Edgar Filing: ATOMIC BURRITO INC

FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For Fiscal Year Ended December 31, 2000

Commission File Number: 0-24058

ATOMIC BURRITO, INC.
(Exact name of registrant as specified in its charter)

Oklahoma 73-1571194
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

1601 N.W. Expressway, Suite 1910
Oklahoma City, Oklahoma 73118
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (405) 848-0996

Securities to be registered under Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for at least the
past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Revenues of registrant for year ended December 31, 2000: $4,711,932

Aggregate market value of voting stock held by
non-affiliates as of April 11, 2001 $ 412,500

Shares of Common Stock, $.001 par value, outstanding
as of April 11, 2001: 5,053,121

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual Meeting
of Shareholders to be filed with the Commission pursuant to Regulation 14A, is
incorporated by reference into Part III of this report.

ATOMIC BURRITO, INC.

2000 Form 10-KSB Annual Report

Table of Contents

Item

Part I

Special Note Regarding Forward Looking Statements

1. Description of Business

2. Description of Properties

3. Legal Proceedings

4. Submission of Matters to a Vote of Security Holders

Part II

5. Market for Common Equity and Related Stockholder Matters

6. Management's Discussion and Analysis

7. Financial Statements and Supplementary Data

8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

Part III

9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act

10. Executive Compensation

11. Security Ownership of Certain Beneficial Owners and Management

12. Certain Relationships and Related Transactions

13. Exhibits and Reports on Form 8-K

Signatures

PART I

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-KSB under "Item 1. Description of
Business", "Item 3. Legal Proceedings", "Item 6. Management's Discussion and
Analysis" and elsewhere constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other facts which may cause the actual results, performance or
achievements of Automic Burrio, Inc. (the "Company") and its subsidiaries
and affiliated partnerships to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; competition; success of operating initiatives;
development and operating costs; advertising and promotional efforts; adverse
publicity; customer appeal and loyalty; availability, locations and terms of
sites for nightclub development; the development of the "Atomic Burrito"
concept; changes in business strategy or development plans; quality of
management; availability, terms and development of capital; business abilities
and judgment of personnel; availability of qualified personnel; food, labor and
employee benefit costs; changes in, or the failure to comply with government
regulations; regional weather conditions; construction schedules; and other
factors referenced in the Form 10-KSB. The use in this Form 10-KSB of such words
as "believes", "anticipates", "expects", "intends" and similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. The success of the Company is dependent on the
efforts of the Company and its management and personnel and the manner in which
they operate and develop stores.

Item 1. Description of Business

General

Atomic Burrito, Inc. (the "Company") was organized under the laws of
the State of Colorado in December 1989, but had no operations until April 1993.
The Company completed its initial public offering in May 1994, from which it
received net proceeds of approximately $1.9 million from the sale of 460,000
shares of Common Stock. In late 1996, a change of control took place, which
resulted in the replacement of senior management and changes in the Company's
operating and growth strategies. The Company's prior strategies focused heavily
on cost reduction as the preferred means of improving profitability. Such
strategies resulted in lean Club-level management and loss of experienced
personnel, low levels of physical facility maintenance and reinvestment, and
reduced levels of advertising, promotion and entertainment expense. Current
management has replaced much of the Club-level management with more experienced
personnel, instituted management training procedures, implemented a cost
management system which includes daily unit-level accounting and reporting,
improved the sound, light and video systems, increased radio buys within the
local markets, and implemented new advertising and in-store promotions. These
changes reflect current management's belief that long-term strategies involving
greater investment in personnel and physical facilities will produce a superior
financial performance. See Item 6."Management's Discussion and Analysis."

During 1998, after months of searching for a viable restaurant concept
to acquire or merge with, the Company developed its own restaurant concept
"Atomic Burrito", a quick service "Fresh-Mex" concept featuring a Mexican menu
emphasizing fresh ingredients and made-to-order burritos. Utilizing senior
management's extensive background in the Mexican segment of the restaurant
industry, the Company formed a wholly owned subsidiary corporation, "Atomic
Burrito, Inc.", now "Atomic Development, Inc.", and developed a prototype for
the concept, including menus, recipes, design, layout, equipment, and other
items such as signage, logos, and an operations manual of operating procedures.
The Company then entered into License Agreements with an experienced food
services operator who opened two "Atomic Burrito" restaurants in 1998, and with
another operator who opened a restaurant in Longview, Washington. In December of
1998, the Company entered into a joint venture agreement with a publicly owned
company, New York Bagel Enterprises, Inc. ("New York Bagel") for the joint
development of additional "Atomic Burrito" restaurants. Pursuant to this
agreement, two "Atomic Burrito" restaurants were opened in 1999 in Tulsa,
Oklahoma and in Wichita, Kansas. Later, in September, 1999, the Company and New
York Bagel agreed to dissolve the joint venture agreement for additional
restaurants, and New York Bagel gave the Company the option of buying the
interest of New York Bagel in the two restaurants, which has not yet occurred.
Also in 1999, the Company opened a "Atomic Burrito" restaurant in Houston,
Texas, in partnership with a former employee, and effective December 31, 1999,
the Company bought the Norman, Oklahoma restaurant from its Licensee. Subsequent
to year-end 1999, the Company opened a wholly owned restaurant in Oklahoma City,
Oklahoma. See additional discussion in Item I, "Atomic Burrito Restaurants."

In April of 2000, because of the poor performance of the Atomic Burrito
restaurants and the cash drain on the Company, the Board of Directors began to
evaluate the restaurant concept and the Company's ability to continue its
development. In May of 2000, James E. Blacketer, President and Chief Executive
Officer of the Company, resigned to pursue other business interests. Then in
late August, due to declining performance at the Atomic Burrito restaurants and
to the Company's inability to raise capital to continue the restaurant
operations, the Board of Directors decided to discontinue expansion of the
concept, close the unprofitable restaurants and sell the remaining restaurants
and assets. Subsequently, in September of 2000, the Company sold the Norman
restaurant to a company whose principal had previously worked for the Company,
and in November sold the Company's interest in the Tulsa and Wichita restaurants
to a company controlled by Mr. Blacketer, the former President and Chief
Executive Officer of the Company, and also sold a subsidiary of the Company,
Atomic Development Corporation, to Mr. Blacketer's company. In each of these
transactions, the Company financed the transaction. The Company continues to
attempt to sell the assets of the Houston and Oklahoma City restaurants.

In August, 1999, shareholders of the Company approved a change of name from
Western Country Clubs, Inc. to Atomic Burrito, Inc., and the Company
reincorporated in the State of Oklahoma.

The Company

During 2000, the Company operated two "country-western" theme nightclubs
located in St. Louis, Missouri (the "St. Louis Club") and Wichita, Kansas, (the
"Wichita Club"). Each Club combines live entertainment, dancing, bar and food in
a country-western atmosphere. The Wichita Club has operated as In Cahoots since
its inception in 1994, and the St. Louis Club was changed to an In Cahoots in
1996, having previously operated as A Little Bit of Texas. The Company acquired
its interest in the Wichita Club, an 80% general partnership interest, in
December 1996 from a corporation affiliated with James E. Blacketer and Joe R.
Love, Directors of the Company. See Item 6. "Management's Discussion and
Analysis."

In March of 2001, Incahoots Limited Partnership, a Kansas limited
partnership, which is owned by the Company's wholly-owned subsidiary,
Entertainment Wichita, Inc., entered into a contract to sell its furniture,
fixture and equipment at its Wichita Club. The Company's reasons for agreeing to
sell the Wichita Club included the poor performance of the Wichita Club during
the past year, increased competition in the Wichita market, the death of a
customer in an incident at the club in May of 2000, and the small size of the
Wichita market compared to the St. Louis Club's market size. The Wichita Club
was losing money and unable to continue its operations on a profitable basis,
and unable to pay its creditors. On April 12, 2001, the transaction was
completed with a gross sales price of $1.2 million with the partnership netting
approximately $875,000. The Company intends to use the proceeds to satisfy
existing debts and to reduce its bank borrowings.

The St. Louis Club

The St. Louis Club is located on the I-70 corridor between St. Louis,
Missouri and Kansas City, Kansas. The Club occupies roughly one-half of a
building which previously housed a Sam's Club wholesale warehouse operation and
is in excess of 56,000 square feet making it the largest nightclub in Missouri.
This mammoth nightclub operates under the name In Cahoots and features a design
with the look and feel of an authentic rustic western town. The Club, with a
capacity of almost 3,000, houses a huge dance floor, performance stage, a
billiards and video arcade area and several retail stores including Sundance
Silver & Hide, which sells wardrobe items, including hats and boots, and the
Homestead Store which sells Indian artifacts, clothing and jewelry. Sundance
Silver & Hide occupies approximately 800 square feet of the Club, for which it
pays $1,200 per month pursuant to an oral agreement with the Company. The
Homestead Store occupies approximately 600 square feet of the Club, for which it
pays $300 plus 10% of sales per month pursuant to an oral agreement with the
Company. The Club also features a walk-up restaurant selling various food items
in addition to its extensive drink offerings. The St. Louis Club featured
numerous nationally known entertainers during the past year, including such
performers as Tracy Lawrence, Lone Star, Chris LeDoux and Willie Nelson.

The St. Louis Club opened for business as a non-alcoholic club on April 22,
1994. It began marketing alcoholic beverages on May 19, 1994 upon receipt of a
liquor license from the Supervisor of Liquor Control of the State of Missouri.
The customer's average expenditure, exclusive of food and souvenirs, is
approximately $11.

