UNITED
STATES
SECURITIES
& EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly
period ended October 2, 2005
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from ___________ to ______________
Commission
file number: 0-28234
Mexican
Restaurants, Inc.
(Exact
name of registrant as specified in its charter)
|
Texas
|
76-0493269
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer Identification Number)
|
|
1135
Edgebrook, Houston, Texas
|
77034-1899
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: 713-943-7574
Indicate
by check mark whether the Registrant:
(1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
x No
¨
Indicate
by check mark whether the Registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act).
Yes
¨ No
x
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨ No
x
Number
of
shares outstanding of each of the issuer’s classes of common stock, as of
November 2, 2005: 3,452,977 shares
of common stock, par value $.01.
Table
of Contents
Part
I - Financial Information
|
Page
No.
|
||
|
Item
1.
|
Financial
Statements (unaudited):
|
|
|
3
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
14
|
|
Item
4.
|
Controls
and Procedures
|
15
|
Part
II - Other Information
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
16
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
16
|
|
Item
6.
|
Exhibits
|
16
|
|
Signatures
|
17
|
|
|
Exhibit
31.1
|
18
|
|
|
Exhibit
31.2
|
19
|
|
|
Exhibit
32.1
|
20
|
|
|
Exhibit
32.2
|
21
|
PART
1 -- FINANCIAL
INFORMATION
Item
1. Financial Statements
Mexican
Restaurants, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
(unaudited)
|
|||||||
|
ASSETS
|
10/02/2005
|
01/02/2005
|
|||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
1,128,925
|
$
|
1,293,836
|
|||
|
Royalties
receivable
|
154,998
|
85,377
|
|||||
|
Other
receivables
|
569,242
|
701,413
|
|||||
|
Inventory
|
549,196
|
658,687
|
|||||
|
Taxes
receivable
|
229,694
|
573,840
|
|||||
|
Prepaid
expenses and other current assets
|
991,273
|
1,007,928
|
|||||
|
Total
current assets
|
3,623,328
|
4,321,081
|
|||||
|
Property,
plant and equipment
|
30,671,648
|
28,929,887
|
|||||
|
Less
accumulated depreciation
|
(14,984,314
|
)
|
(13,464,153
|
)
|
|||
|
Net
property, plant and equipment
|
15,687,334
|
15,465,734
|
|||||
|
Goodwill
|
10,644,690
|
10,644,690
|
|||||
|
Deferred
tax assets
|
541,613
|
619,087
|
|||||
|
Property
held for sale
|
655,118
|
505,118
|
|||||
|
Other
assets
|
642,347
|
770,476
|
|||||
|
Total
Assets
|
$
|
31,794,430
|
$
|
32,326,186
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Current
installments of long-term debt
|
$
|
1,000,000
|
$
|
1,000,000
|
|||
|
Accounts
payable
|
1,665,127
|
1,623,859
|
|||||
|
Accrued
sales and liquor taxes
|
536,891
|
740,898
|
|||||
|
Accrued
payroll and taxes
|
1,043,945
|
1,043,182
|
|||||
|
Accrued
expenses
|
1,136,134
|
1,097,640
|
|||||
|
Total
current liabilities
|
5,382,097
|
5,505,579
|
|||||
|
Long-term
debt, net of current portion
|
4,750,000
|
6,000,000
|
|||||
|
Other
liabilities
|
1,297,588
|
1,183,426
|
|||||
|
Deferred
gain
|
1,613,105
|
1,769,212
|
|||||
|
Commitments
and Contingencies
|
-
|
-
|
|||||
|
Stockholders'
equity:
|
|||||||
|
Preferred
stock, $.01 par value, 1,000,000 shares
|
|||||||
|
authorized,
none issued
|
-
|
-
|
|||||
|
Common
stock, $0.01 par value, 20,000,000 shares
|
|||||||
|
authorized,
4,732,705 shares issued
|
47,327
|
47,327
|
|||||
|
Additional
paid-in capital
|
20,121,076
|
20,121,076
|
|||||
|
Retained
earnings
|
10,512,307
|
9,303,791
|
|||||
|
Deferred
compensation
|
-
|
(6,303
|
)
|
||||
|
Treasury
stock, cost of 1,279,728 and 1,317,900 shares
|
|||||||
|
respectively
|
(11,929,070
|
)
|
(11,597,922
|
)
|
|||
|
Total
stockholders' equity
|
18,751,640
|
17,867,969
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
31,794,430
|
$
|
32,326,186
|
|||
Mexican
Restaurants, Inc. and Subsidiaries
Consolidated
Statements of Income
(unaudited)
|
13-Week
|
|
13-Week
|
|
39-Week
|
|
39-Week
|
|
|||||||||
|
|
|
|
|
Period
Ended
|
|
Period
Ended
|
|
Period
Ended
|
|
Period
Ended
|
|
|||||
|
|
|
|
|
10/02/2005
|
|
09/26/2004
|
|
10/02/2005
|
|
09/26/2004
|
||||||
|
Revenues:
|
||||||||||||||||
|
Restaurant
sales
|
$
|
19,753,890
|
$
|
19,627,510
|
$
|
60,337,619
|
$
|
57,825,035
|
||||||||
|
Franchise
fees, royalties and other
|
179,382
|
191,479
|
532,456
|
588,860
|
||||||||||||
|
19,933,272
|
19,818,989
|
60,870,075
|
58,413,895
|
|||||||||||||
|
Costs
and expenses:
|
||||||||||||||||
|
Cost
of sales
|
5,457,908
|
5,461,015
|
16,680,150
|
16,074,162
|
||||||||||||
|
Labor
|
6,629,632
|
6,504,574
|
20,004,515
|
19,084,172
|
||||||||||||
|
Restaurant
operating expenses
|
4,879,861
|
4,579,063
|
14,225,386
|
13,418,861
|
||||||||||||
|
General
and administrative
|
1,671,393
|
1,652,841
|
5,177,404
|
4,831,416
|
||||||||||||
|
Depreciation
and amortization
|
707,129
|
568,199
|
2,058,429
|
1,656,633
|
||||||||||||
|
Pre-opening
costs
|
16,050
|
16,960
|
55,876
|
27,489
|
||||||||||||
|
Hurricane
Rita losses
|
274,328
|
-
|
274,328
|
-
|
||||||||||||
|
Loss
on sale of assets
|
159,078
|
5,320
|
292,471
|
29,550
|
||||||||||||
|
19,795,379
|
18,787,972
|
58,768,559
|
55,122,283
|
|||||||||||||
|
Operating
income
|
137,893
|
1,031,017
|
2,101,516
|
3,291,612
|
||||||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Interest
income
|
1,557
|
311
|
2,821
|
9,291
|
||||||||||||
|
Interest
expense
|
(136,437
|
)
|
(138,238
|
)
|
(423,152
|
)
