total current liabilities			5,490,637			6,778,858
Long-term debt, excluding current installments					5,008,383			5,576,155
Obligations under capital leases, excluding current installments					—			44,339
		Total liabilities			10,499,020			12,399,352
Stockholders' equity:
	Common stock; $.01 par value. Authorized 20,000,000 shares; issued and outstanding 12,079,900 and 12,103,824 shares in 2000 and 1999, respectively				120,799			121,038
	Additional paid-in capital				8,625,150			8,677,425
	Retained earnings				5,260,923			4,344,719
		Total stockholders' equity			14,006,872			13,143,182
Commitments and contingencies				$	24,505,892		$	25,542,534

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Operations
(Unaudited)

				Three Months Ended September 30,						Nine Months Ended September 30,
				2000			1999			2000			1999
Revenues:
Company-operated stores				$	9,968,397		$	10,246,135		$	29,900,130		$	27,037,876
Franchise operations					1,414,789			1,461,618			4,267,583			4,391,805
Other					131,054			137,084			390,883			398,250
		Total revenues			11,514,240			11,844,837			34,558,596			31,827,931
Costs and expenses:
	Cost of company-operated stores				7,018,011			7,340,054			20,833,313			18,825,151
	Cost of franchise operations				959,621			1,021,514			2,845,001			2,807,421
	Other cost of operations				98,704			101,721			292,541			299,847
	Restaurant operating expenses				1,296,343			1,228,028			3,697,418			3,172,286
	General and administrative				1,143,436			1,103,112			3,416,441			2,751,500
	Depreciation and amortization				622,735			647,155			1,888,319			1,751,831
		Total costs and expenses			11,138,850			11,441,584			32,973,033			29,608,036
		Income from operations			375,390			403,253			1,585,563			2,219,895
Other income (expense):
	Interest expense				(169,248	)		(184,791	)		(574,302	)		(571,838	)
	Interest income				11,452			28,225			29,086			39,994
	Other				596,984			(227,350	)		442,452			(1,407,903	)
					439,188			(383,916	)		(102,764	)		(1,939,747	)
		Income before income tax expense			814,578			19,337			1,482,799			280,148
Income tax expense					310,525			6,300			566,595			97,600
		Net income		$	504,053		$	13,037		$	916,204		$	182,548
Earnings (loss) per share:
	Basic				.04			—			.08			.02
	Diluted				.04			—			.08			.02

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September  30, 2000
(Unaudited)

			Common Stock
								Additional Paid-in Capital			Retained Earnings
			Shares		Dollars									Total
Balances, December 31, 1999			12,103,824		$	121,038		$	8,677,425		$	4,344,719		$	13,143,182
Net income			—			—			—			916,204			916,204
Repurchase of common stock			(23,924	)		(239	)		(52,275	)		—			(52,514	)
Balances, September 30, 2000			12,079,900		$	120,799		$	8,625,150		$	5,260,923		$	14,006,872

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(Unaudited)

						September 30,
						2000			1999
Cash flows from operating activities:
	Net income					$	916,204		$	182,548
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of property and equipment					998,874			848,008
		Amortization of franchise royalty contracts, goodwill, financing costs and other assets					889,445			903,823
		Provision for bad debts					35,000			77,603
		Provision for deferred taxes					—			(169,760	)
		Gain on sale/disposal of property and equipment					—			(96,808	)
		(Increase) decrease in:
			Trade accounts receivable				(63,534	)		9,824
			Notes receivable				113,124			23,560
			Other receivables				(279,890	)		(258,996	)
			Inventories				54,001			84,197
			Prepaid expenses				(180,716	)		(86,813	)
			Other assets				45,925			(22,267	)
		Increase (decrease) in:
			Accounts payable				(208,451	)		904,048
			Accrued expenses				502,332			205,828
				Net cash provided by operating activities			2,822,314			2,604,795
Cash flows from investing activities:
	Additions to property and equipment						(521,090	)		(1,873,347	)
	Acquisition costs, net of cash received						—			(570,813	)
	Proceeds from sale of property and equipment						—			70,585
				Net cash used in investing activities			(521,090	)		(2,373,575	)
Cash flows from financing activities:
	Net decrease in bank overdraft						(149,305	)		—
	Proceeds from long-term debt						119,570			1,700,000
	Net increase in credit line note payable						30,568			62,593
	Payments on long-term debt and capital leases						(2,195,046	)		(2,093,112	)
	Proceeds from issuance of common stock in private placement						—			2,919,578
	Proceeds from exercise of common stock options						—			232,500
	Repurchase of common stock						(52,514	)		(3,420,000	)
				Net cash used in financing activities			(2,246,727	)		(598,441	)
				Net increase (decrease) in cash and cash equivalents			54,497			(367,221	)
Cash and cash equivalents at beginning of period							510,833			643,536
Cash and cash equivalents at end of period						$	565,330		$	276,315

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(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 accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 1999.