The Wichita Club

The Wichita Club opened in February 1994, and has been voted the top
country-western club in Wichita since opening. It consists of approximately
30,000 square feet and has parking for 900 cars. The Wichita Club is designed to
appeal to rodeo cowboys as well as the casual country western music lover. It
blends high tech, state-of-the-art, and "good old country boy" entertainment.
The high tech presentation includes giant 20 foot video screens, double CD
players, a roll up lighted American flag, neon lighting and the capability to
include a live band's sound throughout the house speaker system. A comfortable
ambiance is achieved through rustic wooden floors, old west photographs, antique
back bars, and a huge, hand-painted mural of past and present Country and
Western entertainers. The showcase of the Club is the circular, race track style
dance floor, complete with a bar in the center allowing for more dancing room.

The Company acquired its interest in the Wichita Club on December 16, 1996,
when it acquired Entertainment Wichita, Inc. ("EWI"), the general partner and
80% owner of In Cahoots, Limited Partnership, a Kansas limited partnership. In
exchange for the 80% interest, the Company issued 400,000 shares of its Common
Stock and assumed $150,000 in debt through a merger transaction. EWI was owned
45.5% by Shane Investments, L.C. ("Shane Investments"), a corporation which is
solely owned and controlled by Joe Robert Love, Jr., the adult son of Joe R.
Love, a Director of the Company. Shane Investments received 250,500 shares of
the Company's Common Stock upon completion of the transaction in December 1996.

On April 12, 2001, the Wichita Club's furniture, fixtures and equipment was
sold to a group of investors located in Wichita, Kansas. The Company's reasons
for selling these assets included the poor performance and losses at the Wichita
Club during the past year, as well as, declining performance during past years,
increased competition in the Wichita market, the death of a customer in an
incident at the club in May of 2000, and the small size of the Wichita market
compared to the St. Louis Club's market size.

Atomic Burrito Restaurants

During late 1997 and the first half of 1998, the Company conducted an
extensive search for a viable restaurant concept to acquire and/or merge with.
Management's belief was that expansion of a restaurant concept had many
advantages to the Company compared to expansion of its nightclub business. Under
the guidance and direction of Company President and Chief Executive Officer,
James E. Blacketer, and Vice-President of Operations, Dominic W. Grimmett, the
Company decided to develop its own restaurant concept during the summer of 1998.
Blacketer and Grimmett had extensive backgrounds in the Mexican segment of the
restaurant industry and they developed a "Fresh-Mex" burrito concept, which
features fresh ingredients and made-to-order burritos. The menu contains a
variety of Mexican items with the burrito being the featured entre, and with a
focus on lunch and dinner business. While the concept emphasizes a family
atmosphere, alcoholic beverages will be an option depending on the particular
location.

The Company formed a wholly-owned subsidiary, "Atomic Burrito, Inc.", now
Atomic Development Corporation, an Oklahoma corporation, in the summer of 1998,
for development of its new restaurant concept. Because of its limited financial
resources, the Company opted to develop its prototype restaurants through a
"license agreement" whereby an experienced restaurant operator would own and
operate the restaurant, using the "Atomic Burrito" name, menu, recipes, logo,
layout and design, and utilizing the "Atomic Burrito" operations manual
developed by the Company. In return, the licensee would pay the Company's
subsidiary (licensor) an initial license fee and an ongoing royalty fee.

The prototype restaurants, as developed by the Company, are planned to be
located in leased premises of approximately 3,500 square feet. Remodeling,
construction and equipment costs are estimated at $300,000 to $350,000, though
it may be possible to convert an existing restaurant location for less. The
restaurants are expected to be open from 11:00 a.m. until 10:00 p.m., and will
serve a variety of Mexican menu items, centered around the burrito. The food
will be prepared on a serving line, made-to-order as the customer progresses
along the line. Some units may offer alcoholic beverages in addition to soft
drinks.

The first two "Atomic Burrito" restaurants were opened in Stillwater and
Norman, Oklahoma in the fall of 1998 under license agreements. Subsequent to
fiscal year end 1998, the Company entered into an additional license agreement
of an "Atomic Burrito" restaurant to be opened in Longview, Washington. In
addition, in October of 1998, the Company entered into a joint venture
agreement with New York Bagel Enterprises, Inc. ("New York Bagel"), for the
joint development of up to eight "Atomic Burrito" restaurants. Under the
agreement, New York Bagel was to contribute the leased premises, the lease,
leasehold improvements and equipment in certain existing New York Bagel
restaurants and the Company was to contribute up to $150,000 per restaurant to
pay for conversion costs and additional equipment. According to the agreement,
the Company would own a 60% interest in the restaurant and New York Bagel would
own a 40% interest in the restaurant. The agreement also provides for the
development of additional "Atomic Burrito" restaurants over an 18-month period.
The first joint venture restaurant under the agreement opened in March 1999 in
Tulsa, Oklahoma, with a second restaurant scheduled to open in April 1999 in
Wichita, Kansas. In September, 1999, the Company and New York Bagel agreed to
terminate any future development under the joint venture agreement, and New York
Bagel gave the Company an option to purchase New York Bagel's interest in the
Tulsa and Wichita units, which the Company has not yet done. New York Bagel's
stated reasons for terminating the joint venture agreement was the lack of
expansion capital on the part of either party to the agreement and their desire
to pursue a different future direction. Subsequently, New York Bagel filed for
Chapter 11 protection under the Federal Bankruptcy statues.

During 1999, the Company entered into an agreement with a former
employee for the joint development, on a 50%-50% basis, of an "Atomic Burrito"
restaurant in Houston, Texas. This restaurant subsequently opened in September,
1999.

In December 1999, the Company entered into discussions with the licensee
which owned the Norman, Oklahoma, "Atomic Burrito" restaurant, regarding the
possible purchase of the unit by the Company. The licensee's owners, successful
restaurant operators in both Oklahoma and Texas, had previously closed their
Stillwater, Oklahoma "Atomic Burrito" restaurant and were in the middle of an
expansion of their other restaurant and brew pub operations, which were
unrelated to the Company. The licensee approached the Company with the idea of
selling the restaurant to the Company in exchange for common stock in the
Company. Subsequently, an agreement was reached, effective December 31, 1999,
whereby the Company purchased the assets of the licensee and assumed certain
liabilities. As part of that transaction, the Company agreed to issue 360,000
shares of the Company's restricted common stock, to the licensee and its owners.
The parties valued the transaction, after assumption of certain liabilities, at
$270,000.00. Thus at the end of 1999, the Company owned and operated restaurants
in Tulsa, Wichita, Houston, and Norman, with a licensed unit in Longview,
Washington, and subsequent to year end opened an additional restaurant in
Oklahoma City which is wholly-owned by the Company.

In March of 2000, the Company opened an Atomic Burrito restaurant in
Oklahoma City, Oklahoma. In April 2000, the Board of Directors became concerned
about the overall poor performance of the Atomic Burrito restaurants, and began
an evaluation of the Company's ability to continue such operations. In May 2000,
the Company's President and Chief Executive Officer and founder of the Atomic
Burrito concept, James E. Blacketer, resigned his positions to pursue other
business interests.

Because of declining performances at the Atomic Burrito restaurants through
the summer, and because of the Company's lack of cash and inability to raise
additional capital to continue the restaurant operations, the Board of Directors
decided in late August to discontinue expansion of the concept, close the
non-profitable restaurants, and attempt to sell all of the restaurants. In
September of 2000, the Oklahoma City and Houston restaurants closed. Also in
September of 2000, the Company sold the Norman restaurant to a company whose
principal had previously worked for the Company and financed the transaction
with a note for $370,000. In November of 2000, the Company's interest in the
Tulsa and Wichita restaurants were sold to a company controlled by the Company's
former President, James E. Blacketer, for $180,000 and $170,000, respectively,
with a $40,000 down payment and the Company financing with a note the balances
of $160,000 and $150,000, respectively. At the same time, the Company sold its
wholly-owned subsidiary, Atomic Development Corporation, to Mr. Blacketer's
company for $75,000, all of which was financed by the Company.

The Company is still attempting to sell the furniture, fixtures and
equipment from the Houston restaurant and continues to attempt to sell the
Oklahoma City restaurant.

Government Regulation

Alcoholic beverage control regulations require the nightclubs to apply to a
state authority, and, in certain locations, county or municipal authorities for
a license or permit to sell alcoholic beverages on the premises and to provide
service for extended hours and on Sundays.

Alcoholic beverage control regulations relate to numerous aspects of the
daily operation including advertising, wholesale purchasing, inventory control
and handling, storage and dispensing of alcoholic beverages. Licenses to sell
alcoholic beverages must be renewed annually and are subject to suspension or
revocation for cause, including violation by the Company or its employees of any
law or regulation pertaining to alcoholic beverage control, such as those
regulating the minimum age of patrons or employees, advertising, wholesale
purchasing, and inventory control, handling and storage. Each nightclub and/or
restaurant is operated in accordance with stringent procedures designed to
assure compliance with all applicable codes and regulations.

In recent years, certain states have enacted "dram-shop" statutes, which
generally provide a person injured by an intoxicated person the right to recover
damages from an establishment, which wrongfully served alcoholic beverages to
such person. Presently, Missouri, Kansas, and Oklahoma, the states in which the
Company operates, do not have dram-shop statutes. However, should these states
enact such statutes, the Company would be subject to additional exposure in such
cases where judgments for damages exceeded its insurance coverage.