|
(409,258
|
)
|
||||||||
|
Other,
net
|
31,320
|
18,373
|
90,428
|
63,948
|
||||||||||||
|
(103,560
|
)
|
(119,554
|
)
|
(329,903
|
)
|
(336,019
|
)
|
|||||||||
|
Income
from continuing operations before income taxes
|
34,333
|
911,463
|
1,771,613
|
2,955,593
|
||||||||||||
|
Income
tax expense
|
3,138
|
297,197
|
561,480
|
972,489
|
||||||||||||
|
Income
from continuing operations
|
31,195
|
614,266
|
1,210,133
|
1,983,104
|
||||||||||||
|
Discontinued
Operations:
|
||||||||||||||||
|
Loss
from discontinued operations
|
-
|
(48,635
|
)
|
(2,565
|
)
|
(227,535
|
)
|
|||||||||
|
Impairments
and restaurant closure costs
|
-
|
(247
|
)
|
-
|
(167,551
|
)
|
||||||||||
|
Loss
on sale of assets
|
-
|
(659
|
)
|
-
|
1,629
|
|||||||||||
|
Loss
from discontinued operations before income taxes
|
-
|
(49,541
|
)
|
(2,565
|
)
|
(393,457
|
)
|
|||||||||
|
Income
tax benefit
|
-
|
18,533
|
948
|
147,192
|
||||||||||||
|
Loss
from discontinued operations
|
-
|
(31,008
|
)
|
(1,617
|
)
|
(246,265
|
)
|
|||||||||
|
Net
income
|
$
|
31,195
|
$
|
583,258
|
$
|
1,208,516
|
$
|
1,736,839
|
||||||||
|
Basic
income per share
|
||||||||||||||||
|
Income
from continuing operations
|
$
|
0.01
|
$
|
0.18
|
$
|
0.35
|
$
|
0.58
|
||||||||
|
Loss
from discontinued operations
|
-
|
(0.01
|
)
|
-
|
(0.07
|
)
|
||||||||||
|
Net
income
|
$
|
0.01
|
$
|
0.17
|
$
|
0.35
|
$
|
0.51
|
||||||||
|
Diluted
income per share
|
||||||||||||||||
|
Income
from continuing operations
|
$
|
0.01
|
$
|
0.17
|
$
|
0.32
|
$
|
0.55
|
||||||||
|
Loss
from discontinued operations
|
-
|
(0.01
|
)
|
-
|
(0.07
|
)
|
||||||||||
|
Net
income
|
$
|
0.01
|
$
|
0.16
|
$
|
0.32
|
$
|
0.48
|
||||||||
|
Weighted
average number of shares (basic)
|
3,435,787
|
3,384,605
|
3,422,807
|
3,384,605
|
||||||||||||
|
Weighted
average number of shares (diluted)
|
3,709,391
|
3,656,723
|
3,719,217
|
3,602,265
|
||||||||||||
Mexican
Restaurants, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
(unaudited)
|
|
|||||||
|
39-Weeks
Ended
|
39-Weeks
Ended
|
||||||
|
10/02/2005
|
9/26/2004
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Income
from continuing operations
|
$
|
1,210,133
|
$
|
1,983,104
|
|||
|
Adjustments
to reconcile income from continuing operations to net cash
|
|||||||
|
provided
by operating activities:
|
|||||||
|
Depreciation and amortization
|
2,058,429
|
1,656,633
|
|||||
|
Deferred gain amortization
|
(156,107
|
)
|
(156,107
|
)
|
|||
|
Hurricane Rita losses
|
274,328
|
-
|
|||||
|
Loss on sale of property, plant & equipment
|
292,471
|
29,550
|
|||||
|
Deferred compensation
|
6,303
|
30,978
|
|||||
|
Deferred taxes
|
77,474
|
268,144
|
|||||
|
Changes
in assets and liabilities:
|
|||||||
|
Royalties receivable
|
(69,621
|
)
|
25,286
|
||||
|
Other receivables
|
142,251
|
(352,422
|
)
|
||||
|
Income tax receivable
|
344,146
|
40,685
|
|||||
|
Inventory
|
(84,512
|
)
|
52,777
|
||||
|
Prepaid and other current assets
|
16,655
|
(122,142
|
)
|
||||
|
Other assets
|
902
|
214,639
|
|||||
|
Accounts payable
|
25,752
|
162,030
|
|||||
|
Accrued expenses and other liabilites
|
(210,551
|
)
|
(229,473
|
)
|
|||
|
Other liabilities
|
114,162
|
112,897
|
|||||
|
Total adjustments
|
2,832,082
|
1,733,475
|
|||||
|
Net cash provided by continuing operations
|
4,042,215
|
3,716,579
|
|||||
|
Net cash provided (used) by discontinued operations
|
(23,532
|
)
|
99,712
|
||||
|
Net cash provided by operating activities
|
4,018,683
|
3,816,291
|
|||||
|
Cash
flows from investing activities:
|
|||||||
|
Purchase of property, plant and equipment
|
(2,963,780
|
)
|
(1,945,477
|
)
|
|||
|
Proceeds from sale of property, plant and equipment
|
361,334
|
405,751
|
|||||
|
Business Acquisition, net of cash acquired
|
-
|
(6,554,732
|
)
|
||||
|
Net cash used in continuing operations
|
(2,602,446
|
)
|
(8,094,458
|
)
|
|||
|
Net cash used in discontinued operations
|
-
|
(10,190
|
)
|
||||
|
Net cash used in investing activities
|
(2,602,446
|
)
|
(8,104,648
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Net borrowings (payments) under line of credit
|
(1,250,000
|
)
|
1,475,000
|
||||
|
Additions to Long term Notes Payable
|
-
|
3,000,000
|
|||||
|
Purchase of treasury stock
|
(750,267
|
)
|
-
|
||||
|
Exercise of Employee Stock Options
|
419,119
|
-
|
|||||
|
Net cash provided by (used in) financing activities
|
(1,581,148
|
)
|
4,475,000
|
||||
|
Increase (decrease) in cash and cash equivalents
|
$
|
(164,911
|
)
|
$
|
186,643
|
||
|
Cash
and cash equivalents at beginning of period
|
1,293,836
|
366,042
|
|||||
|
Cash
and cash equivalents at end of period
|
$
|
1,128,925
|
$
|
552,685
|
|||
|
Supplemental
disclosure of cash flow information:
|
|||||||
|
Cash
paid during the period:
|
|||||||
|
Interest
|
$
|
422,896
|
$
|
359,384
|
|||
|
Income
Taxes
|
$
|
142,293
|
$
|
455,883
|
|||
|
Non-cash
investing and financing activity:
|
|||||||
|
CNL
real estate transaction
|
$
|
-
|
$
|
8,325,000
|
|||
|
|
|||||||
MEXICAN
RESTAURANTS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis
of Presentation
In
the
opinion of Mexican Restaurants, Inc. (the “Company”), the accompanying
consolidated financial statements contain all adjustments (consisting only
of
normal recurring accruals and adjustments) necessary for a fair presentation
of
the consolidated financial position as of October 2, 2005, and the consolidated
statements of income for the 13-week and 39-week periods and cash flows for
the
