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 Act of 1934 forthe Quarterly Period ended September 29, 2002.

| Commission File Number:    0-14968                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **EATERIES, INC.
(Exact    name of registrant as specified in its charter)
Oklahoma
73-1230348
(State    or other jurisdiction of incorporation or organization)
(I.R.S.    Employer Identification No.)
1220 S. Santa Fe Ave.

Edmond, Oklahoma
 

73003
(Address    of principal executive offices)
(Zip    Code)
(405) 705-5000
(Registrant’s    telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90days.

[X]Yes [ ] No

Indicate the number of shares outstanding of each of the issuer'sclasses of common stock, as of the latest practicable date. As of October 30, 2002,2,967,417 common shares, $.002 par value, were outstanding. 

 

 
**EATERIES,    INC. AND SUBSIDIARIES

FORM 10-Q**
INDEX
PagePart I. FINANCIAL    INFORMATION        Item 1. Financial Statements             Condensed Consolidated Balance Sheets (unaudited)             September 29, 2002 and December 30, 2001 
4             Condensed Consolidated Statements of                  Income (unaudited)                       Thirteen weeks ended September 29, 2002                       and September 30, 2001 
5                       Thirty-nine weeks ended September 29, 2002                       and September 30, 2001 
6             Condensed Consolidated Statements of                  Cash Flows (unaudited)                       Thirty-nine weeks ended September 29, 2002                       and September 30, 2001 
7             Notes to Condensed Consolidated Financial                  Statements (unaudited) 
8        Item 2. Management's Discussion and Analysis of                       Financial Condition and Results of                       Operations 
12        Item 4. Controls and Procedures 
18Part II. OTHER INFORMATION         Item 1. Legal Proceedings 
20        Item 6. Exhibits and Reports on Form 8-K 
20
 

 

 

 

 

 

 

 

 

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 
**Item 1. Financial Statements****EATERIES,    INC. AND SUBSIDIARIES**CONDENSED    CONSOLIDATED BALANCE SHEETS
(Unaudited)
September    29,
December    30,
2002
2001**ASSETS**
Current    assets:
     Cash    and cash equivalents
$ 866,236    
$ 999,533
     Receivables
1,006,005
1,378,018
     Inventories
799,297
958,354
Deferred    income taxes
362,663
362,663
     Prepaid    expenses and other
791,578
706,306
          Total    current assets
3,825,779
4,404,874Property and equipment, at    cost
54,857,226
54,626,252Less: Landlord finish-out    allowances
(17,168,866)
(17,459,166)Less: Accumulated    depreciation and amortization
(18,549,500)
(15,935,445)        Net property and equipment
19,138,859
21,231,641Deferred income taxes
1,920,640
1,796,378Goodwill, net
1,775,833
2,180,833Other assets
749,197
642,744        Total assets
$27,410,308
$30,256,470**LIABILITIES AND    STOCKHOLDERS’ EQUITY**Current liabilities:        Accounts payable
$    4,372,858 
$    7,736,378        Accrued liabilities
3,299,065
4,091,094        Current portion of long-term debt
2,228,571
1,228,571             Total current liabilities
9,900,494
13,056,043Deferred credit
1,319,462
998,509Other liabilities
265,304
303,625Long-term obligations, net    of current portion
8,633,230
8,682,486Commitments and    contingencies
---
---        Total liabilities
20,118,490
23,040,663Stockholders’ equity:        Preferred stock, none issued
---
---        Common stock
9,044
9,044        Additional paid-in capital
10,370,359
10,370,359        Accumulated other comprehensive loss, net of tax
(25,000)
(171,000)        Retained earnings
4,359,756
4,330,646        Treasury stock, at cost
(7,422,341)
(7,323,242)             Total stockholders’ equity
7,291,818
7,215,807        Total liabilities and stockholders’ equity
$27,410,308
$30,256,470See notes to condensed    consolidated financial statements.
 

 
**EATERIES,    INC. AND SUBSIDIARIES**CONDENSED    CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirteen Weeks Ended
September    29,
September    30,
2002
2001**REVENUES**
        Food and beverage sales
$    21,753,474
$    23,143,399
        Franchise fees and royalties
164,252
200,772
        Other income
111,486
214,696
             Total revenues
22,029,212
23,558,867**COSTS    AND EXPENSES
        Costs of sales
5,924,638
6,462,199        Operating expenses
14,453,118
14,850,962        General and administrative
1,407,723
1,408,800        Pre-opening costs
---
99,000        (Gain) loss on disposal of assets
(258,429)
90,000        Depreciation and amortization
1,004,316
1,055,687        Interest expense
172,326
250,532             Total costs and expenses
22,703,692
24,217,180**LOSS BEFORE INCOME    TAXES**
(674,480)
(658,313)**BENEFIT FROM INCOME    TAXES**
(195,500)
(190,508)**NET LOSS**
$ (478,980) 
$ (467,805) **BASIC LOSS PER COMMON    SHARE**
$ (0.16) 
$ (0.16) **DILUTED LOSS PER COMMON    SHARE**
$ (0.16) 
$ (0.16) See notes to condensed    consolidated financial statements.
 
