-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JCH1kuBcgOLWjXPWSdnlRyGIEIOs6gdwtC2coI0atYC7LvrjBCeA5949JRqgKEwl T5Ztj1okV3lW40Cedr5hZw== 0000930661-01-000406.txt : 20010223 0000930661-01-000406.hdr.sgml : 20010223 ACCESSION NUMBER: 0000930661-01-000406 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANCHOS MEXICAN BUFFET INC /DE CENTRAL INDEX KEY: 0000075929 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 751292166 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04678 FILM NUMBER: 1540050 BUSINESS ADDRESS: STREET 1: 3500 NOBLE AVENUE CITY: FORT WORTH STATE: TX ZIP: 76111-0407 BUSINESS PHONE: 8178310081 MAIL ADDRESS: STREET 1: PO BOX 7407 CITY: FT WORTH STATE: TX ZIP: 76111-0407 FORMER COMPANY: FORMER CONFORMED NAME: PAMEX FOODS INC DATE OF NAME CHANGE: 19820811 FORMER COMPANY: FORMER CONFORMED NAME: PANCHOS MEXICAN BUFFET INC DATE OF NAME CHANGE: 19720519 10-Q 1 0001.txt FORM 10-Q (QE 12-31-2000) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission File No. 0-04678 Pancho's Mexican Buffet, Inc. (Exact name of registrant as specified in its charter) DELAWARE 75-1292166 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3500 Noble Avenue, Fort Worth, Texas 76111 (Address of principal executive offices) (Zip Code) 817-831-0081 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 --- Number of shares of Common Stock outstanding as of January 31, 2001: 1,477,119. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES INDEX
Page No. -------- Part I. Financial Information Item 1. Financial Statements: Introduction 1 Consolidated Condensed Balance Sheets, December 31, 2000 and September 30, 2000 2 Consolidated Condensed Statements of Operations for the Three Months Ended December 31, 2000 and 1999 3 Consolidated Condensed Statements of Cash Flows for the Three Months Ended December 31, 2000 and 1999 4 Notes to Consolidated Condensed Financial Statements 5 Independent Accountants' Review Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 1. Legal Proceedings (no response required) Item 2. Changes in Securities (no response required) Item 3. Defaults Upon Senior Securities (no response required) Item 4. Submission of Matters to a Vote of Security Holders (no response required) Item 5. Other Information (no response required) Item 6. Exhibits and Reports on Form 8-K 13 Signatures 21
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements The consolidated condensed financial statements included herein have been prepared by the Company without audit as of December 31, 2000 and for the three-month periods ended December 31, 2000 and 1999 pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2000. In the opinion of the Company, all adjustments, consisting only of normal recurring adjustments to the consolidated condensed financial statements, necessary to present fairly the financial position of the Company as of December 31, 2000 and the results of operations and cash flows for the indicated periods have been included. The results of operations for such interim period is not necessarily indicative of the results to be expected for the fiscal year ending September 30, 2001. Deloitte & Touche LLP, independent public accountants, has made a limited review of the consolidated condensed financial statements as of December 31, 2000 and for the three-month periods ended December 31, 2000 and 1999 included herein. Page 1 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, September 30, 2000 2000 (Unaudited) ------------- ------------ ASSETS - ------ Current Assets: Cash and cash equivalents $ 861,000 $ 900,000 Accounts and notes receivable, current portion 202,000 152,000 Inventories 480,000 451,000 Prepaid expenses 75,000 130,000 ------------ ------------ Total current assets 1,618,000 1,633,000 ------------ ------------ Property, Plant and Equipment: Land 1,654,000 1,654,000 Buildings 6,635,000 6,633,000 Leasehold improvements 17,825,000 17,779,000 Equipment and furniture 20,960,000 21,013,000 ------------ ------------ Total 47,074,000 47,079,000 Less accumulated depreciation and amortization (32,284,000) (31,926,000) ------------ ------------ Property, plant and equipment - net 14,790,000 15,153,000 ------------ ------------ Other Assets: Land and buildings held for sale 309,000 309,000 Other, including noncurrent portion of receivables 262,000 269,000 ------------ ------------ Total other assets 571,000 578,000 ------------ ------------ Total Assets $ 16,979,000 $ 17,364,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Accounts payable $ 615,000 $ 767,000 Debt classified as current 96,000 107,000 Accrued wages and bonuses 1,542,000 1,317,000 Accrued insurance costs, current 373,000 425,000 Accrued property taxes 470,000 387,000 Other current liabilities 1,587,000 1,438,000 ------------ ------------ Total current liabilities 4,683,000 4,441,000 ------------ ------------ Other Liabilities: Long-term debt 90,000 112,000 Capital leases 28,000 29,000 Accrued insurance costs, non-current 465,000 425,000 Restructuring reserves, non-current 308,000 310,000 ------------ ------------ Total other liabilities 891,000 876,000 ------------ ------------ Commitments and Contingencies Stockholders' Equity: Preferred stock Common stock 150,000 149,000 Additional paid-in capital 19,027,000 19,013,000 Retained earnings (accumulated deficit) (7,605,000) (6,948,000) Treasury stock at cost (69,000) (69,000) Stock notes receivable (98,000) (98,000) ------------ ------------ Stockholders' equity 11,405,000 12,047,000 ------------ ------------ Total Liabilities and Stockholders' Equity $ 16,979,000 $ 17,364,000 ============ ============