39-week periods ended October 2, 2005 and September 26, 2004. The consolidated
statements of income for the 13-week and 39-week periods ended October 2, 2005
are
not
necessarily indicative of the results to be expected for the full year. During
the interim periods, the Company follows the accounting policies set forth
in
its consolidated financial statements in its Annual Report and Form 10-K (file
number 0-28234). Reference should be made to such financial statements for
information on such accounting policies and further financial
details.
The
consolidated statements of income and cash flows for the 13-week and 39-week
periods ended October 2, 2005 and September 26, 2004 have been adjusted to
remove the operations of closed restaurants, which have been reclassified as
discontinued operations. Consequently, the consolidated statements of income
and
cash flows for the 13-week period ended September 26, 2004 shown in the
accompanying consolidated financial statements have been reclassified to conform
to the October 2, 2005 presentation. These reclassifications have no effect
on
total assets, total liabilities, stockholders’ equity or net
income.
The
consolidated statements of income for the 13-week and 39-week periods of fiscal
2004 have been adjusted to conform with the 2005 presentation of coupon expenses
for the 13 Beaumont-area restaurants acquired in January 2004. For the 13-week
and 39-week periods of fiscal 2004, the reclassifications were $59,078 and
$194,957, respectively. These reclassifications only affect the cost of sales
and restaurant operating expenses and have no effect on net income.
Impact
of Recently Issued Accounting Standards
In
December 2004, the Financial
Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No.123 (Revised), Share-Based
Payments,
a
revision of SFAS No.123, Accounting
for Stock-Based Compensation.
SFAS
No.123R requires the fair value measurement of all stock-based payments to
employees, including grants of employee stock options, and recognition of those
expenses in the statement of operations. SFAS No.123R is effective for the
first
annual reporting period beginning after December 15, 2005. We will continue
to
account for stock-based compensation using the intrinsic value method until
adoption of SFAS No.123R on January 2, 2006. Historically, the compensation
expense recognized related to stock options under the intrinsic value method
has
been minimal. As a result, adoption of the provisions of SFAS No.123R is
expected to have an impact to reported net income and earnings per share. We
have not yet determined the method of adoption or the effect of adopting SFAS
No.123R and have not determined whether the adoption will result in amounts
that
are similar to the current pro forma disclosures under SFAS No.123.
In
December 2004, the FASB issued SFAS No. 153, Exchanges
of Nonmonetary Assets—an amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions.
This
Statement amends APB Opinion No. 29 Accounting
for Nonmonetary Transactions,
based
on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. Certain of the disclosure
modifications are required for fiscal periods beginning after June 15, 2005.
The
adoption of SFAS No. 153 will not have a material effect on the Company’s
financial statements.
In
May
2005, the FASB issued SFAS No. 154, Accounting
Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB
Statement No. 3.
This
statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement
No. 3, Reporting
Accounting Changes in Interim Financial Statements,
and
changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle and is required for accounting changes and corrections
of
errors made in fiscal years beginning after December 15, 2005.
On
October 6, 2005, the FASB released FASB Staff Position (“FSP”) FAS No. 13-1,
Accounting
for Rental Costs Incurred during a Construction Period.
This
FSP affects companies that are engaged in construction activities on buildings
or grounds accounted for as operating leases. The FSP requires the Company
to
expense rental costs associated with these leases, starting on the date that
the
tenant is given control of the premises. As a result, companies must cease
capitalizing rental costs during construction periods. The FSP is effective
for
the first reporting period beginning after December 15, 2005. Retrospective
application is permitted, but not required. The Company has not yet determined
what impact the adoption of FSP FAS No. 13-1 will have on its results of
operations.
2. Accounting
Policies
At
year-end 2004, management performed a detailed analysis of leasehold improvement
amortization. The purpose of the analysis was to verify that leasehold
improvements were amortized over the shorter of the lease term plus options
or
the estimated useful life of the assets. The analysis resulted in differences
that were immaterial to the financial statements for all periods presented,
and
therefore restatement of the financial statements was determined by management
to be unnecessary. In the first quarter of 2005, the Company revised the
estimated useful life for certain leasehold improvements so that they are
amortized over the shorter of the lease term plus options or the estimated
useful life of the assets. The net impact of this change excluding additions
after September 26, 2004 was a decrease of pre-tax income of approximately
$43,350 and $105,780 for the 13-week and 39-week periods ended October 2, 2005
respectively.