The development and construction of additional nightclubs will be subject
to compliance with applicable zoning, land use and environmental regulations.
Management believes that federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and varied
requirements of local governmental bodies with respect to zoning, land use and
environmental factors could delay construction of new nightclubs and add to
their cost.

The Company is also subject to the Fair Labor Standards Act, the
Immigration Reform and Control Act of 1986 and various state laws governing such
matters as minimum wages, overtime, tip credits and other working conditions. A
significant number of the Company's hourly personnel are paid at rates relating
to the federal minimum wage and, accordingly, increases in the minimum wage or
decrease in the allowable tip credit will increase the Company's labor cost. The
Company may also incur labor cost increases as a result of certain mandatory
medical and parental leave benefits legislation enacted by the United States
Congress.

The Americans With Disabilities Act prohibits discrimination in employment
and public accommodations, such as nightclubs, on the basis of disability. Under
the Act, the Company is required to provide service to, or make usable
accommodations for the employment and service of, disabled persons.

Competition

The nightclub business is highly competitive. Most of the companies, which
own and/or operate nightclubs are substantially larger than the Company, and
have greater resources, operating histories and experience. They include many
national, regional and local chains with more locations and larger advertising
budgets. Nightclub and theme entertainment businesses are also affected by
changing customer tastes, local and national economic conditions affecting
spending habits, population shifts and traffic patterns. Quality of service,
attractiveness of facilities, popularity of entertainment and price are also
important factors.

Trademarks

The Company uses the trademark "In Cahoots" in the operation of its
business. This mark is used by others in the operation of businesses throughout
the country, including other nightclub operators. Because of these uses, the
Company believes that it cannot, nor can its competitors, register the mark
with the United States Patent and Trademark office to obtain exclusive,
nationwide rights to the mark. The Company believes, however, that it has
enforceable common law rights to its mark for use in the immediate trade areas
in which the Clubs operate, and it has encountered no claims of trademark
infringement. As the Company expands, it may encounter claims of trademark
infringement requiring the Company to negotiate license agreements with the
prior user or to use other non-infringing trademarks for nightclubs in the
affected areas.

Employees and Consultants

As of April 12, 2001, the Company had one full time employee in the
corporate office, Don W. Grimmett, President and Chief Executive Officer. During
2000, the Company had approximately 120 employees in the two nightclubs.

Year 2000 Compliance

The Company entered 2000 with no Y2K problems. Neither the Company's
nightclub operations, its restaurant operations, nor its corporate offices and
accounting offices experienced any type of Y2K problem. The Company, therefore,
believes that its preparation for this potential problem was adequate and
successful.

Item 2. Description of Properties

The Company's principal offices are located at 1601 N. W. Expressway, Suite
1910, Oklahoma City, Oklahoma, 73118. The Company's offices occupy approximately
1,000 square feet, for which it pays $1,500 per month.

In August 1993, the Company entered into a lease for nightclub space in St.
Louis, Missouri. The lease, which expires in August 2003, is for a 10 acre
parcel of land housing a 106,744 square foot building and parking facilities.
The rental for the first five years is $22,238 per month, escalating to $26,686
per month for the second five years. The Company has the right to extend the
lease for two additional five year periods at increased rental rates. The lease
is guaranteed by International Entertainment Consultants, Inc., a company
affiliated with Mr. Troy Lowrie. The Company subleases approximately 50,000 feet
of this facility for which it receives $18,312 per month under a one year
sublease which expires in December, 2000.

The Wichita Club is leased from Boots, Inc., formerly a 20% limited partner
in the In Cahoots Limited Partnership but otherwise unaffiliated with the
Company. The lease is for a ten-year term, expiring in the year 2003, with an
option to extend the term for two, five-year periods, and requires monthly
payments of the greater of $12,500 or 6% of gross sales. The Company during 1999
amended this lease to provide for additional rent of $4,333.00 per month for
the Pockets Sports Grill addition. This lease was terminated on April 12, 2001
in connection with the sale of the furniture, fixtures, and equipment at the
Wichita Club.

The Company carries general liability insurance for the St. Louis Club in
the amount of $2,000,000 and $850,000 in property liability coverage. In Cahoots
Limited Partnership, owner of the Wichita Club, carries $2,000,000 general
liability insurance and building and property insurance coverage in the amount
of $1,800,000 and $800,000, respectively.

The Company maintains $1,000,000 in liquor liability insurance coverage at
each of its nightclubs, which includes coverage for assault and battery and
other risks associated with the nightclub business and with liquor licenses in
general.

The Company also maintains various other insurance coverages management
deems necessary for the prudent, sound operation of the various properties,
including coverage for the loss of business income.

Item 3. Legal Proceedings

Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" for additional factors
relating to such statements.

The Company is involved in various legal actions associated with the normal
conduct of its business operations. No such actions involve known material gain
or loss contingencies not reflected in the consolidated financial statements of
the Company.

Item 4. Submission of Matters to a Vote of Security Holders

During fiscal 2000, no matters were submitted to a vote of the
Shareholders.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

On April 11, 2001, there were approximately 101 shareholders of record of
the Company's Common Stock. Based upon information received from brokers and
others in fiduciary capacity, the Company estimates that the total number of
shareholders of the Company's Common Stock exceeds 500 as of that date. The
Company's Common Stock was approved for listing on the NASDAQ SmallCap MarketSM,
effective May 18, 1994, under the symbol "WCCI" which was later changed to
"ATOM" in September, 1999. Prior to listing on NASDAQ, the Company's Common
Stock briefly traded in the pink sheets. On March 5, 2001, the Company was
notified that it had been delisted by NASDAQ and its shares now trade on the
O.T.C. Bulletin Board, under the symbol "ATOM.OB."

The following table sets forth, for the periods indicated, the range of
high and low closing bid quotations for the Company's Common Stock, as reported
by NASDAQ:

2000 Fiscal Year High Bid ($) Low Bid ($)
----------------- ------------ ------------

First Quarter 1.250 .625
Second Quarter 2.125 .75
Third Quarter 1.125 .34375
Fourth Quarter .50 .125

1999 Fiscal Year
-----------------
First Quarter 1.0625 .625
Second Quarter 1.50 1.00
Third Quarter 1.25 1.062
Fourth Quarter 1.125 .625

On December 31, 2000, the last reported bid and asked prices for the Common
Stock were $0.375 and $0.25, respectively.

Dividends

The Company has never declared a cash dividend with respect to its Common
Stock and intends to retain future earnings to support the Company's growth.
There are no contractual restrictions on the Company's present or future ability
to pay dividends. Future dividend policy is subject to the discretion of the
Board of Directors and is dependent upon a number of factors, including future
earnings, capital requirements and the financial condition of the Company. The
Company declared no dividends on its preferred stock during the year ended
December 31, 2000.

Item 6. Management's Discussion and Analysis

The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Report.

General

The Company owns and operates two country and western night clubs, one in
St Louis, Missouri and one in Wichita, Kansas.

In June 1998, the Company formed a subsidiary corporation, Atomic Burrito,
Inc., through which to develop a new restaurant concept. Subsequently, Atomic
Burrito, Inc. entered into license agreements for two "Atomic Burrito"
restaurants to be located in Stillwater and Norman, Oklahoma, and entered into a
third license agreement for a restaurant in Longview, Washington. In addition,
in October 1998, the Company entered into a joint venture agreement with New
York Bagel Enterprises, Inc., ("New York Bagel") for the joint development of
"Atomic Burrito" restaurants. The agreement provides for New York Bagel to
contribute certain of its restaurant locations, including leases, leasehold
improvements, and equipment for a 40% interest in the operation, while the
Company would contribute up to $150,000 for the remodel and conversion costs, as
well as for additional equipment. The first unit opened in March 1999 in Tulsa,
Oklahoma, while the second unit opened in April 1999 in Wichita, Kansas.

In September, 1999, the Company and New York Bagel agreed to terminate the
joint venture agreement as it related to additional development, and New York
Bagel agreed to sell its interest in the two operations in Tulsa and Wichita to
the Company. New York Bagel's stated reasons for the termination were the lack
of expansion capital on the part of either of the parties, and their desire to
move in a different direction. Subsequently, New York Bagel filed for protection
under Chapter 13 of the Federal Bankruptcy Statutes. The Company did not
exercise its option to purchase New York Bagel's interest in these restaurants
and as described below, subsequently, sold its interest in these operations to
its former president.

In December, 1999, the original licensees who had previously opened Atomic
Burrito units in Stillwater and Norman, Oklahoma, approached the Company with a
plan to sell their Norman restaurant to the Company. They had previously closed
their Stillwater restaurant and were in the process of expanding their other
restaurant and brew pub operations in both Oklahoma and Texas. Thereafter, the
Company entered into an agreement, effective December 31, 1999, to purchase the
Norman restaurant from the licensee for the issuance of 360,000 (valued at
$270,000) shares of the Company's common stock as well as the assumption of
certain liabilities totaling $60,967, giving the transaction a total value of
$330,967.

During February, 2000, the Company opened an Atomic Burrito restaurant in
Oklahoma City, Oklahoma, in which it owned a 100% interest.

During September, 1999, the Company opened an Atomic Burrito restaurant in
Houston, Texas, in which it owned a 50% interest.

During September, 2000, The Company's Board of Directors decided to
discontinue its efforts to develop and expand the Atomic Burrito Restaurant
concept.

In September, 2000, the Company sold the property, equipment, and leasehold
improvements on its Norman Atomic Burrito restaurant to an LLC in which one of
the principals is a former Company employee. In connection with the sale of
these assets, the LLC agreed to sublease land and building associated with this
restaurant. This property was sold in exchange for a $370,000 8% note
receivable.

