U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
Commission File Number: 0-24058
ATOMIC BURRITO, INC.
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(Exact name of registrant as specified in its charter)
Oklahoma 73-1571194
----------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1601 NW Expressway, Suite 1910
Oklahoma City, Oklahoma 73118
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 848-0996
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 at least the
past 90 days. Yes [X] No [ ]
Shares of Common Stock, $.001 par value,
outstanding as of November 14, 2001 5,357,121
Traditional Small Business Disclosure Format: Yes [X] No [ ]
ATOMIC BURRITO, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 2001
(unaudited) and December 31, 2000 4-5
Consolidated Statements of Income (unaudited) -
For the Three and Nine Months Ended
September 30, 2001 and 2000 6
Consolidated Statements of Stockholders'
Equity (unaudited) - For the Nine Months
Ended September 30, 2001 and the Year Ended
December 31, 2000 7
Consolidated Statements of Cash Flows (unaudited) -
For the Nine Months Ended September 30, 2001 and 2000 8-9
Notes to Consolidated Financial Statements (unaudited) 10-13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 6 Exhibits and Reports on Form 8-K 20
2
ATOMIC BURRITO, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
September 30, 2001 and 2000
Forming a part of Form 10-QSB Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-QSB should be read in conjunction with Atomic
Burrito, Inc.'s Annual Report on Form 10-KSB for the year ended December 31,
2000.
3
ATOMIC BURRITO, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
Page 1 of 2
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 49,102 $ 78,925
Accrued interest receivable 43,615 1,918
Accounts receivable - other 23,993 9,514
Current portion of notes receivable 27,036 37,266
Current portion of minimum lease
payments receivable 9,746 -
Inventories 41,375 61,815
Prepaid expenses 25,390 64,169
Deferred income taxes - 100,000
------------ ------------
Total current assets 220,257 353,607
------------ ------------
PROPERTY AND EQUIPMENT 2,108,070 2,900,795
Accumulated depreciation (1,467,510) (1,901,884)
------------ ------------
640,560 998,911
------------ ------------
OTHER ASSETS:
Notes receivable from affiliate 574,801 630,000
Notes receivable, net of current portion
shown above, net of reserve of $450,000
and $350,000 at September 30, 2001
and December 31, 2000 299,322 367,734
Long term portion of minimum lease payments
receivable 108,673 -
Goodwill, net of accumulated amortization
of $13,456 at December 31, 2000 - 80,734
Covenant not to compete, net of accumulated
amortization of $23,333 and $13,333 at
September 30, 2001 and December 31, 2000 31,667 46,667
Deposits and other 62,938 62,938
Investments 57,400 177,400
------------ ------------
1,134,801 1,365,473
------------ ------------
$ 1,995,618 $ 2,717,991
============ ============
See accompanying notes to financial statements.
4
ATOMIC BURRITO, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
Page 2 of 2
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 502,078 $ 573,067
Accrued liabilities 159,124 196,010
Note payable - related party - 28,005
Current portion of long-term debt 239,937 798,290
Current portion of capital leases 43,491 45,692
------------ ------------
Total current liabilities 944,630 1,641,064
------------ ------------
LONG-TERM DEBT, net of current portion
shown above 507,494 366,612
------------ ------------
OBLIGATION UNDER CAPITAL LEASE,
net of current portion shown above 126,535 146,648
------------ ------------
MINORITY INTERESTS 4,962 4,962
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
10% convertible preferred stock, Series A,
$10 par value, 500,000 shares authorized,
40,000 shares \issued and outstanding at
September 30, 2001 and December 31, 2000 400,000 400,000
10% convertible preferred stock, Series B,
$10 par value, 100,000 shares authorized,
no shares issued and outstanding at
September 30, 2001 and December 31, 2000 - -
10% convertible preferred stock, Series C,
$10 par value, 6,000 shares authorized,
6,000 shares issued and outstanding at
September 30, 2001 and December 31, 2000 60,000 60,000
10% convertible preferred stock, Series D,
$10 par value, 80,000 shares authorized,
no shares issued and outstanding at
September 30, 2001 and December 31, 2000 - -
Common stock, $.001 par value, 25,000,000
shares authorized; 5,357,121 and 4,915,621
shares issued and outstanding as of
September 30, 2001 and December 31, 2000,
respectively 5,357 4,916
Additional paid-in capital 5,169,879 5,106,595
Accumulated deficit (5,223,239) (5,012,806)
------------ ------------
Total stockholders' equity 411,997 558,705
------------ ------------
$ 1,995,618 $ 2,717,991
============ ============
See accompanying notes to financial statements.