**EATERIES,    INC. AND SUBSIDIARIES**CONDENSED    CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Thirty-nine Weeks Ended
September    29,
September    30,
2002
2001**REVENUES**
        Food and beverage sales
$    70,972,412
$    72,046,461
        Franchise fees and royalties
423,969
461,023
        Other income
370,226
572,756
             Total revenues
71,766,607
73,080,240**COSTS    AND EXPENSES
        Costs of sales
19,191,861
19,859,208        Operating expenses
45,056,138
45,847,056        General and administrative 
4,242,772
4,328,541        Pre-opening costs
---
429,000        (Gain) loss on disposal of assets
(393,665)
360,000        Depreciation and amortization
3,079,224
3,140,214        Interest expense
549,167
766,536             Total costs and expenses
71,725,497
74,730,555**INCOME (LOSS) BEFORE    INCOME TAXES**
41,110
(1,650,315)**PROVISION (BENEFIT) FOR    INCOME TAXES**
12,000
(543,439)**NET INCOME (LOSS)**
$ 29,110 
$ (1,106,876) **BASIC EARNINGS (LOSS)    PER COMMON SHARE**
$ 0.01 
$ (0.37) **DILUTED EARNINGS (LOSS)    PER COMMON SHARE**
$ 0.01 
$ (0.37) See notes to condensed    consolidated financial statements.
 

 
**EATERIES,    INC. AND SUBSIDIARIES**CONDENSED    CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended
September 29,
September 30,
2002
2001Cash flows from operating    activities:
        Net income (loss)
$ 29,110 
$    (1,106,876) 
        Adjustments to reconcile net income (loss) to net cash 
        used in operating activities:
             Depreciation and amortization
3,079,224
3,140,214
             Provision for income taxes
12,000
(543,439)
             Deferred income taxes
(112,262)
(3,959)
             Loss on sale of note receivables
---
23,078
             Gain on disposal of assets
(393,665)
---
             (Increase) decrease in operating assets:
                  Receivables
413,412
(557,030)                  Inventories
159,057
145,131                  Prepaids and other current
(85,272)
987,038                  Other
47,685
(84,213)             Increase (decrease) in operating liabilities:                  Accounts payable
(3,363,520)
(2,102,513)                  Accrued liabilities
(646,029)
(1,607,205)                  Other liabilities
282,632
491,116             Total adjustments
(606,738)
(111,782)             Net cash used in operating activities
(577,628)
(1,218,658)Cash flows from investing    activities:        Capital expenditures
(1,584,533)
(2,369,630)        Landlord allowances
129,700
731,000        Proceeds from sale of restaurant
1,250,000
252,107        Payments made for lease termination
(210,000)
---        Proceeds from sale of note receivable
---
115,500        Payments received on notes receivable
5,549
12,269             Net cash used in investing activities
(409,284)
(1,258,754)Cash flows from financing    activities:        Payments on long-term obligations
(1,044,286)
(1,044,286)        Borrowings under revolving credit agreements
23,997,000
23,847,000        Payments under revolving credit agreements
(22,000,000)
(20,615,000)        Purchase of treasury stock
(99,099)
(139,219)        Proceeds from exercise of stock options
---
20,007             Net cash provided by financing activities
853,615
2,068,502Decrease in cash and cash    equivalents
(133,297)
(408,910)Cash and cash equivalents    at beginning of period
999,533
875,892Cash and cash equivalents    at end of period
$ 866,236 
$ 466,982 See notes to condensed    consolidated financial statements.
**EATERIES, INC. AND SUBSIDIARIES**

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 - Basis of Preparation

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements. In the opinionof management, all adjustments (consisting of normal recurring accruals) considerednecessary for a fair presentation have been included. Operating results for thethirty-nine week period ended September 29, 2002, are not necessarily indicative of theresults that may be expected for the year ending December 29, 2002. For furtherinformation, refer to the consolidated financial statements and footnotes thereto includedin the Company's Annual Report on Form 10-K for the year ended December 30, 2001.

Certain reclassifications have been made to the previously presented2001 balances to conform to the 2002 presentation. Such reclassifications had no impact ontotal assets or net income.

Note 2 - Balance Sheet Information
Receivables are comprised    of the following:
September 29,    2002
December 30,    2001General 
$ 216,000    
$ 159,000    Vendor rebates 
530,000
254,000Franchisees 
87,000
38,000Banquets 
81,000
33,000Insurance refunds 
---
191,000Legal reimbursement 
---
516,000Notes receivable 
73,000
110,000Other 
19,000
77,000
$ 1,006,000 
$ 1,378,000 Accrued liabilities are    comprised of the following:
September 29,

2002
December 30,

2001
Compensation    
$    1,558,000 
$    1,542,000 
Taxes,    other than income 
643,000
831,000
Other 
1,098,000
1,718,000
$ 3,299,000 
$ 4,091,000 
 

Note 3 - Supplemental Cash Flow Information

Interest of $554,108 and $777,389 was paid for the thirty-nine weeksended September 29, 2002 and September 30, 2001, respectively.

For the thirty-nine week periods ended September 29, 2002 and September30, 2001, the Company had the following non-cash investing and financing activities:

Thirty-nine Weeks Ended
September 29,

2002
September 30,

2001
Increase    in additional paid-in capital as a result of tax

      benefits from the exercise of 

      non-qualified stock options  
 

$ ---
 

 

$ 6,496 
Asset    write-offs related to restaurant sales and closures 
1,003,469
597,808
Decrease    in goodwill from sale of restaurant 
405,000
---
Decrease    in accumulated other comprehensive income 
146,000
---
Increase    in notes receivable from finance of sale of restaurant 
273,720
---
Note 4 - Stock Repurchases

In April 1997, the Company’s Board of directors authorized therepurchase of up to 200,000 shares of the Company’s common stock. In September 1997,an additional 200,000 shares were authorized for repurchase. During the third quarter of2002, 20,000 shares were repurchased for $60,024. As of September 29, 2002, 230,662 shareshave been repurchased under this plan for a total purchase price of approximately$794,099. No shares have been repurchased subsequent to September 29, 2002.

