<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 MARCH 31, 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)
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 April 20, 2000, there were 12,103,824 shares of the issuer's common stock
outstanding.
<PAGE>
AUSTINS STEAKS & SALOON, INC.
FORM 10-Q INDEX
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2000 and December 31,
1999.............................................................................2
Consolidated Statements of Operations - Three Months Ended
March 31, 2000 and 1999..........................................................3
Consolidated Statement of Changes in Stockholders' Equity -
Three Months Ended March 31, 2000................................................4
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 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..........................................11-15
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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AUSTINS STEAKS & SALOON, INC.
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
MARCH 31,
2000 DECEMBER 31,
ASSETS (UNAUDITED) 1999
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 252,064 $ 510,833
Trade accounts receivable, net of allowance for doubtful accounts of
$185,062 in 2000 and $185,062 in 1999 957,878 910,552
Current installments of notes receivable 134,545 131,584
Other receivables 412,407 421,728
Inventories 387,669 383,281
Prepaid expenses 388,042 242,556
Deferred income taxes 202,372 202,372
------------- -------------
Total current assets 2,734,977 2,802,906
Notes receivable, less allowance for doubtful accounts of $148,902 in 2000
and $148,902 in 1999, excluding current installments 80,882 106,249
Property and equipment, net 9,603,664 9,820,221
Franchise royalty contracts, net of accumulated amortization of $3,939,346
in 2000 and $3,781,772 in 1999 5,515,085 5,672,659
Goodwill, net of accumulated amortization of $1,717,492 in 2000 and
$1,603,760 in 1999 5,106,310 5,220,042
Financing costs, net of accumulated amortization of
$33,574 in 2000 and $30,875 in 1999 156,729 159,428
Other assets, net 369,381 369,161
Deferred income taxes 873,418 873,418
Favorable lease rights, net of accumulated amortization of $58,652 in 2000
and $35,383 in 1999 495,181 518,450
------------- -------------
$ 24,935,627 $ 25,542,534
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ 149,305
Credit line note payable to bank 500,000 446,139
Current installments of long-term debt 2,396,528 2,686,973
Current installments of obligations under capital leases 41,971 39,851
Accounts payable 2,502,178 2,780,388
Accrued expenses and other 632,041 676,202
------------- -------------
Total current liabilities 6,072,718 6,778,858
Long-term debt, excluding current installments 5,519,326 5,576,155
Obligations under capital leases, excluding current installments 31,610 44,339
------------- -------------
Total liabilities 11,623,654 12,399,352
------------- -------------
Stockholders' equity (note 2):
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 4,513,510 4,344,719
------------- -------------
Total stockholders' equity 13,311,973 13,143,182
Commitments and contingencies
------------- -------------
$ 24,935,627 $ 25,542,534
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Revenues:
Company-operated stores $ 9,663,156 $ 8,193,303
Franchise operations 1,334,059 1,414,849
Other 126,223 135,780
---------------- -----------------
Total revenues 11,123,438 9,743,932
---------------- -----------------
Costs and expenses:
Cost of company-operated stores 6,616,020 5,515,086
Cost of franchise operations 554,226 513,301
Other cost of operations 93,699 95,978
Restaurant operating expenses 1,143,773 901,089
General and administrative 1,474,254 1,138,708
Depreciation and amortization 633,881 552,318
---------------- -----------------
Total costs and expenses 10,515,853 8,716,480
---------------- -----------------
Income from operations 607,585 1,027,452
Other income (expense):
Interest expense (206,658) (203,029)
Interest income 8,788 11,592
Other (134,254) (100,632)
---------------- -----------------
(332,124) (292,069)
---------------- -----------------
Income before income tax expense 275,461 735,383
Income tax expense 106,670 283,600
---------------- -----------------
Net income $ 168,791 $ 451,783
================ =================
Earnings per share:
Basic .01 .05
Diluted .01 .05
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------------- PAID-IN RETAINED
SHARES DOLLARS CAPITAL EARNINGS TOTAL
---------------- ------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1999 12,103,824 $ 121,038 $ 8,677,425 $ 4,344,719 $ 13,143,182
Net income -- -- -- 168,791 168,791
---------------- ------------- -------------- --------------- ------------------
Balance,
March 31, 2000 12,103,824 $ 121,038 $ 8,677,425 $ 4,513,510 $ 13,311,973
================ ============= ============== =============== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 168,791 $ 451,783
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 334,013 292,426
Amortization of franchise royalty contracts, goodwill
and other assets 299,868 259,892