In November 2000, the Company sold its interest in the Tulsa and Wichita
Atomic Burrito restaurant operations to a company controlled by the Company's
former president for $180,000 and $170,000 respectively. The sale was
consummated with a $40,000 down payment and the issuance of 8% notes receivable
in the amounts of $160,000 for the Tulsa operations and $150,000 for the Wichita
operations. In addition, the Company agreed to provide financing of up to
$40,000 to Wichita for operating purposes.

Also in November, the Company sold its stock in Atomic Development, Inc., a
wholly owned subsidiary established to oversee the development and franchise of
the Atomic Burrito concept, for $75,000, to the same company that purchased the
Tulsa and Wichita Atomic Burrito restaurants.

At December 31, 2000, the Company recorded an allowance for bad debts in
the amount of $350,000 associated with the above described notes. This charge
was taken to the loss on discontinued operations for financial reporting
purposes.

In September, 2000, the Company closed its Houston Atomic Burrito location.
The leasehold improvements on this location were forfeited to the landlord in
release from any future lease obligations. The Company is attempting to sell or
lease this equipment as of year end.

In September, 2000, the Company closed its Oklahoma City Atomic Burrito
location and is currently seeking a buyer to take over this location and assume
the lease. As of December 31, 2000, the Company has reduced the carrying value
of these assets by $200,000 to reflect the anticipated loss on ultimate
disposition. This charge was also taken to the loss on discontinued operations.

Liquidity and Capital Resources

Historically, the Company has funded its capital needs through a
combination of cash flows from operations, proceeds from public and private
placement of securities, and loans from commercial banks, principal shareholders
or related persons or entities.

In January through March, 2000, the Company entered into multiple capital
lease obligations totaling approximately $218,000 to obtain various equipment
for use in its Atomic Burrito restaurants in Norman and Oklahoma City. The
Company continues to make the lease payments on these obligations, even though
the locations mentioned have been closed as discussed previously.

In May, 2000, the Company obtained a $20,000 loan from an affiliated
company, and was loaned another $15,000 in October, 2000. The proceeds from
these loans were used for working capital purposes.

In May, 2000, the Company obtained a loan of $50,000 from a limited
liability company, principally for working capital purposes.

In June, 2000, the Company obtained a loan of $100,000 from a corporation
for working capital purposes, collateralized by all its interest in Incahoots
Limited Partnership, held through its subsidiary, Entertainment Wichita, Inc.

In October, 2000, the Company obtained a $50,000 from a limited partnership
for working capital purposes. This loan is collateralized by all the Company's
interest in Incahoots Limited Partnership, held through its subsidiary,
Entertainment Wichita, Inc.

Net cash provided by (used in) operating activities decreased during 2000
to $(558,950) used in operating activities from $267,967 provided by operating
activities in 1999. Net cash used in investing activities was $171,338 for 2000
as compared to $1,244,890 net cash used in investing activities in 1999.
Financing activities provided net cash of $636,640 in 2000 compared with
$944,134 provided in 1999. For the year, net cash decreased to $78,295 from
$172,622 at the end of 1999. The Company's net cash flow for the year reflected
a deficit of $93,697.

As of December 31, 2000, the Company's working capital position (current
assets minus current liabilities) was a negative $(1,302,957) compared with a
negative $(541,654) at the end of 1999.

Property and equipment is made up primarily of assets required to open and
operate the St. Louis and Wichita clubs and certain restaurant equipment which
the Company was attempting to dispose at year end. Property and equipment
decreased by $1,142,778 resulting primarily from the disposition of the Tulsa,
Wichita, and Norman Atomic Burrito restaurants.

The deferred income tax asset remains at a balance of $100,000. This asset
resulted from the net operating loss carryforwards from the loss on the
write-off of the Tucson nightclub in a prior year, as well as from other
operating losses contributing to the net operating loss carryforward. The
Company anticipates that this credit will be utilized upon the sale of the
Wichita night club which occurred on April 10, 2001. At December 31, 2000 the
Company had approximately an additional $2,800,000 in deferred tax assets which
were fully reserved and not reflected on the Company's balance sheet at that
date. At December 31, 2000, the Company had approximately $3,700,000 in net
operating losses which will expire commencing in 2013 if not utilized.

On April 12, 2001, Incahoots Limited Partnership, which is owned by the
Company's wholly-owned subsidiary, Entertainment Wichita, Inc., sold the
furniture, fixtures and equipment at the Wichita Club for a gross sales price of
$1,200,000. The Company expects to realize a capital gain on the transaction of
approximately $625,000, and expects to use the proceeds from the sale to reduce
debts at the Wichita Club and to reduce other debt and bank borrowings.

In April, 2001, certain notes receivable totaling $480,000 from an
affiliated company become due. Management anticipates that the interest due will
be received and that the notes will be renewed.

Results of Operations - Year Ended December 31, 2000 Compared to the Year
Ended December 31, 1999

Revenues - Total revenues for 2000 were $4,711,932, a decrease of $740,402
or 14% compared to 1999. This decrease was due in part to a change in the
Company's operating procedures, whereby live entertainment was allowed to charge
a cover charge relieving the Company of any obligation to pay engagement fees to
these entertainers. This resulted in a decrease of $381,959 or 40% in admissions
fees from $946,237 in 1999 to $564,278 in 2000. Also contributing to the drop in
revenues was a 9% decrease in beverage and food sales from $4,236,123 in 1999 to
$3,860,145. Most of this decline was attributable to the Wichita night club
which experienced a substantial decline in business.

Total Costs and Expenses - Total costs and expenses decreased during 2000
to $5,115,333, a decrease of $426,533 or 8% from 1999, when total costs and
expenses were $5,541,866. This decrease was primarily the result of an emphasis
on achieving savings where possible in certain costs and expenses of operations.

Cost of Products and Services - Cost of products and services decreased by
$432,637 or 10% from $4,500,485 in 1999 to 2000 to $4,067,848 in 2000. This is
attributable in part to a 27% decrease in fees paid to entertainers from
$101,757 in 1999 and $74,733 in 2000 and in part to a decrease of 5% in the cost
of food and beverage sales from $1,229,486 in 1999 to $1,173,495 in 2000, as
well as decreases in cost of labor and advertising costs.

General and Administrative Expenses - General and administrative expense
decreased by 10% from $683,268 in 1999 to $612,396 in 2000. This decrease was
due primarily to a reduction in personnel expenses and travel costs.

Depreciation and Amortization - Depreciation and amortization increased by
13% or $35,789 during 2000 to $317,291 as compared with a total depreciation and
amortization during 1999 of $281,502. This resulted from the increased
investment in depreciable assets, primarily leasehold improvements and
equipment, furniture and fixtures for the nightclubs, as well as increased
amortization related to a covenant not to compete.

Interest Expense - Interest expense increased by 54% or $41,187 to $117,798
in 2000 compared to $76,611 in 1999, principally due to increased borrowings and
additional obligations under capital leases.

Loss from Discontinued Operations - During 2000, the Company accrued
$1,182,278 in losses associated with the discontinuance of its Atomic Burrito
restaurant operations. This compares to a loss of $114,299 from the Atomic
Burrito restaurant operations in 1999. Included in the 2000 loss from
discontinued operations is a $350,000 allowance for bad debts associated with
the notes receivable accepted in exchange for the disposition of certain
restaurant operations and an additional $200,000 write-down of the carrying
value of the remaining restaurant assets at its Oklahoma City location.

Preferred Stock Dividends - Preferred stock dividends decreased by 100%
from $13,205 in 1999 to $0 during 2000. This decrease is attributable to the
Company not declaring dividends on preferred stock during 2000.

Net Income (Loss) - The Company's net loss increased by 226% from
$(499,257) in 1999 to $(1,585,679). The reasons for this difference are
explained above. Management believes the subsequent sale of the Wichita night
club will allow the Company to substantially reduce its debts and provide it
with working capital to refocus on its night club operations.

Item 7. Financial Statements and Supplementary Data

The Company's audited financial statements, together with the report of
auditors, are included in the report after the signature page.

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

Not Applicable

PART III

Item 9. Directors, Executive Officers Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act

The information required in response to this Item is incorporated herein by
reference to the Company's proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the end of the fiscal year covered by this report.

Item 10. Executive Compensation

Item 11. Security Ownership Of Certain Beneficial Owners And Management

Item 12. Certain Relationships And Related Transactions

Item 13. Exhibits and Reports on Form 8-K

(a) The following documents are filed as part of this report:

1. Financial statements: See index to consolidated financial statements
immediately following the signature page of this report.

2. Financial statement schedules: Financial statement schedules have been
omitted because they are not required or the information is included in
the financial statements and notes thereto.

3. Exhibits: Exhibits required to be filed with this Form 10-KSB are
identified by the numbers indicated, and, except where incorporated by
reference, immediately follow the financial statements.