Note 5 - Restaurant Acquisitions and Dispositions

In 2001, the Company sold two Garcia’s Mexican Restaurant’slocated in Davie, FL and Pleasant Hill, CA. No gain or loss was recorded on the disposal.In July 2001, the Company terminated the lease on one under-performing Garfield’sRestaurant & Pub in Anderson, SC, resulting in a charge to restaurant closure expenseof approximately $36,000. Leases on four Company-owned restaurants that expired in January(2), May and June 2001 were not renewed, resulting in the closing of the locations. Acharge of approximately $242,000 was recorded to loss on disposal of assets.

In March 2002, the Company terminated the lease on one Garfield’slocated in North Riverside, IL. As part of the agreement, the Company agreed to pay$210,000 in lieu of future rent to the landlord. This amount has been accrued for andcharged to restaurant closure expense, which is included in the consolidated statements ofincome. In June 2002, the Company sold one Garcia’s Mexican Restaurant located inDenver, CO, to the local operator who signed a franchise agreement for this location and adevelopment agreement for two future locations in the Denver area. A gain of approximately$357,000 ($250,000 net of tax) is included in gain on disposal of assets on theconsolidated statements of income, which included a goodwill write-off of $101,000. InAugust 2002, the Company sold one Garcia’s Mexican Restaurant located in Carmichael,CA, and one located in Idaho Falls, ID. The purchaser signed a franchise agreement forthese locations. A gain of approximately $259,000 is included in gain on disposal ofassets on the consolidated statements of income. This gain included a goodwill write-offof $304,000. The amounts of goodwill written off in the gain calculation were determinedby comparing the Company’s estimate of the fair value of the sold locations to thefair value of the concept to which the goodwill relates. 

 

Note 6 - Earnings Per Share ("EPS")

The following tables set forth the computation of basic and diluted EPSfor the thirteen and thirty-nine week periods ended September 29 2002, and September 30,2001:

Thirteen Weeks    Ended
September    29,
September    30,
2002
2001Numerator:                             Net loss 
$ (478,980) 
$ (467,805) Denominator:
Denominator for basic EPS -             weighted average share outstanding 

2,979,147
2,959,351
Dilutive effect of nonqualified        stock options 

---
---
                                  Denominator for diluted EPS 
2,979,147
2,959,351
Basic    EPS 
$ (0.16) 
$ (0.16) 
Diluted    EPS 
$ (0.16) 
$ (0.16) 
Thirty-nine    Weeks Ended
September    29,
September    30,
2002
2001Numerator:                             Net income (loss) 
$ 29,110 
$ (1,106,876) Denominator:
Denominator for basic EPS - weighted average shares        outstanding 

2,988,960
2,960,690
Dilutive effect of nonqualified        stock options 

99,021
---
                                  Denominator for diluted EPS 
3,087,981
2,960,690
Basic    EPS 
$ 0.01 
$ (0.37) 
Diluted    EPS 
$ 0.01 
$ (0.37) 
Note 7 – Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued SFAS No.142 "Goodwill and Other Intangible Assets," which established financialaccounting and reporting for acquired goodwill and other intangible assets and supersededAPB Opinion No. 17, "Intangible Assets". It addresses how intangible assets thatare acquired individually or with a group of other assets (but not those acquired in abusiness combination) should be accounted for in financial statements upon theiracquisition, and after they have been initially recognized in the financial statements.The provisions of this Statement were effective starting with fiscal years beginning afterDecember 15, 2001. The Company adopted SFAS No. 142 effective December 31, 2001. Due tothe adoption of SFAS No. 142, the Company no longer amortizes goodwill. For thethirty-nine weeks ended September 30, 2001, the Company recorded $94,843 to goodwillamortization. Pro forma net loss for the thirty-nine weeks ended September 30, 2001, wouldhave been $1,012,033 ($0.34 basic and diluted loss per share) if SFAS No. 142 would havebeen effective during that period. The Company’s impairment test of goodwill did notindicate any impairment on the balance as of September 29, 2002, other than the amountallocated and written off due to the sale of the three Garcia’s location.  TheCompany's market capitalization is currently below its stockholders' equity and theCompany will be performing a more in depth analysis during the fourth quarter at whichtime a permanent impairment, if any, could be recorded.

 

In August 2001, the Financial Accounting Standards Board issued SFASNo. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". Thisstatement addresses financial accounting and reporting for the impairment or disposal oflong-lived assets. This statement superseded SFAS No. 121, "Accounting for Impairmentof Long-Lived Assets to be Disposed Of." This statement requires (1) recognition ofan impairment loss only if the carrying amount of a long-lived asset is not recoverablefrom its undiscounted future cash flows and (2) measurement of an impairment loss as thedifference between the carrying amount and the fair value of the asset. The Companyadopted the statement effective December 31, 2001 with no material impact on the Company'sresults of operations or financial position.

