10-Q 1 q102nd01.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 29, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12145 AMARILLO MESQUITE GRILL, INC. Exact name of registrant as specified in its charter) Kansas 48-0936946 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Suite 200 302 North Rock Road Wichita, Kansas 67206 (Address of principal executive offices) (Zip Code) (316) 685-7286 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yes X No . As of July 29, 2001, 8,241,137 shares of common stock $.01 par value were outstanding. PART 1 - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements AMARILLO MESQUITE GRILL, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS ~~April~~July 29 January 28 2001 2001 Current assets: Cash $ ~~336~~316,~~978~~033 $ 348,182 Accounts receivable 97,~~240~~702 17,248 Advances to affiliate 3155,~~120~~700 35,868 Inventories ~~156~~171,~~378~~690 168,953 Prepaid expenses and other current assets 77294,~~162~~810 130,421 Total current assets ~~610~~845,~~878~~935 700,672 Property and equipment: Buildings 1,114,105 1,122,019 Leasehold improvements 2,~~759~~689,~~301~~259 2,758,064 Equipment and fixtures 5,~~391~~677,~~851~~779 5,365,~~363~~362 Leased property under capital lease 1,234,626 1,234,~~625~~626 10,~~499~~715,~~883~~769 10,480,071 Less: accumulated depreciation and amortization 34,~~957~~160,~~501~~325 3,733,643 6,~~542~~555,~~382~~444 6,746,428 Other assets: Cost in excess of net tangible assets of purchased business, net of amortization of $~~352~~370,~~029~~234 and $333,824 ~~594~~576,~~982~~777 613,187 Deposits and other 38,613 38,613 ~~633~~615,~~595~~390 651,800 $78,~~786~~016,~~855~~769 $8,098,900 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable $6,~~111~~098,~~863~~183 $ 220,284 ~~Current~~Note ~~portion~~payable, ofother ~~long~~170,498 ~~term debt~~ - - Current portion of obligation under capital lease 50,231 50,231 Accounts payable ~~892~~1,~~811~~399,793 1,059,669 Accrued payroll ~~198~~208,~~350~~692 213,338 Other accrued liabilities ~~735~~667,~~257~~086 797,094 Accrual for restaurant closings 2515,~~350~~120 35,850 Total current liabilities 8,~~013~~609,~~862~~603 2,376,466 Long-term debt, less current portion - 5,904,586 Obligation under capital lease, less current portion ~~899~~888,~~606~~339 910,873 Stockholders' equity (deficit): Preferred stock, $.01 par value, authorized 10,000,000 shares, none issued - - Common stock, $.01 par value, authorized 20,000,000 shares, issued 8,301,137 shares at ~~April~~July 29, 2001 and at January 28, 2001 83,011 83,011 Additional paid-in capital 7,~~667~~692,~~922~~382 7,643,462 Accumulated deficit (8,~~607~~986,~~546~~566) (8,549,498) Treasury stock, 60,000 shares of common stock at cost ( 270,000) ( 270,000) Total stockholders' equity (deficit) (1,~~126~~481,~~613~~173) (1,093,025) $78,~~786~~016,~~855~~769 $8,098,900

See accompanying notes to consolidated financial statements. 2 AMARILLO MESQUITE GRILL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Thirteen Weeks Ended ~~April~~Twenty-Six Weeks Ended July 29 ~~April~~July 30 July 29 July 30 2001 2000 ~~Sales~~2001 2000 Net sales $54,~~025~~653,~~645~~177 $5,~~629~~127,~~353~~450 $9,678,822 $10,756,803 Costs and expenses: Cost of goods sold 1,~~783~~763,~~214~~362 1,~~923~~751,~~184~~628 3,546,576 3,674,812 Operating expenses 2,~~620~~540,~~678~~970 2,~~856~~728,~~973~~159 5,161,648 5,585,132 Depreciation and amortization ~~236~~238,~~543~~857 246,~~293~~294 475,400 492,587 General and administrative ~~265~~284,~~125~~197 ~~314~~292,~~095~~139 549,322 606,234 Provision for restaurant closings 47,770 - 47,770 - 4,~~905~~875,~~560~~156 5,~~340~~018,~~545~~220 9,780,716 10,358,765 Operating income ~~120~~( 221,~~085~~979) ~~288~~109,~~808~~230 ( 101,894) 398,038 Other income (expense) Interest expense (~~153~~ 132,~~673~~581) (~~159~~ 166,~~506~~604) ( 286,254) ( 326,110) Noncash expense from issuance of stock options to related parties pursuant to debt guarantees ( 24,460) ( 24,460) (~~178~~ 48,~~133~~920) (~~183~~ 48,~~966~~920) ( 157,041) ( 191,064) ( 335,174) ( 375,030) Earnings (loss) before income taxes ( 58379,~~048~~020) ~~104~~( 81,~~842~~834) ( 437,068) 23,008 Provision for income taxes - - - - Net ~~earnings~~Earnings (loss) $( 379,020) $( 5881,~~048~~834) $( ~~104~~437,~~842~~068) $ 23,008 Net earnings (loss) per common share- Basic and diluted $ (.05) $ (.01) $ (.0105) $ - Average shares outstanding- Basic and diluted 8,241,137 8,241,137 8,241,137 8,241,137

