AUSTINS STEAKS & SALOON INC
10QSB, 2000-08-14
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 June 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 August 4, 2000, there were 12,103,824 shares of the issuer's common stock outstanding.

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

			Page
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
	Consolidated Balance Sheets—June 30, 2000 and December 31, 1999		2
	Consolidated Statements of Operations—Three Months and Six Months Ended June 30, 2000 and 1999		3
	Consolidated Statement of Changes in Stockholders' Equity—Six Months Ended June 30, 2000		4
	Consolidated Statements of Cash Flows—Six Months Ended June 30, 2000 and 1999		5
	Notes to Consolidated Financial Statements		6-10
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		11-14
PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings		15
	Item 2. Change in Securities and Use of Proceeds		15
	Item 3. Defaults Upon Senior Securities		15
	Item 4. Submission of Matters to a Vote of Security Holders		15
	Item 5. Other Information		15
	Item 6. Exhibits and Reports on Form 8-K		15

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

					June 30, 2000 (unaudited)			December 31, 1999
Assets
Current assets:
	Cash and cash equivalents				$	201,151		$	510,833
	Trade accounts receivable, net of allowance for doubtful accounts of $229,994 in 2000 and $185,062 in 1999					1,036,376			910,552
	Current installments of notes receivable					109,226			131,584
	Other receivables					131,492			421,728
	Inventories					387,679			383,281
	Prepaid expenses					330,548			242,556
	Deferred income taxes					202,372			202,372
			Total current assets			2,398,844			2,802,906
Notes receivable, less allowance for doubtful accounts of $130,900 in 2000 and $148,902 in 1999, excluding current installments						33,400			106,249
Property and equipment, net						9,478,646			9,820,221
Franchise royalty contracts, net of accumulated amortization of $4,096,920 in 2000 and $3,781,772 in 1999)						5,357,511			5,672,659
Goodwill, net of accumulated amortization of $1,818,939 in 2000 and $1,603,760 in 1999						5,004,863			5,220,042
Favorable lease rights, net of accumulated amortization of $77,563 in 2000 and $35,383 in 1999						476,270			518,450
Deferred income taxes						873,418			873,418
Financing costs, net of accumulated amortization of $38,972 in 2000 and $30,875 in 1999						151,331			159,428
Other assets, net						264,963			369,161
					$	24,039,246		$	25,542,534
Liabilities and Stockholders' Equity
Current liabilities:
	Bank overdraft				$	—		$	149,305
	Credit line note payable to bank					417,269			446,139
	Current installments of long-term debt					1,462,682			2,686,973
	Current installments of obligations under capital leases					36,299			39,851
	Accounts payable					2,322,850			2,780,388
	Accrued expenses and other					893,381			676,202
			Total current liabilities			5,132,481			6,778,858
Long-term debt, excluding current installments						5,328,152			5,576,155
Obligations under capital leases, excluding current installments						23,280			44,339
			Total liabilities			10,483,913			12,399,352
Stockholders' equity:
	Common stock; $.01 par value. Authorized 20,000,000 shares; issued and outstanding 12,103,824 shares in 2000 and 1999					121,038			121,038
	Additional paid-in capital					8,677,425			8,677,425
	Retained earnings					4,756,870			4,344,719
			Total stockholders' equity			13,555,333			13,143,182
Commitments and contingencies
					$	24,039,246		$	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 June 30,						Six Months Ended June 30,
					2000			1999			2000			1999
Revenues:
Company-operated stores					$	10,268,577		$	8,598,438		$	19,931,733		$	16,791,741
Franchise operations						1,518,735			1,497,742			2,852,794			2,912,591
Other						133,606			142,982			259,829			278,762
			Total revenues			11,920,918			10,239,162			23,044,356			19,983,094
Costs and expenses:
	Cost of company-operated stores					7,199,282			5,970,011			13,815,302			11,485,097
	Cost of franchise operations					570,946			575,818			1,125,172			1,089,119
	Other cost of operations					100,138			102,146			193,837			198,124
	Restaurant operating expenses					1,275,284			1,043,169			2,419,057			1,944,258
	General and administrative					1,588,053			1,206,470			3,062,307			2,345,178
	Depreciation and amortization					631,703			552,358			1,265,584			1,104,676
			Total costs and expenses			11,365,406			9,449,972			21,881,259			18,166,452
			Income from operations			555,512			789,190			1,163,097			1,816,642
Other income (expense):
	Interest expense					(198,396	)		(184,018	)		(405,054	)		(387,047	)
	Interest income					8,846			13,877			17,634			25,469
	Other					26,798			(1,078,821	)		(107,456	)		(1,179,453	)
						(162,752	)		(1,248,962	)		(494,876	)		(1,541,031	)
			Income (loss) before income tax expense (benefit)			392,760			(459,772	)		668,221			275,611
Income tax expense (benefit)						149,400			(177,500	)		256,070			106,100
			Net income (loss)		$	243,360		$	(282,272	)	$	412,151		$	169,511
Earnings (loss) per share:
	Basic					.02			(.03	)		.03			.02
	Diluted					.02			(.03	)		.03			.02

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.

Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 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			—			—			—			412,151			412,151
Balances, June 30, 2000			12,103,824		$	121,038		$	8,677,425		$	4,756,870		$	13,555,333

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.

Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
(Unaudited)

									2000			1999
Cash flows from operating activities:
	Net income								$	412,151		$	169,511
	Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation and amortization of property and equipment							677,836			502,127
			Amortization of franchise royalty contracts, goodwill, financing costs and other assets							587,748			602,549
			Provision for bad debts							26,930			51,876
			(Increase) decrease in:
					Trade accounts receivable					(170,756	)		(151,800	)
					Notes receivable					113,209			—
					Other receivables					290,236			(3,152	)
					Inventories					(4,398	)		53,431
					Prepaid expenses					(87,992	)		(23,015	)
					Other assets					97,054			86,200
			Increase (decrease) in:
					Accounts payable					(457,538	)		(820,867	)
					Accrued expenses					217,179			326,636
							Net cash provided by operating activities			1,701,659			793,496
Cash flows from investing activities:
	Additions to property and equipment									(336,261	)		(401,981	)
							Net cash used in investing activities			(336,261	)		(401,981	)
Cash flows from financing activities:
	Net decrease in bank overdraft									(149,305	)		—
	Net increase (decrease) in credit line note payable									(28,870	)		46,278
	Payments on long-term debt and capital leases									(1,496,905	)		(1,107,691	)
	Proceeds from exercise of common stock options									—			232,500
							Net cash used in financing activities			(1,675,080	)		(828,913	)
							Net decrease in cash and cash equivalents			(309,682	)		(437,398	)
Cash and cash equivalents at beginning of period										510,833			643,536
Cash and cash equivalents at end of period									$	201,151		$	206,138

See accompanying notes to consolidated financial statements.

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AUSTINS STEAKS & SALOON, INC.

Notes to Consolidated Financial Statements

June 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 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, 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

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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:

Current assets (including cash of $10,431)				$204,675
Property and equipment, net				2,672,361
Other assets				380,615
Favorable lease rights				553,833
Goodwill				925,372
Trademarks				76,283
Deferred tax assets				1,344,184
Long-term debt				(1,204,264)
Current liabilities				(684,050)
Note payable to shareholder				(269,928)
		Total		$3,999,081

    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 three-month and six-month periods ended June 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.

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    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.

(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 six-month periods ended June 30, 2000 and 1999 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:

			Income (Loss) (Numerator)			Weighted Average Shares (Denominator)		Earnings Per Share Amount
Three months ended June 30, 2000
Net income—basic and diluted			$	243,360		12,103,824		$	.02
Three months ended June 30, 1999
Net income (loss)—basic and diluted			$	(282,272	)	8,681,407		$	(.03	)
Six months ended June 30, 2000
Net income—basic and diluted			$	412,151		12,103,824		$	.03
Six months ended June 30, 1999
Net income—basic and diluted			$	169,511		8,679,713		$	.02

(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

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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.

    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 June 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.

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    The following table summarizes reportable segment information:

				Three Months Ended June 30,					Six Months Ended June 30,
				2000			1999		2000		1999
Revenues from reportable segments:
Restaurants				$	10,268,577		8,598,438		19,931,733		16,791,741
Franchising and other					1,652,341		1,640,724		3,112,623		3,191,353
		Total revenues		$	11,920,918		10,239,162		23,044,356		19,983,094
Depreciation and amortization:
Restaurants					448,215		352,748		898,608		705,456
Franchising and other					183,488		199,610		366,976		399,220
		Total depreciation and amortization		$	631,703		552,358		1,265,584		1,104,676
Interest expense:
Restaurants					167,511		159,305		334,656		322,662
Franchising and other					30,885		24,713		70,398		64,385
		Total interest expense		$	198,396		184,018		405,054		387,047
Interest income:
Restaurants					4,944		9,419		11,370		16,238
Franchising and other					3,902		4,458		6,264		9,231
		Total interest income		$	8,846		13,877		17,634		25,469
Income (loss) before income taxes:
Restaurants					(185,876	)	88,498		(258,494	)	376,838
Franchising and other					578,636		(548,270	)	926,715		(101,227	)
		Total income (loss) before income taxes		$	392,760		(459,772	)	668,221		275,611
				June 30, 2000					June 30, 1999
Gross fixed assets:
Restaurants				$	11,810,371				8,386,943
Franchising and other					1,455,358				1,559,768
		Total gross fixed assets		$	13,265,729				9,946,711
Expenditures for fixed assets:
Restaurants					247,522				382,516
Franchising and other					88,739				19,465
Total expenditures for fixed assets				$	336,261				401,981