Note 8 – Long-term Obligations

In February 1999, the Company entered into a senior credit facilitywith a bank in the aggregate amount of $14,600,000, of which a maximum of $6,000,000 isavailable to the Company under a revolving line of credit and $8,600,000 was available tothe Company under a term loan. Certain proceeds of the term loan (approximately $5.4million) were used to repurchase 1,056,200 shares of the Company’s common stock(transaction described below). The balance of the proceeds under the term loan(approximately $3.2 million) and the initial proceeds under the revolving line of creditwere used to retire indebtedness under the Company’s existing loan agreement. As ofSeptember 29, 2002, the Company had outstanding borrowings of approximately $5,971,170under the revolving line of credit. Outstanding borrowings under the term loan bearinterest at three-month LIBOR plus 2.50% (4.3% as of September 29, 2002). Outstandingborrowings under the revolving line of credit bear interest at the greater of three monthLIBOR plus 2.50% or 5.0% (5.0% at September 29, 2002). The interest rate is resetquarterly. There is no non-use fee related to either facility. The Company amended itsrevolving credit facility as of September 30, 2002, extending the maturity of therevolving line of credit to December 31, 2003. Accordingly, the debt has been classifiedas long-term as of September 29, 2002, on the accompanying consolidated condensed balancesheet. Under the term loan, outstanding principal and interest are payable quarterly inthe amount necessary to fully amortize the outstanding principal balance over a seven-yearperiod, with a final maturity in February 2004. As of September 29, 2002, the outstandingbalance of the term loan was $3,890,631. The term loan converts to a five-yearamortization schedule if the Company’s debt coverage ratio, as defined in the loanagreement, exceeds a certain level. Additionally, the floating interest rate on bothfacilities is subject to changes in the Company’s ratio of total loans and capitalleases to net worth. Under the terms of these notes, the Company’s maximum floatingrate is three-month LIBOR plus 2.50%. Borrowings under this loan agreement are unsecured.The loan agreement contains certain financial covenants and restrictions. As of the dateof this report, the Company is in compliance with these covenants and restrictions. 

In March 2001, the Company entered into an additional credit facilitywith a bank in the amount of $1,000,000 that is available to the Company under a revolvingline of credit. As of September 29, 2002 the Company had outstanding borrowings of$1,000,000 under the revolving line of credit. The credit facility bears interest at thegreater of the prime rate of interest or 5.0% (5.0% at September 29, 2002), and is setmonthly. There is a one-quarter of a percent (.25%) non-use fee relate to this facility.This credit facility was amended on September 30, 2002 and matures on December 31, 2002.

In November 1997, the Company entered into an interest rate swapagreement with a bank to hedge its risk exposure to potential increases in LIBOR. Thisagreement has a term of five years and an initial notional amount of $9,500,000. Thenotional amount declines quarterly over the life of the agreement on a seven-yearamortization schedule assuming a fixed interest rate of 7.68%. Under the terms of theinterest rate swap agreement, the Company pays interest quarterly on the notional amountat a fixed rate of 7.68%, and receives interest quarterly on the notional amount at afloating rate of three-month LIBOR plus 1.25%. The notional amount as of September 29,2002 was $3,619,790. The unrealized losses for the periods ended September 29, 2002 andDecember 30, 2001 are included in accumulated other comprehensive income on theconsolidated balance sheets.
** 

Item 2.Management's Discussion and Analysis of FinancialCondition and Results of Operations
From time to time, the Company may publish forward-looking statementsrelating to certain matters including anticipated financial performance, businessprospects, the future opening of Company-owned and franchised restaurants, anticipatedcapital expenditures, and other matters. All statements other than statements ofhistorical fact contained in this Form 10-Q or in any other report of the Company areforward-looking statements. The Private Securities Litigation Reform Act of 1995 providesa safe harbor for forward-looking statements. In order to comply with the terms of thatsafe harbor, the Company notes that a variety of factors, individually or in theaggregate, could cause the Company’s actual results and experience to differmaterially from the anticipated results or other expectations expressed in theCompany’s forward-looking statements including, without limitation, the following:consumer spending trends and habits; competition in the casual dining restaurant segment;weather conditions in the Company’s operating regions; laws and governmentregulations; general business and economic conditions; availability of capital; success ofoperating initiatives and marketing and promotional efforts; and changes in accountingpolicies. In addition, the Company disclaims any intent or obligation to update thoseforward-looking statements.
**Introduction**
As of September 29, 2002, the Company owned and operated 63 locations(47 Garfield’s, 14 Garcia’s, 2 Pepperoni Grills), franchised 9 Garfield’sand 3 Garcia’s and licensed 1 Garcia’s restaurants. The Company is working withfranchisees on the development of restaurants located in Arizona, Colorado, Indiana,Florida, Nebraska and Nevada. As of the date of this report, the entire system includes 76restaurants of which 63 are Company-owned. The Company expects that 2 additionalfranchised locations will open in 2002.

The Company has successfully initiated a national advertising campaignto seek prospective franchisees. The intention is to find candidates or organizations thathave a substantial net worth, a proven track record in multi-unit food service, retail orhospitality, and an interest in developing and operating multiple casual diningrestaurants. As of the date of this report, franchise agreements have been signed for 71new****Garfield’s and 4 new Garcia’s Restaurants.

The Company’s uniform franchise offering circular (called the UFOCthat contains the franchise and development agreement) is registered nationally.