5
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Beverage and food sales $ 409,256 $ 744,057 $ 1,797,795 2,561,016
Admission fees 57,320 169,626 244,772 685,915
Gain on sale of assets - - 675,234 -
Other income 71,326 169,783 232,378 351,160
----------- ------------ ------------ ----------
537,902 1,083,466 2,950,179 3,598,091
----------- ------------ ------------ ----------
COSTS AND EXPENSES:
Cost of products
and services 564,710 936,498 2,257,697 3,077,791
General and administrative
expense 83,885 175,679 332,571 485,908
Depreciation and
amortization 54,382 98,702 187,938 237,136
Interest expense 11,440 26,515 85,914 91,238
----------- ------------ ------------ ----------
714,417 1,237,394 2,864,120 3,892,073
----------- ------------ ------------ ----------
INCOME (LOSS) BEFORE INCOME
TAXES (176,515) (153,928) 86,059 (293,982)
PROVISION (BENEFIT) FOR
INCOME TAXES - (56,953) (100,000) (108,773)
CHANGE IN VALUATION
ALLOWANCE - 56,953 - 108,773
----------- ------------ ------------ ----------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (176,515) (153,928) (13,941) (293,982)
LOSS ON DISCONTINUED
OPERATIONS (64,300) (514,872) (196,492) (766,402)
----------- ------------ ------------ ----------
NET INCOME (LOSS)
BEFORE DIVIDEND (240,815) (668,800) (210,433) (1,060,384)
PREFERRED STOCK DIVIDENDS - (15,500) - (15,500)
----------- ------------ ------------ ----------
NET INCOME (LOSS)
APPLICABLE TO COMMON
STOCK (240,815) (684,300) (210,433) (1,075,884)
OTHER COMPREHENSIVE LOSS:
Unrealized losses on
securities - (50,000) - (50,000)
----------- ------------ ------------ ----------
COMPREHENSIVE INCOME
(LOSS) $ (240,815) $ (734,300) $ (210,433) $1,125,884)
=========== ============ ============ ==========
BASIC EARNINGS PER SHARE $ (0.04) $ (0.15) $ (0.04) $ (0.24)
=========== ============ ============ ==========
DILUTED EARNINGS PER SHARE N/A N/A N/A N/A
=========== ============ ============ ==========
AVERAGE COMMON AND COMMON
EQUIVALENT:
BASIC SHARES 5,357,121 4,482,003 5,142,414 4,425,987
=========== ============ ============ ==========
See accompanying notes to financial statements.
6
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND FOR THE YEAR ENDED
DECEMBER 31, 2000
Series A Series B Series C Series D
10% Convertible 10% Convertible 10% Convertible 10% Convertible Common
Preferred Stock Preferred Stock Preferred Stock Preferred Stock Stock
Value Value Value Value 0.001 Additional Total
of of of of par Paid-In Accumulated Stockholders'
Shares Shares Shares Shares Value (1) Capital (1) Deficit Equity
--------------------------------------------------------------------------------------------------------------------
Balance,
December
31, 1999 $ 400,000 $ - $ - $ - $ 4,236 $4,754,851 $(3,427,127) $ 1,731,960
Exercise of
stock options - - - - 170 127,254 - 127,424
Preferred Stock
issued - - 60,000 - - - - 60,000
Common stock
issued to
purchase
interest
in Boots, Inc. - - - - 200 149,800 - 150,000
Common stock
issued for
cash - - - - 310 74,690 - 75,000
Net loss for
the twelve
months ended
December 31,
2000 - - - - - - (1,585,679) (1,585,679)
--------------------------------------------------------------------------------------------------------------------
Balance,
December 31,
2000 400,000 - 60,000 - 4,916 5,106,595 (5,012,806) 558,705
Share adjustment
on Boots, Inc.