Number Description

3.1 Articles of Incorporation, dated December 20, 1989 (1)

3.2 Amendment to Articles of Incorporation, dated November 30, 1993 (1)

3.2 Bylaws of Western Country Clubs, Inc. (1)

4.0 Agreement to convert notes to Series A Preferred Stock dated
January 1, 1998 between Troy H. Lowrie and Western Country Clubs,
Inc. (12)

4.1 Agreement to convert note to Series B Preferred Stock dated
February 18, 1998 between Ceres, L.L.C. and Western Country Clubs,
Inc. (12)

9.0 Voting Trust Agreement, dated September 20, 1996, between Red River
Concepts, Inc. and Troy H. Lowrie (7)

10.1 Lease Agreement, dated August 26, 1993, between Wal-Mart Stores,
Inc. and Inc. and Western Country Clubs, Inc. (1)

10.2 License Agreement, dated January 20, 1993, between Western Country
Clubs, Inc. and Western Country Club I, Ltd. (1)

10.3 Option for Limited Partnership Interest, dated September 23, 1993,
between Western Country Clubs, Inc. and Merrill E. Roberts (1)

10.4 Stock Option Agreement, dated December 16, 1993 (1)

10.5 Lease with Option to Purchase, dated December 26, 1993, between and
among Edward L. and Barbara L. Benshoof and Western Country Clubs,
Inc. (1)

10.6 Agreement to Purchase and Sale of Business and Assets, with
exhibits, dated November 1, 1994 (2)

10.7 Bill of Sale, dated November 1, 1994, transferring Arizona Bar
Liquor License No. 06100208 to Western (2)

10.8 Amendment to Covenant Not To Compete, updated, between Western and
Clarance O. Bond, Jack E. McMurrough and Ada L. Bond (9)

10.9 Agreement and Plan of Merger, dated October 10, 1995, between
Western Country Clubs, Inc., Western Newco, Inc., and Cowboys
Concert Hall - Arlington, Inc. (6)

10.10 Lease with Option to Purchase, dated October 14, 1992, between Expo
Bowl, Inc. and Texas of Indy, Inc. (1)

10.11 Guaranty of Lease with Option to Purchase, dated October 14, 1992,
by Troy H. Lowrie (1)

10.12 First Amendment to Lease with Option to Purchase, dated January 20,
1993, between Expo Bowl Inc. and Texas of Indy, Inc. (1)

10.13 Warranty Deed, dated February 28, 1993, in the name of Western
Country Club I, Ltd. (1)

10.14 State of Indiana, Certificate of Trade Mark Registration, dated
August 18, 1993, in the name of Texas of Indy, Inc. for "A Little
Bit of Texas" and Design (1)

10.15 Lease, dated April 2, 1993, between Texas of Indy, Inc. and Great
Western Boot Company (1)

10.16 Operating Agreement dated March 17, 1993, between Texas of Indy,
Inc. and Taco Bell Corp. (1)

10.17 Option Agreement, dated January 20, 1993, between and among Western
Country Club I, Ltd., Troy H. Lowrie and Merrill Roberts (1)

10.18 Amended Limited Partnership Agreement of Western Country Club I,
Ltd. (1)

10.19 Consulting Agreement dated January 20, 1993, between Western
Country Club I, Ltd. and Texas of Indy, Inc. (1)

10.20 Security Agreement, dated March 18, 1993, between Western Country
Club I, Ltd. and Texas of Indy, Inc. (1)

10.21 Option to Purchase Assets, dated January 20, 1993, between Western
Country Club I, Ltd. and Texas of Indy, Inc. (1)

10.22 Promissory Note, dated January 31, 1994, from Western Country
Club I, Ltd. to Expo Bowl, Inc. in the amount of $150,000 (1)

10.23 Guaranty, dated January 31, 1994, of Promissory Note to Expo Bowl,
Inc. by Troy H. Lowrie (1)

10.24 Promissory Note, dated January 31, 1994, from Western Country
Club I, Ltd. to Dulaney National Bank (1)

10.25 Articles of Incorporation of WCWW Acquisition Corporation, dated
January 20, 1995 (4)

10.26 Interim Permit, dated February 9, 1995, from the Arizona Department
of Liquor Licenses and Control for the Wild Wild West nightclub (5)

10.27 Stock Purchase Agreement, dated September 21, 1996, between and
among Troy H. Lowrie, Western Country Clubs, Inc. and Red River
Concepts, Inc. (7)

10.28 Lease Agreement, dated July 30, 1993, by and between Boots, Inc.
and In Cahoots Limited Partnership (9)

10.29 Agreement and Plan of Merger, dated December 16, 1996, by and
between Western Country Clubs, Inc., Entertainment Wichita, Inc.,
and WCCI Acquisition Corp. (8)

10.30 Contract of sale dated December 26, 1997, and note dated January 9,
1998, between Western Country Clubs, Inc. and Backstage
Entertainment. (11)

10.31 Contract of sale dated November 25, 1997, along with addendum
numbers 1 through 3 thereto, and note dated February 19, 1998,
between Western Country Clubs, Inc. and A Little Bit of Texas, Ltd.
(11)

10.32 Agreement and Covenant Not to Execute dated February 18, 1998,
between In Cahoots Limited Partnership, Western Country Clubs, Inc.
and Jana Oelkers. (11)

10.33 Form of License Agreement for Atomic Burrito, Inc. restaurants

10.34 Joint Venture Agreement between Western Country Clubs, Inc. and New
York Bagel Enterprises, Inc. dated October 27, 1998

Exhibits

11 Calculation of Earnings Per Share

21 Subsidiaries of the Registrant

------------------

(1) Incorporated by reference from the like numbered exhibits filed
with the Registrant's Registration Statement on Form SB-2, No.
33-72942.

(2) Incorporated by reference from Western's Current Report on Form
8-K, dated November 1, 1994, attached as Exhibits 10.1 and 10.2
thereto.

(3) Incorporated by reference from Western's Annual Report on Form
10-KSB, dated February 27, 1995, attached as Exhibit 21 thereto.

(4) Incorporated by reference from Western's Annual Report on Form
10-KSB, dated February 27, 1995, attached as Exhibit 28.16 thereto.

(5) Incorporated by reference from Western's Annual Report on Form
10-KSB, dated February 27, 1995, attached as Exhibit 28.17 thereto.

(6) Incorporated by reference from Western's Current Report on Form
8-K, dated October 19, 1995, attached as Exhibit 10.1 thereto.

(7) Incorporated by reference from Western's Current Report on Form
8-K, dated October 10, 1996, attached as Exhibit 9 thereto.

(8) Incorporated by reference from Western's Current Report on Form
8-K, dated October 10, 1996, attached as Exhibit 2 thereto.

(9) Incorporated by reference from the like numbered exhibits filed
with the Registrant's Registration Statement on Form SB-2, dated
February 11, 1997, No. 333-21547.

(10) Incorporated by reference from Western's Current Report on Form
8-K, dated February 6, 1998, attached as Exhibits 10.0, 10.1 and
10.2 thereto.

(11) Incorporated by reference from the like numbered exhibits filed
with Western's Current Report on Form 8-K, dated February 6, 1998.

(12) Incorporated by reference from the like numbered exhibits filed
with Atomic's Current Report on Form 8-K, dated October 12, 1999,
attached as Exhibits 10.0 and 99.1.

(b) During the last quarter of 2000, no filings were made by the Company.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

April 13, 2001

Atomic Burrito, Inc.

By: /s/ Don W. Grimmett
-----------------------------
Don W. Grimmett, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Name Title Date

/s/ Don W. Grimmett President, Principal
Executive Officer, Principal
Financial Officer and Director April 13, 2001

/s/ Joe R. Love Director April 13, 2001

ATOMIC BURRITO, INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

TABLE OF CONTENTS

Page No.

INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENTS.......................................... 1

FINANCIAL STATEMENTS

Consolidated Balance Sheets..................................... 3

Consolidated Statements of Income............................... 5

Consolidated Statement of Stockholders' Equity.................. 6

Consolidated Statements of Cash Flows........................... 7

Notes to Consolidated Financial Statements...................... 9

Independent Auditors' Report
----------------------------

To the Board of Directors
Atomic Burrito, Inc.

We have audited the accompanying consolidated balance sheet of ATOMIC BURRITO,
INC., an Oklahoma corporation, survivor corporation in a merger with Western
Country Clubs, Inc., a Colorado corporation, as of December 31, 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atomic Burrito, Inc., as of
December 31, 2000, and the results of its operations and its cash flows for the
year then ended in conformity with auditing principles generally accepted in the
United States of America.

Hogan & Slovacek

Oklahoma City, OK
April 13, 2001

Independent Auditors' Report

To the Board of Directors
Atomic Burrito, Inc.

We have audited the accompanying consolidated income, stockholders' equity and
cash flows statements of ATOMIC BURRITO, INC., an Oklahoma corporation, survivor
corporation in a merger with Western Country Clubs, Inc., a Colorado
corporation, for the year ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

During September 2000, the Company elected to discontinue its Atomic Burrito
restaurant operations. The Atomic Burrito restaurant operations for 1999 were
reclassified as losses from discontinued operations to be in conformity with the
presentation for the fiscal year ended December 31, 2000. See Note 13 for
further details.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Atomic
Burrito, Inc. for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.

Gray & Northcutt, Inc.