3. Net
Income per Common Share
Basic
income per share is based on the weighted average shares outstanding without
any
dilutive effects considered. Diluted income per share reflects dilution from
all
contingently issuable shares, including options and warrants. As of October
2,
2005 and September 26, 2004, the Company had 848,048 and 1,012,470 options
and
warrants outstanding, respectively. As of October 2, 2005 and September 26,
2004, such stock options and warrants have the effect of increasing basic
weighted average shares outstanding by 273,604 and 272,118 for such 13-week
periods and 296,410 and 217,660 for the 39-week periods,
respectively.
4. Stock-Based
Compensation
The
Company has adopted the disclosure-only provisions of SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123,
Accounting
for Stock-Based Compensation,
and has
accounted for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees,
and
related interpretations. Accordingly, no compensation cost has been recognized
for stock options or warrants. Had compensation cost for the Company’s
outstanding stock options and warrants been determined based on the fair value
at the grant date for awards consistent with the provisions of SFAS No. 123,
the
Company’s net income and net income per share would have been reduced to the pro
forma amounts indicated below for the 13-week periods and 39-week periods ended
October 2, 2005 and September 26, 2004:
|
13
Weeks Ended
|
||
|
10/2/05
|
9/26/04
|
|
|
Net
income - as reported
|
$31,195
|
$
583,258
|
|
Less:
Stock based compensation expense, determined under fair value based
method for all awards, net of tax
|
$10,784
|
17,018
|
|
Pro
forma net income
|
20,411
|
566,240
|
|
Net
income per share diluted - as reported
|
0.01
|
0.16
|
|
Pro
forma net income per share diluted
|
0.01
|
0.16
|
|
39
Weeks Ended
|
||
|
10/2/05
|
9/26/04
|
|
|
Net
income - as reported
|
$1,208,516
|
$1,736,839
|
|
Less:
Stock based compensation expense, determined under fair value based
method for all awards, net of tax
|
45,700
|
26,937
|
|
Pro
forma net income
|
1,162,816
|
1,709,902
|
|
Net
income per share diluted - as reported
|
0.32
|
0.48
|
|
Pro
forma net income per share diluted
|
0.31
|
0.48
|
5. Acquisition
On
January 7, 2004, the Company completed its purchase of 13 restaurants and
related assets from its Beaumont-based franchisee for a total consideration
of
approximately $13.75 million. The financing for the acquisition was provided
by
Bank of America (formerly Fleet National Bank), CNL Franchise Network, LP
(“CNL”) and the sellers of the Beaumont-based franchise restaurants. Bank of
America provided $3.1 million of the acquisition financing by amending its
credit facility with Mexican Restaurants, Inc. The real estate related to six
of
the acquired restaurants was concurrently sold to CNL for $8.325 million in
a
sale-leaseback transaction. The sellers accepted $3.0 million in notes from
Mexican Restaurants, Inc. for the balance of the purchase price. The seller
notes require the payment of interest only for five years, with $1.5 million
in
principal due on January 7, 2009 and $1.5 million in principal amortizing over
an additional five years.
The
acquisition was accounted for under SFAS 141 and results of operations are
included in the accompanying financial statements from the date of acquisition.
The assets acquired and liabilities assumed in the acquisition were recorded
at
estimated fair values using comparables, appraisals, and records. The Company
acquired net assets of $6,554,732 including goodwill of $3,283,916.
On
October 14, 2004, the Company completed its purchase of one franchise restaurant
in Brenham, Texas for approximately $215,000, which included $164,509 in
goodwill. The restaurant was closed, remodeled and reopened on November 22,
2004.
6. Sale
of Property
On
June
23, 2005, the Company sold the corporate office building in Beaumont which
was
acquired in the 2004 acquisition of 13 restaurants. The sale resulted in a
loss
of $106,000. During the third quarter of 2005, the Company recorded losses
of
$159,078 of which $142,000 related to the remodeling of three Casa Olé
restaurants. These losses are included in the loss on sale of assets of $292,471
for the 39-weeks ended October 2, 2005.
7. Hurricane
Rita
The
consolidated statements of income and cash flows for the 13-week and 39-week
periods ended October 2, 2005, include a separate line item for losses related
to damage from Hurricane Rita, which hit the Gulf Coast area where a number
of
the Company’s restaurants are located. For the third quarter ending October 2,
2005, the Company estimates that it lost $1.0 million in revenues due to the
impact of Hurricane Rita. The Houston area’s twenty-seven (27) restaurants
sustained little to no damage, but lost four days of restaurant sales, or
approximately $400,000 in revenue (which is part of the $1.0 million in lost
revenue).
The
thirteen (13) restaurants in the Beaumont, Texas and Lake Charles, Louisiana,
metro areas sustained varying degrees of damage related to Hurricane Rita,
ranging from heavy damage in Sulphur, Louisiana and Port Arthur, Texas, to
light
water and wind damage in other Beaumont, Texas metro area restaurants. For
the
third quarter ended October 2, 2005, the thirteen (13) restaurants in the
Beaumont, Texas and the Lake Charles, Louisiana, metro areas lost eleven days
of
restaurant sales or approximately $600,000 in revenue. As of November 14, 2005,
all but two of the restaurants were reopened, and we expect the last two
restaurants to be reopened by the end of fiscal 2005. For the fourth quarter
of
fiscal 2005, the Company estimates it will lose approximately $900,000 in
revenue from this impacted region.
The
Company is insured for certain of the losses to its facilities, and for certain
of the losses related to the interruption of its restaurant operations. The
Company has accumulated data and has begun the process of evaluating potential
recoveries with the insurance company. At this time, the Company is unable
to
reasonably estimate the amount of potential insurance recovery. The Company
has
insurance that covers substantially all of the Hurricane Rita costs in excess
of
its $230,000 deductible, as well as business interruption losses.