See notes to consolidated condensed financial statements. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended December 31, ------------------------------- 2000 1999 ------------ ------------ Sales $ 12,800,000 $ 13,307,000 ------------ ------------ Costs and Expenses: Food costs 3,416,000 3,517,000 Restaurant labor and related expenses 5,390,000 5,293,000 Restaurant operating expenses 3,004,000 3,204,000 Depreciation and amortization 468,000 489,000 General and administrative expenses 1,206,000 1,130,000 Preopening costs 0 43,000 ------------ ------------ Total 13,484,000 13,676,000 ------------ ------------ Operating income (loss) (684,000) (369,000) Interest expense (2,000) Other, including interest income 24,000 (8,000) ------------ ------------ Earnings (loss) before income taxes (662,000) (377,000) Income tax expense (benefit) (5,000) ------------ ------------ Net earnings (loss) $ (657,000) $ (377,000) ============ ============ Basic and diluted earnings (loss) per share $ (0.45) $ (0.26) ============ ============
See notes to consolidated condensed financial statements. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended December 31, ------------------------------------ 2000 1999 ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ (657,000) $ (377,000) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 468,000 489,000 Adjustment of insurance reserves (137,000) (Gain) loss on sale of assets (14,000) 19,000 Stock compensation to outside directors 15,000 Other 2,000 Changes in operating assets and liabilities: Accounts and notes receivable (54,000) 31,000 Inventories, prepaid expenses and other assets 28,000 97,000 Accounts payable and accrued expenses 296,000 455,000 Restructuring reserves (7,000) (15,000) ----------- ----------- Net cash provided by operating activities 75,000 564,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (103,000) (837,000) Proceeds from sale of assets 23,000 19,000 ----------- ----------- Net cash used in investing activities (80,000) (818,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital leases (1,000) Short-term borrowings, net (11,000) Repayments of long-term borrowings (22,000) (38,000) ----------- ----------- Net cash used in financing activities (34,000) (38,000) ----------- ----------- Net decrease in cash and cash equivalents (39,000) (292,000) Cash and cash equivalents, beginning of period 900,000 1,242,000 ----------- ----------- Cash and cash equivalents, end of period $ 861,000 $ 950,000 =========== =========== SUPPLEMENTAL INFORMATION: Income tax refunds received $ (5,000) Interest paid, net of capitalized amounts $ 2,000
See notes to consolidated condensed financial statements. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. NET EARNINGS (LOSS) PER SHARE ----------------------------- The Company reports earnings per share under Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Because it has potential common shares, the Company has a complex capital structure and must disclose both basic and diluted EPS. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding. Diluted EPS adds the effect of all dilutive potential shares to the weighted average number of shares outstanding. All per share amounts have been adjusted for the effect of the one-for-three reverse stock split of the Company's common stock, effective January 27, 1999. The basic weighted average outstanding shares were 1,474,000 and 1,464,000 for the three-months ended December 31, 2000 and 1999, respectively. Due to the net losses for the first quarters of fiscal 2001 and fiscal 2000, the Company's potential common shares were antidilutive and excluded from the loss per share calculations for those periods. Therefore, there was no difference between basic and diluted earnings (loss) per share in either quarter. At December 31, 2000, there were 173,767 options outstanding which represented potential common shares which could be dilutive in the future. 2. INCOME TAXES ------------ Deferred tax assets net of deferred tax liabilities increased $242,000 in the quarter ended December 31, 2000, to $7.6 million. The increase was due to increases in the insurance reserves, increases in the tax basis values over book basis values of assets, and an increase in the federal net operating loss carryforward for the quarter. The valuation allowance was increased by the same amount to match the net deferred tax asset balance. The $5,000 income tax benefit resulted from a refund received during the quarter ended December 31, 2000. Despite the valuation allowance, the deferred tax assets are still available to the Company for future use. If the Company realizes profitability, it may recognize tax benefits for all or a portion of the deferred tax assets in the future, when the valuation allowance is reduced or the tax assets realized. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2012 through 2021, and state NOL carryforwards which expire in years 2001 through 2015. Page 5 3. RESTRUCTURING RESERVES ---------------------- At December 31, 2000, a total of $467,000 in restructuring reserves was included on the Company's balance sheet, split between other current liabilities and restructuring reserves, noncurrent. The Company reduced its total restructuring reserves by $4,000 paid on restructuring costs incurred during the quarter ended December 31, 2000. Page 6 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Pancho's Mexican Buffet, Inc.: We have reviewed the accompanying consolidated condensed balance sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of December 31, 2000 and the related consolidated condensed statements of operations and cash flows for the three-month periods ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of September 30, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein), and in our report dated November 9, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of September 30, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Fort Worth, Texas January 31, 2001 Page 7 PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition - ------------------- As of December 31, 2000, the Company's current ratio was 0.3 to 1, down 0.1 from September 30, 2000. Like many restaurant chains, the Company maintains a current ratio well below 1. Most of its current liabilities, primarily accounts payable, accrued payroll and accrued insurance costs, flow through operations and roll over rather than being reduced to zero in subsequent periods. Cash flow from operations provided $75,000 and $564,000 in the three months ended December 31, 2000 and 1999, respectively. The decline is due to the larger net loss incurred in the first quarter of fiscal 2001 as compared to fiscal 2000, partially offset by an increase in accounts payable and accrued operating expenses. Investing activities in the quarter ended December 31, 2000 used $80,000 in cash, due to property additions of $103,000 for minor capital improvements and expenditures at existing stores. In the same period last year, the Company invested $837,000 in property additions, mostly for completion of the Company's remodel of its Mesquite, Texas restaurant. To boost sales and profitability, the Company has developed a reimaging plan to change the look of its restaurants, including changes in restaurant design, recipes, food offerings and cooking and service procedures. The Company remodeled its Mesquite, Texas restaurant to test the reimaging plan and to serve as a prototype for future restaurant remodels. The restaurant opened in December 1999 under the name Pancho's Buffet & GrillTM and has received very good customer response and increased sales. The remodeled restaurant has been so successful that the Company plans to roll out the reimaging plan throughout the Company. In order for the Company to complete its reimaging program, management assumes that it will need to spend approximately $6 million over a three-year period remodeling its restaurants. Management has developed a staggered rollout strategy to maximize resources and minimize restaurant downtime. The Company will complete more extensive remodels in above average stores it feels will benefit the greatest in terms of return of investment. Many stores will require more basic cosmetic changes, which include repainting, new seating, tablecloths, curtains and menu boards thus allowing the Company to maintain continuity and feel throughout the organization. The Company has retained the services of an investment-banking firm to explore strategic financial alternatives for the Company to enhance future growth and maximize shareholder value. Page 8 In addition to the reimaging plan, capital spending in fiscal 2001 is expected to be approximately $500,000 for repairs and replacements of worn equipment from normal operations. The Company plans to pay for property additions this year with cash flow from operations and, possibly, proceeds from the sale of land and building from a closed location. No new restaurants were opened in the first quarter of 2001 or fiscal year 2000, and none are currently planned, as management intends to focus on the reimaging plan with respect to the Company's existing restaurants to improve sales and profitability. Financing activities used $34,000 to repay debt in the quarter ended December 31, 2000, versus $38,000 in the same period last year. The Company continues to make payments on notes issued in prior years to buy out leases on closed restaurant sites. The Company established a $1 million line of credit to finance working capital needs in January 2001. The Company expects to use the line of credit as needed during low sales months and to repay amounts borrowed under the line of credit before the end of each fiscal year. No dividends have been paid since December 1997. Future cash dividends will depend on earnings, financial position, capital requirements, and other relevant