March 24, 2000, except as to the third
paragraph above and Note 13, which are as
of April 13, 2001

ATOMIC BURRITO, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
Page 1 of 2

ASSETS

CURRENT ASSETS:
Cash $ 78,925
Accounts receivable 1,918
Accounts receivable due from related party 9,514
Current portion of notes receivable 37,266
Inventories 61,815
Prepaid expenses 64,169
Deferred income taxes 100,000
-----------
Total current assets 353,607
-----------

PROPERTY AND EQUIPMENT: 2,900,795
Accumulated depreciation (1,901,884)
-----------
998,911
-----------
OTHER ASSETS:
Notes receivable from affiliate 630,000
Notes receivable, net of current portion shown above 367,734
Goodwill, net of accumulated amortization of $8,970 80,734
Covenant not to compete, net of accumulated
amortization of $13,333 46,667
Deposits and other 62,938
Investment 177,400
-----------
1,365,473
-----------
$ 2,717,991
===========

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
Page 2 of 2

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable $ 573,067
Accrued liabilities 196,010
Note payable - related party 28,005
Current portion of long-term debt 798,290
Current portion of capital leases 45,692
-----------
Total current liabilities 1,641,064
-----------
LONG-TERM DEBT, net of current portion shown above 366,612
-----------
OBLIGATION UNDER CAPITAL LEASE,
net of current portion shown above 146,648
-----------
MINORITY INTERESTS 4,962
-----------
COMMITMENTS AND CONTINGENCIES -

STOCKHOLDERS' EQUITY:
10% convertible preferred stock, Series A $10 par value,
500,000 shares authorized, 40,000 shares issued
and outstanding 400,000
10% convertible preferred stock, Series B $10 par value,
100,000 shares authorized, no shares issued
and outstanding -
10% convertible preferred stock, Series C $10 par value,
6,000 shares authorized, 6,000 shares issued
and outstanding 60,000
10% convertible preferred Stock, Series D, $10 par value,
80,000 shares available, no shares issued
and outstanding -
Common stock, $.001 par value, 25,000,000 shares
authorized; 4,915,621 shares issued and
outstanding 4,916
Additional paid-in capital 5,106,595
Accumulated deficit (5,012,806)
-----------
Total stockholders' equity 558,705
-----------
$ 2,717,991
===========

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

2000 1999
----------- -----------

REVENUES:

Beverage and food sales $ 3,860,145 $ 4,236,123
Admission fees 564,278 946,237
Other income 287,509 269,974
----------- -----------
4,711,932 5,452,334
----------- -----------
COSTS AND EXPENSES:
Cost of products and services 4,067,848 4,500,485
General and administrative expense 612,396 683,268
Depreciation and amortization 317,291 281,502
Interest expense 117,798 76,611
----------- -----------
5,115,333 5,541,866
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND MINORITY INTERESTS (403,401) (89,532)

INCOME TAX (EXPENSE) - (267,741)
----------- -----------

INCOME (LOSS) BEFORE MINORITY INTERESTS (403,401) (357,273)

MINORITY INTERESTS IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES - (14,480)
----------- -----------

NET INCOME (LOSS) FROM CONTINUING OPERATIONS (403,401) (371,753)

DISCONTINUED OPERATIONS:
Loss from operations of restaurants
disposed of (net of income taxes) (1,182,278) (114,299)
----------- -----------

NET INCOME (LOSS) BEFORE DIVIDENDS (1,585,679) (486,052)

PREFERRED STOCK DIVIDENDS - (13,205)
----------- -----------

NET INCOME (LOSS) $(1,585,679) $ (499,257)
=========== ===========

BASIC EARNINGS PER SHARE $ (0.36) $ (0.13)
=========== ===========
DILUTED EARNINGS PER SHARE N/A N/A
=========== ===========
AVERAGE COMMON AND COMMON EQUIVALENT:
BASIC SHARES 4,400,577 3,870,665
=========== ===========

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

Series A Series B Series C Series D
10% Convertible 10% 10% Convertible 10% Common
Preferred Stock Preferred Preferred Stock Preferred Stock
--------------- --------- --------------- --------- -------
Value Value Value Value $0.001 Additional Total
of of of of par Paid-In Accumulated Stockholder's
Shares Shares Shares Shares Value (1) Capital (1) Deficit Equity
--------------- -------- ---------------- -------- ------- ------------ ----------- -------------

Balance,
December 31, 1998 $ 400,000 $ 145,000 $ - $ - $ 3,735 $4,397,351 $(2,937,870) $2,012,216

Redemption
preferred stock - (145,000) - - - - - (145,000)

Common stock issued
in settlement
of accounts payable - - - - 111 65,390 - 65,501

Exercise of stock
options - - - - 30 22,470 - 22,500

Common stock issued
to acquire restaurant - - - - 360 269,640 - 270,000

Cash dividends
Preferred-
$1 per - - - - - - (10,000) (10,000)
$1.20 per share - - - - - - (3,205) (3,205)

Net loss
year ended
December 31, 1999 - - - - - - (486,052) (486,052)
---------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1999 $ 400,000 $ - $ - $ - $ 4,236 $4,754,851 $(3,427,127) $ 1,731,960
===============================================================================================================
Balance,
December 31, 1999 $ 400,000 - - - $ 4,236 $4,754,851 $(3,427,127) $ 1,731,960

Exercise of stock
options - - - - 170 127,254 - 127,424

Preferred Stock issued - - 60,000 - - - - 60,000

Common stock issued
to purchase interest
in Boots, Inc. - - - - 200 149,800 - 150,000

Common stock issued
for cash - - - - 310 74,690 - 75,000

Net loss
twelve months ended
December 31, 2000 - - - - - - (1,585,679) (1,585,679)
---------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2000 $ 400,000 $ - $ 60,000 $ - $ 4,916 $5,106,595 $(5,012,806) $ 558,705
===============================================================================================================

(1) The common stock and additional paid-in capital have been adjusted
retroactively to reflect the change in par value from $0.1 to $.001 on
September 3, 1999.

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Page 1 of 2

2000 1999
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $(1,585,679) $ (486,052)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 339,594 335,305
Noncash charges to discontinued operations 781,888 -
Gain on sale of assets - (100,000)
Minority interests in earnings of subsidiaries - (66,867)
Deferred tax provisions - 267,740
Changes in assets (increase) decrease -
Accounts receivable 66,436 215
Due from related parties 486 -
Inventories 33,833 (36,257)
Prepaid expenses (26,150) 69,138
Deposits and other assets 29,565 (84,364)
Changes in liabilities increase (decrease) -
Accounts payable (51,374) 374,427
Accrued expenses (122,548) 17,582
Dividends payable - (22,900)
----------- ----------
Net cash provided by (used in)
operating activities (533,949) 267,967
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes and loans receivable - (50,000)
Repayments of notes receivable (28,642) 313,495
Acquisition of property and equipment (167,746) (1,508,385)
----------- ----------
Net cash used in investing activities (196,388) (1,244,890)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions to minority interests 105,402 217,750
Sale of common stock 202,424 26,340
Sale of preferred stock 60,000 -
Retirement of preferred stock - (145,000)
Payments of dividends - (13,205)
Repayments of notes payable, related parties - (30,656)
Borrowings under notes payable and capital leases 323,985 1,243,163
Repayments of notes payable and capital leases (55,171) (354,258)
----------- ----------
Net cash provided by financing activities 636,640 944,134
----------- ----------

NET INCREASE (DECREASE) IN CASH (93,697) (32,789)

CASH, BEGINNING OF PERIOD 172,622 205,411
----------- ----------

CASH, END OF PERIOD $ 78,925 $ 172,622
=========== ==========

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Page 2 of 2

2000 1999
----------- ----------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest $ 117,798 $ 76,903
=========== ==========

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
During March 1999, the Company sold its
rights to a note receivable, previously
written off, for a $100,000 note receivable
due from the affiliate. $ - $ 100,000

During 1999, the Company issued 111,000
shares of common stock in settlement of
accounts payable totaling $65,500. $ - $ 65,000

On December 31, 1999, the Company issued
360,000 shares of common stock to acquire
cash of $3,840 plus all assets and
liabilities of AB of Norman, L.L.C. $ - $ 3,840

During June 2000, the Company issued 200,000
shares of its common stock in exchange for
the 20% interest in Boots, Inc. not owned by
the Company. This transaction was valued
at $150,000 for financial reporting purposes,
resulting in goodwill of $89,704. $ 150,000 $ -

During September 2000, the Company sold the
assets and operations of its Atomic Burrito
restaurant in Norman, Oklahoma in exchange
for a note receivable of $370,000. $ 370,000 $ -

During November 2000, the Company sold the
assets, liabilities and operations of its
Atomic Burrito restaurants in Tulsa,
Oklahoma and Wichita, Kansas and Atomic
Development Corporation in exchange for
notes receivable totaling $385,000. The
restaurants and the development company were
sold to a former officer of the Company. $ 385,000 $ -

The accompanying notes are an integral part of these financial statements.

ATOMIC BURRITO, INC.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999

1. DESCRIPTION OF BUSINESS

Atomic Burrito, Inc. (the "Company"), was incorporated on July 19,
1999 as Western Oklahoma, Inc. On September 3, 1999, Western Oklahoma,
Inc., a shell corporation, was merged with Western Country Clubs, Inc.,
a Colorado corporation, incorporated on December 19, 1989. Western
Oklahoma, Inc. became the surviving corporation in this merger. On
September 3, 1999, Western Oklahoma, Inc. changed its name to Atomic
Burrito, Inc. These financial statements include the activity of Western
Country Clubs, Inc. prior to its merger with Western Oklahoma, Inc.

During 2000, the Company decided not to continue developing its "Atomic
Burrito" restaurants and sold two of its locations, along with the
"burrito concept", to its then president, who resigned in May 2000. The
Company also ended its joint venture agreement with New York Bagel
Enterprises, Inc., sold its Norman store location and abandoned the
Oklahoma City and Houston stores. The following subsidiaries
consolidated in prior years participated in the activities of the
"burrito concept":

Atomic Development, Inc., was a wholly owned subsidiary which
held the "burrito concept" and was responsible for developing it,
was sold to the Company's former president (see Note 13).

AB of Tulsa-I, L.L.C., 57% owned, and AB of Wichita-I, L.L.C.,
60% owned, were locations which were sold to the Company's
former president (see Note 13).