The Company’s marketing strategies are focused around one centraltheme, enhancing the guest experience in all the Company concepts. Each program isdesigned with the guest in mind, to develop concept marketing plans to improve guestsatisfaction in the areas of food, value, and service. The Company continues to offer abroad range of products that guests’ desire while striving to deliver the food in afast and friendly manner. Utilizing multiple mediums such as television, local cable,radio, outdoor and print, the Company is able to deliver messages to the guest in the mostefficient way. The restaurant managers are also encouraged to be involved in the communityand to use proven local store marketing programs to drive their business. Key prioritiesfor the remainder of 2002 include enhancing brand image along with developing menus thatplease the customer and improve the company bottom line at the same time.
**Seasonality**
With 51 of the 63 Company-owned restaurants located in regional mallsas of September 29, 2002, the resulting higher pedestrian traffic during the Thanksgivingto New Year holiday season has caused the Company to experience a substantial increase infood and beverage sales, cash flow from operations and profits in the Company’sfourth and first fiscal quarters. 
**Legal Proceedings**
In 1999 the Company filed suit against one of its food purveyors, J.R.Simplot Co. in federal court. This suit stems from the receipt of contaminated foodproduct that caused a food borne illness outbreak at the Company's Garcia's Mexicanrestaurants in the Phoenix, Arizona area in July 1998. In 2001, Simplot admitted that itdid in fact ship contaminated product to Company-owned Garcia’s in July 1998. Thesuit was litigated in August 2001 in order to determine the amount of damages to beawarded the Company. Initially, the Company was awarded approximately $6,551,000 indamages plus attorney’s fees and costs. The Company filed a motion to reconsider,based on a technical error in the calculation of damages and was awarded an additionalamount of $1,854,000, bringing the total to approximately $8,405,000 plus attorneys’fees and costs. During the first quarter, the Company received approximately $516,000 forreimbursement of legal fees. No amounts related to actual damages awarded have beenincluded in the consolidated statements of income. As of the date of this report, the caseis currently in appeal by both parties.

The Company has other lawsuits pending but does not believe the outcomeof the lawsuits, individually or collectively will materially impair the Company’sfinancial and operational condition. 
**Percentage Results of Operations and Restaurant Data**
The following table sets forth, for the periods indicated, (i) thepercentages that certain items of income and expense bear to total revenues, unlessotherwise indicated, and (ii) selected operating data:

 

THIRTEEN WEEKS

ENDED
THIRTY-NINE WEEKS

ENDED
September 29,

2002
September 30,

2001
September 29,

2002
September 30,

2001
Statements    of Operations Data:
Revenues:
        Food and beverage sales 
98.7%
98.2%
98.9%
98.6%
        Franchise fees and royalties 
0.8%
0.9%
0.6%
0.6%
     Other income 
0.5%
0.9%
0.5%
0.8%
100.0%
100.0%
100.0%
100.0%
Costs    and Expenses:
        Costs of sales (1) 
27.2%
27.9%
27.0%
27.6%
        Operating expenses (1) 
66.4%
64.2%
63.5%
63.6%
        (Gain) loss on disposal of assets 
(1.2)%
0.4%
(0.5)%
0.5%
        Pre-opening costs (1) 
0.0%
0.4%
0.0%
0.6%
        General and administrative 
6.4%
6.0%
5.9%
5.9%
        Depreciation and amortization (1) 
4.6%
4.6%
4.3%
4.4%
        Interest expense 
0.8%
1.1%
0.8%
1.0%
Income    (loss) before income taxes 
(3.1)%
(2.8)%
0.1%
(2.3)%
Provision    for (benefit from) income taxes 
(0.9)%
(0.8)%
0.0%
(0.7)%
Net    income (loss) 
(2.2)%
(2.0)%
0.1%
(1.5)%
Selected    Operating Data:
(Dollars    in thousands)
System-wide    sales:
        Company restaurants 
$21,753
$23,143
$70,972
$72,046
        Franchise restaurants 
3,336
2,326
9,485
7,084
             Total 
$25,089
$25,469
$80,457
$79,130
Number    of restaurants
(at end    of period):
        Company restaurants 
63
67
63
67
     Franchise restaurants 
13
7
13
7
             Total 
76
74
76
74
(1) As a percentage of food and beverage sales.
**Results of Operations**
For the quarter ended September 29, 2002, the Company recorded a netloss of $(478,980) (($0.16) per common share) on revenues of $22,029,212. This compares toa net loss of $(467,805) (($0.16) per common share) for the quarter ended September 30,2001, on revenues of $23,558,867. For the thirty-nine weeks ended September 29, 2002, theCompany recorded net income of $29,110 ($0.01 per common share) on revenues of$71,766,607. This compares to a net loss of $(1,106,876)(($0.37) per commonshare) for the thirty-nine weeks ended September 30, 2001.**Revenues**
Company revenues for the thirteen and thirty-nine week periods endedSeptember 29, 2002, decreased 6.5% and 1.8% over the revenues reported for the sameperiods in 2001. The revenue decrease relates primarily to the sale of three Garcia’sin 2002 as well as negative economic trends in the third quarter. The number of Companyrestaurants operating at the end of each respective period and the number of operatingweeks during each period were as follows:

Number of    Operating Weeks
Average Weekly    Sales Per Unit
Period

Ended
Number of

Units Open
Thirteen Weeks
Thirty-nine Weeks
Thirteen Weeks
Thirty-nine WeeksGarfield’s:September 29, 2002
47
611
1,858
$26,403
$27,491September 30, 2001
48
624
1,883
$26,343
$26,924Garcia's: September 29, 2002
13
189
603
$22,915
$27,840September 30, 2001
16
202
614
$27,737
$29,581Pepperoni Grill:September 29, 2002
2
26
78
$31,799
$32,671September 30, 2001
2
26
78
$34,389
$34,760
For the thirteen weeks ended September 29, 2002, average weekly salesper unit for Garfield's increased $60 or 0.2% versus the quarter ended September 30, 2001.Average weekly sales per unit for Garfield’s increased by $567 or 2.1% for thethirty-nine weeks ended September 29, 2002, versus the previous year’s results. Theprimary reason for the increase is due to higher check averages.