(b) Reclassifications

    Certain reclassifications have been made to 1999 financial statement amounts to conform to the 2000 presentation.

(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.

    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.

    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.

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    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:

    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, which was included in other expense for the nine-month period ended September 30, 1999. 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.

    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 share in a single three-month period utilizing Rule 144, then the registration rights will not apply to that investor.

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(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-month periods ended September 30, 2000 because these effects are anti-dilutive. 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.

    The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years indicated:

(5) Reportable Segments

    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.

    Generally, the Company evaluates performance and allocates resources based on income 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 accounts for intercompany sales and transfers as if the sales or transfers were with third parties and eliminates the related profit in consolidation.

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    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, 2000, 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:

				Three Months Ended September 30,					Nine Months Ended September 30,
				2000			1999		2000		1999
Revenues from reportable segments:
	Restaurants			$	9,968,397		10,246,135		29,900,130		27,037,876
	Franchising and other				1,545,843		1,598,702		4,658,466		4,790,055
		Total revenues		$	11,514,240		11,844,837		34,558,596		31,827,931
Depreciation and amortization:
	Restaurants				439,247		447,545		1,337,855		1,153,001
	Franchising and other				183,488		199,610		550,464		598,830
		Total depreciation and amortization		$	622,735		647,155		1,888,319		1,751,831
Interest expense:
	Restaurants				150,469		172,344		485,125		495,006
	Franchising and other				18,779		12,447		89,177		76,832
		Total interest expense		$	169,248		184,791		574,302		571,838
Interest income:
	Restaurants				10,128		27,039		21,498		21,183
	Franchising and other				1,324		1,186		7,588		18,811
		Total interest income		$	11,452		28,225		29,086		39,994
Income (loss) before income taxes:
	Restaurants				(285,429	)	(225,749	)	(543,923	)	136,289
	Franchising and other				1,100,007		245,086		2,026,722		143,859
		Total income before income taxes		$	814,578		19,337		1,482,799		280,148
				September 30, 2000					September 30, 1999
Gross fixed assets:
	Restaurants			$	11,963,919				12,927,921
	Franchising and other				1,486,639				1,407,537
		Total gross fixed assets		$	13,450,558				14,335,458
Expenditures for fixed assets (including acquisition):
	Restaurants				401,070				4,648,829
	Franchising and other				120,020				133,658
		Total expenditures for fixed assets		$	521,090				4,782,487

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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 232 restaurants located in 24 states, including 25 company-owned and 207 franchise restaurants. The restaurants include a family steakhouse concept, a steak and buffet concept, and the casual dining steakhouse concept. The Company signed a short-term lease agreement with Franchise Finance Corporation of America (FFCA) commencing June 8, 2000. Under the short-term lease agreement, the Company will operate 97 restaurant units, formerly owned by Quincy's Restaurants, Inc. The Company is entitled to 3.5 percent of gross sales as a management fee for operating the properties. The agreement initially expired August 31, 2000 and is being renewed on a month-to-month basis. The Company and FFCA are exploring various alternatives for a long-term lease arrangement.

    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; 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, 2000 was $504,053 and $916,204, respectively, as compared to $13,037 and $182,548 for the three and nine-month periods ended September 30, 1999, respectively. The results for the nine-month period ended September 30, 2000 were positively effected by net management fee income of approximately $700,000 related to the short-term Quincy's lease agreement and the results for the nine-month period ended September 30, 1999 were negatively affected by a $1,000,000 charge related to the settlement of litigation with the former president of WSC.

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    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.

				Three Months Ended September 30,				Nine Months Ended September 30,
				2000		1999		2000		1999
Income Statement Data
Revenues:
	Company-operated stores			86.6	%	86.5	%	86.5	%	85.0	%
	Franchise royalties and fees			12.3		12.3		12.4		13.8
	Other sales			1.1		1.2		1.1		1.2
		Total revenues		100.0		100.0		100.0		100.0
Costs and expenses:
	Cost of company-operated stores			61.0		62.0		60.3		59.2
	Cost of franchise operations			8.3		8.6		8.2		8.8
	Other cost of operations			0.9		0.9		0.8		0.9
	Restaurant operating expenses			11.3		10.4		10.7		10.0
	General and administrative			9.9		9.3		9.9		8.6
	Depreciation and amortization			5.4		5.4		5.5		5.5
		Total costs and expenses		96.8		96.6		95.4		93.0
		Income from operations		3.2		3.4		4.6		7.0
Other income (expense)				3.9		(3.2	)	(0.3	)	(6.1	)
		Income before income tax expense		7.1		0.2		4.3		0.9
Income tax expense				2.7		0.1		1.6		0.3
		Net income		4.4	%	0.1	%	2.7	%	0.6	%
Restaurant Data
Number of company-operated stores, beginning of period				25		26		26		20
Number of company-operated stores, end of period				25		26		25		26
Number of franchised restaurants, beginning of period				207		219		210		225
Number of franchised restaurants, end of period				207		215		207		215