AB of Norman-I, L.L.C., 100% owned, formed in 1999, was sold (see
Note 13).

AB of Houston-I, L.L.C., 50% owned, formed in 1999, was abandoned
(see Note 13).

AB of OKC-I, L.L.C., 100% owned, formed in 1999, and awaiting
disposition (see Note 13).

Other subsidiaries and divisions which remain active are as follows:

Western Country Club 1, Ltd. ("Indy") is a limited partnership
formed on January 19, 1993. Indy owned and operated a nightclub
in Indianapolis, Indiana, which was sold in early 1998. As of
December 31, 2000, this partnership owns $480,000 in notes
receivable, which are to be distributed to the Company in
liquidation of this partnership.

The St. Louis division of the Company was acquired on October 7,
1994. This division operates a nightclub in St. Louis, Missouri.

Entertainment Wichita, Inc. ("EWI"), a wholly-owned subsidiary,
owns In Cahoots, Ltd. ("In Cahoots"). In Cahoots is a limited
partnership that owns and operates a nightclub in Wichita,
Kansas.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts or
revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates were made in
determining the losses attributable to discontinued operations.

Consolidation
-------------
The consolidated financial statements include the accounts of the
Company and all of its wholly-owned and majority owned subsidiaries,
limited liability companies and partnerships as described in Note 1
above. All significant intercompany accounts and transactions have
been eliminated in consolidation.

Investments
-----------
Investments in partnerships in which the Company owns less than a 20%
interest are accounted for on the cost basis reduced by any permanent
impairments in the investment's carrying value.

Inventories
-----------
Inventories consist of liquor, wine, beer, boutique items, and food
items. Inventories are stated at the lower of cost (first-in,
first-out) or market.

Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the assets' estimated useful
lives as follows: leasehold and other improvements, 10-15 years;
restaurant equipment, 7-10 years; furniture and fixtures, 7-10 years;
signage, 10 years.

Intangibles
-----------
Organization costs, liquor license costs and goodwill are amortized
over five years. The covenant not to compete is amortized over 3
years.

Measurement of impairment
-------------------------
At each balance sheet date, the Company reviews the amount of
recorded goodwill, covenant not to compete, related nightclub assets
and the related restaurant assets (separately by club and restaurant)
for impairment. Whenever events or changes in circumstances indicate
that the carrying amount of the expected cash flows from these assets
is less than the carrying amount of these assets, the Company will
recognize an impairment loss in such period in the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. These considerations were made in recording the losses
arising from the discontinued operations.

Repairs and maintenance
-----------------------
Normal costs incurred to repair and maintain fixed assets are charged
to operations as incurred. Repairs and betterments, which extend the
life of an asset are capitalized and subsequently depreciated on a
straight-line basis over the remaining useful life of the asset. When
assets are sold or retired, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included
in operations. Loss from discontinued operations includes the gains
and losses attributable to equipment and fixtures sold or abandoned.

Income taxes
------------
Income taxes are provided based on earnings reported in the financial
statements. The Company follows Statement of Financial Accounting
Standards No. 109 whereby deferred income taxes are provided on
temporary differences between reported earnings and taxable income.
See Note 10 for further detail.

Net income (loss) per common share
----------------------------------
Basic income(loss) per common share is computed by dividing
income(loss) by the weighted average number of common shares
outstanding for the period. Diluted net income per common share
reflects potential dilution that could occur if preferred stock or
other contracts to issue common stock were exercised or converted
into common stock. Diluted net loss per common share does not reflect
dilution from potential common shares, because to do so would be
antidilutive.

Concentration of credit risk
----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash and temporary cash
investments. The Company places its cash investments in highly rated
financial institutions. At times, the Company may have bank deposits
in excess of Federal Deposit Insurance Commission (FDIC) limits. At
December 31, 2000, the Company had no uninsured deposits.

Reclassifications
-----------------
Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 presentation.

3. NOTES AND LOANS RECEIVABLE

The Company had the following notes and loans receivable at December 31,
2000:

9% note receivable due from a
corporation, due October 2005 $ 75,000

9% note receivable due from a
corporation, due October 2005 150,000

9% note receivable due from a
corporation, due October 2005 160,000

8% note receivable due from
an individual, payable in monthly
installments of $3,536, including
interest, due September 2007 370,000
---------

755,000
Less: Reserve for doubtful
collectibility (350,000)
---------
Total, net of reserve for collectibility 405,000

Current portion 37,266
---------
Long-term portion $ 367,734
=========

In addition, the Company had the following notes receivable due from
affiliates as of December 31, 2000:

6% note receivable due from a
corporation in March 2001 $ 100,000

6% note receivable due from
a corporation in April 2002 50,000

8% note receivable due from a
corporation in April 2001 480,000
---------

Total notes receivable - affiliates $ 630,000
=========

4. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2000, include the following:

Leasehold and other improvements $1,739,238
Restaurant and club equipment 593,635
Furniture and fixtures 297,565
Signage 70,357
----------

2,700,795
Less accumulated depreciation (1,701,884)
----------

Total property and equipment $ 998,911
==========

Certain property and equipment located at the AB of OKC-I restaurant has
been reduced to net realizable value by a reserve of $200,000
established by management (See Note 13).

Included in the accompanying consolidated statement of operations is
$339,594 and $335,305 of depreciation and amortization expense for 2000
and 1999, respectively.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, short-term notes receivable, commercial
paper and accounts payable approximate fair value because of the
short-term maturity of these instruments. Management has established an
appropriate allowance to reduce the carrying amount of long-term notes
receivable to approximate fair value.

The carrying value of long-term debt, including the current portion in
the financial statements, approximates fair value.

6. IMPAIRMENT OF LONG-LIVED ASSETS

During 2000, the Company recognized an impairment of $200,000 on the
assets of AB of OKC-I and an impairment of $108,373 on the assets of AB
of Houston-I. These impairments were recognized in connection with the
Company's decision to discontinue development of its "Atomic Burrito"
restaurants.

7. NOTES PAYABLE

As of December 31, 2000, the Company had a $28,005 note payable to a
related party at 1% over prime, payable in monthly installments of
$6,250. The note is secured by the ownership interest of a stockholder
and the guarantee of a financial corporation and had an original
maturity of July 2000.

Long-term debt consists of the following at December 31, 2000:

9% note payable to a bank,
due in monthly installments
of $12,000 including interest
through April 2002, secured by
personal guarantees of stockholders,
and equipment. $ 472,889

9.25% note payable to a bank,
due in monthly installments
of $6,172 including interest
through April 2001, secured by
personal guarantees of stockholders,
and equipment. 291,935

8.5% note payable to a bank,
due in monthly installments
of $4,116 including interest
through August 2000, secured
by personal guarantees of stockholders,
accounts receivable, inventory,
and equipment. At December 31,
2000, the Company was in the
process of renegotiating the
terms of this note payable. 165,078

13.5% note payable to a
mortgage company, due in
monthly installments of
$7,500 through September 2000,
secured by accounts receivable,
inventory, and equipment. This
note was satisified in connection
with the sale of the Wichita
In Cahoots club (See Note 14). 100,000

13.5% note payable to a limited
liability partnership, with all
principal and interest due April
2001, secured by all interest in
InCahoots Limited Partnership via
Entertainment Wichita, Inc. In the
event of non-payment by due date, the
interest rate on this note adjusts
to 19.5%. This note was satisified
in connection with the sale of the
Wichita In Cahoots club (See Note 14). 50,000

10% note payable to a limited liability
company, due May 2001 50,000

10% note payable to an affiliate, due
May 2001 (See Note 7) 35,000
---------

Total 1,164,902

Less: Current portion (798,290)
---------
Noncurrent portion $ 366,612
=========

Maturities of long-term debt are as follows:

Year ending December 31, Amount
------------------------ ------------

2001 $ 798,290
2002 366,612
------------

$ 1,164,902
============

8. RELATED PARTY TRANSACTIONS

On July 3, 1993 In Cahoots signed a ten-year lease. The lessor is a 20%
limited partner of In Cahoots. Rent expense under this lease for the
years ended December 31, 2000 and 1999, amounted to $201,996 and
$167,831, respectively.

On October 1, 1996, EWI assumed $150,000 of debt when it acquired
control of In Cahoots. The remaining balance of $28,005 at December 31,
2000 is due to a former limited partner of the Company.

On February 6, 1998, the Company sold its Indianapolis club to a major
stockholder of the Company for a $600,000 note and the assumption of
$490,426 of long-term debt and $60,078 of accrued interest and taxes,
less $13,000 to be refunded to the buyer. The Company remains
contingently liable for these debts until they are paid in full by the
purchaser. As of December 31, 2000, the note receivable balance was
$480,000.

During March 1999, the Company sold its rights to a fully reserved
receivable to an affiliate for a $100,000 note receivable from the
affiliate.

During November 2000, the Company sold its interest in its Atomic
Burrito restaurants in Tulsa, Oklahoma and Wichita, Kansas to a major
stockholder and former president of the Company for notes receivable
totaling $385,000. As of December 31, 2000, these notes were reduced to
a net realizable value of $206,500 through the establishment of a
reserve for future collectibility.

The Company has a note payable to an affiliate not to exceed $50,000.
This note includes interest at 10% and is payable upon maturity in May
2001. Amounts borrowed on this note are funded at the discretion of the
affiliate. At December 31, 2000, the balance of this note was $35,000.

9. STOCKHOLDERS' EQUITY

On April 16, 2000, dividends in arrears on the Company's 10% convertible
preferred stock totaling $30,000 were waived.