acquisition - - - - 100 (100) - -
Issuance of
stock for
services
rendered - - - - 91 13,634 - 13,725
Common stock
issued in
conversion of
Rockwell, LLC
note payable to
equity - - - - 250 49,750 - 50,000
Net income for
the nine months
ended September
30, 2001 - - - - - - (210,433) (210,433)
--------------------------------------------------------------------------------------------------------------------
Balance,
September
30, 2001 $ 400,000 $ - $ 60,000 $ - $ 5,357 $5,169,879 $(5,223,239) $ 411,997
=================================================================================================================
See accompanying notes to financial statements.
7
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Page 1 of 2
2001 2000
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before discontinued
operations $ (13,941) $ (309,482)
Net income (loss) from discontinued operations (196,492) (766,402)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 187,938 374,934
Impairment write down - 208,329
Gain on sale of assets (675,234) -
Bad debt provision 100,000 -
Deferred income tax expense (benefit) 100,000 -
Other (7,608) -
Minority interests in earnings of subsidiaries - -
Changes in assets (increase) decrease - -
Accounts and minimum lease payments receivable (21,007) 66,664
Due from related parties (14,479) 117,683
Inventories 20,440 18,441
Prepaid expenses 52,504 5,878
Deposits and other assets - 119,293
Changes in liabilities increase (decrease) -
Accounts payable (70,989) 36,111
Accrued expenses (36,886) 22,201
Dividends payable - 15,500
---------- -----------
Net cash (used in)
operating activities (575,754) (90,850)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of property and equipment-net
of expenses 1,098,965 -
Sale of investments - 25,000
Collections of notes receivable 13,080 -
Loan advances (33,645) -
Acquisition of property and equipment (75,259) (431,827)
---------- -----------
Net cash provided by (used in)
investing activities 1,003,141 (406,827)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority interest investments in LLC's - (79,694)
Sale of common stock - 152,424
Sale of preferred stock - 60,000
Borrowings under notes payable and
capital leases 40,007 260,396
Repayments of notes payable and capital
leases (497,217) (45,971)
---------- -----------
Net cash provided by financing activities (457,210) 347,155
---------- -----------
NET (DECREASE) INCREASE IN CASH (29,823) (150,522)
CASH, BEGINNING OF PERIOD 78,925 172,622
---------- -----------
CASH, END OF PERIOD $ 49,102 $ 22,100
========== ===========
See accompanying notes to financial statements.
8
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Page 2 of 2
2001 2000
(Unaudited) (Unaudited)
-----------
2001 2000
(Unaudited) (Unaudited)
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for interest $ 71,638 $ 91,238
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During January 2001, the Company issued 91,500 shares of common stock for public
relations services to be rendered. This transaction was valued at $13,725.
During January 2001, the Company issued an additional 100,000 shares of its
common stock to complete the exchange for the 20% interest in Incahoots, Ltd.
not owned by the Company. This transaction resulted in a reduction of additional
paid-in capital of $100.
During June 2001, the Company issued 250,000 shares of common stock in
conversion of a $50,000 note payable to equity.
During May 2001, the Company leased the furniture and equipment from its Houston
location to a third party. This transaction was treated as a capital lease for
financial reporting purposes with no gain or loss recognized. The Company's
$120,000 basis in this equipment was reclassified as minimum lease payments
receivable.
See accompanying notes to financial statements.
9
ATOMIC BURRITO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - GENERAL
In the opinion of Atomic Burrito, Inc. (the "Company"), the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the Company's
financial position as of September 30, 2001 and the results of its operations
and cash flows for the three and nine months ended September 30, 2001 and 2000.
These statements are condensed and, therefore, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements should be read in conjunction
with the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10KSB for the year ended December 31, 2000. The
results of operations for the three and nine months ended September 30, 2001 and
2000 are not necessarily indicative of the results to be expected for the full
year.
