10-K 1 k1001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended January 28, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-12145 AMARILLO MESQUITE GRILL, INC. (formerly Maverick Restaurant Corporation) (Exact name of Registrant as specified in its charter) Kansas 48-0936946 (State of Incorporation) (IRS Employer Identification No.) 302 North Rock Road, Suite 200 Wichita, Kansas 67206 (Principal executive offices, including zip code) Registrant's telephone number including area code: (316) 685-7286 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock $0.01 Par Value Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past ninety (90) days. Yes X No ___ Insert by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of April 1, 2001, 8,241,137 common shares (not including 60,000 shares held as treasury stock) were outstanding, and the aggregate market value of the common shares (based upon the closing price of these shares ($.625) as of such date on the OTC Bulletin Board) of Amarillo Mesquite Grill, Inc. held by non-affiliates was approximately $1,309,928 (For purposes of this valuation "affiliates" are the officers, directors and 5% shareholders of the Company.) DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the fiscal year ended January 28, 2001 (Items 10, 11, 12 and 13 of PART III) AMARILLO MESQUITE GRILL, INC. Annual Report on Form 10-K For the Fiscal Year Ended January 28, 2001

PART I Item 1. BUSINESS A) General Development of Business. Amarillo Mesquite Grill, Inc. (the "Company") operated fifteen Amarillo Mesquite Grill restaurants in Kansas, Oklahoma, Missouri, Texas and Arkansas during fiscal 2001. Amarillo Mesquite Grill restaurants offer a casual dining environment serving prime rib, steaks, chicken and seafood grilled over mesquite wood. The Company intends to focus its business activities on the development of additional Amarillo Mesquite Grill restaurants. On June 17, 1996, the Company acquired the assets of the Amarillo Mesquite Grill restaurant chain from Homestead West, Inc. and Amagril, Inc. for 1,000,000 shares of the Company's restricted common stock and cash in the amount of $1,500,000. The Amarillo Mesquite Grill restaurant chain consisted of four restaurants at the date of purchase: two located in Wichita, Kansas, one located in Hutchinson, Kansas and one located in Overland Park, Kansas. Since the date of this acquisition, the Company has converted seven of its Cotton Patch Cafe restaurants to Amarillo Mesquite Grill restaurants, converted four other buildings to Amarillo Mesquite Grill restaurants, constructed a prototype Amarillo Mesquite Grill restaurant and closed one location upon termination of the lease term. During fiscal 2001, the Company opened a new restaurant in Wichita Falls, Texas. In April 2001, the Company closed its restaurant located in McAlester, Oklahoma. B) Financial Information About Industry Segments. Not Applicable -1- C) Narrative Description of Business. i) Principal Products and Services. Amarillo Mesquite Grill. Amarillo Mesquite Grill restaurants are open for lunch and dinner. Amarillo Mesquite Grill is a moderately priced casual dining restaurant that specializes in aged prime rib and steaks, along with barbecued ribs, chicken and seafood, all uniquely grilled over an open flame of mesquite wood. Appetizers and desserts, as well as a children's menu with lower-priced selections, are also available. The Amarillo Mesquite Grill concept, founded in 1982, is designed to appeal to a broad spectrum of casual dining customers who are seeking a consistent and high-quality dining experience attentively served in a distinctive, relaxed atmosphere for a moderate price. Amarillo Mesquite Grill provides a casual and comfortable environment and well- trained, enthusiastic service to its customers. The Company believes that the Amarillo Mesquite Grill restaurant concept and menu are designed to attract loyal clientele who return with a high degree of frequency at both lunch and dinner. The decor of the Company's restaurants features a variety of western and country artifacts, giving it a relaxed friendly feel. Amarillo Mesquite Grill is further distinguished by requiring from its meat purveyors high- quality, USDA choice or better graded steaks, many of which are hand-cut fresh daily on site. High-quality ingredients are used for all menu items. All meals are served in generous portions by a well-trained friendly staff. The Amarillo Mesquite Grill restaurant is a free-standing building. The Company owns the furniture, fixtures and equipment used in its restaurants. Each restaurant serves alcoholic beverages and features a bar area located adjacent to the dining room primarily to accommodate customers waiting for tables. The average cost of a meal at the Company's Amarillo Mesquite Grill restaurant is approximately $7.00 for lunch and $13.00 for dinner. Alcoholic beverage service accounts for approximately 8% of the Company's net sales at each restaurant. The Company's restaurants are open seven days a week. -2- The following table sets forth the location and opening or acquisition date of the Company's Amarillo Mesquite Grill restaurants in operation during the 2001 fiscal year:

*Closed on April 8, 2001 The Company seeks to locate its restaurants in smaller cities and suburban areas where they fill a significant market niche. Amarillo Mesquite Grill restaurants are distinguished from other family-oriented steakhouses in these smaller markets (many of which are cafeteria-style) by their full table service and attentive wait staff, full bar service, entertaining atmosphere, distinctive decor and consistently high-quality food. The Company distinguishes its restaurants from other full-service restaurants through their family orientation which is accomplished by offering lower priced food (such as hamburgers and sandwiches) at dinner, placing less emphasis on alcohol sales as compared to most competitors and offering features designed to appeal to children. ii) Developing Products and Industry Segments. Not Applicable -3- iii) Sources and Availability of Raw Materials. The Company's food costs are closely tied to market conditions. The Company attempts to maintain its cost of sales percentages by refining cost controls, directing marketing activities to re-emphasize low-cost menu items, and selectively increasing menu prices. The Company monitors the cost of ingredients and attempts to adjust prices wherever possible to maintain desired margins. iv) Trademarks. The Company acquired two service marks registered with the United States Patent and Trademark Office for the words "Amarillo Grill." Both of these registrations expire in January 2005, however, they are subject to renewal. The Company has also obtained from the United States Patent and Trademark Office a registration for the words "Amarillo Mesquite Grill" which expires in May 2009. The Company considers all of these service marks to contribute significantly to its operations. v) Seasonality. The Company experiences increased sales during holiday periods in its restaurants. vi) Practices Relating to Working Capital. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." vii) Dependence upon a Single Customer. Not Applicable viii) Backlog Orders. Not Applicable ix) Business Subject to Renegotiation at Election of Government. Not Applicable -4- x) Competition. The Company competes with mid-priced, full service restaurants primarily on the basis of quality of food and service, ambiance, location and price-value relationship. The Company also competes with a number of other restaurants within its markets, including both locally owned restaurants and regional or national chains. The Company believes that its mesquite grill concept, attractive price-value relationship and quality of food and service enable it to differentiate itself from its competitors. While the Company believes that its mesquite grill restaurants are distinctive in design and operating concept, it is aware of restaurants that operate with similar concepts. Many of the Company's competitors are well- established in the mid-priced dining segment and have substantially greater financial, marketing and other resources than the Company. The Company believes that its ability to compete effectively will continue to depend upon its ability to offer high quality, moderately priced food in a full service, distinctive dining environment. xi) Research and Development. Not Applicable xii) Compliance with Environmental Regulation. Not Applicable xiii) Employees. As of April 1, 2001, the Company employed approximately 655 persons, including 10 administrative, 63 managerial, 257 full- time and 325 part-time restaurant employees. D) Financial Information About Foreign and Domestic Operations and Export Sales. Not Applicable Item 2. PROPERTIES The Company's principal executive office is located at 302 North Rock Road, Suite 200, Wichita, Kansas 67206. This office space is leased from an unrelated third party. -5- The land and buildings for the Company's fifteen restaurants are leased pursuant to long-term leases with unrelated third parties. The initial lease terms are for a period of three to twenty years with provisions for two additional five year extensions. The Company pays minimum annual rentals for the land and building of each restaurant in amounts ranging from approximately $33,000 to $129,128. In some cases, the rental rates escalate in accordance with sales volume in excess of specified amounts. Each lease obligates the Company to pay the real estate taxes and utilities applicable to the particular location, to maintain casualty and liability insurance, and to keep the property in general repair. The Company operated fifteen Amarillo Mesquite Grill restaurants in fiscal 2001. These restaurants encompass approximately 4,000 to 6,000 square feet. These restaurants seat approximately 140 to 280 persons and have on-site parking for an average of 70 cars. Typical capital costs for a restaurant facility are approximately $400,000 for land, $600,000 for the building and $300,000 for equipment and furnishings. The Company has historically leased the land and buildings used pursuant to long-term lease arrangements. Item 3. LEGAL PROCEEDINGS On September 18, 2000, Casey M. Bachrodt and Kelly J. Bachrodt filed a petition in the District Court, Sedgwick County, Kansas naming the Company as defendant. The petition alleges that the Company interfered with a contract and interfered with a prospective business advantage when it purchased the Amarillo Grill Restaurants from Alan Bundy in June 1996. The plaintiffs are seeking damages in the amount of $9,000,000. The proceedings are in the early stages, however, the Company believes it will be successful in its defense of this lawsuit. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. -6- PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS A) Market Information. Stock quotations for the Company's stock are currently available on the OTC Bulletin Board under the symbol "MESQ". The following tabulation sets forth the high and low closing bid quotations for the calendar quarters shown as reported by the OTC Bulletin Board. The prices quoted represent prices between dealers in securities without adjustment for mark-ups, mark-downs, or commissions and do not necessarily reflect actual transactions.

