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

        March 30, 2003.

| 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, and (2) has been subject to such filing requirements for the past90 days. **Yes X No____
Indicate by check mark whether the registrant is an acceleratedfiler (as defined in Rule 12b-2 of the Act). Yes ___ No _X__

As of April 29, 2003, 2,967,417 common shares, $.002par value, were outstanding. **EATERIES,    INC. AND SUBSIDIARIES

FORM 10-Q**
INDEX
PagePart I. FINANCIAL    INFORMATION  Item 1. Financial    Statements           Condensed Consolidated Balance Sheets (unaudited)                 March 30, 2003 and December 29, 2002 
4           Condensed Consolidated Statements of                 Operations (unaudited)                       Thirteen weeks ended March 30, 2003                       and March 31, 2002 
5           Condensed Consolidated Statements of                 Cash Flows (unaudited)                       Thirteen weeks ended March 30, 2003                       and March 31, 2002 
6           Notes to Condensed Consolidated Financial                 Statements (unaudited) 
7  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)
March    30,
December    29,
2003
2002**ASSETS**
Current    assets:
     Cash    and cash equivalents
$    1,219,173
$ 794,675    
     Receivables
747,060
4,110,230
     Inventories
704,452
716,077
     Prepaid    expenses and other
1,110,125
1,066,417
          Total    current assets
3,780,808
6,687,399Property and equipment, at    cost
44,828,276
44,907,512Less: Landlord finish-out    allowances
(15,548,866)
(15,543,866)Less: Accumulated    depreciation and amortization
(16,526,527)
(16,312,585)        Net property and equipment
12,752,883
13,051,061Goodwill, net
370,191
370,191Other assets
1,032,275
1,060,403        Total assets
$ 17,936,157
$ 21,169,054**LIABILITIES AND    STOCKHOLDERS’ EQUITY**Current liabilities:        Accounts payable
$    2,467,542
$    5,503,040         Accrued liabilities 
3,505,010
3,934,978             Total current liabilities
5,972,553
9,438,018Deferred credit
923,352
1,077,190Other liabilities
416,022
528,870Long-term obligations, net    of current portion
10,000,000
9,164,641Commitments and    contingencies
---
---        Total liabilities
17,311,927
20,208,719Stockholders’ equity:        Preferred stock, none issued
---
---        Common stock
9,044
9,044        Additional paid-in capital
10,370,359
10,370,359        Accumulated deficit
(2,332,832)
(1,996,727)        Treasury stock, at cost
(7,422,341)
(7,422,341)             Total stockholders’ equity
624,230
960,335        Total liabilities and stockholders’ equity
$ 17,936,157
$ 21,169,054See notes to condensed    consolidated financial statements.**EATERIES,    INC. AND SUBSIDIARIES**CONDENSED    CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
March    30,
March    31,
2003
2002**REVENUES**
        Food and beverage sales
$    19,080,942 
$    25,578,641
        Franchise fees and royalties
219,020
92,909
        Other income
112,908
136,789
             Total revenues
19,412,870
25,808,339**COSTS    AND EXPENSES
        Costs of sales
5,344,388
7,012,987        Operating expenses
12,168,425
15,776,154        General and administrative
1,425,620
1,433,470        Depreciation and amortization
624,418
1,046,288        Interest expense
126,067
196,476             Total costs and expenses
19,688,918
25,465,375**INCOME (LOSS) BEFORE    INCOME TAXES**
(276,048)
342,964**PROVISION FOR INCOME    TAXES**
60,057
101,000**NET INCOME (LOSS)**
$ (336,105) 
$ 241,964**BASIC INCOME (LOSS) PER    COMMON SHARE**
$ (0.11) 
$ 0.08**DILUTED INCOME (LOSS)    PER COMMON SHARE**
$ (0.11) 
$ 0.08See notes to condensed    consolidated financial statements.**EATERIES, INC. AND SUBSIDIARIES**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
ThirteenWeeks Ended
March 30,
March 31,
2003
2002Cash flows    from operating activities:
     Net income (loss)
$ (336,105) 
$ 241,964 
     Adjustments to reconcile net income (loss) to net    cash 
     used in operating activities:
          Depreciation and    amortization
624,418
1,046,288
          Provision for    income taxes
---
101,000
          Deferred income    taxes
---
(33,540)
     (Increase) decrease in operating assets:
          Receivables
294,606
422,216             Inventories
11,625
42,509             Prepaids and other current
(43,708)
---             Other
28,128
(82,880)        Increase (decrease) in operating liabilities:             Accounts payable
(3,035,498)
(2,823,881)             Accrued liabilities
(429,968)
(162,149)             Other liabilities
(266,685)
(145,102)        Total adjustments
(2,817,082)
(1,635,539)        Net cash used in operating activities
(3,153,187)
(1,393,575)Cash flows    from investing activities:        Capital expenditures
(366,238)
(360,134)        Landlord allowances
40,000
129,700        Proceeds from sale of restaurants
3,020,000
---        Payments received on notes receivable
48,564
---             Net cash provided by (used in) investing activities
2,742,326
(230,434)Cash flows    from financing activities:        Borrowings under long-term obligations
10,000,000
---        Payments on long-term obligations
(3,583,489)
(307,143)        Borrowings under revolving credit agreements
---
10,022,000        Payments under revolving credit agreements
(5,581,152)
(8,275,000)             Net cash provided by financing activities
835,359
1,439,857Increase    (decrease) in cash and cash equivalents
424,498
(184,152)Cash and cash    equivalents at beginning of period
794,675
999,533Cash and cash    equivalents at end of period
$ 1,219,173 
$ 815,381 See notes to    condensed consolidated financial statements.**EATERIES, INC. AND SUBSIDIARIES**
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 - Organization