Operating results were reclassified for 2000 to segregate the discontinued
operations of the Atomic Burrito Restaurants from continuing operations.
Note 2 - MINIMUM LEASE PAYMENTS RECEIVABLE
On May 15, 2001, the Company entered into a lease agreement with AB of
Tulsa-II, LLC (Lessee) to sell the furniture equipment and signage previously
used by the Company in the discontinued operations of the Houston, TX, Atomic
Burrito restaurant. The lease agreement provides for a monthly payment of $1,250
through June, 2011 and requires the Lessee to pay any and all property taxes and
to provide insurance on the property throughout the term of the lease. At the
end of the lease, the Lessee has the option to purchase the property at current
market value.
Net investment in sales-type lease as of September 30, 2001, is as follows:
Minimum future lease payments
Current portion $ 9,746
Long-term portion 108,673
---------
118,419
Unearned interest income 29,081
---------
$ 147,500
=========
Minimum future lease payments receivable include the following:
2001 $ 4,006
2002 9,934
2003 10,402
2004 10,892
2005 11,404
Thereafter 71,781
---------
$ 118,419
=========
Note 3- NOTES RECEIVABLE
The Company had the following notes receivable at September 30, 2001:
9% note receivable due from a
corporation, due October 2005 $ 75,000
9% note receivable due from a
corporation, due October 2005 150,000
9% note receivable due from a
corporation, due October 2005 160,000
9% note receivable due from a
corporation, due October 2005 33,646
8% note receivable due from
an individual, payable in monthly
installments of $3,536, including
interest, due September 2007 357,712
----------
776,358
10
Less: Reserve for doubtful
collectibility (450,000)
----------
Total, net of reserve for collectibility 326,358
Less: Current portion (27,036)
----------
Long-term portion $ 299,322
==========
10
Note 4 - NOTES RECEIVABLE FROM AFFILIATES
The Company had the following notes receivable due from affiliates as
of September 30, 2001:
6% note receivable due from a
corporation in March 2001 $ 44,801
6% note receivable due from
a corporation in April 2002 50,000
8% note receivable due from a
corporation in April 2001 480,000
---------
Total notes receivable - affiliates $ 574,801
=========
As approved by the Board of Directors, interest income on these notes
has been waived through April, 2003, contingent upon the continued
waiver of dividends on the 40,000 shares of 10% convertible series A
preferred stock held by the affiliate. Through a plan approved by the
Board of Directors, the Company offset a note payable of $35,000 and
Other accounts payable of $20,199 against notes receivable from the
affiliate during the second quarter of 2001. This plan also includes an
agreement to pay at least 5% of the principle balance on the $480,000
receivable note annually beginning in 2002 until maturity.
Note 5 - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2001, include the following:
Leasehold and other improvements $1,499,214
Restaurant and club equipment 336,855
Furniture and fixtures 206,623
Signage 65,378
----------
2,108,070
Less accumulated depreciation (1,467,510)
----------
Total property and equipment $ 640,560
==========
11
Note 6 - DISCONTINUED OPERATIONS
On August 30, 2000, the Company announced its intentions to discontinue
its Atomic Burrito Restaurant operations. Accordingly the following
sales occurred prior to December 31, 2000:
(1)The Company president resigned and formed Three B's Restaurant Group,
Inc.(Three B's), which bought from the Company its subsidiary
company, which held the restaurant concept, Atomic Development,
Inc.(Development) and two companies which held the majority interest
in two restaurant locations, AB of Tulsa-I, L.L.C.(Tulsa) and AB of
Wichita-I, L.L.C.(Wichita) for $425,000 on November 30, 2000. Three
B's acquired the leases for the two restaurant locations and all
assets and liabilities of the entities sold. However, the Company was
required to reduce accounts payable of Tulsa by $40,000 and loan
Wichita $40,000 which is to be repaid beginning May 30, 2001 at an
interest rate of 9% per annum with a first payment of $4,000 and $550
monthly thereafter until October 31, 2005 with the remaining balance
being due at that time. At June 30, 2001, $32,146 had been advanced
on the note.