The
estimated third quarter revenue loss of $1.0 million will impact the
comparability of the 13-week and 39-week periods of fiscal 2005 with the
comparable periods of fiscal 2004. Hurricane Rita costs are being accounted
for
as period costs and are being expensed as incurred. The Hurricane Rita loss
of
$274,328 included actual losses from spoiled inventory, costs associated with
the reopening of damaged restaurants and certain labor-related costs incurred
during the time the various restaurants were closed.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Special
Note Regarding Forward-Looking Statements
This
Form
10-Q contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: growth strategy; dependence on executive officers; geographic
concentration; increasing susceptibility to adverse conditions in the region;
changes in consumer tastes and eating habits; the risk of food-borne illness;
national, regional or local economic and real estate conditions; demographic
trends; inclement weather; traffic patterns; the type, number and location
of
competing restaurants; inflation; increased food, labor and benefit costs;
the
availability of experienced management and hourly employees; seasonality and
the
timing of new restaurant openings; changes in governmental regulations; dram
shop exposure; and other factors not yet experienced by the Company. The use
of
words such as “believes”, “anticipates”, “expects”, “intends” and similar
expressions are intended to identify forward-looking statements, but are not
the
exclusive means of identifying such statements. Readers are urged to carefully
review and consider the various disclosures made by the Company in this report
and in the Company’s most recently filed Annual Report and Form 10-K that
attempt to advise interested parties of the risks and factors that may affect
the Company’s business. The Company undertakes no obligation to update any such
statements or publicly announce any updates or revisions to any of the
forward-looking statements contained herein, to reflect any change in its
expectations with regard thereto or any change in events, conditions,
circumstances or assumptions underlying such statements.
General
The
Company operates and franchises Mexican-theme restaurants featuring various
elements associated with the casual dining experience under the names Casa
Olé,
Monterey’s Tex-Mex Café, Monterey’s Little Mexico, Tortuga Coastal Cantina,
Crazy Jose’s and La Senorita. At October 2, 2005 the Company operated 61
restaurants, franchised 18 restaurants and licensed one restaurant in various
communities in Texas, Louisiana, Oklahoma and Michigan.
The
Company’s primary source of revenues is the sale of food and beverages at
Company-owned restaurants. The Company also derives revenues from franchise
fees, royalties and other franchise-related activities. Franchise fee revenue
from an individual franchise sale is recognized when all services relating
to
the sale have been performed and the restaurant has commenced operation. Initial
franchise fees relating to area franchise sales are recognized ratably in
proportion to the services that are required to be performed pursuant to the
area franchise or development agreements and proportionately as the restaurants
within the area are opened.
The
consolidated statements of income and cash flows for the 13-week and 39-week
periods ended October 2, 2005 and September 26, 2004 have been adjusted to
remove the operations of closed restaurants, which have been reclassified as
discontinued operations. Consequently, the consolidated statements of income
and
cash flows for the 13-week and 39-week periods ended September 26, 2004 shown
in
the accompanying consolidated financial statements have been reclassified to
conform to the October 2, 2005 presentation. These reclassifications have no
effect on total assets, total liabilities, stockholders equity or net
income.
Results
of Operations
Hurricane
Rita Losses. For
the
third quarter ending October 2, 2005, the Company estimates that it lost $1.0
million in revenues due to the impact of Hurricane Rita. The Houston area’s
twenty-seven (27) restaurants sustained little to no damage, but lost four
days
of restaurant sales, or approximately $400,000 in revenue (which is part of
the
$1.0 million in lost revenue).
The
thirteen (13) restaurants in the Beaumont, Texas and Lake Charles, Louisiana,
metro areas sustained varying degrees of damage related to Hurricane Rita,
ranging from heavy damage in Sulphur, Louisiana and Port Arthur, Texas, to
light
water and wind damage in other Beaumont, Texas metro area restaurants. For
the
third quarter ended October 2, 2005, the thirteen (13) restaurants in the
Beaumont, Texas and the Lake Charles, Louisiana, metro areas lost eleven days
of
restaurant sales or approximately $600,000 in revenue. As of November 14, 2005,
all but two of the restaurants were reopened, and we expect the last two
restaurants to be reopened by the end of fiscal 2005. For the fourth quarter
of
fiscal 2005, the Company estimates it will lose approximately $900,000 in
revenue from this impacted region.
The
Company is insured for certain of the losses to its facilities, and for certain
of the losses related to the interruption of its restaurant operations. The
Company has accumulated data and has begun the process of evaluating potential
recoveries with the insurance company. At this time, the Company is unable
to
reasonably estimate the amount of potential insurance recovery. The Company
has
insurance that covers substantially all of the Hurricane Rita costs in excess
of
its $230,000 deductible, as well as business interruption losses.
The
estimated third quarter revenue loss of $1.0 million will impact the
comparability of the 13-week and 39-week periods of fiscal 2005 with the
comparable periods of fiscal 2004. Hurricane Rita costs are being accounted
for
as period costs and are being expensed as incurred. The Hurricane Rita loss
of
$274,328 included actual losses from spoiled inventory, costs associated with
the reopening of damaged restaurants and certain labor-related costs incurred
during the time the various restaurants were closed.
Revenues.
The
Company’s revenues for the third quarter of fiscal 2005 increased $114,283 or
0.6% to $19.9 million compared with $19.8 million for the same quarter in fiscal
2004. Restaurant sales for third quarter 2005 increased $126,380 or 0.6% to
$19.8 million compared with $19.6 million for the third quarter of fiscal 2004.
For the third quarter ending October 2, 2005, the Company estimates that it
lost
$1.0 million in revenues due to the impact of Hurricane Rita on the Company’s
operations. For the third quarter ended October 2, 2005, total system
same-restaurant sales increased 1.1%, Company-owned same-restaurant sales
increased 1.4% and franchised-owned same restaurant sales decreased 0.1%. The
remaining comparable increase in restaurant sales reflects new restaurant
additions.