B) Holders of Company's Common Stock. The number of holders of record of the Company's common stock as of January 28, 2001, was approximately 450, as determined by an examination of the Company's transfer book. However, because a number of shares of stock are held in "street name," the actual number could not be determined more precisely. C) Dividends. The Company has not paid dividends to its stockholders since its inception. For the foreseeable future, it is anticipated that any earnings which may be generated from operations of the Company will be used to finance the growth of the Company, and that dividends will not be paid to stockholders. -7- Item 6. SELECTED FINANCIAL DATA

-8- Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations For the year ended January 28, 2001, sales were $20,808,604 as compared to $18,355,305 and $20,509,882 for fiscal 2000 and 1999, respectively. Cost of sales, as a percentage of total sales, was 34.6%, 34.7% and 37.2% for fiscal 2001, 2000 and 1999, respectively. The decrease in cost of sales from fiscal 1999 to fiscal 2000, as a percentage of sales, was the result of implementing a new menu with more cost effective entrees resulting in an improvement in cost of sales of 2.5%. Operating expenses include all direct and indirect labor costs incurred at the store level and all other store level operating costs, the major component of which are operating supplies, rent, repairs and maintenance, advertising, utilities and other occupancy costs. Operating expenses, as a percentage of total sales, were 52.8%, 49.9% and 49.1% for fiscal 2001, 2000 and 1999, respectively. The increase in operating expense from fiscal 2000 to fiscal 2001, as a percentage of total sales, is the result of increased promotional costs and labor costs. The Company increased its advertising expenditures significantly resulting in greater operating expenses. In addition, the Company concentrated its efforts to decrease turnover of its experienced managers by increasing salaries. General and administrative expenses include area management personnel and recruiting and training expenses relating to the development of management personnel for future restaurants as well as home office costs for administration, accounting, support personnel, rent and other costs of maintaining a central office. General and administrative expenses, as a percentage of total sales, were 6.0%, 7.6% and 7.9% for fiscal 2001, 2000 and 1999, respectively. The decrease in general and administrative expenses from fiscal 2000 to fiscal 2001, as a percentage of sales, can be attributed to a reduction in recruiting and training costs resulting from the Company's concentrated efforts to reduce employee turnover. Depreciation and amortization is directly related to the acquisition or disposition of fixed assets. The increase in depreciation and amortization from fiscal 1999 to fiscal 2001 is the result of a greater investment in property and equipment and therefore increased depreciation and amortization. Interest expense for fiscal 2001, 2000 and 1999 was $665,080, $642,724 and $689,535, respectively. Interest expense is directly related to the amount of borrowings and the interest rate. The Company incurred noncash expenses of $97,840 in fiscal 2001, 2000, 1999, respectively related to the issuance of stock options pursuant to debt guarantees as disclosed in note 5 to the financial statements. -9- As of January 28, 2001, the Company has federal net operating loss carryforwards for income tax purposes of approximately $7,292,000 which, if not used, will expire $984,000 in fiscal 2002, $1,193,000 in fiscal 2003, $434,000 in fiscal 2004, $134,000 in fiscal 2005, $6,000 in fiscal 2006, $180,000 in fiscal 2008, $45,000 in fiscal 2009, $114,000 in fiscal 2011, $1,524,000 in fiscal 2012, $1,706,000 in fiscal 2013, $567,000 in fiscal 2019, $233,000 in fiscal 2020 and $172,000 in fiscal year 2021. The Company's loss for the current year ended January 28, 2001, can in part be attributed to the Company's decision to close its McAlester, Oklahoma restaurant on April 8, 2001. The Company incurred an operating loss of approximately $248,000 relating to the anticipated closure of this restaurant. In addition, the Company incurred approximately $77,000 in preopening expenses for its Wichita Falls, Texas restaurant. Liquidity and Capital Resources The Company's primary sources of funds to finance its business have been its cash flow from operations and, principally during the past three years, proceeds from long-term debt. On January 28, 2001 and January 30, 2000, the Company had an excess of current liabilities over current assets of $1,675,794 and $1,803,342, respectively. Cash flow from operations was $818,763, $762,797 and $712,385 for fiscal 2001, 2000 and 1999, respectively. Management anticipates higher cash flow from restaurant operations in fiscal 2002 and that such higher operating cash flow will enable the Company to meet its financial obligations in fiscal 2002 as they come due. On May 12, 1998, the President of the Company loaned the Company $250,000 to fund construction cost overages. The note was an unsecured 10% demand note due January 1, 1999. As of January 30, 2000, the note had a balance of $224,000 and was renewed with a due date of January 3, 2001. This note was paid in full during fiscal 2001. Although the Company's President has made loans to the Company in the past, there is no assurance that he will make additional loans in the future. Substantially all of the Company's revenues are derived from cash sales. The Company does not maintain significant receivables and inventories; therefore, working capital requirements for continuing operations are not significant. Additions to property and equipment and the acquisition of restaurants represent the single largest use of funds by the Company. The expenditures are primarily made for the purchase and development of new restaurants. Capital expenditures were $522,550 for the year ended January 28, 2001, compared to $772,851 for the year ended January 