See accompanying notes to consolidated financial statements. 3 AMARILLO MESQUITE GRILL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

~~Thirteen~~Twenty Six Weeks Ended ~~April~~July 29 ~~April~~July 30 2001 2000 Cash flows from operating activities: Net earnings $( 58437,~~048~~068) $ ~~104~~23,~~842~~008 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ~~236~~475,~~543~~400 ~~246~~492,~~293~~587 Noncash expense from issuance of stock options ~~to related parties~~ pursuant to debt guarantees 2448,~~460~~920 2448,~~460~~920 Changes in assets and liabilities (Increase) decrease in accounts receivable 129,~~756~~546 ~~( 4~~2,~~383)~~360 (Increase) decrease in inventories 12( 2,~~575~~737) 237,~~417~~352 (Increase) decrease in prepaid expenses and other current assets 53( 164,~~259~~389) 64( 139,~~891~~505) (Increase) (decrease) in ~~accounts~~advances ~~payable~~to affiliate ( ~~166~~19,~~858~~832) - Increase (decrease) ~~227~~in accounts payable 340,~~240)~~124 147,687 Increase (decrease) in accrued expenses ( 87155,~~325~~384) ( 4944,~~193~~788) Other net - ( 12,380) Cash provided by (used in) operating activities 2794,~~362~~580 ~~183~~535,~~086~~241 Cash flows from investing activities: Purchase of property and equipment ( 14248,~~292~~006) ( 68355,~~495~~251) Cash used in investing activities ( 14248,~~292~~006) ( 68355,~~495~~251) Cash flows from financing activities: ~~Sale~~Proceeds offrom ~~common~~long-term ~~stock~~debt -187,165 - Repayment of notes payable and Note payable ~~related~~other ~~party~~ ( 1343,~~007~~354) ( 83167,~~158~~957) Repayment of long-term borrowings and capital lease obligations ( 1122,~~267~~534) ( 1122,~~267~~534) Cash provided by financing activities ~~( 24~~121,~~274)~~277 ( 94190,~~425~~491) Increase (~~Decrease~~decrease)~~/Increase~~ in cash ( 1132,~~204~~149) 20( 10,~~166~~501) Cash at beginning of period 348,182 407,710 Cash at the end of period $ ~~336~~316,~~978~~033 $ ~~427~~397,~~876~~209 Supplemental disclosure of cash flow information: Cash paid for interest $ ~~153~~286,~~673~~254 $ ~~159~~326,~~506~~110 Cash paid for income taxes $ - $ -