On
a year-to-date basis, the
Company’s revenue was up $2.5 million or 4.2% to $60.9 million compared with
$58.4 million for the same 39-week period in fiscal 2004. Restaurant sales
for
the 39-week period ended October 2, 2005 increased $2.5 million or 4.3% to
$60.3
million compared with $57.8 million for the same 39-week period of fiscal 2004.
Approximately 53.8% of the increase reflects positive same-restaurant sales.
For
the 39-week period ended October 2, 2005, total system same-restaurant sales
increased 2.3%, Company-owned same-restaurant sales increased 2.4% and
franchised-owned same-restaurant sales increased 1.9%. The increase in
restaurant sales also reflects 272 days of sales in the 39-week period of fiscal
2005 related to the Beaumont-based franchisee stores and related assets acquired
in January 2004, compared with 263 days of sales in the 39-week period of fiscal
2004. The remaining comparable increase in restaurant sales reflects new
restaurant additions.
For
the quarter ended October 2,
2005, franchise fees, royalties and other decreased $12,097 or 6.3% to $179,382
compared with $191,479 for the same quarter a year ago. On a year-to-date basis,
franchise fees, royalties and other decreased $56,404 or 9.6% to $532,456
compared with $588,860 for the same 39-week period of fiscal 2004, reflecting
lost royalty income from the Company’s October 2004 acquisition of the Brenham,
Texas franchise restaurant, and the closure of a Houston-based franchise
restaurant.
Costs
and
Expenses.
Costs
of sales, consisting of food, beverage, liquor, supplies and paper costs,
decreased as a percent of restaurant sales 20 basis points to 27.6% compared
with 27.8% in the third quarter of fiscal 2004. The decrease primarily reflects
lower cheese, beef and chicken costs, which was partially offset by higher
produce, paper and supplies, beverage and liquor costs and fuel surcharges.
Beverage costs were higher reflecting the increased sale of bottled products,
and liquor costs were higher due to various Company promotions.
On
a year-to-date basis, costs of
sales decreased as a percent of restaurant sales 20 basis points to 27.6%
compared with 27.8% in the same 39-week period a year ago. The decrease
primarily reflects lower cheese, beef and chicken costs, which was partially
offset by higher produce, paper and supplies, beverage and liquor costs and
fuel
surcharges.
Labor
and other related expenses
increased in the 2005 third quarter as a percentage of restaurant sales 50
basis
points to 33.6% as compared with 33.1% in the third quarter of fiscal 2004.
The
increase primarily reflects higher health insurance expense. The increase also
reflects higher management labor expense. Although management labor identified
with the Hurricane closure periods were reclassified to a separate line item,
other labor expenses that were not reclassified impacted third quarter
margins.
On
a year-to-date basis, labor
and other related expenses increased as a percentage of restaurant sales 20
basis points to 33.2% as compared with 33.0% for the same 39-week period a
year
ago. As a percentage of total restaurant sales, comparable hourly and management
labor decreased slightly as a percentage of sales, but was more than offset
by
increases in health insurance expense and the higher labor expense associated
with new restaurant openings, conversions, and remodels.
Restaurant
operating expenses,
which primarily includes rent, property taxes, utilities, repair and
maintenance, liquor taxes, property insurance, general liability insurance
and
advertising, increased as a percentage of restaurant sales 140 basis points
to
24.7% as compared with 23.3% in the third quarter of fiscal 2004. The increase
primarily reflects higher electricity, natural gas, water and sewer costs.
Lost
revenue associated with Hurricane Rita also impacted restaurant operating
margins.
On
a
year-to-date basis, restaurant operating expense increased as a percentage
of
restaurant sales 40 basis points to 23.6% as compared with 23.2% for the same
39-week period a year ago. The increase reflects higher electricity, natural
gas, water and sewer costs. The lost revenue associated with Hurricane Rita
also
impacted restaurant operating margins.
General
and administrative
expenses consist of expenses associated with corporate and administrative
functions that support restaurant operations. As a percentage of total revenue,
general and administrative expenses increased 10 basis points to 8.4% for the
third quarters of fiscal 2005 as compared with 8.3% for the third quarter of
fiscal 2004. In absolute dollars, general and administrative
costs
were $18,552 higher in the third quarter of fiscal 2005 compared with the third
quarter of fiscal 2004. The increase reflects planned compensation increases
compared with the same quarter one year ago. Also, the lost revenue associated
with Hurricane Rita impacted general and administrative margins.
On
a
year-to-date basis, general and administrative expenses increased as a
percentage of total sales 20 basis points to 8.5% as compared with 8.3% in
the
same 39-week period one year ago. In absolute dollars, general and
administrative costs were $345,988 higher in the 39-week period of fiscal 2005
compared with the same 39-week period in fiscal 2004. The increase reflects
a
rise in health insurance expense, legal, audit fees and SEC reporting costs.
Legal expense reflects an unusually high level of litigation expense as the
Company successfully defended an employee lawsuit. The increase also reflects
planned compensation and bonus increases compared with the same 39-week period
one year ago.
Depreciation
and amortization expenses include the depreciation of fixed assets and the
amortization of intangible assets. Depreciation and amortization expense
increased as a percentage of total sales 70 basis points to 3.6% as compared
with 2.9% the same quarter in fiscal 2004. Such expense for the third quarter
of
fiscal 2005 was $138,930 higher than for the third quarter in fiscal 2004.
The
increase reflects a prospective adjustment to leasehold amortization (see
Accounting Policies in Notes to Consolidated Financial Statements), additional
depreciation expense for remodeled restaurants, new restaurants, and the
replacement of equipment and leasehold improvements in various existing
restaurants.
On
a
year-to-date basis, depreciation and amortization expense increased 50 basis
points to 3.4% of total sales as compared with 2.9% for the same 39-week period
a year ago. The 39-week period of fiscal 2005 was $401,796 higher than the
39-week period in fiscal 2004. The increase reflects the prospective adjustment
to leasehold amortization described in the preceding paragraph, additional
depreciation expense for remodeled restaurants, new restaurants, and the
replacement of equipment and leasehold improvements in various existing
restaurants.
Loss
on Sale of Assets.