Three B's issued three notes as consideration for the sale of the
above mentioned entities, as follows: Development - $75,000, Tulsa -
$160,000 and Wichita - $150,000. All notes bear interest at a rate of
9% per annum, have monthly payments scheduled to commence June 1,
2001 with final payment due on October 31, 2005. The notes are
collateralized by all of the assets of the entities acquired by Three
B's with requirements of the Company to provide satisfaction on
certain liabilities of the entities sold to Three B's. In connection
with this transaction, the Company has provided for a reserve of
$177,000 to cover future possible losses which could arise from
disputes resulting in adjustments in amounts paid on the notes
receivable.
(2)The Company sold its Norman restaurant location to Atomic Restaurant
Group, L.L.C. (ARG) on September 15, 2000. The sales price was a
$370,000 note payable in installments at 8% beginning November 15,
2000 for $3,535.91 until paid in full on September 15, 2007. The
Company also sold all its assets at the Norman location but was
still liable for the liabilities in the AB of Norman-I, L.L.C.
entity, which included the obligations on the Norman location
equipment. As of September 30, 2001, no payments have been made on
this note. The Company has provided a $273,000 reserve to cover
future possible losses, which could arise from disputes resulting in
adjustments in amounts paid on the note receivable.
The Houston and Oklahoma City locations ceased operations and the
equipment at the Houston location was written down to $120,000. The
Company in May 2001 entered into a lease agreement with Three B's to
purchase the equipment from the Houston location, which is being used in
a new restaurant location recently opened in Tulsa. Property and
equipment from the Oklahoma City location valued at approximately
$146,000 by the Company, has been moved to a storage facility in Tulsa.
According to Company management, Three B's has agreed to lease the
equipment for use in a third restaurant location in Tulsa currently in
development. All leasehold improvements at the Oklahoma City location
reverted to the landlord of the property under mutual agreement to
cancel the remaining term of the lease.
12
Note 7 - SALE OF WICHITA CLUB
On March 7, 2001, the Company agreed to the sale of its nightclub
business in Wichita, Kansas for $1,200,000 in cash. The sale included
the equipment and improvements, the lease, permits and licenses at this
location, together with certain other assets at this location. The
Company closed on this sale on April 11, 2001, realizing a gain of
approximately $675,000 in connection with this transaction.
13
PART 1 - Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-QSB under "Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
"Part II, Item 1. Legal Proceedings" and elsewhere constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other facts which may cause the actual results,
performance or achievements of Atomic Burrito, Inc. (the "Company") and its
subsidiaries and affiliated partnerships to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; competition; success of operating
initiatives; development and operating costs; advertising and promotional
efforts; adverse publicity; customer appeal and loyalty; availability, locations
and terms of sites for nightclub development; changes in business strategy or
development plans; quality of management; availability, terms and development of
capital; business abilities and judgment of personnel; availability of qualified
personnel; food, labor and employee benefit costs; changes in, or the failure to
comply with government regulations; regional weather conditions; construction
schedules; and other factors referenced in the Form 10-QSB. The use in this Form
10-QSB of such words as "believes", "anticipates", "expects", "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. The success of the
Company is dependent on the efforts of the Company and its management and
personnel and the manner in which they operate and develop stores.
General
The Company owns and operates a western nightclub located in St Louis, Missouri.
During April, 2001 the Company sold its western nightclub located in Wichita,
Kansas.
In June 1998, the Company formed a subsidiary corporation, Atomic Burrito, Inc.,
through which to develop a new restaurant concept. Subsequently, Atomic
Burrito, Inc. entered into license agreements for two "Atomic Burrito"
restaurants to be located in Stillwater and Norman, Oklahoma, and entered into a
third license agreement for a restaurant in Longview, Washington. In addition,
in October 1998, the Company entered into a joint venture agreement with New
York Bagel Enterprises, Inc., ("New York Bagel") for the joint development of
"Atomic Burrito" restaurants. The agreement provides for New York Bagel to
contribute certain of its restaurant locations, including leases, leasehold
improvements, and equipment for a 40% interest in the operation, while the
Company would contribute up to $150,000 for the remodel and conversion costs, as
well as for additional equipment. The first unit opened in March 1999 in
Tulsa, Oklahoma, while the second unit opened in April 1999 in Wichita, Kansas.