Provision for bad debts -- 25,000
(Increase) decrease in:
Trade accounts receivable (47,326) 67,621
Notes receivable 22,406 (83,257)
Other receivables 9,321 649
Inventories (4,388) 35,570
Prepaid expenses (145,486) (51,070)
Other assets (2,814) (341,700)
Increase (decrease) in:
Accounts payable (278,210) (576,413)
Accrued expenses (44,161) 266,054
---------------- -----------------
Net cash provided by operating activities 312,014 346,555
---------------- -----------------
Cash flows from investing activities:
Additions to property and equipment (117,456) (162,597)
---------------- -----------------
Net cash used in investing activities (117,456) (162,597)
---------------- -----------------
Cash flows from financing activities:
Decrease in bank overdraft (149,305) --
Net increase in credit line note payable 53,861 89,132
Payments on long-term debt and capital leases (357,883) (255,804)
---------------- -----------------
Net cash used in financing activities (453,327) (166,672)
---------------- -----------------
Net increase (decrease) in cash and cash equivalents (258,769) 17,286
Cash and cash equivalents at beginning of period 510,833 643,536
---------------- -----------------
Cash and cash equivalents at end of period $ 252,064 $ 660,822
================ =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
March 31, 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 Steaks & Saloon, Inc., 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.
6
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
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.
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 (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
==============
</TABLE>
Goodwill resulting from the acquisition is being amortized on a
straight-line basis over 15 years.
7
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
(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 which was included in other expense
for the year ended December 31, 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.
(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 months
ended March 31, 2000 and 1999 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.
8
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
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
AVERAGE EARNINGS
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- --------------------- ---------------
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Net income - basic and diluted $ 168,791 12,103,824 $ .01
================= ===================== ===============
THREE MONTHS ENDED MARCH 31, 1999
Net income-basic and diluted $ 451,783 8,678,000 $ .05
================= ===================== ===============
</TABLE>
(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. 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 March 31, 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.
9
<PAGE>
AUSTINS STEAKS & SALOON, INC.
Notes to Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
The following table summarizes reportable segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------
2000 1999
----------- ---------
<S> <C> <C>
Revenues from reportable segments:
Restaurants $ 9,663,156 8,193,303
Franchising and other 1,460,282 1,550,629
----------- ---------
Total revenues $11,123,438 9,743,932
=========== =========
Depreciation and amortization:
Restaurants 450,393 352,708
Franchising and other 183,488 199,610
----------- ---------
Total depreciation and amortization $ 633,881 552,318
=========== =========
Interest expense:
Restaurants 167,145 163,357
Franchising and other 39,513 39,672
----------- ---------
Total interest expense $ 206,658 203,029
=========== =========
Interest income:
Restaurants 6,426 6,819
Franchising and other 2,362 4,773
----------- ---------
Total interest income $ 8,788 11,592
=========== =========
Income before income taxes:
Restaurants 59382 460340
Franchising and other 216,079 275,043
----------- ---------
Total income before income taxes $ 275,461 735,383
=========== =========
March 31, March 31,
2000 1999
----------- ---------
Gross fixed assets:
Restaurants 11,661,568 6,369,327
Franchising and other 1,395,164 1,546,241
----------- ---------
Total gross fixed assets $13,056,732 7,915,568
=========== =========
Expenditures for fixed assets:
Restaurants 98,719 157,551
Franchising and other 18,737 5,046
----------- ---------
Total expenditures for fixed assets $ 117,456 162,597
=========== =========
</TABLE>
10
<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 235 restaurants
located in 24 states, including 26 company-owned and 209 franchise
restaurants. The restaurants include a family steakhouse concept, a steak and
buffet concept, and a 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; 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 month period ended March 31, 2000 was $168,791, as
compared to $451,783 for the three month period ended March 31, 1999. Net
income was affected by lost sales due to severe winter weather, increased
costs associated with marketing and sales building initiatives and costs
associated with corporate infrastructure to support further expansion.