factors. Results of Operations - --------------------- Total sales were down $507,000 for the quarter ended December 31, 2000 compared to the same period last year. Same-store sales decreased 5.7% versus the prior year quarter. Average sales per unit were $266,000 and $279,000 in the quarters ended December 31, 2000 and 1999, respectively. The Company's management believes that sales are declining because of the dated look and feel of the Company's restaurants. The Company, with the help of outside consultants, has developed a reimaging plan to update and improve the look of its restaurants, including changes in restaurant design, recipes, food offerings, and cooking and service procedures to improve sales and increase profitability. In October 1999, as part of the reimaging project, the Company began rolling out new recipes and salsa bars to all of its restaurants. The new recipes are generally spicier, with more complex flavor profiles to tempt today's more discerning palates. The Company's new, nine-variety salsa bar is designed to satisfy the widest variety of customer tastes. The new-look bar lists each salsa's fresh ingredients and includes "salsa meters" indicating the range of heat levels from mild to hot. Flavors include: Chili Pequin Salsa, Salsa Verde, Chimayo Red Chili, Pico de Gallo, Fresh Tomato, Fiery Chipotle, Fire Roasted Vegetable, Salsa Bravo, and Pancho's Original Salsa. Coinciding with the new and improved food offerings, the Company developed a new Page 9 look and atmosphere for its restaurants providing customers with a high-energy and exciting dining environment. The new look includes updated and brighter color schemes, contemporary furniture and fixtures, and fiesta-style plates, tablecloths and decor, all providing a fun fiesta atmosphere to the restaurants. The Company invested $1.5 million during fiscal years 1999 and 2000 to develop the new concept. The Company remodeled three stores as prototypes to test the new look: one in Mesquite, Texas and two in Houston, Texas. The Mesquite, Texas location was closed for remodeling in August 1999 and reopened in December 1999 as "Pancho's Buffet & Grill(TM"). The restaurant has generated significant sales increases and positive customer response. The Mesquite remodel features an exciting new design with rich, bold colors, softer lighting and a high-energy atmosphere. The Company remodeled two stores in Houston, Texas under a slightly modified concept using the name "Panchito's $4.99 Buffet(TM"). The idea was to offer customers the same high quality buffet style format utilizing a more limited and lower priced menu. The goal was to achieve operating efficiencies while developing a brand extension for smaller markets. Results were not persuasive enough to continue the concept, and the stores will be converted to the new Pancho's Mexican Buffet(R) (with new recipes and menu). Management believes that the "Panchito's" concept would be a viable concept in new markets or small markets where potential customers have not previously experienced the wider food variety of the Pancho's Mexican Buffet(R) core concept. With the successful results of the Pancho's Buffet & Grill(TM) in Mesquite, Texas, the Company plans to roll out the reimaging plan throughout the Company under the banners Pancho's Buffet & Grill(TM) and Pancho's Mexican Buffet(R). The Company has developed a three-year reimaging plan so that it may complete the remodels and put sales on an upward trend. This three-year plan is based upon the Company's ability to obtain the necessary capital resources. The Company has retained the services of an investment-banking firm to explore strategic financial alternatives for the Company to enhance future growth and maximize shareholder value. Customer discounts were 5.4% and 4.5% of sales for the quarters ended December 31, 2000 and 1999, respectively. Discounting tactics are used to increase customer frequency and attract new customer trials. During the quarter ended December 31, 2000, the Company distributed more coupons than usual to attract customers. The number of those coupons redeemed was 200% over the prior year coupon redemptions for the same quarter. The Company continues to emphasize a neighborhood marketing strategy to strengthen Pancho's ties to each restaurant's community. A portfolio of specific tactics is developed for each location and complemented by Company programs such as the Birthday Club, School Rewards programs and Seniors Club. Page 10 Food cost increased 0.3% of sales in the quarter ended December 31, 2000 compared with the same quarter last year. The increase was due to higher costs for meats and produce. Restaurant labor and related expenses increased 2.3% of sales for the quarter ended December 31, 2000 compared with the same quarter last year. Due to successful claims management, the Company reduced its reserves for workers' injury insurance by $162,000 in the quarter ended December 31, 1999. After eliminating this benefit, the labor cost increase was 1.1% of sales for the quarter. Wage rate inflation accounted for over 80% of the labor cost increase. The remaining increase resulted from lower sales. Restaurant