14
In September 1999, the Company and New York Bagel agreed to terminate the joint
venture agreement as it related to additional development, and New York Bagel
agreed to sell its interest in the two operations in Tulsa and Wichita to the
Company. New York Bagel's stated reasons for the termination were the lack of
expansion capital on the part of either of the parties, and their desire to
move in a different direction. Subsequently, New York Bagel filed for
protection under Chapter 13 of the Federal Bankruptcy Statutes. The Company
did not exercise its option to purchase New York Bagel's interest in these
restaurants and as described below, subsequently sold its interest in these
operations to its former president.
In December, 1999, the original licensees who had previously opened Atomic
Burrito units in Stillwater and Norman, Oklahoma, approached the Company with a
plan to sell their Norman restaurant to the Company. They had previously closed
their Stillwater restaurant and were in the process of expanding their other
restaurant and brew pub operations in both Oklahoma and Texas. Thereafter, the
Company entered into an agreement, effective December 31, 1999, to purchase the
Norman restaurant from the licensee for the issuance of 360,000 (valued at
$270,000) shares of the Company's common stock as well as the assumption of
certain liabilities totaling $60,967, giving the transaction a total value of
$330,967.
During September, 1999, the Company opened an Atomic Burrito restaurant in
Houston, Texas in which it owned a 50% interest.
During February, 2000, the Company opened an Atomic Burrito restaurant in
Oklahoma City in which it owned a 100% interest.
During September, 2000, The Company's Board of Directors decided to discontinue
its efforts to develop and expand the Atomic Burrito Restaurant concept.
In September 2000, the Company sold the property, equipment, and leasehold
improvements in its Norman Atomic Burrito restaurant to an LLC in which one of
the principals is a former Company employee. In connection with the sale of
these assets, the LLC agreed to sublease land and building associated with this
restaurant. This property was sold in exchange for a $370,000 8% note
receivable.
In November 2000, the Company sold its interest in the Tulsa and Wichita Atomic
Burrito restaurant operations to a company controlled by the Company's former
president for $180,000 and $170,000 respectively. The sale was consummated with
a $40,000 down payment and the issuance of 8% notes receivable in the amounts of
$160,000 for the Tulsa operations and $150,000 for the Wichita operations.
Also in November the Company sold its stock in Atomic Development, Inc., a
wholly owned subsidiary established to oversee the development and franchise of
the Atomic Burrito concept, for $75,000, to the same company that purchased the
Tulsa and Wichita Atomic Burrito restaurants.
15
At December 31, 2000, the Company recorded an allowance for bad debts in the
amount of $350,000 associated with the above described notes. This charge was
taken to the loss on discontinued operations for financial reporting purposes.
At June 30, 2001, the Company added an additional $50,000 to this allowance for
bad debts.
In September, 2000, the Company closed its Houston Atomic Burrito location. The
leasehold improvements on this location were forfeited to the landlord in
release from any future lease obligations. During May 2001 the Company entered
into a lease agreement to lease the furniture and fixtures from the location to
a third party. Terms for the lease call for lease payments of $1,250 per month
over the 10 year term of the lease.
In September, 2000, the Company closed its Oklahoma City Atomic Burrito location
and is currently seeking a buyer to take over this location and assume the
lease. As of June 30, 2000, the Company has reduced the carrying value of these
assets by $200,000 to reflect the anticipated loss on ultimate disposition. As
of June 30, 2001, the Company has placed the furniture and fixtures from this
location in storage and returned the property to the landlord. Management
believes it will be able to recover its remaining basis of $146,421 in this
equipment by either selling or leasing this equipment to third parties.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash of $49,102. This amount
represented a decrease of $29,823 or 38% from cash at December 31, 2000. The
decrease in cash from year-end reflects proceeds from the sale of the Wichita
nightclub offset in part by a $575,665 reduction in liabilities and current
operating losses from operating activities of $13,941 and the loss from
discontinued operations of $196,492.