During
the third quarter of fiscal 2005, the Company recorded losses of $159,078
primarily related to the disposition of assets associated with remodeled
restaurants. During the third quarter of fiscal 2004, the Company recorded
losses of $5,320 related to miscellaneous disposition of assets.
On
a
year-to-date basis, the Company recorded losses on sale of assets of $292,471
as
compared with $29,550 for the same 39-week period a year ago, as explained
in
the preceding paragraph. The loss also reflects the disposition of an office
building that was acquired last year with the Beaumont-based franchisee stores
and related assets, the sale of a joint ventured restaurant and miscellaneous
disposition of assets.
Other
Income (Expense).
Net
expense decreased $15,994 to $103,560 in the third quarter of fiscal 2005
compared with a net expense of $119,554 in the third quarter of fiscal year
2004. Interest expense decreased $1,801 to $136,437 in the third quarter of
fiscal year 2005 compared with interest expense of $138,238 in the third quarter
of fiscal year 2004. The Company paid down $750,000 in debt during the third
quarter of fiscal 2005. The decrease in interest expense reflects declining
debt
balances that have been partially offset by an increasing interest
rates.
On
a
year-to-date basis, net expense decreased $6,116 to $329,903 as compared with
a
net expense of $336,019 in the 39-week period of fiscal 2004. For the 39-week
period of fiscal 2005, interest expense increased $13,894 to $423,152 compared
with interest expense of $409,258 for the same 39-week period in fiscal 2004.
The increase in interest expense reflects increasing interest rates, despite
declining debt balances.
Income
Tax Expense.
The
Company’s effective tax rate from continuing operations for the third quarter of
fiscal 2005 was 9.1% as compared to 32.6% for the third quarter of fiscal 2004.
In the third quarter of fiscal 2005, the Company had significantly lower pretax
income from continuing operations
primarily due to Hurricane Rita, compared to the third quarter of fiscal 2004.
In both quarters, the permanent differences were approximately the same,
resulting in a lower effective tax rate in the third quarter of fiscal
2005.
On
a
year-to-date basis, the Company’s effective tax rate from continuing operations
for the 39-week period of fiscal 2005 was 31.7% as compared to 32.9% for the
39-week period of fiscal 2004. In the 39-week period of fiscal 2005, the Company
had lower pretax income from continuing operations compared to the 39-week
period of fiscal 2004. In both periods, the permanent differences were
approximately the same, resulting in a lower effective tax rate in the 39-week
period of fiscal 2005.
Restaurant
Closure Costs and Discontinued Operations.
No
losses from discontinued operations were recorded in the third quarter of fiscal
2005. In the corresponding quarter of fiscal year 2004, the Company recorded
losses from discontinued operations related to the 2004 closure or sale of
four
restaurants and the 2003 closure of one restaurant of $31,008. On a year-to-date
basis, the Company recorded losses from discontinued operations of $1,617 for
the 39-week period of fiscal 2005 and $246,265 for the 39-week period for fiscal
2004.
Liquidity
and Capital Resources
The
Company met capital requirements for the 39-week period of fiscal 2005 with
cash
generated by operations and its cash reserves. In this 39-week period, the
Company's operations generated $4.0 million in cash, as compared with $3.8
million in the 39-week period of fiscal 2004. As of October 2, 2005, the Company
had a working capital deficit of $1.8 million, compared with a working capital
deficit of approximately $1.2 million at January 2, 2005. A working capital
deficit is common in the restaurant industry, since restaurant companies do
not
typically require a significant investment in either accounts receivable or
inventory.
The
Company's principal capital requirements are the funding of routine capital
expenditures, new restaurant development or acquisitions and remodeling of
older
units. During the 39-week period of fiscal 2005, total cash used for capital
requirements was approximately $3.0 million. The Company also received
approximately $360,000 from the sale of an office building that was acquired
last year with the January 2004 acquisition of the Beaumont-based franchisee
stores and related assets. The Company opened one new restaurant in Humble,
Texas near the end of the second quarter of fiscal 2005. That restaurant is
presently exceeding our sales expectations. During the third quarter of fiscal
2005, the Company closed and later reopened one restaurant for extensive
remodeling. For the 39-weeks ended October 2, 2005, five restaurants have been
moderately remodeled (not requiring closures) and one restaurant parking lot
was
expanded. The balance of capital expenditures was for necessary replacement
of
equipment and leasehold improvements in various older restaurants and certain
light remodels. Recently, the Company signed a new lease for a restaurant it
plans to open during the first quarter of fiscal 2006. The Company’s management
still anticipates that it will spend approximately $1.3 million for capital
expenditures during the fourth quarter of fiscal 2005, or approximately $4.3
million for fiscal year 2005. Annual capital expenditures will be approximately
$200,000 higher than planned due to Hurricane Rita.
Over
the
last several years, the Company incurred additional debt to carry out
acquisitions, to develop new restaurants, to remodel existing restaurants,
and
to repurchase its common stock, as well as to accommodate other working capital
needs. During the 39-week period of fiscal 2005, the Company paid down
$1,250,000 of its indebtedness, $500,000 more than required by its loan
agreement. During the balance of fiscal year 2005, the Company anticipates
that
it will use excess cash flow to pay down approximately $250,000 of additional
indebtedness.
On
January 7, 2004, the Company completed its purchase of 13 restaurants and
related assets from its Beaumont-based franchisee for a total consideration
of
approximately $13.75 million. The financing for the acquisition was provided
by
Bank of America, CNL Franchise Network, LP (“CNL’) and the sellers of the
Beaumont-based franchise restaurants. Bank of America provided $3.1 million
of
the acquisition by amending its credit facility with Mexican Restaurants, Inc.
The real estate of six of the acquired restaurants was concurrently sold to
CNL
for $8.325 million in a sale-leaseback transaction. The sellers accepted $3.0
million in notes from the Company for the balance of the purchase price. The
seller notes pay interest only for five years, with $1.5 million in principal
due on January 7, 2009 and $1.5 million in principal amortizing over an
additional five years.