operating expenses include occupancy costs, utilities, liability insurance, maintenance expense, supplies, restaurant marketing and other costs. These costs decreased .6% of sales for the quarter ended December 31, 2000, versus the same period last year due to a 1.0% of sales decrease in restaurant marketing and promotion expenses netted with a .4% of sales increase in utilities expense (due to higher gas costs). The Company's general and administrative expenses rose .9% of sales for the quarter ended December 31, 2000, versus the same quarter last year due to two primary reasons. An increase in franchise taxes resulted in a .5% of sales increase in general and administrative expense for the quarter ended December 31, 2000. Fees paid to the investment-banking firm to explore strategic alternatives for the Company amounted to a .5% of sales increase in general and administrative expenses. The Company realized a gain on sale of assets of $14,000 for the quarter ended December 31, 2000 compared with a loss of $19,000 on the disposal of assets in the quarter ended December 31, 1999. Deferred tax assets net of deferred tax liabilities increased $242,000 in the quarter ended December 31, 2000, to $7.6 million. The increase was due to increases in the insurance reserves, increases in the tax basis values over book basis values of assets, and an increase in the federal net operating loss carryforward for the quarter. The valuation allowance was increased by the same amount to match the net deferred tax asset balance. The $5,000 income tax benefit resulted from a refund received during the quarter ended December 31, 2000. Despite the valuation allowance, the deferred tax assets are still available to the Company for future use. If the Company realizes profitability, it may recognize tax benefits for all or a portion of the deferred tax assets in the future, when the valuation allowance is reduced or the tax assets realized. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2012 through 2021, and state NOL carryforwards which expire in years 2001 through 2015. Page 11 For the reasons detailed above, the Company had a net loss of $657,000 for the quarter ended December 31, 2000, compared to a net loss of $377,000 for the same period last year. The Company's future profitability depends on increasing restaurant revenues and reducing the key cost factors, particularly labor costs. Management plans to address these issues through its marketing programs, reorganization of operations management, and the continuation of the Company's remodeling and brand extension programs. Other Uncertainties and Trends - ------------------------------ SFAS No. 121 requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers a history of operating losses or negative cash flows to be its main indicators of potential impairment. Assets are generally evaluated for impairment at the restaurant level. If a restaurant continues to incur negative cash flows or operating losses, an impairment or restaurant closing charge may be recognized in future periods. Management has reviewed each restaurant's performance for the quarter ended December 31, 2000 and has determined that no impairment charges are required for this quarter. Special Note Regarding Forward-Looking Information - -------------------------------------------------- Certain statements in this report are forward-looking statements which represent the Company's expectations or beliefs concerning future events, including, but not limited to the following: statements regarding restaurant format or concept changes, remodeling plans, plans to sell assets, ability to pay debt, unit growth, capital expenditures, future borrowings and repayments, availability of financings, future cash flows, claims, payments and adjustments related to the Company's insurance reserves, and future results of operations. The Company warns that many factors could, individually or in aggregate, cause actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: the effects of changes in the Company's restaurant format or concept; consumer spending trends and habits; increased competition in the restaurant industry; weather conditions; the results of claims on the Company's insurance reserves; and laws and regulations affecting labor and employee benefit costs. The Company does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. Page 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Required by Item 601 of Regulation S-K Exhibit Number ------- 2 Not applicable 4 Not applicable 10(ac) Line of Credit Promissory Note dated January 8, 2001, between Pancho's Mexican Buffet, Inc. and Arlington National Bank - filed herewith 11 Not required - explanation of net earnings (loss) per share computation is contained in notes to consolidated condensed financial statements. 15 Letter re: unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 2000. Page 13 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. PANCHO'S MEXICAN BUFFET, INC. February 14, 2001 /s/ Hollis Taylor ----------------- Hollis Taylor, President and Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer) February 14, 2001 /s/ Julie Anderson ------------------ Julie Anderson, Vice President, Controller, and Assistant Treasurer (Principal Accounting Officer) Page 14 EX-10.