30, 2000. These capital expenditures have resulted in an increase in property and equipment and a decrease in working capital. During the year ended January 30, 2000, three major shareholders purchased 517,242 shares of restricted common stock at the market value of $1.16 per share for a total consideration of $600,000. These funds were used to open two new restaurants. -10- The Company plans to continue expansion of the Amarillo Mesquite Grill concept in fiscal 2002. The Company intends to lease existing restaurant properties which are suitable for conversion to the Amarillo Mesquite Grill concept. It is expected that each conversion will require approximately $300,000 to $500,000 for equipment and remodel costs. A ground-up proto-type restaurant would cost approximately $1,300,000 for land, building and equipment. The Company has no commitments for financing at this time. In order for the Company to meet its expansion goals for fiscal 2002, it will need to raise additional funds through debt or equity instruments, the availability and terms of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company. The Company has restructured its long-term bank debt to provide for interest only payments through April 15, 2002. The purpose of the restructuring is to use cash flow to open additional restaurants that would otherwise be used to retire long term debt. Management views this as a way to continue our growth, that should result in increased future earnings and cash flow, but do so without increasing bank debt. This report contains certain forward-looking statement, including those relating to the opening of additional restaurants and planned capital expenditures. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, actual results could differ materially from such forward-looking statements. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company that objectives and plans of the Company will be achieved. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements that the Company is required to file under Item 8 of this Form 10-K are presented on pages F-1 through F-22 of this Report. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable -11- PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to this Item is included in the Company's Annual Proxy Statement for the 2001 Annual Meeting of Stockholders under the section entitled "Election of Directors" and under the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and these portions of such Proxy Statement are herein incorporated by reference. Item 11. EXECUTIVE COMPENSATION The information relating to this Item is included in the Company's Annual Proxy Statement for the 2001 Annual Meeting of Stockholders under the section entitled "Executive Compensation" and "Directors' Fees" and these portions of such Proxy Statement are herein incorporated by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information relating to this Item is included in the Company's Annual Proxy Statement for the 2001 Annual Meeting of Stockholders under the section entitled "Principal Holders of Securities" and that portion of such Proxy Statement is herein incorporated by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information relating to this Item is included in the Company's Annual Proxy Statement for the 2001 Annual Meeting of Stockholders under the section entitled "Certain Relationships and Related Transactions" and that portion of such Proxy Statement is herein incorporated by reference. -12- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A) Documents Filed as a Part of this Report. i) Financial Statements See "Index to Financial Statements" on Page F-1 of this Report ii) Financial Statement Schedules Not Applicable iii) Exhibits See Item 14(c), "Exhibits" below. B) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended January 28, 2001. C) Exhibits. 3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc. and Change of Corporate Name to Maverick Restaurant Corporation and Certificate of Correction to Restated Articles of Incorporation of Grandy's of El Paso, Inc. changing the Corporate Name to Maverick Restaurant Corporation as filed with the Secretary of State of the State of Kansas on July 28, 1983 and August 18, 1983, respectively (filed as Exhibit 3.1 to Registration No. 2-86266-FW and such exhibit is hereby incorporated by reference). 3.2 Certificate of Amendment to Articles of Incorporation as filed with the Secretary of State of the State of Kansas on May 22, 1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year ended January 31, 1985, and such exhibit is hereby incorporated by reference). -13- 3.3 Certificate of Amendment to Articles of Incorporation as filed with the Secretary of State of the State of Kansas on May 27, 1997 changing the corporate name to Amarillo Mesquite Grill, Inc. (filed as Exhibit 3.3 to the Company's Form 10-K for the fiscal year ended January 25, 1998, and such exhibit is hereby incorporated by reference). 3.4 Bylaws of the Company (filed as Exhibit 3.2 to Registration No. 2- 86266-FW and such exhibit is hereby incorporated by reference). 10.1 1994 Incentive Stock Option Plan (filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal year ended January 31, 1995 and such exhibit is hereby incorporated by reference).* 10.2 1997 Incentive Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement dated April 23, 1997 and such exhibit is hereby incorporated by reference).* 10.3 Promissory Note dated January 3, 2000 between the Company and Chris F. Hotze (filed as Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended January 30, 2000 and such exhibit is hereby incorporated by reference). 21 Subsidiaries 23 Consent of Allen, Gibbs & Houlik, L.C. (filed herewith). ________________ *Management's Compensation Plan -14- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMARILLO MESQUITE GRILL, INC. By: /s/ Chris F. Hotze Chris F. Hotze, President Date: April 27, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons of the Registrant and in the capacities and on the date indicated.