For the thirteen weeks ended September 29, 2002, average weekly salesper unit for Garcia’s decreased $4,822 or 17.4% versus the quarter ended September30, 2001. Average weekly sales per unit for Garcia’s decreased by $1,741 or 5.9% forthe thirty-nine weeks ended September 29, 2002, versus the previous year. This decrease isprimarily due to the sale of three higher volume units in 2002.

For the thirteen weeks ended September 29, 2002, average weekly salesper unit for Pepperoni Grill decreased $2,590 or 7.5% versus the same period in 2001.Average weekly sales per unit for Pepperoni Grill decreased by $2,089 or 6.0% for thethirty-nine weeks ended September 29, 2002, versus the previous year. This decrease isprimarily due to one of the mall-based units losing an anchor and a movie theater, drivingless traffic into the mall.

Franchise fees and continuing royalties decreased to $423,969 duringthe thirty-nine weeks ended September 29, 2002 versus $461,023 during the thirty-nineweeks ended September 30, 2001. 

Other income for the thirty-nine weeks ended September 29, 2002 was$370,226 as compared to the previous year’s amount of $572,756. This decrease is dueprimarily to the Company collecting an insurance claim in 2001 that was previously deniedby the insurance company for store related repairs expensed in 2000 that were reimbursableunder the Company’s property insurance coverage.
**Costs and Expenses**
The following is a comparison of costs of sales and labor costs(excluding payroll taxes and fringe benefits) as a percentage of food and beverage salesat Company-owned restaurants:

Thirteen Weeks    Ended
Thirty-nine    Weeks Ended
September 29,

2002
September 30,

2001
September 29,

2002
September 30,

2001
Garfield's:     Costs of sales .
27.8%
28.1%
27.6%
27.9%     Labor costs 
28.7%
28.4%
28.3%
28.7%
    Total 
56.5%
56.5%
55.9%
56.6%
Garcia's:  Cost of    sales 
25.5%
27.4%
25.7%
26.8%     Labor costs 
31.1%
32.5%
30.1%
30.5%       Total 
56.6%
59.9%
55.8%
57.3%
Pepperoni Grill:  Cost of    sales 
25.9%
27.0%
25.8%
27.0%     Labor costs 
28.6%
28.6%
29.1%
28.4%
    Total 
54.5%
55.6%
54.9%
55.4%
Total Company:  Cost of    sales 
27.2%
27.9%
27.0%
27.6%  Labor    costs 
29.2%
29.5%
28.8%
29.1%       Total 
56.4%
57.4%
55.8%
56.7%
 

Costs of sales as a percentage of food and beverage sales forGarfield’s in the quarters ended September 29, 2002 and September 30, 2001 was 27.8%and 28.1% respectively. This decrease is primarily due to promotions with lower cost itemsand better overall cost control in the third quarter.

Garcia’s costs of sales as a percentage of food and beverage saleswas 25.5% in the quarter ended September 29, 2002 versus 27.4% in the quarter endedSeptember 30, 2001. This decrease is primarily due to promotions with lower cost items andbetter overall cost control in the third quarter.

Costs of sales as a percentage of food and beverage revenue forPepperoni Grill was 25.9% for the quarter ended September 29, 2002 compared to 27.0% forthe quarter ended September 30, 2001. This decrease is primarily due to promotions withlower cost items and better overall cost control in the third quarter. 

Labor costs for Garfield’s increased to 28.7% of food and beveragesales during the quarter ended September 29, 2002, versus 28.4% during the 2001 comparableperiod. 

Garcia’s labor costs decreased to 31.1% of food and beverage salesduring the quarter ended September 29, 2002, versus 32.5% in the quarter ended September30, 2001. This decrease is due to the sale of three locations with higher than averagelabor costs.

Labor cost in Pepperoni Grill was 28.6% during the quarter endedSeptember 29, 2002 versus 28.6% during the 2001 comparable period. 

For the thirteen weeks ended September 29, 2002, operating expenses asa percentage of food and beverage sales increased to 66.4% from 64.2% in the thirteenweeks ended September 30, 2001. For the thirty-nine weeks ended September 29, 2002,operating expenses decreased to 63.5% of food and beverage sales versus 63.6% in the 2001period. This increase for the quarter primarily related to constant fixed costs comparedto lower revenues. 

Restaurant pre-opening costs, which are expensed as incurred, were$99,000 for the quarter ended September 30, 2001, and $429,000 for the thirty-nine weekperiod ended September 30, 2001. The Company did not have any units under constructionduring the thirty-nine weeks ended September 29, 2002.

During the thirteen and thirty-nine week periods ended September 29,2002 and September 30, 2001, general and administrative costs as a percentage of totalrevenues changed to 6.4% and 5.9% from 6.0% and 5.9%, respectively. The increase for thethirteen-week period ended September 29, 2002 is primarily due to constant fixed costscompared to lower revenues.

For the thirteen weeks ended September 29, 2002 depreciation andamortization expense was $1,004,316 (4.6% of food and beverage sales) compared to$1,055,687 (4.6% of food and beverage sales) in the thirteen weeks ended September 30,2001. For the thirty-nine weeks ended September 29, 2002, depreciation and amortizationexpense was $3,079,224 (4.3% of food and beverage sales) compared to $3,140,214 (4.4% offood and beverage sales) in the thirty-nine weeks ended September 30, 2001.

