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 June 30, 2001
Commission File Number: 0-24058
ATOMIC BURRITO, INC.
(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
(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 August 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 - June 30, 2001 (unaudited)
and December 31, 2000 4-5
Consolidated Statements of Income (unaudited) -
For the Three and Six Months Ended
June 30, 2001 and 2000 6
Consolidated Statements of Stockholders'
Equity (unaudited) - For the Six Months
Ended June 30, 2001 and the Year Ended
December 31, 2000 7
Consolidated Statements of Cash Flows (unaudited) -
For the Six Months Ended June 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 2 Exhibits and Reports on Form 8-K 20
2
ATOMIC BURRITO, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
June 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 SHEET
JUNE 30, 2001 AND DECEMBER 31, 2000
PAGE 1 OF 2
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 156,068 $ 78,925
Accrued interest receivable 28,975 1,918
Accounts receivable - other 13,545 9,514
Current portion of notes receivable 27,036 37,266
Current portion of minimum lease
payments receivable 9,671 -
Inventories 44,911 61,815
Prepaid expenses 36,553 64,169
Deferred income taxes - 100,000
----------- -----------
Total current assets 316,759 353,607
---------- ------------
PROPERTY AND EQUIPMENT 1,951,344 2,900,795
Accumulated depreciation (1,418,127) (1,901,884)
---------- ------------
533,217 998,911
---------- ------------
OTHER ASSETS:
Notes receivable from affiliate 574,801 630,000
Notes receivable, net of current portion
shown above, net of reserve of $400,000
and $350,000 at June 30, 2001 and
December 31, 2000 347,822 367,734
Long term portion of minimum lease payments
Receivable 109,540 -
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
June 30, 2001 and December 31, 2000 36,667 46,667
Deposits and other 62,938 62,938
Investments 57,400 177,400
---------- ------------
1,189,168 1,365,473
---------- ------------
$ 2,039,144 $ 2,717,991
========== ============
See accompanying notes to financial statements.
4
ATOMIC BURRITO, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2001 AND DECEMBER 31, 2000
PAGE 2 OF 2
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 415,561 $ 573,067
Accrued liabilities 116,213 196,010
Note payable - related party - 28,005
Current portion of long-term debt 308,901 798,290
Current portion of capital leases 42,802 45,692
----------- -----------
Total current liabilities 883,477 1,641,064
----------- -----------
LONG-TERM DEBT, NET OF CURRENT PORTION SHOWN ABOVE 367,409 366,612
----------- -----------
OBLIGATION UNDER CAPITAL LEASE,
net of current portion shown above 130,486 146,648
----------- -----------
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
June 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
June 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
June 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
June 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 June 30, 2001 and
December 31, 2000, respectively 5,357 4,916
Additional paid-in capital 5,169,879 5,106,595
Accumulated deficit (4,982,426) (5,012,806)
----------- -----------
Total stockholders' equity 652,810 558,705
----------- -----------
$ 2,039,144 $ 2,717,991
=========== ===========
See accompanying notes to financial statements.
5
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Beverage and food sales $ 474,200 $ 838,833 $ 1,388,538 $1,816,959
Admission fees 67,910 245,822 187,451 516,289
Gain on sale of assets 675,234 - 675,234 -
Other income 85,588 94,492 161,052 182,375
---------- ---------- ----------- ----------
1,302,932 1,179,147 2,412,275 2,515,623
---------- ---------- ----------- ----------
COSTS AND EXPENSES:
Cost of products and services 604,914 1,035,914 1,692,987 2,141,293
General and
administrative expense 115,016 113,737 248,686 311,227
Depreciation and
amortization 79,718 91,273 133,556 138,434
Interest expense 33,558 39,019 74,474 64,722
---------- ---------- ----------- ----------
833,206 1,279,943 2,149,703 2,655,676
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTERESTS 469,726 (100,796) 262,572 (140,053)
INCOME TAX (EXPENSE) (100,000) - (100,000) -
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE
MINORITY INTERESTS 369,726 (100,796) 162,572 (140,053)
MINORITY INTERESTS IN (INCOME)
LOSS OF CONSOLIDATED
SUBSIDIARIES - 34,197 - 45,840
---------- ---------- ----------- ----------
NET INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS 369,726 (66,599) 162,572 (94,213)
LOSS ON DISCONTINUED
OPERATIONS (132,192) (189,653) (132,192) (297,371)
---------- ---------- ----------- -----------
NET INCOME (LOSS) 237,534 (256,252) 30,380 (391,584)
PREFERRED STOCK DIVIDENDS - - - -
---------- ---------- ----------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 237,534 $ (256,252) $ 30,380 $ (391,584)
========== ========== =========== ==========
BASIC EARNINGS PER SHARE $ 0.05 $ (0.06) $ 0.01 $ (0.09)
========== ========== =========== ==========
DILUTED EARNINGS PER SHARE N/A N/A N/A N/A
========== ========== =========== ==========
AVERAGE COMMON AND COMMON
EQUIVALENT:
BASIC SHARES 5,127,669 4,364,214 5,031,132 4,310,499
========== ========== ========== =========
See accompanying notes to financial statements.