As of September 30, 2001, the Company's working capital position (current assets
minus current liabilities) was a negative $(724,373) compared to a negative
$(1,287,457) at December 31, 2000. The increase in working capital of $563,084
was due primarily to a $445,476 reduction in notes payable combined with a
$107,875 reduction in accounts payable and accrued liabilities. This
significant improvement in the Company's working capital position is a result of
the sale of the Wichita nightclub.
Property and equipment is made up primarily of assets required to operate the
St. Louis nightclub and certain restaurant equipment which the Company is either
leasing or attempting to dispose of. Property and equipment decreased by
$792,725 during the nine months ended September 30, 2001. This decrease was due
primarily to the sale of the Wichita nightclub.
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The deferred income tax asset of $100,000 reflected on the books at December
31, 2000 was utilized for financial reporting purposes during the nine months
ended September 30, 2001 to offset the tax liability associated with the gain on
the sale of the Wichita nightclub. At September 30, 2001 the Company had
approximately $2,800,000 in deferred tax assets which were fully reserved and
not reflected on the Company's balance sheet at that date. At December 31, 2000
the Company had approximately $4,400,000 in net operating losses which will
expire commencing in 2013 if not utilized.
On April 10, 2001, the Company sold its Wichita, Kansas night club operations
for $1,200,000. This sale resulted in a gain of $675,234 and provided cash
$1,032,250 to pay down existing debts and to finance future expansions of the
night club operations.
During the nine months ended September 30, 2001, notes receivable from an
affiliated Company were reduced by $55,199, leaving notes outstanding at
September 30, 2001 to this affiliate in the amount of $574,801. No interest has
been received or accrued on these notes, as the affiliate has waived its rights
to receive preferred stock dividends.
During the nine months ended September 30, 2001, notes payable totaling $50,000
were converted to 250,000 shares of the Company's common stock.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2001 and 2000
During the quarter ended September 30, 2001 the Company experienced a net loss
of $(240,815) as compared to a loss of $(668,800) for the quarter ended
September 30, 2000. The following analysis explains this change:
Food and Beverage Sales - During the three months ended September 30, 2001, food
and beverage sales decreased by 45% or $334,801 from $744,057 during 2000 to
$409,256 during 2001. This decrease is due primarily to the sale of the Wichita
nightclub on April 10, 2001.
Admissions Fees - During the three months ended September 30, 2001, admission
fees decreased by 66% or $112,306 from $169,626 in 2000 to $57,320 in 2001. This
decrease was due in part to the sale of the Wichita nightclub on April 10, 2001
and in part to the Company's policy of giving admissions fees to live
entertainment in lieu of paying booking fees to these entertainers.
Other Income - Other income decreased by 58% or $98,457 from $169,783 during the
quarter ended September 30, 2000 to $71,326 during the quarter ended September
30, 2001. This decrease was due primarily to the sale of the Wichita nightclub.
Cost of Products and Services - Cost of products and services decreased by 40%
or $371,788 from $936,498 in the quarter ended September 30, 2000 to $564,710
during the quarter ended September 30, 2001. This decrease was due primarily to
the sale of the Wichita nightclub.
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General and Administrative Expenses - General and administrative expenses
decreased by 52% or $91,794 from $175,679 in the quarter ended September 30,
2000 to $83,885 during the quarter ended September 30, 2001. This decrease is
attributable to management's efforts to reduce administrative salaries and other
administrative costs as operating activities have been reduced.
Depreciation Expense - Depreciation expense decreased by 45% or $44,320 from
$98,702 during the quarter ended September 30, 2000 to $54,382 during the
quarter ended September 30, 2001. This decrease results primarily from the sale
of the Wichita nightclub.
Interest Expense - Interest expense decreased by 57% or $15,075 from $26,515
during the quarter ended September 30, 2000 to $11,440 during the quarter ended
September 30, 2001. This decrease is due primarily to reductions in debt
occurring subsequent to the sale of the Wichita nightclub.