For the thirteen weeks ended September 29, 2002 interest expensedecreased to $172,326 (0.8% of total revenues) from $250,532 (1.1% of total revenues) forthe thirteen weeks ended September 30, 2001. For the thirty-nine week period endedSeptember 29, 2002, interest expense decreased to $549,167 (0.8% of total revenues) from$766,536 (1.0% of total revenues) in the comparable 2001 period. The decrease primarilyrelated to lower interest rates and average debt balance, which is a result of term loanpayments. 
**Income Taxes**
The Company's provision for (benefit from) income taxes was $(195,500)and $12,000 for the thirteen and thirty-nine weeks ended September 29, 2002, versus abenefit of $(190,508) and $(543,439), respectively, for the 2001 comparable periods. Theeffective tax rates for the periods ended September 29, 2002 and September 30, 2001, areas follows:

 

Thirteen Weeks
Thirty-nine Weeks
September 29,
September 30,
September 29,
September 30,
2002
2001
2002
2001
Effective    income tax rates 
(29.0)%
(29.0)%
29.2%
(32.9)%
Effective income tax rates are lower during periods with net income dueto the large amount of FICA tax credits on tipped employees that the Company is allowed asa reduction of its calculated income tax liability.
**Earnings Per Share ("EPS")**
Basic EPS includes no dilution and is computed by dividing incomeavailable to common stockholders by the weighted-average number of common sharesoutstanding for the period. The weighted-average common shares outstanding for the basicEPS calculation were 2,979,147 and 2,959,351 in the quarters ended September 29, 2002 andSeptember 30, 2001, respectively, and 2,988,960 and 2,960,690 in the thirty-nine weeksended September 29, 2002 and September 30, 2001, respectively. Diluted EPS is computed bydividing net income available to common stockholders by the sum of the weighted-averagenumber of common shares outstanding for the period plus dilutive common stock equivalents.The sum of the weighted-average common shares and common share equivalents for the dilutedEPS calculation was 2,979,147 and 2,959,351 in the quarters ended September 29, 2002 andSeptember 30, 2001, respectively, and 3,087,981 and 2,960,690 in the thirty-nine weeksended September 29, 2002 and September 30, 2001, respectively. Diluted EPS is notcalculated for periods where the Company had a net loss as the result would beantidilutive.
**Impact of Inflation**
The impact of inflation on the costs of food and beverage products,labor and real estate can affect the Company's operations. Over the past few years,inflation has had a lesser impact on the Company's operations due to the lower rates ofinflation in the nation's economy and the economic conditions in the Company's marketareas.

Management believes the Company has historically been able to pass onincreased costs through certain selected menu price increases and increased productivityand purchasing efficiencies, however there can be no assurance that the Company will beable to do so in the future. Market conditions will determine the Company's ability topass through such additional costs and expenses. Management anticipates that the averagecost of restaurant real estate leases and construction costs could increase in the futurewhich could affect the Company's ability to expand. In addition, mandated health care andan increase in the Federal or state minimum wages could significantly increase theCompany's costs of doing business as well as substantial increases in utility costsexperienced by the Company. Due to accounting standards requiring expensing pre-openingcosts as incurred, income from operations, on an annual and quarterly basis, could beadversely affected during periods of restaurant development; however, the Company believesthat its initial investment in the restaurant pre-opening costs yields a long-term benefitof increased operating income in subsequent periods.
**Liquidity and Capital Resources**
At September 29, 2002, the Company’s current ratio was .39 to 1compared to 0.34 to 1 at December 30, 2001. The Company’s working capital deficit was$(6,074,715) at September 29, 2002 versus $(8,651,169) at December 30, 2001. As iscustomary in the restaurant industry, the Company has operated with negative workingcapital and has not required large amounts of working capital. Historically, the Companyhas leased the majority of its restaurant locations and through a strategy of controlledgrowth, financed its expansion from operating cash flow, proceeds from the sale of commonstock and utilizing the Company’s revolving line of credit.

During the thirty-nine weeks ended September 29, 2002, the Company hadnet cash used in operating activities of $577,628 as compared to $1,218,658 during thecomparable 2001 period.

The Company believes the cash generated from its operations andborrowing availability under its credit facility (described below), will be sufficient tosatisfy the Company’s net capital expenditures and working capital requirementsduring 2002.

In February 1999, the Company entered into a senior credit facilitywith a bank in the aggregate amount of $14,600,000, of which a maximum of $6,000,000 isavailable to the Company under a revolving line of credit and $8,600,000 was available tothe Company under a term loan. Certain proceeds of the term loan (approximately $5.4million) were used to repurchase 1,056,200 shares of the Company’s common stock(transaction described below). The balance of the proceeds under the term loan(approximately $3.2 million) and the initial proceeds under the revolving line of creditwere used to retire indebtedness under the Company’s existing loan agreement. As ofSeptember 29, 2002, the Company had outstanding borrowings of approximately $5,971,170under the revolving line of credit. Outstanding borrowings under the term loan bearinterest at three-month LIBOR plus 2.50% (4.3% as of September 29, 2002). Outstandingborrowings under the revolving line of credit bear interest at the greater of three monthLIBOR plus 2.50% or 5.0% (5.0% at September 29, 2002). The interest rate is resetquarterly. There is no non-use fee related to either facility. The Company amended itsrevolving credit facility as of September 30, 2002, extending the maturity of therevolving line of credit to December 31, 2003. Accordingly, the debt has been classifiedas long-term as of September 29, 2002, on the accompanying consolidated condensed balancesheet. Under the term loan, outstanding principal and interest are payable quarterly inthe amount necessary to fully amortize the outstanding principal balance over a seven-yearperiod, with a final maturity in February 2004. As of September 29, 2002, the outstandingbalance of the term loan was $3,890,631. The term loan converts to a five-yearamortization schedule if the Company’s debt coverage ratio, as defined in the loanagreement, exceeds a certain level. Additionally, the floating interest rate on bothfacilities is subject to changes in the Company’s ratio of total loans and capitalleases to net worth. Under the terms of these notes, the Company’s maximum floatingrate is three-month LIBOR plus 2.50%. Borrowings under this loan agreement are unsecured.The loan agreement contains certain financial covenants and restrictions. As of the dateof this report, the Company is in compliance with these covenants and restrictions. 