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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 expires August 31, 2000 and 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 six-month periods ended June 30, 2000 was $243,360 and $412,151, respectively, as compared to a net loss of $282,272 for the three months ended June 30, 1999 and net income of $169,511 for the six-month period ended June 30, 1999. The results for the three month and six month periods ended June 30, 1999 were 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 June 30				Three Months Ended June 30
					2000		1999		2000		1999
Income Statement Data
Revenues:
	Company-operated stores				86.2	%	84.0	%	86.5	%	84.0	%
	Franchise royalties and fees				12.7		14.6		12.4		14.6
	Other sales				1.1		1.4		1.1		1.4
			Total revenues		100.0		100.0		100.0		100.0
Costs and expenses:
	Cost of company-operated stores				60.4		58.3		60.0		57.5
	Cost of franchise operations				4.8		5.6		4.9		5.5
	Other cost of operations				0.8		1.0		0.8		1.0
	Restaurant operating expenses				10.7		10.2		10.5		9.7
	General and administrative				13.3		11.8		13.3		11.7
	Depreciation and amortization				5.3		5.4		5.5		5.5
			Income from operations		4.7		7.7		5.0		9.1
Other income (expense)					(1.4	)	(12.2	)	(2.1	)	(7.7	)
			Income (loss) before income tax expense (benefit)		3.3		(4.5	)	2.9		1.4
Income tax expense (benefit)					1.3		(1.7	)	1.1		0.5
Net income (loss)					2.0	%	(2.8)	%	1.8	%	0.9	%
Restaurant Data
Number of company-operated stores, beginning of period					26		20		26		20
Number of company-operated stores, end of period					25		20		25		20
Number of franchised restaurants, beginning of period					209		223		210		225
Number of franchised restaurants, end of period					207		219		207		219

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

    Total revenues increased 16.4 percent to $11.9 million for the three-months ended June 30, 2000 as compared to $10.2 million for the comparable three-month period ended June 30, 1999. Total revenues for the six-month period ended June 30, 2000 increased 15.3 percent to $23.0 million from $20.0 million for the six months ended June 30, 1999. The three-month increase is primarily attributable to an increase in company-operated stores revenues from $8.6 million for the 1999 three-month period to $10.3 million for the 2000 three-month period. The six-month periods ended June 30, 2000 and 1999 showed similar trends with revenues from company-operated stores increasing to $19.9 million in 2000 from $16.8 million in 1999 with franchise operations revenue and other revenue showing slight decreases.

    The increase in company-operated stores revenue for the three-month period ended June 30, 2000 over June 30, 1999 is attributable to an increase in the number of company-operated stores from 20 for 1999 to 26 in 2000. This increase is attributable to the reverse merger acquisition which was effective July 1, 1999. The increase in company-operated stores revenue for the six-month period ended June 30, 2000 over June 30, 1999 is also attributable to the increase in stores previously referred to above. The slight increase in franchise operations revenue for the three-month period ended June 30, 2000 over June 30, 1999 is a combination of two factors, including a slight increase in franchise store sales on a comparable

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store basis and additional franchise transfer fees. 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 $9.4 million for the three months ended June 30, 1999 to $11.3 million for the three months ended June 30, 2000. Total costs and expenses increased from $18.2 million for the six months ended June 30, 1999 to $21.9 million for the six months ended June 30, 2000.

    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, 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 as compared to 1999 while the year-to-date amounts show a slight increase from $1.09 million in 1999 to $1.13 million in 2000. The increase in the 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 increased from $1.2 million for the three months ended June 30, 1999 to $1.6 million for the three months ended June 30, 2000. General and administrative increased from $2.3 million for the six months ended June 30, 1999 to $3.1 million for the six months ended June 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 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. Additionally, the Company began operating 97 Quincy's units on June 8 under a short-term lease. The lease provides that Western Sizzlin will receive 3.5 percent of sales as a management fee. Management fees of approximately $190,000 were recorded in June 2000. This agreement is anticipated to result in additional revenues in the months of July and August as the agreement is initially set to expire August 31, 2000.

    The increase in interest expense for the three and six-month periods ended June 30, 2000 as compared to June 30, 1999 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. 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 38.0 percent in 2000 is comparable to the annualized rate of 38.3 percent for 1999.

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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 six months ended June 30, 2000 and 1999, the Company had net cash provided by operating activities of $1,701,659 and $793,496, respectively. Cash flows from operations were the primary source of capital expenditures and debt repayments during the period. 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.

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

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QuickLinks

AUSTINS STEAKS & SALOON, INC. Form 10-Q Index Six Months Ended June 30, 2000
PART I. FINANCIAL INFORMATION
AUSTINS STEAKS & SALOON, INC. Consolidated Balance Sheets June 30, 2000 and December 31, 1999
PART II. OTHER INFORMATION
SIGNATURES

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