Loss From Discontinued Operations - Losses from discontinued operations totaled
$64,300 for the quarter ended September 30, 2001 as compared to losses of
$514,872 for the comparable period in 2000. During 2000 this loss represents
the net loss incurred by Atomic Burrito restaurants which were being operated at
that time. The loss for the quarter ended September 30, 2001 includes an
additional $50,000 provision for bad debts associated with the notes receivable
received in consideration for the sale of certain restaurant operations along
with certain expenses incurred on the Oklahoma City and Norman locations.
Comparison of the Nine Months Ended September 30, 2001 and 2000.
During the nine months ended September 30, 2001 the Company experienced a net
loss of $(210,433) as compared to a net loss of $(1,060,384) for the nine months
ended September 30, 2000. The following analysis explains this change:
Food and Beverage Sales - During the nine months ended September 30, 2001, food
and beverage sales decreased by 30% or $763,221 from $2,561,016 during 2000 to
$1,797,795 during 2001. This decrease is due primarily to the sale of the
Wichita nightclub on April 10, 2001.
Admissions Fees - During the nine months ended September 30, 2001, admission
fees decrease by 64% or $441,143 from $685,915 in 2000 to $244,772 in 2001. This
decrease was due in part to the sale of the Wichita nightclub on April 10, 2001
and in part to the Company's policy of giving admissions fees to live
entertainment in lieu of paying booking fees to these entertainers.
Gain on Sale of Assets - During the nine months ended September 30, 2001, the
Company recognized a $675,234 gain on the sale of the Wichita nightclub.
Other Income - Other income decreased by 34% or $118,782 from $351,160 during
the nine months ended September 30, 2000 to $232,378 during the nine months
ended September 30, 2001. This decrease was due primarily to the sale of the
Wichita nightclub.
Cost of Products and Services - Cost of products and services decreased by 27%
or $820,194 from $3,077,791 in the nine months ended September 30, 2000 to
$2,257,697 during the nine months ended September 30, 2001. This decrease was
due primarily to the sale of the Wichita nightclub.
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General and Administrative Expenses - General and administrative expenses
decreased by 32% or $153,337 from $485,908 for the nine months ended September
30, 2000 to $332,571 for the nine months ended September 30, 2001. This decrease
is attributable to management's efforts to reduce administrative salaries and
other administrative costs as operating activities have been reduced.
Depreciation Expense - Depreciation expense decreased by 21% or $49,198 from
$237,136 during the nine months ended September 30, 2000 to $187,938 during the
nine months ended September 30, 2001. This decrease results primarily from the
sale of the Wichita nightclub.
Interest Expense - Interest expense decreased by 6% or $5,324 from $91,238
during the nine months ended September 30, 2000 to $85,914 during the nine
months ended September 30, 2001.
Income Tax Expense - During the nine months ended September 30, 2001 the Company
recognized $100,000 in income tax expense reflecting the utilization of its
deferred tax asset in the amount of $100,000 to offset gains associated with the
sale of the Wichita nightclub.
Loss From Discontinued Operations - Losses from discontinued operations totaled
$196,492 for nine months ended September 30, 2001 as compared to losses of
$766,402 for the comparable period in 2000. During 2000 this loss represents
the net loss incurred by Atomic Burrito restaurants which were being operated at
that time. The loss for the nine months ended September 30, 2001 includes an
additional $100,000 provision for bad debts associated with certain notes
receivable received in consideration for the sale of certain restaurant
operations along with certain expenses incurred on the Oklahoma City and Norman
locations.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Special Note: Certain statements set forth below under this caption constitute
forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward Looking Statements" for additional factors relating to
such statements.
The Company is involved in various legal actions associated with the normal
conduct of its business operations. No such actions involve known material gain
or loss contingencies not reflected in the consolidated financial statements of
the Company.
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Item 4 - Submission of Matters to a Vote of Security Holders
During the third quarter of 2001, the Company did not submit any matter to a
vote of its shareholders.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
No reports 8-K were filed during the quarter ended September 30, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
November 19, 2001 Atomic Burrito, Inc.
By:/s/Don W. Grimmett
---------------------------------
Don W. Grimmett, President
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