(AC) 2 0002.txt LINE OF CREDIT PROMISSORY NOTE EXHIBIT 10 LINE OF CREDIT PROMISSORY NOTE $1,000,000.00 Arlington, Texas January 8, 2001 As herein stipulated, for value received, without grace, I, we or either of us, the undersigned, jointly and severally ("Maker, whether one or more), promises to pay to the order of ARLINGTON NATIONAL BANK ("Payee"), at P.O. Box 170017, Arlington, Texas 76003, or Payee's present banking house, the principal sum of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00), or the unpaid principal balance outstanding from all sums advanced against this Note, whichever amount is less, with interest on the principal from time to time outstanding, from date hereof until maturity at an interest rate equal to the PRIME RATE (as hereinafter defined) plus ONE PERCENT (1.0%) per annum, as determined by Payee, both principal and interest payable at the office of Payee or at such other place as may be designated by Payee. Interest charges will be calculated on amounts advanced hereunder and computed on the basis of a 360 day year. The principal indebtedness and accrued interest thereon shall bear interest after maturity at the highest permitted lawful rate per annum until paid. The term "Prime Rate" as used in this Note shall mean the prevailing national Prime Rate for large United States money center commercial banks as published in the Money Rates section of The Wall Street Journal from time to time. In the event The Wall Street Journal ceases publication or ceases to announce the Prime Rate, Payee reserves the right to substitute a comparable rate or publication for the purposes of this paragraph. Such rate is a general reference rate of interest, taking into account such factors as Payee may deem appropriate, it being understood that many of Payee's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any of Payee's customers, and that Payee may make various commercial or other loans at rates of interest having no relationship to such rate, and any statement, representation or warranty in that regard or to that effect is expressly disclaimed by Payee. This Note shall be payable as follows: Accrued and unpaid interest on this Note shall be due and payable monthly, commencing on February 8, 2001 and continuing on the 8th day of each month thereafter until January 8, 2002, at which time the entire principal balance hereof, together with accrued and unpaid interest thereon shall be due and payable in full. All payments hereon shall be applied first to accrued interest and the balance to the reduction of principal. In addition to all other rights and remedies of Payee hereunder and subject in any event to the highest lawful rate per annum, in the event any monthly payment hereunder has not been paid within ten (10) days from the date such payment is due, Maker shall be obligated to pay Payee a late charge equal to five percent (5%) of the amount of such delinquent payment. This Note is a line of credit note evidencing advances which Payee may make to Maker, and which Maker shall repay to Payee, from time to time pursuant to a line of credit in the maximum principal amount of $1,000,000.00 at any one time outstanding (the "Line of Credit") made available by Payee to Maker, subject to such terms and conditions as Payee may from time to time impose as Payee may deem necessary or appropriate. Notwithstanding the foregoing, Payee shall never be required to make any advance on the Line of Credit which would cause the loan evidenced by this Note to exceed Payee's legal lending limit. Repayments of principal shall be credited against this Note, but shall not extinguish this Note in whole or in part. The unpaid principal balance may increase or decrease as advances and repayments are made hereunder, and this Note shall evidence all of the indebtedness from time to time existing pursuant to the Line of Credit, even though the aggregate principal cumulative advances hereunder may exceed the maximum principal amount available under the Line of Credit as aforesaid. Interest on the amount of each advance against this Note shall be computed on the amount of each advance and from the date of each advance. Time is of the essence of this agreement, and the entire unpaid principal balance of, and all accrued interest upon this Note shall immediately become due and payable at the election of the legal holder hereof, without notice, upon the occurrence of any one or more of the following events: (i) default shall be made in the payment of any installment of principal or interest upon this Note as and when the same becomes due and payable in accordance with the terms hereof; (ii) default shall occur under the Deed of Trust or any other document or instrument securing the payment hereof, or under any loan agreement or other agreements related hereto or; (iii) the death of Maker, or any of them if individuals; (iv) any assignment for the benefit of creditors, insolvency (however expressed or indicated) or receivership of Maker, or any of them, whether in or out of court, or any