13
On
January 7, 2004, the Company amended its $10.0 million credit facility with
Bank
of America to accommodate the acquisition of the Beaumont-based franchise
restaurants. The amended credit facility consists of a $5.0 million term note
that requires quarterly principal payments of $250,000 and matures on December
31, 2008. The credit facility also includes a $5.0 million revolving line of
credit that matures on January 7, 2007. The interest rate is either the prime
rate or LIBOR plus a stipulated percentage. Accordingly, the Company is impacted
by changes in the prime rate and LIBOR. The Company is subject to a non-use
fee
of 0.75% on the unused portion of the revolver from the date of the credit
agreement. As of October 2, 2005, the Company had $2.750 million outstanding
on
the credit facility and $3.0 million in notes for a total indebtedness of $5.750
million.
On
April
1, 2005, the Company and Bank of America amended the $10.0 million credit
facility to accommodate the Company’s growth plans. The amendment allows for
additional capital expenditures, revised certain covenant ratios, increased
the
amount of allowable stock repurchases, and extended the maturity date of the
revolving line of credit to January 7, 2009. Effective June 30, 2005, the
Company and Bank of America further amended the $10.0 million credit facility
to
revise certain ratios effected by Hurricane Rita and the Company’s stock
repurchase program, and to lower the applicable interest rate margins. The
Company is in full compliance with all debt covenants as amended. The Company
expects to be in compliance with all debt covenants throughout fiscal year
2005.
On
May 9,
2005, the Company announced its plan to implement a limited stock repurchase
program in a manner permitted under its bank financing agreement. Under this
program, the Company could spend up to $1.0 million over the next 12 months
(not
to exceed $500,000 in any one quarter) to repurchase outstanding shares of
its
common stock. On September 7, 2005, the Company’s Board of Directors approved an
increase of $1,000,000 to its stock repurchase program announced on May 9,
2005.
The
Company has entered into a repurchase plan designed to comply with Rules 10b5-1
and 10b-18 under the Securities and Exchange Act of 1934 under which an agent
appointed by the Company will determine the time, amount, and price at which
purchases of common stock will be made, subject to certain parameters
established in advance by the Company. As of October 2, the Company repurchased
81,300 shares of its common stock for a total price of $750,267. During this
same period, Company employees exercised 117,472 options and the Company
received $419,119 in net proceeds. The shares acquired are being held for
general corporate purposes, including the offset of the dilutive effect on
shareholders from the exercise of stock options.
The
Company’s management believes that with its operating cash flow and the
Company’s revolving line of credit with Bank of America, funds will be
sufficient to meet operating requirements and to finance routine capital
expenditures and new restaurant growth through the end of the 2005 fiscal year.
Unless the Company violates an important debt covenant, the Company’s credit
facility with Bank of America is not subject to triggering events that would
cause the credit facility to become due sooner than the maturity dates described
in the previous paragraphs.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
The
Company does not have or participate in transactions involving derivative,
financial and commodity instruments. A portion of the Company’s long-term debt
bears interest at floating market rates. Based on the amount outstanding at
October 2, 2005, a 1% change in interest rates would change interest expense
by
$6,875 per quarter.
Item
4. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
As
of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s management,
including the Company’s President and Chief Executive Officer together with the
Company’s Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) under the Securities Exchange Act of 1934. Based
upon the evaluation, the Company’s President and Chief Executive Officer and the
Company’s Chief Financial Officer concluded that the Company’s disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its subsidiaries) required to
be
included in the Company’s periodic filings with the Securities and Exchange
Commission. There have been no significant changes in the Company’s internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the evaluation.
(b)
Change in Internal Control over Financial Reporting
No
change
in the Company’s control over financial reporting or in other factors that could
significantly affect this control occurred during the Company’s most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II - OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table provides information about the Company’s purchases of shares of
its Common Stock in the open market during the quarter ended October 2,
2005:
|
Period
|
Total
Number of
Shares
Purchased
|
Average
Price Paid Per Share
|
Total
Number of Shares
Purchased
as Part of
Publicly
Announced Plans or Programs
|
Maximum
Number of Shares that May yet be Purchased Under the Plans or
Programs
|
|
8/18/2005-8/23/2005
|
52,800
|
$9.46
|
52,800
|
(1)
|
| (1) |
Under
a share repurchase program approved by the Board of Directors of
the
Company on May 2, 2005, and amended September 7, 2005, the Company
is
authorized to repurchase up to $2,000,000 in maximum aggregate amount
of
the Company’s Common Stock (not to exceed repurchases up to $500,000 in
any one quarter). The repurchase program is designed to comply with
Rules
10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934
under
which an agent appointed by the Company will determine the time,
amount,
and price at which purchases of common stock will be made, subject
to
certain parameters established in advance by the Company. As of October
2,
2005, the Company has $1,249,733 of repurchase authority remaining.
|
Item
4. Submission of Matters to a Vote of Security Holders
The
Company held a special meeting of shareholders on Tuesday, November 8, 2005.
At
the special meeting, the Company’s shareholders took the following
actions:
By
a vote
of 2,603,209 for; 44,027 against and 200 withheld, the shareholders approved
the
Company’s 2005 Long Term Incentive Plan. The 2005 Long Term Incentive Plan
provides for the grant of options and other forms of equity-based awards to
employees and directors of the Company at the discretion of the Company’s
Compensation/Stock Option Committee. A total of 350,000 shares are to be
reserved for issuance under the plan.
Item
6. Exhibits
|
Exhibit
Number
|
Document
Description
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
Items
1,
3 and 5 of this Part II are not applicable and have been
omitted.
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Mexican
Restaurants, Inc.
|
Dated:
November 16, 2005
|
By:
/s/ Curt Glowacki
|
|||
|
Curt
Glowacki
|
||||
|
Chief
Executive Officer
|
||||
|
(Principal
Executive Officer)
|
||||
|
Dated:
November 16, 2005
|
By:
/s/ Andrew J. Dennard
|
|||
|
Andrew
J. Dennard
|
||||
|
Executive
Vice President, Chief Financial Officer & Treasurer
|
||||
|
(Principal
Financial Officer and
|
||||
|
(Principal
Accounting Officer)
|
||||