Eateries, Inc. (the "Company") was incorporated under thelaws of the State of Oklahoma on June 1, 1984. The Company is engaged in the creation,design, management and operations of restaurants through Company-owned and franchisedrestaurants. The Company’s restaurants are located primarily in the East, Southwest,Midwest and Southeast regions of the United States. The Company’s restaurants operateunder the name Garfield’s Restaurant & Pub ("Garfield’s"),Pepperoni Grill andGarcia’s Mexican Restaurants("Garcia’s"). An analysis of Company-owned and franchised restaurants forthe trailing twelve months in the period ended March 30, 2003, is as follows:
Company    Units
Franchised    Units
Total    UnitsAt March 31, 2002 
66 
7 
73         Units opened 
--- 
6 
                6        Units closed 
(1)
---
(1)        Units sold 
(13)
(2)
(15)At March 30, 2003 
52 
11
63 
Note 2 – Significant Accounting Policies

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 the thirteenweek period ended March 30, 2003, are not necessarily indicative of the results that maybe expected for the year ending December 28, 2003. For further information, refer to theconsolidated financial statements and footnotes thereto included in the Company's AnnualReport on Form 10-K for the year ended December 29, 2002.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Eateries,Inc. and its wholly owned subsidiaries, Fiesta Restaurants, Inc. and Roma Foods, Inc. Allsignificant intercompany transactions and balances have been eliminated.

FISCAL YEAR

The Company’s fiscal year is a 52/53-week year ending on the lastSunday in December. The Company will operate a 52-week fiscal year for the year endedDecember 28, 2003. The Company operated a 52-week fiscal year for the year ended December29, 2002.

REVENUE

Revenue from food and beverage sales is recorded at the date servicesare provided. Typically all customers pay at the time the service is provided.

PROVISION FOR IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s restaurants are reviewed on an individual restaurantbasis for indicators of impairment whenever events or circumstance indicate that thecarrying value of its restaurants may not be recoverable. The Company’s primary testfor an indicator of potential impairment is operating losses. In order to determinewhether an impairment has occurred, the Company estimates the future net cash flowsexpected to be generated from the use of its restaurants and the eventual disposition, asof the date of determination, and compares such estimated future cash flows to therespective carrying amounts. Those restaurants, which have carrying amounts in excess ofestimated future cash flows, are deemed impaired. The carrying value of these restaurantsis adjusted to an estimated fair value by discounting the estimated future cash flowsattributable to such restaurants using a discount rate equivalent to the rate of returnthe Company expects to achieve from its investment in newly-constructed restaurants. Theexcess is charged to expense and cannot be reinstated (See Note 8).

Considerable management judgment and certain significant assumptionsare necessary to estimate future cash flows. Significant judgments and assumptions used bythe Company in evaluating its assets for impairment include, but may not be limited to:estimations of future sales levels, cost of sales, direct and indirect costs of operatingthe assets, the length of time the assets will be utilized and the Company’s abilityto utilize equipment, fixtures and other moveable long-lived assets in other existing orfuture locations. In addition, such estimates and assumptions include anticipatedoperating results related to certain profit improvement programs implemented by theCompany during 2002, 2001 and 2000 as well as the continuation of certain rent reductions,deferrals, and other negotiated concessions from certain landlords. Actual results couldvary significantly from management’s estimates and assumptions and such variancecould result in a change in the estimated recoverability of the Company’s long-livedassets. Accordingly, the results of the changes in those estimates could have a materialimpact on the Company’s future results of operations and financial position.