See accompanying notes to consolidated financial statements. 4 AMARILLO MESQUITE GRILL, INC. Notes to Consolidated Financial Statements (Unaudited) July 29, 2001 (1) Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the twenty six week period ended July 29, 2001 are not necessarily indicative of the results that may be expected for the year ended January 27, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's 10-K and Annual Report to Stockholders as filed on April 27, 2001. (2) Net Earnings Per Share The Company, as required under FASB Statement no. 128, Earnings Per Share, calculates and presents both a basic and diluted earnings per share in the financial statements. Earnings per common share is computed on the basis of the weighted-average number of common shares outstanding during each period presented. The Company has granted options to employees to purchase 1,357,975 shares of common stock at a weighted average exercise price of $1.87 per share. These options were not included in the computation of diluted earnings per share because the exercise price of those options exceeded the average market price of the common shares during the quarter and because the Company had a net loss available to common stockholders and the inclusion of such options would be antidilutive. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. Results of Operations Thirteen Weeks Ended July 29, 2001 Compared to Thirteen weeks Ended July 30, 2000. For the thirteen weeks ended July 29, 2001, sales decreased 9.3% to $4,653,177 as compared to $5,127,450 for the second quarter of the prior year. As of July 29, 2001, the Company operated fourteen Amarillo Mesquite Grills. Cost of sales, as a percentage of total sales, was 37.9% for the quarter ended July 29, 2001, as compared to 34.2% for the second quarter of the prior year. The cost of sales as a percentage of total sales were up due to the rise in the cost of meat. Operating expenses, as a percentage of total sales, were 54.6% and 53.2% for the 2001 and 2000 periods respectively. The increase in operating expense is directly related to the decrease in sales for the quarter ended July 29, 2001, as compared to the quarter ended July 30, 2000. The dollars spent were actually lower this quarter as compared to the same quarter last year. General and administrative expenses, as a percentage of sales, was 6.1% for the quarter ended July 29, 2001, as compared to 5.7% for the second quarter of the prior year. The increase in general and administrative, as a percentage of sales, is the result of lower sales as well as higher real estate and personal property taxes and insurance costs. Depreciation and amortization is directly related to the acquisition and disposition of fixed assets. Interest expense was $132,581 for the quarter ended July 29, 2001 as compared to $166,604 for the same period a year ago. Interest expense is a function of the interest rate and the amount of debt. The interest rate has decreased over the past few months, as well as the amount of short and long-term debt has decreased. Consequently, interest expense has decreased. The Company incurred noncash expenses of $24,460 for the 2001 and 2000 periods respectively, relating to the issuance of stock options pursuant to debt guarantees. Twenty Six Weeks Ended July 29, 2001 Compared to Twenty Six Weeks Ended July 30, 2000. For the twenty six weeks ended July 29, 2001, sales decreased 10.7% to $9,678,822 as compared to sales of $10,756,803 for the first twenty six weeks of the prior year. The Company operated fourteen Amarillo Mesquite Grills as of July 29, 2001. Cost of sales, as a percentage of total sales, was 36.6% and 34.2% for the 2001 and 2000 periods respectively. The cost of sales as a percentage of total sales was up for the twenty six weeks ended July 29, 2001 due to the rise in meat costs and grocery costs as compared to the same twenty six week period ended July 30, 2000. Operating expense, as a percentage of total sales, was 53.3% and 51.9% for the 2001 and 2000 periods respectively. The increase in operating expense as a percentage of total sales for the twenty six week period ended July 29, 2001, as compared to the same twenty six week period for the prior year, was due to the decrease in sales and the increase in real estate and property taxes as well as insurance costs. General and administrative expense, as a percentage of total sales was 5.7% for the twenty six weeks ended July 29, 2001, as compared to 5.6% for the first twenty six weeks of the prior year. The increase in general and administrative expense, as a percentage of sales, is the result of lower sales. 6 Depreciation and amortization is directly related to the acquisition and disposition of fixed assets. Interest expense was $286,254 for the twenty six weeks ended July 29, 2001, as compared to $326,110 for the same period a year ago. Interest expense is a function of the interest rate and the amount of debt. The interest rate has decreased over the past few months, as well as the amount of short and long-term debt has decreased. Consequently, interest expense is lower this quarter as compared to the same quarter last year. The Company incurred noncash expenses of $48,920 for the 2001 and 2000 periods respectively, relating to the issuance of stock options pursuant to debt guarantees. Liquidity and Capital Resources The Company's primary sources of funding to finance its business have been its cash flow from operations and proceeds from bank debt. On July 29, 2001 and January 28, 2001, the Company had an excess of current liabilities over current assets of $7,763,668 and $1,675,794, respectively. However included as a current liability as of July 29, 2001 is a bank note payable in the amount of $5,904,586 which is due April 15, 2002. Cash flow from operations was $114,412 and $535,241 for 2001 and 2000 respectively. 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 operations are not significant. 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 will cost approximately $1.3 million for the 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. During this quarter the Company moved the Wichita West location to a new location with more visibility and newer facilities. In conjunction with this move the Company incurred an additional note in the amount of $187,165 for additional equipment as well as writing off leasehold improvements on the prior location in the amount of $47,770. 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 statements, 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. 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. On June 1, 2001, the Company held it's Annual Meeting of stockholders. The only matter voted upon at such meeting was the election of directors. The following Directors were re-elected to serve on the Board of Directors:

Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K Not applicable. 8 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 thereunto duly authorized. AMARILLO MESQUITE GRILL INC. (Registrant) Date August 29, 2001 /s/Chris F. Hotze Chris F. Hotze - President 9

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