proceedings in bankruptcy, or for the relief of debtors or readjustment of debts filed by or against Maker, or any of them; (v) if Payee deems itself insecure for any reason, or (vi) default shall occur in payment of any other material indebtedness of Maker. Upon the occurrence of any default described above, Payee and any holder of this Note, shall also have the right to exercise any and all other rights, remedies and recourses now or hereafter existing in equity, at law or by virtue of statute or otherwise, including, without limitation, the right to foreclose any and all liens and security interests securing this Note. If this Note is placed in the hands of an attorney for collection, or is collected through the Probate or Bankruptcy Court or through legal proceedings, the Maker further promises to pay reasonable attorneys' fees, plus all other costs of collection. Maker may, at any time, pay the full amount or any part of this Note, without the payment of any premium or fee, and all payments hereunder, whether designated as payments of principal or interest, shall be applied first to the payment of accrued interest and the balance to principal. Interest shall immediately cease on any amount so prepaid. As further security for this Note and all other indebtedness which may at any time be owing by Maker to the holder of this Note, whether such indebtedness is incurred directly or acquired from third parties by the holder of this Note, Maker grants to the holder of this Note a lien and contractual rights of offset in and to all money and property of Maker now or at any time hereafter coming within the custody or control of the holder of this Note, including, without limitation, all certificates of deposit and other accounts, whether such certificates or accounts have matured or not and whether exercise of such right of offset results in loss of interest or other penalty under the terms of the certificate or account agreement. Each Maker, and all sureties, endorsers and guarantors hereof, and all other parties hereafter assuming or otherwise becoming liable for payment of any sum of money payable under this Note: (i) jointly and severally waive notice of acceleration and notice of intent to accelerate, grace, presentment and demand for payment, protest, notice of protest and/or dishonor, notice of nonpayment and all other notices, filing of suit and diligence in collecting this Note, or enforcing any of the security herefor; (ii) jointly and severally agree to any substitution, exchange or release of any such security or the release of any party primarily or secondarily liable hereon; (iii) joint and severally agree that the Payee, or other holder hereof, shall not be required first to institute suit or exhaust its remedies hereon against the Maker or others liable or to become liable hereon or to enforce its rights against any security herefor in order to enforce payment of this Note by them; (iv) jointly and severally consent to any extension or postponement of time of payment of this Note and to any other indulgence with respect hereto, without notice thereof, to any of them; and (v) are and shall be jointly and severally, directly or primarily, liable for the payment of all sums owing or to be owing hereon. The invalidity, or unenforceability in particular circumstances, of any provision of this Note shall not extend beyond such provision or such circumstances and no other provision of this instrument shall be affected thereby. It is the intention of Maker and Payee to conform strictly to all state and federal interest laws applicable to this loan transaction. Accordingly, its agreed that notwithstanding any provisions to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, the aggregate of all interest and any other charges or consideration constituting interest under applicable interest laws that is taken, reserved, contracted for, charged or received under this Note, or under any of the other aforesaid agreements or otherwise in connection with this loan transaction, shall under no circumstances exceed the maximum amount of interest allowed by the interest laws applicable to this loan transaction. If any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in this Note or in any of the documents securing payment hereof or otherwise relating hereto, then in such event: (i) the provisions of this paragraph shall govern and control; (ii) neither the Maker, nor Maker's heirs, legal representative, successors or assigns, or any other party liable for the payment hereof, shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest allowed by the interest laws applicable to this loan transaction; (iii) any excess shall be deemed a mistake and canceled automatically and, if theretofore paid, shall be credited on this Note by the holder or holders hereof (or if this Note shall have been paid in full, refunded to Maker); and (iv) the effective rate of interest shall be automatically subject to reduction to the maximum legal rate of interest allowed by law as now or hereafter construed by courts of appropriate jurisdiction. All sums paid or agreed to be paid to the holder or holders hereof