11
<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
ENDED MARCH 31,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
INCOME STATEMENT DATA
Revenues:
Company-operated stores 86.9 84.1
Franchise royalties and fees 12.0 14.5
Other 1.1 1.4
----------- ---------
Total revenues 100.0 100.0
Costs and expenses:
Cost of company-operated stores 59.5 56.6
Cost of franchise operations 5.0 5.3
Other cost of operations 0.8 1.0
Restaurant operating expenses 10.3 9.2
General and administrative 13.3 11.7
Depreciation and amortization 5.7 5.7
----------- ---------
Income from operations 5.4 10.5
Other income (expense) (3.0) (3.0)
----------- ---------
Income before income tax expense 2.4 7.5
Income tax expense 0.9 3.0
----------- ---------
Net income 1.5 4.5
=========== =========
RESTAURANT DATA
Number of company-operated stores, beginning
of period 26 20
Number of company-operated stores, end of
period 26 20
Number of franchised restaurants, beginning of
period 210 225
Number of franchised restaurants, end of period 209 223
</TABLE>
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
Total revenues increased 14.2 percent to $11.1 million for the three-months
ended March 31, 2000 as compared to $9.7 million for the comparable
three-month period ended March 31, 1999. The three-month increase is
attributable to an increase in company-operated stores revenues from $8.2
million for the 1999 period to $9.7 million for 2000 offset by decreases in
franchise operations revenue from $1.4 million for the 1999 period to $1.3
million for the 2000 period. The total number of company stores open during
the period was 26 in 2000 as compared to 20 for the 1999 period.
COSTS AND EXPENSES
Total costs and expenses increased from $8.7 million for the three months
ended March 31, 1999 to $10.5 million for the three months ended March 31,
2000.
12
<PAGE>
Costs of company-operated stores increased fom $5.5 million in the first
quarter 1999 to $6.6 million for the first quarter of 2000. Restaurant
operating expenses increased from $901,000 for 1999 to $1.1 million for 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.
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 an increase to $554,000 for the quarter-to-date as
compared to $513,000 for the comparable 1999 period. This increase represents
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 $1.1 million for the three
months ended March 31, 1999 to $1.5 million for the three months ended March
31, 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, upgrading technology, as well as general expenses of the corporation
account for the increased levels of spending. Depreciation and amortization
increased from $552,000 for the three months ended March 31, 1999 to $634,000
for the three months ended March 31, 2000 and is attributable to the Austins'
acquisition and the increased fixed asset levels associated with the new
stores.
OTHER INCOME (EXPENSE)
Interest expense showed a slight increase over the previous year's first
quarter attributable to additional debt incurred as a result of a legal
settlement and debt assumed in the reverse merger acquisition offset by debt
reduction due to scheduled principal curtailments in accordance with terms of
previously existing debt agreements. 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 38.7 percent in 2000 as compared to 38.6
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 three months ended March 31, 2000 and 1999, the Company had net
cash provided by operating activities of $312,014 and $346,555 respectively.
Cash flows from operations were the primary source for capital expenditures
and debt repayments during the period. The Company utilized its existing line
of credit to provide additional funding. Management is reviewing available
financing alternatives to provide cash for future expansion, to provide
additional working capital and to restructure existing debt.
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.
13
<PAGE>
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.
14
<PAGE>
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
15
<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: May 15, 2000 By: /s/ Robert N. Collis, II
---------------------------- --------------------------------
Robert N. Collis, II
Chief Financial Officer
16
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 0
<RECEIVABLES> 1,507,269
<ALLOWANCES> 333,964
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<CURRENT-ASSETS> 2,734,977
<PP&E> 13,056,732
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0
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<INCOME-TAX> 106,670
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