In March 2001, the Company entered into an additional credit facilitywith a bank in the amount of $1,000,000 that is available to the Company under a revolvingline of credit. As of September 29, 2002 the Company had outstanding borrowings of$1,000,000 under the revolving line of credit. The credit facility bears interest at thegreater of the prime rate of interest or 5.0% (5.0% at September 29, 2002), and is setmonthly. There is a one-quarter of a percent (.25%) non-use fee relate to this facility.This credit facility was amended on September 30, 2002 and matures on December 31, 2002.

In November 1997, the Company entered into an interest rate swapagreement with a bank to hedge its risk exposure to potential increases in LIBOR. Thisagreement has a term of five years and an initial notional amount of $9,500,000. Thenotional amount declines quarterly over the life of the agreement on a seven-yearamortization schedule assuming a fixed interest rate of 7.68%. Under the terms of theinterest rate swap agreement, the Company pays interest quarterly on the notional amountat a fixed rate of 7.68%, and receives interest quarterly on the notional amount at afloating rate of three-month LIBOR plus 1.25%. The notional amount as of September 29,2002 was $3,619,790. The unrealized losses for the periods ended September 29, 2002 andDecember 30, 2001 are included in accumulated other comprehensive income on theconsolidated balance sheets.

In April 1997, the Company’s Board of directors authorized therepurchase of up to 200,000 shares of the Company’s common stock. In September 1997,an additional 200,000 shares were authorized for repurchase. During the third quarter of2002, 20,000 shares were repurchased for $60,024. As of September 29, 2002, 230,662 shareshave been repurchased under this plan for a total purchase price of approximately$794,099. No shares have been repurchased subsequent to September 29, 2002.
**Item 4.**Controls and Procedures
Evaluation of Disclosure controls and Procedures**
We maintain disclosure controls and procedures designed to providereasonable assurance that information required to be disclosed in the reports we file withthe SEC is recorded, processed, summarized and reported within the time periods specifiedin the rules of the SEC. Within 90 days prior to the filing of this Quarterly Report onForm 10-Q, we carried out an evaluation, under the supervision and the participation ofour management, including our Chief Executive Officer and Chief Financial Officer, of thedesign and operation of these disclosure controls and procedures pursuant to Exchange ActRule 13a-14. Based upon that evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company (including our consolidatedsubsidiaries) required to be included in our periodic SEC filings.
**Changes in Internal controls**
There were no significant changes in internal controls or other factorsthat could significantly affect our internal controls subsequent to the date of ourevaluation.

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.Legal Proceedings.

(a) Information on developments during the quarter in the Company's lawsuit with JR  Simplot are provided under the caption "Legal Proceedings" in "Management's  Discussion and Analysis of Financial Condition and Results of Operations" and such  information is incorporated herein by reference.

 

Item 6.Exhibits and Reports on Form 8-K.

(a) Officer certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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 undersignedthereunto duly authorized.

 

**EATERIES, INC.**Registrant****
 

Date: October 30, 2002      By: /s/ BRADLEY L.GROW                                            Bradley L. Grow                                            Vice President                                           Chief Financial Officer
 

CERTIFICATION

 

I, Vincent F. Orza, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eateries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this quarterlyreport is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of this quarterly report(the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on ourmost recent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors:

a) all significant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors any materialweaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in thisquarterly report whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

Date: October 30, 2002    By: /s/ VINCENT F. ORZA,JR.                                          Vincent F. Orza, Jr.                                          Chief Executive Officer
 

 

 

CERTIFICATION

 

I, Bradley L. Grow, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eateries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this quarterlyreport is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls andprocedures as of a date within 90 days prior to the filing date of this quarterly report(the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on ourmost recent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors:

a) all significant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors any materialweaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in thisquarterly report whether there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

Date: October 30, 2002    By: /s/ BRADLEY L. GROW                                            Bradley L. Grow                                            Chief Financial Officer
 

 

Exhibit (a)

OFFICER CERTIFICATIONS

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, theundersigned, being the duly elected and appointed chief executive officer and chieffinancial officer of Eateries, Inc., an Oklahoma corporation (the "Company"),hereby certify that to the best of their knowledge and belief:

1. The Company’s quarterly report on Form 10-Q for the quarter  ended September 29, 2002 fully complies with the requirements of section 13(a) or 15(d) of  the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d); and

2. That information contained in such periodic report fairly presents,  in all material respect, the financial condition and results of  operations of the  Company.

 

Date: October 30, 2002    By: /s/ VINCENT F.ORZA, JR.                                          Vincent F. Orza, Jr.                                          Chief Executive Officer
Date: October 30, 2002    By: /s/ BRADLEY L. GROW                                          Bradley L. Grow                                         Chief Financial Officer
 

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