for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by the interest laws applicable to this loan transaction, be amortized, prorated, allocated and spread throughout the full term of this Note. This Note is being executed and delivered and is intended to be performed in the State of Texas and shall be construed and enforced in accordance with and governed by the laws of the State of Texas (except that Chapter 346 of the Texas Finance Code which relates to certain revolving loan accounts and revolving tri-party accounts shall not apply to the loan evidenced by this Note) and applicable federal law. All legal proceedings brought to enforce or interpret this Note shall be in the appropriate court located in Tarrant County, Texas. This Note represents money advanced by Payee at the request of Maker for working capital and is secured by Deed of Trust of even date herewith executed by Maker and PMB Enterprises West, Inc., a New Mexico corporation, to H. G. Leffler, Trustee, covering the real property described as: See Exhibit "A" attached hereto and incorporated herein by reference for all purposes, which said property is fully described in said Deed of Trust. PANCHO'S MEXICAN BUFFET, INC., A DELAWARE CORPORATION By: /s/ Hollis Taylor ---------------------------------- Hollis Taylor, President P.0. Box 7407 Fort Worth, Texas 76111 EXHIBIT "A" Tract One: Lot 1, Block 2, PENLAND INDUSTRIAL ADDITION to the City of Fort - --------- Worth, Tarrant County, Texas, according to the plat of said addition recorded in Volume 388-170, Page 44, Plat Records of Tarrant County, Texas. Tract Two: Lot 12, Block 2, McCALL HIGHTOWER ADDITION to the City of Fort Worth, - --------- Tarrant County, Texas, according to the plat of said addition recorded in Vol- ume 204-A, Page 165, Deed Records of Tarrant County, Texas. Tract Three: Lot 4A, Block 1, BURLESON TOWN CENTER, an addition to the City of - ----------- Burleson, Tarrant County, Texas, according to the plat of said addition recorded in Volume 388-210, Page 31, Plat Records of Tarrant County, Texas, and being more particularly described as follows: All that certain tract or parcel containing 1.1019 acres of land (called 1.102 acres) situated in the Sarah Gray Survey, Abstract Number 558, Tarrant County, Texas, being all of Lot 4A, Block 1, Burleson Town Center, an addition to the City of Burleson, Tarrant County, Texas, according to the map or plat thereof recorded in Volume 388-210, Page 31, Plat Records, Tarrant County, Texas, and being more particularly described by metes and bounds as follows: BEGINNING at an "X" cut set out in concrete for the northeast corner of said Lot 4A, Block 1, Burleson Town Center, being in the West right-of-way line of Interstate Highway 35W (a variable width right-of-way) also known as South Freeway, from which a 1 inch iron rod found for the Northeast corner of Burleson Town Center bears North 00 degrees 01 minutes 11 seconds West, 23.55; THENCE along the westerly right-of-way line of said Interstate Highway 35W the following four (4) courses to wit: (1) South 00 degrees 01 minutes 11 seconds East, a distance of 121.45 feet to a 5/8 inch iron rod set for corner; (2) South 13 degrees 07 minutes 28 seconds West, a distance of 109.97 feet to a 5/8 inch iron rod set for corner; (3) South 08 degrees 01 minutes 21 seconds East, a distance of 85.52 feet to a 5/8 inch iron rod set for corner being the beginning of a non-tangent curve to the right; (4) 11.36 feet along the arc of said non-tangent curve to the right having a Central Angle of 00 degrees 27 minutes 39 seconds, a Radius of 1412.39 feet and a Chord bearing and distance of South 08 degrees 00 minutes 32 seconds West, 11.36 feet to a 5/8 inch iron rod set for the southeast corner hereof and the most southerly northeast corner of aforesaid Lot 4, Block 1; THENCE North 79 degrees 09 minutes 55 seconds West, leaving the westerly right-of-way line of said Interstate Highway 35W, a distance of 126.16 feet to a 5/8 inch iron set for the southwest corner hereof, being an interior ell corner of said Lot 4, Block 1; THENCE North 11 degrees 31 minutes 34 seconds West, along the most westerly east line of said Lot 4, Block 1, a distance of 276.84 feet to an "X" cut set in concrete for the northwest corner hereof; THENCE North 78 degrees 28 minutes 26 seconds East, a distance of 145.71 feet to an 'X' cut set in concrete for corner: THENCE North 89 degrees 55 minutes 49 seconds East, a distance of 53.00 feet to the Point of Beginning, containing 1.1019 acres of land, more or less. EX-15 3 0003.txt LETTER RE UNAUDITED INTERIM FINANCIAL INFO EXHIBIT 15 Pancho's Mexican Buffet, Inc.: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Pancho's Mexican Buffet, Inc. and subsidiaries for the three-month periods ended December 31, 2000 and 1999, as indicated in our report dated January 31, 2001; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended December 31, 2000, is incorporated by reference in Registration Statements No. 2-86238 and No. 33-60178 as amended, and No. 333-48295 on Form S-8. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Fort Worth, Texas January 31, 2001 -----END PRIVACY-ENHANCED MESSAGE-----