INCOME TAXES

The Company is subject to Federal, state and local income taxes.Deferred income taxes are provided on the tax effect of presently existing temporarydifferences, existing net operating loss and tax credit carryforwards. The tax effect ismeasured using the enacted marginal tax rates and laws that will be in effect when thedifferences and carryforwards are expected to be reversed or utilized. Temporarydifferences consist principally of depreciation caused by using different lives forfinancial and tax reporting, the expensing of smallwares when incurred for tax purposeswhile such costs are capitalized for financial purposes and the expensing of costs relatedto restaurant closures and other disposals for financial purposes prior to being deductedfor tax purposes. The Company has fully reserved for its deferred income taxes, thus netdeferred tax assets at March 30, 2003 and December 29, 2002 are zero.

STOCK-BASED COMPENSATION

As permitted by SFAS 123, "Accounting for Stock-BasedCompensation," the Company has elected to follow Accounting Principles Board OpinionNo. 25, "Accounting for Stock Issued to Employees" ("APB 25"), andrelated interpretations in accounting for its employee stock options because thealternative fair value accounting provided for under SFAS 123, requires use of optionvaluation models that were not developed for use in valuing employee stock options. UnderAPB 25, because the exercise price of the Company’s employee stock options equals themarket price of the underlying stock on the date of grant, no compensation expense isrecognized.

Following are pro forma net income and earnings per share as if theCompany has accounted for its employee stock options granted subsequent to December 31,1994, under the fair value method. The fair value for these options was estimated at thedate of grant using a Black-Scholes option pricing model with the following weightedaverage assumptions for 2002, 2001 and 2000, respectively: risk-free interest rates of4.29%, 4.72% and 4.85% a dividend yield of 0%; volatility factors of the expected marketprice of the Company’s common stock of .45%, .45% and .90 and a weighted averageexpected life of the options of 7.5 years. The weighted average grant date fair value ofoptions issued in 2002, 2001 and 2000 was $1.27, $1.49 and $2.12, respectively.

The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options, which have no vesting restrictions and arefully transferable. In addition, option valuation models require the input of highlysubjective assumptions including the expected stock price volatility. Because theCompany’s employee stock options and stock purchase plan have characteristicssignificantly different from those of traded options, and because changes in thesubjective input assumptions can materially affect the fair value estimate, inmanagement’s opinion, the existing models do not necessarily provide a reliablesingle measure of the fair value of its employee stock options and stock purchase plan.

For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the options’ vesting period. The Company’spro forma information follows:

2003
2002Net income (loss), as    reported 
$    (336,105)
$    241,964Deduct: Total    Stock-based employee compensation 
     expense determined under    fair value based method for 

     all awards, net of related tax effects 
$    (540)
$    (55,337) Pro forma net income    (loss) 
$    (340,650)
$    186,627Earnings    (loss) per share        Basic – as reported 
$ (0.11)
$ 0.08        Basic – pro forma 
$ (0.11) 
$ 0.06         Diluted – as reported 
$    (0.11) 
$     0.08        Diluted – pro forma 
$    (0.11) 
$ 0.06    
EARNINGS PER SHARE

Basic Earnings Per Share ("EPS") includes no dilution and iscomputed by dividing income available to common stockholders by the weighted averagenumber of common shares outstanding for the period. Diluted EPS is computed by dividingnet income available to common stockholders by the sum of the weighted average number ofcommon shares outstanding for the period plus common stock equivalents.

The following tables set forth the computation of basic and diluted EPSfor the thirteen week periods ended March 30, 2003, and March 31, 2002:

Thirteen Weeks Ended
March    30,
March    31,
2003
2002Numerator:        Net income (loss) 
$ (336,105) 
$ 241,964 Denominator:        Denominator for basic EPS - weighted average shares                            outstanding2,967,4173,000,317        Dilutive effect of nonqualified stock options
---
38,990
Denominator    for diluted EPS 
2,967,417
3,039,307
Basic    EPS 
$ (0.11) 
$ 0.08 
Diluted    EPS 
$ (0.11) 
$ 0.08 
Note 3 - Balance Sheet Information
Receivables are comprised    of the following:
March 30,    2003
December 29,    2002General 
$ 106,000    
$ 68,000 Vendor rebates 
441,000
437,000Franchisees 
132,000
111,000Banquets 
---
129,000Notes receivable 
68,000
219,000Notes receivable from    Fiesta, L.L.C. 
---
3,146,000
$ 747,000 
$ 4,110,000 Accrued liabilities are    comprised of the following:
March 30,

2003
December 29,

2002
Compensation    
$    1,900,000 
$    1,880,000 
Taxes,    other than income 
586,000
695,000
Other 
1,019,000
1,360,000****************** |