6
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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
six months ended
June 30, 2001 - - - - - - 30,380 30,380
---------------------------------------------------------------------------------------------------------
Balance,
June 30, 2001 $ 400,000 $ - $ 60,000 $ - $ 5,357 $5,169,879 $(4,982,426) $ 652,810
=========================================================================================================
See accompanying notes to financial statements.
7
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
PAGE 1 OF 2
2001 2000
-----------
(Unaudited) (Unaudited)
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before discount operations $ 162,572 $ (94,212)
Net income (loss) from discounted operations (132,192) (297,371)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 133,556 220,554
Gain on sale of assets (675,234) -
Bad debt provision 50,000 -
Deferred income tax expense (benefit) 100,000 -
Other (7,906) -
Minority interests in earnings of subsidiaries - (45,840)
Changes in assets (increase) decrease -
Accounts and minimum lease payments receivable (26,268) 20,158
Due from related parties (4,031) -
Inventories 16,904 (8,948)
Prepaid expenses 41,341 (14,616)
Deposits and other assets - (11,934)
Changes in liabilities increase (decrease) -
Accounts payable (137,307) 162,673
Accrued expenses (79,797) 13,228
------------ ---------
Net cash (used in)operating activities (558,362) (56,308)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of property and equipment 1,098,965 -
Collections of notes receivable 12,288 -
Loan advances (32,145) -
Acquisition of property and equipment (859) (331,504)
------------ ---------
Net cash provided by (used in)
investing activities 1,078,249 (331,504)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions to minority interests - (2,500)
Sale of common stock - 124,424
Borrowings under notes payable and capital leases 40,007 370,877
Repayments of notes payable and capital leases (482,751) (102,760)
------------ ---------
Net cash provided by (used in)
financing activities (442,744) 390,041
------------ ---------
NET (DECREASE) INCREASE IN CASH 77,143 2,229
CASH, BEGINNING OF PERIOD 78,925 172,622
------------ ---------
CASH, END OF PERIOD $ 156,068 $ 174,851
============ =========
See accompanying notes to financial statements.
8
ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
PAGE 2 OF 2
2001 2000
-----------
(Unaudited) (Unaudited)
------------ ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 62,566 $ 77,914
============ =========
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 June 30, 2001 and the results of its operations and
cash flows for the three and six months ended June 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 six months ended June 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 June 30, 2001, is as follows:
Minimum future lease payments
Current portion $ 9,671
Long-term portion 109,540
---------
119,211
Unearned interest income 29,539
---------
$ 148,750
=========
Minimum future lease payments receivable include the following:
2001 $ 4,798
2002 9,934
2003 10,402
2004 10,892
2005 11,404
Thereafter 71,781
---------
$ 119,211
=========
Note 3- NOTES RECEIVABLE
The Company had the following notes receivable at June 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 32,146
8% note receivable due from
an individual, payable in monthly
installments of $3,536, including
interest, due September 2007 357,712
----------
774,858
Less: Reserve for doubtful
collectibility (400,000)
----------
Total, net of reserve for collectibility 374,858
Less: Current portion (27,036)
----------
Long-term portion $ 347,822
==========
10
Note 4 - NOTES RECEIVABLE FROM AFFILIATES
The Company had the following notes receivable due from affiliates as
of March 31, 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 June 30, 2001, include the following:
Leasehold and other improvements $1,345,065
Restaurant and club equipment 333,420
Furniture and fixtures 207,481
Signage 65,378
----------
1,951,344
Less accumulated depreciation (1,418,127)
----------
Total property and equipment $ 533,217
==========
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
$127,000 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 June 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 has been written down to $120,000.
The Company has 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 "Item 1. Description of Business",
"Item 3. Legal Proceedings", "Item 6. Management's Discussion and Analysis" 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-KSB 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
14
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.
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 or 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 on 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, 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
15
the Atomic Burrito concept, for $75,000, to the same company that purchased the
Tulsa and Wichita Atomic Burrito restaurants.
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 losses 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, 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 June 30, 2001, the Company had cash of $156,068. This amount represented
an increase of $77,143 or 98% from cash at December 31, 2000. The increase in
cash from year-end reflects proceeds from the sale of the Wichita nightclub
offset in part by a $772,952 reduction in liabilities and current operating
losses from operating activities of $205,969 and the loss from discontinued
operations of $132,192.
As of June 30, 2001, the Company's working capital position (current assets
minus current liabilities) was a negative $(566,159) compared to a negative
$(1,287,457) at December 31, 2000. The increase in working capital of $721,298
was due primarily to a $517,394 reduction in notes payable combined with a
$237,303 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
$776,541 during the six months ended June 30, 2001. This decrease was due
primarily to the sale of the Wichita nightclub.