Quarter and Year-to-Date Ended September 30, 2000 Compared to Quarter and Year-to-Date Ended September 30, 1999

    Total revenues decreased 2.8 percent to $11.5 million for the three-months ended September 30, 2000 as compared to $11.8 million for the comparable three-month period ended September 30, 1999. Total revenues for the nine-month period ended September 30, 2000 increased 8.6 percent to $34.6 million from $31.8 million for the nine months ended September 30, 1999. The three-month decrease is primarily attributable to a decrease in company-operated stores revenues from $10.2 million for the 1999 three-month period to $10.0 million for the 2000 three-month period and is attributable to one less store operating in 2000 as compared to 1999. The nine-month periods ended September 30, 2000 and 1999 showed revenues from company-operated stores increasing to $29.9 million in 2000 from $27.0 million in 1999 with franchise operations revenue and other revenue showing slight decreases.

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    The decrease in company-operated stores revenue for the three-month period ended September 30, 2000 over September 30, 1999 is attributable to a decrease in the number of company-operated stores from 26 for 1999 to 25 in 2000. The increase in company-operated stores revenue for the nine-month period ended September 30, 2000 over September 30, 1999 is attributable to the increase in stores from 20 in 1999 to 25 in 2000 attributable to the reverse merger acquisition previously referred to above. Franchise and other operations revenue for the three-month period ended September 30, 2000 was $1.5 million compared to $1.6 million for September 30, 1999 and this decrease is a combination of two factors, including a slight increase in franchise store sales on a comparable store basis offset by a decrease in the actual number of franchised units. 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 decreased from $11.4 million for the three months ended September 30, 1999 to $11.1 million for the three months ended September 30, 2000. Total costs and expenses increased from $29.6 million for the nine months ended September 30, 1999 to $33.0 million for the nine months ended September 30, 2000.

    The decreases in costs of company-operated stores and restaurant operating expenses for the three-month period are attributable to a variety of factors including a decrease in the number of company stores and the corresponding sales decreases, as well as the Company's continued attention to cost control. The increases in costs for the nine-month period are attributable to the previously discussed increase in the number of company stores and the surrounding sales increases as well as rising beef prices. 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 are comparable for the quarter and year to date as compared to 1999. The decrease for the quarter in franchise costs represents continued focus on cost control and one corporate position which was vacant. The increase in the year 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.

    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 remained flat at $1.1 million for the three months ended September 30, 2000 and 1999. General and administrative increased from $2.8 million for the nine months ended September 30, 1999 to $3.4 million for the nine months ended September 30, 2000. 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 and chief financial officer, upgrading technology, as well as general expenses of the corporation account for the increased levels of spending.

Other Income (Expense)

    The largest single item affecting other income and expense in 1999 is the settlement of long-standing litigation with WSC's former president in June 1999. 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. The Company began operating 97 Quincy's units on June 8, 2000 under a short-term lease. The lease provides that Western Sizzlin will receive 3.5 percent of sales as a management fee. This agreement is being extended on a month-to-month basis subsequent to September 30, 2000 and the Company is working with FFCA to reach a long-term agreement. Net

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management fee income of approximately $700,000 has been recorded under this agreement for the nine months ended September 30, 2000.

    The decrease in interest expense for the three month period ended September 30, 2000 as compared to September 30, 1999 is attributable to our continued paydown of debt. Debt related to the lawsuit settlement was fully repaid during September 2000. 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 of approximately 38.2 percent in 2000 is comparable to the annualized rate of 38.3 percent for 1999.

Liquidity and Capital Resources

    As is customary in the restaurant industry, the Company has operated with negative 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, 2000 and 1999, the Company had net cash provided by operating activities of $2,822,314 and $2,604,795, respectively. Cash flows from operations were the primary source of capital expenditures and debt repayments during the periods. In addition, the Company utilizes its existing line of credit to provide additional short-term funding. 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. During the three months ended September 30, 2000, the Company repurchased 23,924 shares of its common stock under terms of a previous agreement its predecessor had negotiated with a former landlord.

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.

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PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings — N/A

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:     None

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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 14, 2000		By:		/s/ ROBERT N. COLLIS II    Robert N. Collis, II Chief Financial Officer

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QuickLinks

Form 10-Q Index
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets - September 30 2000 and December 31 1999
Consolidated Statements of Operations - Three Months and Nine Months Ended September 30 2000 and 1999
Consolidated Statement of Changes in Stockholders Equity - Nine Months Ended September 30 2000
Consolidated Statements of Cash Flows - Nine Months Ended September 30 2000 and 1999
Notes to Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Item 2. Change in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

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