AMARILLO MESQUITE GRILL, INC. TABLE OF CONTENTS Page Independent Auditors' Reports F-2 Financial Statements: Consolidated Balance Sheets F-3 - F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Stockholders' Equity (Deficit) F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 - F-22 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Amarillo Mesquite Grill, Inc. and Subsidiary We have audited the accompanying consolidated balance sheets of Amarillo Mesquite Grill, Inc. and Subsidiary as of January 28, 2001 and January 30, 2000 and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Amarillo Mesquite Grill, Inc. and Subsidiary as of January 28, 2001 and January 30, 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Allen, Gibbs & Houlik, L.C. March 20, 2001, except for Note 4 as to which the date is April 9, 2001 F-2 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS January 28, 2001 and January 30, 2000 ASSETS

F-3 LIABILITIES AND STOCKHOLDERS' DEFICIT

The accompanying notes are an integral part of these financial statements F-4 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended January 28, 2001, January 30, 2000, and January 31, 1999

The accompanying notes are an integral part of these financial statements F-5 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years Ended January 28, 2001, January 30, 2000, and January 31, 1999

The accompanying notes are an integral part of these financial statements F-6 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended January 28, 2001, January 30, 2000, and January 31, 1999

The accompanying notes are an integral part of these financial statements F-7 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OPERATIONS Amarillo Mesquite Grill, Inc. and Subsidiary (Company) own and operate 15 Amarillo Grill restaurants in Kansas, Oklahoma, Missouri, Arkansas, and Texas. Amarillo Grill is a casual, full-service restaurant specializing in mesquite-grilled steaks. During fiscal 2001, the Company formed a wholly-owned subsidiary, Amarillo Mesquite Grill of Texas, Inc., which owns and operates the restaurant located in Wichita Falls, Texas. On September 11, 1997, the Company and four of its stockholders formed AMG, Inc., a Kansas corporation, to develop and own three Amarillo Grill restaurants. AMG, Inc. was 48%-owned by the Company and 52%- owned by the four stockholders as of January 25, 1998. The accounts and operations of AMG, Inc. were consolidated with the Company as entities under common control for the year ended January 25, 1998. The Company included the amount of AMG, Inc.'s loss, otherwise attributable to the financial statements as of January 25, 1998 because such loss exceeded the capital investment made by these stockholders, and they were under no obligation to provide additional capital to AMG, Inc. Effective February 23, 1998, the Company purchased the remaining shares of AMG, Inc. by issuing 450,000 shares of the Company's common stock in a transaction accounted for similar to a pooling. The interest in AMG, Inc. acquired by the Company had no book value after consideration of the losses absorbed by the Company in fiscal 1998. Accordingly, this transaction resulted in no additional assets or liabilities being established, and stockholders' equity reflects the issuance of the shares of common stock at par value, with an offsetting reduction to additional paid-in capital. Effective September 21, 1998, AMG, Inc. was merged into the Company and the separate existence of AMG, Inc. ceased. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year - The Company's fiscal year is the 52- or 53-week period ending on the last Sunday in January. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany accounts and transactions are eliminated in consolidation. Cash - The Company maintains cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market. (Continued) F-8 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and Equipment - Property and equipment is recorded at cost. Depreciation is computed by the straight-line method based on the estimated useful life of the asset. Leasehold improvements are amortized over the lesser of the useful life of the asset or the remaining lease term. Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized. Estimated useful lives are as follows: Buildings 98 months - 20 years Leasehold improvements 3 - 20 years Equipment and fixtures 5 - 10 years Autos 3 years Property under capital leases 20 years Impairment of Long-lived Assets - Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. A two-year history of restaurant operating losses is used as a primary indicator of potential impairment. Recoverability of assets to be held and used is measured on a restaurant-by-restaurant basis through comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. See also Note 8. Intangible Assets - Cost in excess of net tangible assets of purchased businesses is amortized on a straight-line basis over the remaining lives of the building leases. The Company periodically assesses the recoverability of intangible assets on a restaurant-by-restaurant basis by determining whether the amortization of the intangible asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows. No intangible assets were considered impaired at January 28, 2001. The assessment of the recoverability of intangible assets will be impacted if estimated future operating cash flows are not achieved. Pre-Opening Costs Pre-opening costs are charged to operations as incurred. Advertising - The Company expenses advertising costs as incurred. Advertising expense was $186,297, $293,987, and $287,949 during fiscal years 2001, 2000, and 1999, respectively. (Continued) F-9 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes - Deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards; deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. Use of Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and liabilities, (2) disclosures such as contingencies, and (3) the reported amounts of revenues and expenses included in such financial statements. Actual results could differ from those estimates. Earnings Per Share - Earnings per common share has been computed on the basis of the weighted-average number of common shares outstanding during each period presented. The Company is also required to present diluted earnings per share, which assumes the conversion, exercise, or issuance of all potential common stock instruments unless the effect is to reduce a loss or increase the income per common share from continuing operations. Options to purchase common stock were not included in the computation of diluted earnings (loss) per common share because the Company had a net loss available to common stockholders and the inclusion of such options would be antidilutive. As of January 28, 2001, there were 1,325,475 options outstanding at a weighted average exercise price of $1.93 that may become dilutive in the future. As of January 30, 2000, there are 1,277,937 options outstanding at a weighted average exercise price of $2.04. As of January 31, 1999, there were 1,289,453 options outstanding at a weighted average exercise price of $2.48. Stock Awards - The Company accounts for its stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. In addition, SFAS No. 123, Accounting for Stock-Based Compensation, requires that pro forma net income and pro forma income per share disclosures for employee stock option grants made in fiscal years that begin after December 15, 1994 be provided as if the fair-value-based cost measurement method defined in SFAS No. 123 had been applied. (Continued) F-10 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company accounts for its stock options issued to persons other than employees in accordance with the provisions of SFAS No. 123. As such, expense is determined on the date of grant and is charged to operations over the period the services are provided, based on the fair-value- based cost measurement method defined in SFAS No. 123 (see Note 6). 3. RELATED PARTY TRANSACTIONS The Company shares office space and certain administrative employees with companies owned in part by certain stockholders of the Company. Rent expense, utilities, and other office expenses are allocated between the companies based on estimated usage. Advances to/from Affiliate - At January 28, 2001, the Company had a receivable from Red Apple Corporation of $29,418 and a receivable from Maverick Development Corp. of $6,450. The Company has a receivable from Red Apple Corporation for $45,655 at January 30, 2000. The notes have an implied interest rate of 8%. Stockholders' Equity - The Company's president is also employed by another corporation owned by a major stockholder of the Company, and his salary is paid by that corporation. He received no compensation from the Company during 2001, 2000, or 1999. The Company determined that the president performed services valued at $13,000 in 2001 and $9,000 in 2000 and 1999, and accordingly, such amounts have been recorded as compensation expense with a corresponding credit to additional paid-in-capital in the accompanying financial statements. On June 17, 1996, the Company entered into Stock Option Agreements with a director of the Company and a principal stockholder of the Company, whereby it agreed to grant stock options as consideration for the guarantee of a note payable to bank by such individuals for the benefit of the Company. These two individuals were each granted options to purchase 250,000 shares of the Company's common stock. The exercise price of the options granted pursuant to this agreement is $2.19 per share, and all options granted are exercisable immediately and expire seven years from the date of grant. Total non-cash debt guarantee expense aggregating $684,875 is based on the fair value of the stock options granted pursuant to the Stock Option Agreements, which is being recognized as expense over the period of time the related debt is outstanding. The amount of non-cash expense recorded was $97,840 for each of the three years ended January 28, 2001. (Continued) F-11 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. RELATED PARTY TRANSACTIONS (CONTINUED) The per share weighted average fair value of stock options granted under the Stock Option Agreements during fiscal 1997 was $1.37 on the date of grant using the Black Scholes option-pricing model and the following weighted average assumptions: expected dividend yield 0%, expected volatility of 145.00%, risk-free interest rate of 6.72% and an expected life of five years. At January 28, 2001, the weighted average remaining contractual life of the 500,000 outstanding options under the Stock Option Agreements was 2.375 years. 4. FINANCING ARRANGEMENTS Note Payable - As of January 28, 2001, the Company has a 9.50% note payable to a bank in the amount of $220,284, which is due June 18, 2001. Long-term Debt - As of January 28, 2001 and January 30, 2000, long-term debt consisted of the following:

In October 1999, the Company negotiated with its bank to consolidate four of its notes payable into one new note. Interest-only payments are to be made on this note through April 2001. In April 2001, the terms of this note were extended, with final maturity due in April 2002. Maturities of long-term debt are as follows: 2003 $5,904,586 (Continued) F-12 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. FINANCING ARRANGEMENTS (CONTINUED) The note is secured by substantially all the Company's assets, and the loan agreement has been personally guaranteed by certain stockholders, officers, and directors of the Company. The stockholders' guarantees are limited to $5,585,000 of debt. 5. LEASE AGREEMENTS The Company leases its restaurant facilities under agreements with lease terms of 10 to 20 years generally with a provision for one or two renewal options of five years each. These agreements provide for minimum annual rentals and, in certain instances, contingent rentals based on sales performance. The Company is obligated to pay real estate taxes, insurance, and maintenance. The Company has also entered into a lease agreement for its Corporate offices. The lease agreement has a term of five years with a provision for two renewal options of three years each. The lease agreement provides for minimum annual rentals and additional rentals based on operating costs incurred by the lessor. The Company is obligated to pay real estate taxes, insurance, and maintenance. Future minimum lease payments required for the years subsequent to January 28, 2001, under operating leases, including amounts accrued for restaurant closings, are as follows: 2002 $ 1,026,623 2003 1,027,395 2004 947,529 2005 905,519 2006 739,675 Thereafter 5,545,057 $10,191,798 Annual rent expense under operating leases was $1,013,712, $906,208, and $918,441 for the fiscal years ended January 28, 2001, January 30, 2000, and January 31, 1999, respectively. This included percentage rental payments in the amount of $7,010, $5,709, and $46,769 for the fiscal years ended January 28, 2001, January 30, 2000, and January 31, 1999, respectively. (Continued) F-13 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. LEASE AGREEMENTS (CONTINUED) Property and accumulated depreciation accounts at January 28, 2001 include $1,234,626 and $504,286, respectively, for leases that have been capitalized. Generally, the building portions of such leases are capitalized whereas the land portion of such leases are considered operating leases. The future minimum lease payment obligations under capital leases for the years subsequent to January 28, 2001 are as follows: 2002 $ 151,102 2003 151,102 2004 151,102 2005 151,102 2006 151,102 Thereafter 1,030,615 1,786,125 Less amount representing interest 825,021 Total obligations under capital leases 961,104 Less current portion 50,231 Obligations under capital leases, less current portion $ 910,873 The Company, as lessor, subleases two properties to outside third parties. Property and accumulated depreciation accounts at January 28, 2001 include $210,308 and $119,566, respectively, related to these properties. Future minimum lease payments to be received subsequent to January 28, 2001 are as follows: 2002 $ 115,000 2003 116,000 2004 116,000 2005 99,000 2006 32,000 Thereafter -- $ 478,000 (Continued) F-14 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. STOCKHOLDERS' EQUITY In March 1984, the Company adopted an Employee Incentive Stock Option Plan (1984 Plan) for a 10-year term to grant options for the purchase of up to 475,000 shares of common stock. The 1984 Plan provides the Company may grant options to certain employees at the fair market value of the stock at the grant date. One-half of the option is exercisable 6 months after the grant date and one-half 18 months after the grant date. Following is a summary of the activity in the 1984 Plan for the three years ended January 28, 2001:

At January 28, 2001, there were no additional shares available for grant under the 1984 Plan. (Continued) F-15 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) On July 25, 1994, the Company adopted an Employee Incentive Stock Option Plan (1994 Plan) for a 10-year term to grant options for the purchase of up to 600,000 shares of common stock. The 1994 Plan provides the Company may grant options to certain employees at the fair market value at the grant date. The vesting period is at the sole discretion of the Board of Directors. Generally, 10% of the option can be exercised after one year, an additional 15% after the second year, and 25% in each of the next three years. Following is a summary of the activity in the 1994 Plan for the three years ended January 28, 2001:

At January 28, 2001, there were 52,838 additional shares available for grant under the 1994 Plan, and the weighted average remaining contractual life of outstanding options was 6.6 years. (Continued) F-16 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) On January 1, 1997, the Company adopted an Employee Incentive Stock Option Plan (1997 Plan) for a 10-year term to grant options for the purchase of up to 700,000 shares of stock. The 1997 Plan provides the Company may grant options to certain employees at the fair market value at the grant date. The vesting period is at the sole discretion of the Board of Directors. Generally, 10% of the option can be exercised after one year, an additional 15% after the second year, and 25% in each of the next three years. Following is a summary of the activity in the 1997 Plan for the three years ended January 28, 2001:

At January 28, 2001, there were 377,750 additional shares available for grant under the 1997 Plan, and the weighted average remaining contractual life of outstanding options was 8.2 years. (Continued) F-17 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) The per share weighted average fair value of stock options granted under the 1994 and 1997 Plans during fiscal 2001, 2000, and 1999 was $.72, $1.23, and $3.09, respectively, on the date of grant using the Black Scholes option-pricing model using the following weighted average assumptions:

In December 1999, the Company adopted a resolution to reprice all stock options granted to employees under the 1994 or 1997 Plans. The exercise price of all options granted that exceeded $2.19 per share was repriced to $2.19 per share. The pro forma income per share disclosures below were modified in accordance with SFAS No. 123. The Company applies APB Opinion No. 25 in accounting for its stock options issued to employees, and accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost for the 1994 Plan and 1997 Plan based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's fiscal 2001, 2000, and 1999 pro forma net loss and pro forma net loss per common share would have been adjusted to the pro forma amounts indicated below:

The above pro forma disclosure reflects only options granted during fiscal years 2001, 2000, and 1999. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net loss amounts presented above because compensation cost is reflected over the options' vesting period of five years and compensation cost for options granted prior to February 1, 1998 is not considered. (Continued) F-18 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. INCOME TAXES As of January 28, 2001, the Company has net operating loss carryforwards for federal and state income tax purposes. These result in deferred tax assets that, if not used, expire as follows:

The Company also has approximately $346,000 of certain general business credit carryforwards that, if not used, will expire in years through 2020. The total provision for income taxes varied from the federal statutory rate for the following reasons:

(Continued) F-19 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 28, 2001 and January 30, 2000 are presented below:

8. RESTAURANT CLOSINGS, DISPOSITIONS, AND CONVERSIONS During the last quarter of fiscal 2001, management decided that one store, which had generated operating losses for two years, would be closed during fiscal 2002. Management estimates the store will be closed by May 1, 2001, and certain costs related to the store closure have been recorded as an "accrual for restaurant closings" in the accompanying consolidated balance sheet as of January 28, 2001. These closure costs include accrued lease costs of $35,850 to be incurred during the time management estimates it will need to find a sublessee for the facility after store closure, and a $212,045 impairment loss from leasehold improvements and other equipment that management believes would have no fair value or use outside the restaurant. The Company incurred operating losses on this store of $68,194 and $46,017 in fiscal years 2001 and 2000, respectively. Management judgment is inherent in the estimated fair value of the assets and time needed to find a sublessee, and accordingly, actual results could vary from such estimates. (Continued) F-20 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. RESTAURANT CLOSINGS, DISPOSITIONS, AND CONVERSIONS (CONTINUED) During fiscal 2000, the Company converted its last Cotton Patch Cafe restaurant to an Amarillo Grill. The Company incurred an operating loss of $60,000 in 2000 on the Cotton Patch Cafe prior to its closure. These costs are included in the results from operations in the Statement of Operations. During fiscal 1999, the Company closed one and converted another restaurant to an Amarillo Grill. The Company incurred operating losses on these stores of $124,141 prior to closure in 1999, and an additional $42,000 in losses on the closed store in 2000 due to the Company still being under lease on the facility until August 1999. These costs are included in the results from operations in the Statement of Operations. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has determined the fair value of its financial instruments in accordance with SFAS No. 107, Disclosures About Fair Value of Financial Instruments. The carrying amounts of variable rate debt instruments approximate their fair value because the interest rates on these instruments change with market interest rates. For all other financial instruments, including cash, accounts receivable, accounts payable, and other accrued liabilities, the carrying amounts approximate fair value because of the short maturity of these instruments. 10. LIQUIDITY At January 28, 2001, the Company had current liabilities in excess of current assets of $1,675,794 and a stockholders' deficit of $1,093,025. The Company reported a net loss of $639,526 and cash provided by operating activities of $818,763 for fiscal 2000. Management estimates that the Amarillo Grill restaurants opened in fiscal 1999, 2000, and 2001 will generate sufficiently increased cash flow from operations that will enable the Company to meet its financial obligations in fiscal 2002 as they come due. As explained in Note 4, the Company refinanced its note payable to bank in April 2001 to extend its term through April 2002. The Company's ability to refinance this note is dependent on obtaining certain stockholders' guarantees. There is no assurance the guarantors will continue their commitments on the debt beyond future maturity dates. (Continued) F-21 AMARILLO MESQUITE GRILL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. LITIGATION The Company is a party to various litigation arising in the normal course of conducting business in the litigious U.S. business environment. Management does not expect any material amounts of future loss as a result of such litigation. 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Year Ended January 28, 2001

F-22 EXHIBIT INDEX 3.1 Restated Articles of Incorporation of Grandy's of El Paso, Inc. and Change of Corporate Name to Maverick Restaurant Corporation and Certificate of Correction to Restated Articles of Incorporation of Grandy's of El Paso, Inc. changing the Corporate Name to Maverick Restaurant Corporation as filed with the Secretary of State of the State of Kansas on July 28, 1983 and August 18, 1983, respectively (filed as Exhibit 3.1 to Registration No. 2-86266-FW and such exhibit is hereby incorporated by reference). 3.2 Certificate of Amendment to Articles of Incorporation as filed with the Secretary of State of the State of Kansas on May 22, 1984 (filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year ended January 31, 1985, and such exhibit is hereby incorporated by reference). 3.3 Certificate of Amendment to Articles of Incorporation as filed with the Secretary of State of the State of Kansas on May 27, 1997 changing the corporate name to Amarillo Mesquite Grill, Inc. (filed as Exhibit 3.3 to the Company's Form 10-K for the fiscal year ended January 25, 1998, and such exhibit is hereby incorporated by reference 3.4 Bylaws of the Company (filed as Exhibit 3.2 to Registration No. 2-86266-FW and such exhibit is hereby incorporated by reference). 10.1 1994 Incentive Stock Option Plan (filed as Exhibit 10.9 to the Company's Form 10-K for the fiscal year ended January 31, 1995 and such exhibit is hereby incorporated by reference).* 10.2 1997 Incentive Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement dated April 23, 1997 and such exhibit is hereby incorporated by reference).* 10.3 Promissory Note dated January 3, 2000 between the Company and Chris F. Hotze (filed as Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended January 30, 2000 and such exhibit is hereby incorporated by reference). 21 Subsidiaries 23 Consent of Allen, Gibbs & Houlik, L.C. (filed herewith). ________________ *Management's Compensation Plan (i) EXHIBIT 21 Subsidiaries of Amarillo Mesquite Grill, Inc. Amarillo Mesquite Grill of Texas, Inc., a Texas corporation (ii) EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Amarillo Mesquite Grill, Inc: We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (nos. 33-95480 and 333-44227), of our report, dated March 20, 2001, relating to the financial statements of Amarillo Mesquite Grill, Inc., included in the annual report on Form 10-K, as of and for the year ended January 28, 2001. Allen, Gibbs & Houlik, L.C. Wichita, Kansas April 27, 2001 (iii)

AMARILLO MESQUITE GRILL INC 10-K