The deferred income tax asset of $100,000 reflected on the books at December
31, 2000 was utilized for financial reporting purposes during the six months
ended June 30, 2001 to offset the tax liability associated with the gain on the
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sale of the Wichita nightclub. At June 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 quarter ended June 30, 2001, notes receivable from an affiliated
Company were reduced by $55,199, leaving notes outstanding at June 30, 2001 to
this affiliate in the amount of $574,801. No interest have been received or
accrued on these notes, as the affiliate has waiver its rights to receive
preferred stock dividends.
During the period ended June 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 June 30, 2001 and 2000
During the quarter ended June 30, 2001 the Company enjoyed net income of
$237,534 as compared to a loss of ($256,252) for the quarter ended June 30,
2000. The following analysis explains this change:
Food and Beverage Sales - During the three months ended June 20, 2001, food and
beverage sales decreased by 43% or $364,633 from $838,833 during 2000 to
$474,200 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 June 30, 2001, Admission fees
decrease by 72% or 177,912 from $245,822 in 2000 to $67,910 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 three months ended June 30, 2001, the
Company recognized a $675,234 gain on the sale of the Wichita night club.
Other Income - Other income decreased by 10% or $9,365 from $94,492 during the
quarter ended June 30, 2000 to $85,127 during the quarter ended June 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 42%
or $431,000 from $1,035,914 in the quarter ended June 30, 2000 to $604,914
during the quarter ended June 30, 2001. This decrease was due primarily to the
sale of the Wichita nightclub.
General and Administrative Expenses - General and administrative expenses
remained at approximately the same level for the three months ended June 30,
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2001 as compared to June 30, 2000 at $115,016 and $113,737 respectively.
Depreciation Expense - Depreciation expense decreased by 13% or $11,555 from
$91,273 during the quarter ended June 30, 2000 to $79,718 during the quarter
ended June 30, 2001. This decrease results primarily from the sale of the
Wichita night club.
Interest Expense - Interest expense decreased by 14% or $5,461 from $39,019
during the quarter ended June 30, 2000 to $33,558 during the quarter ended June
30, 2001. This decrease is due primarily to reductions in debt occurring
subsequent to the sale of the Wichita nightclub.
Income Tax Expense - During the quarter ended June 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
$132,192 for the quarter ended June 30, 2001 as compared to losses of $189,653
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 June 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 Six Months Ended June 30, 2001 and 2000.
During the six months ended June 30, 2001 the Company enjoyed net income of
$30,380 as compared to a loss of ($391,584) for the six months ended June 30,
2000. The following analysis explains this change:
Food and Beverage Sales - During the six months ended June 20, 2001, food and
beverage sales decreased by 23% or $428,421 from $1,816,959 during 2000 to
$1,388,538 during 2001. This decrease is due primarily to the sale of the
Wichita nightclub on April 10, 2001.
Admissions Fees - During the six months ended June 30, 2001, Admission fees
decrease by 64% or $328,838 from $516,289 in 2000 to $187,451 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 six months ended June 30, 2001, the Company
recognized a $675,234 gain on the sale of the Wichita night club.
Other Income - Other income decreased by 12% or $21,323 from $182,375 during the
six months ended June 30, 2000 to $161,052 during the six months ended June 30,
2001. This decrease was due primarily to the sale of the Wichita nightclub.
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Cost of Products and Services - Cost of products and services decreased by 21%
or $448,306 from $2,141,293 in the six months ended June 30, 2000 to $1,692,987
during the six months ended June 30, 2001. This decrease was due primarily to
the sale of the Wichita nightclub.
General and Administrative Expenses - General and administrative expenses
decreased by 20% or $62,541 from $311,227 for the six months ended June 30, 2000
to $246,686 for the six months ended June 30, 2001. This decrease is
attributable to managements efforts to reduce administrative salaries and other
administrative costs as operating activities have been reduced.
Depreciation Expense - Depreciation expense decreased by 4% or $4,878 from
$138,434 during the six months ended June 30, 2000 to $133,556 during the six
months ended June 30, 2001. This decrease results primarily from the sale of
the Wichita night club.
Interest Expense - Interest expense increased by 15% or $9,752 from $64,722
during the six months ended June 30, 2000 to $74,474 during the six months ended
June 30, 2001.
Income Tax Expense - During the six months ended June 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
$132,192 for six months ended June 30, 2001 as compared to losses of $297,371
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 six months ended June 30, 2001 includes an additional
$50,000 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.
Item 4 - Submission of Matters to a Vote of Security Holders
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During the second 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 June 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.
August 14, 2001 Atomic Burrito, Inc.
By:/s/ Don W. Grimmett
------------------------
Don W. Grimmett, President
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