On December 29, 2000, dividends in arrears on the Company's 10% Series A
convertible preferred stock totaling $40,000 were waived.

On March 9, 2000, the Board of Directors approved an Omnibus Equity
Compensation Plan for employees and consultants. The aggregate number of
common shares as to which options and awards may be granted shall not
exceed 572,208. At the time of grant, the Company will determine the
exercise price and the vesting period. The Company's existing
equity-based compensation plans shall be incorporated into this Plan.

During 1999, the Company redeemed all outstanding Series B cumulative
convertible preferred stock.

During 1999, the Company issued 111,000 shares of common stock in
settlement of payables totaling $65,501.

During 2000 and 1999, stock options for 169,900 and 30,000 shares,
respectively of the Company's common stock were exercised at $0.75 per
share.

During December of 1999, the Company acquired certain assets and the
operations of an Atomic Burrito restaurant located in Norman, Oklahoma
in exchange for 360,000 shares of the Company's restricted common stock
and the assumption of $60,967 in debt. The voting rights to this stock
were placed in a voting trust for a period of one year. This acquisition
was treated as a purchase for financial reporting purposes.

The break down on this purchase is as follows:

Current Assets $ 19,093
Property and Equipment 270,000
Other Assets 13,500
Goodwill 38,374
---------

$ 340,967
=========

Accounts payable $ 70,967
Capital stock issued 270,000
---------

$ 340,967
=========

As discussed at Note 13, the Company sold the Norman restaurant location
during September 2000.

A schedule of the Company's preferred and common stock transactions for
the years ended December 31, 1999 and 2000 is as follows:

Series A Series B Series C Series D
10% Convertible 10% Convertible 10% Convertible 10% Convertible Common
Preferred Stock Preferred Stock Preferred Stock Preferred Stock Stock
---------------------------------------------------------------------------------
Number Number Number Number Number
of of of of of
Shares Shares Shares Shares Shares
---------------------------------------------------------------------------------

Balance,
December 31, 1998 40,000 14,500 - - 3,734,721

Redemption
preferred stock - (14,500) - - -

Common stock issued
in settlement
of accounts payable - - - - 111,000

Exercise of stock options - - - - 30,000

Common stock issued
to acquire restaurant - - - - 360,000
---------------------------------------------------------------------------------
Balance,
December 31, 1999 40,000 - - - 4,235,721

Exercise of stock options - - - - 169,900

Preferred Stock issued - - 6,000 - -

Common stock issued
to purchase interest
in Boots, Inc. - - - - 200,000

Common stock issued
for cash - - - - 310,000
---------------------------------------------------------------------------------
Balance,
December 31, 2000 40,000 - 6,000 - 4,915,621
=================================================================================

10. INCOME TAXES

As of December 31, 2000, the Company's deferred tax assets were as
follows:

Tax over book basis of fixed and
intangible assets $ 191,748
Net operating loss carryforwards 1,328,259
Charitable contribution carryforwards 1,549
----------
1,521,556
Valuation allowance (1,421,556)
----------
Net deferred tax asset 100,000
Current asset 100,000
----------
Long-term asset $ -
===========

Realization of the deferred tax asset is dependent upon the Company
generating sufficient future taxable income against which its loss
carryforward and loss from impairment of long-lived assets can be
offset. Management has determined that it is not likely that the Company
will be able to realize all the tax benefits from the net operating loss
carryforward and impairment of long-lived assets and has therefore
reduced the deferred tax asset by a valuation allowance. During 1999,
the Company revised downward by $267,740 its estimate of the realizable
portion of its deferred tax asset, resulting in a $267,740 charge to
current year income tax expense.

Changes in the components of the Company's deferred tax assets for 2000,
are as follows:

Deferred tax asset - beginning of year $ 100,000
Difference between book and
tax depreciation (103,514)
Leases with scheduled rent increases (36,293)
Net operating loss carryforwards 368,394
Change in valuation allowance (228,587)
Charge against current year earnings -
Valuation allowance charged against
current operations -
---------
Deferred tax asset - end of year $ 100,000
=========

Current portion of deferred tax asset $ 100,000

Long-term portion of deferred
tax asset -
---------

$ 100,000
=========

The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below for the years ended
December 31, 2000 and 1999:
2000 1999
---------- ----------

United States statutory rate 0.0% 0.0%
State income taxes, net of federal
income tax benefit (cost) 0.0 0.0
Increase in valuation allowance 0.0 0.0
Other 0.0 0.0
---------- ----------

0.0% 0.0%
========== ==========

At December 31, 2000, the Company has a net operating loss carryforward
of approximately $3,700,000 which begins to expire in 2013.

Based upon the sale of the Wichita In Cahoots club, the deferred tax
asset of $100,000 at December 31, 2000 is expected to be fully realized
in 2001.

11. COMMITMENTS

Capital Leases
--------------
The Company is the lessee of certain restaurant equipment under capital
leases expiring through 2005. The assets and liabilities under the
capital leases are recorded at the fair value of the assets. The assets
are amortized over the estimated productive lives. Amortization of
assets under the capital leases is included in depreciation expense for
2000 and 1999.

Minimum future lease payments under capital leases as of December 31,
2000 for each of the next five years and in the aggregate are:

Year ending December 31, Amount
------------------------ -----------

2001 $ 76,797
2002 72,049
2003 57,016
2004 53,669
2005 6,909
-----------

Total minimum lease payments 266,440
Less: amount representing interest (74,100)
-----------
Amount representing principal 192,340
Less: current portion (45,692)
-----------
Long-term portion $146,648
===========

These capital leases provide for a purchase price of $1 at the
expiration of their respective lease terms.

Operating Leases
----------------
On July 30, 1993, In Cahoots entered into a building lease for club
operations in Wichita, Kansas, with a 20% limited partner. The lease
term is ten years commencing October 15, 1993. In addition to minimum
rental payments of $12,500, In Cahoots is obligated to pay to the
landlord, as additional rent, a percentage of gross sales after
deductions for alcohol and sales taxes. The lease agreement contains two
five-year renewal options at the primary lease term rental rate. The
Company, during 1999, amended this lease to provide for additional rent
of $4,333 per month for the Pockets Sports Grill addition. As discussed
in Note 14, the furniture, fixtures and equipment at the Wichita Club
were sold effective April 11, 2001.

In December 1993, the Company entered into a building lease for club
operations in St. Louis, Missouri. The lease term is ten years with two
five-year renewal options. Minimum rent per month is $22,238 for years
one through five and $26,686 per month for years six through ten. The
lease requires a $25,000 security deposit, and is guaranteed by an
affiliated Company.

On October 4, 1999, the Company entered into a lease agreement for 4,250
square feet of space in Oklahoma City, Oklahoma, for a Company- owned
Atomic Burrito restaurant. The lease is for a term of 5 years and 4
months, with two five-year option periods at prices increased from the
initial term rent of $4,227 per month. Although operations at this
restaurant have been discontinued, the Company continues to make
payments in accordance with the terms of this lease (See Note 13).

Rent expense for the years ended December 31, 2000 and 1999 amounted to
$557,206 and $560,657, respectively. Rent expense for 2000 and 1999 is
net of $183,128 and $139,607, respectively, of rental income received.

Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 2000 for
each of the next five years and in the aggregate are:

Year ending December 31, Amount
------------------------ -----------

2001 $ 370,956
2002 370,956
2003 344,270
2004 50,724
2005 4,227
-----------

$1,141,133
===========

These commitments do not reflect rental income expected to be received
from sublease of a portion of the St. Louis facility.

Three B's Restaurant Group
--------------------------
In connection with the sale of its `Atomic Burrito' restaurants to Three
B's (See Note 13), the Company agreed to provide financing of up to
$40,000 AB of Wichita-I L.L.C. for operating purposes. Any funds
advanced in accordance with this agreement are secured by all options
and warrants owned by the former president of the Company. As of
December 31, 2000, no funds had been advanced to Three B's under this
agreement.

12. LITIGATION

The Company is involved in various claims and legal proceedings of a
nature considered normal to its business, principally personal injury
claims resulting from incidents occurring on the premises of the
Company's nightclubs. While it is not feasible to predict or determine
the financial outcome of these proceedings, management does not believe
that they will result in a materially adverse effect on the Company's
financial position, results of operations or liquidity.

13. DISCONTINUED OPERATIONS

On August 30, 2000, the Company announced its intentions to discontinue
its Atomic Burrito Restaurant operations. Accordingly the following
sales occurred prior to December 31, 2000:

(1)The Company president resigned and formed Three B's Restaurant Group,
Inc.(Three B's), which bought from the Company its subsidiary
company, which held the restaurant concept, Atomic Development,
Inc.(Development) and two companies which held the majority interest
in two restaurant locations, AB of Tulsa-I, L.L.C.(Tulsa) and AB of
Wichita-I, L.L.C.(Wichita) for $425,000 on November 30, 2000. Three
B's acquired the leases for the two restaurant locations and all
assets and liabilities of the entities sold. However, the Company was
required to reduce accounts payable of Tulsa by $40,000 and loan
Wichita $40,000 which is to be repaid beginning May 30, 2001 at an
interest rate of 9% per annum with a first payment of $4,000 and $550
monthly thereafter until October 31, 2005 with the remaining balance
being due at that time. At December 31, 2000, no funds had been
advanced to Three B's on this note.

Three B's issued three notes as consideration for the sale of the
above mentioned entities, as follows: Development - $75,000, Tulsa -
$160,000 and Wichita - $150,000. All notes bear interest at a rate of
9% per annum, have monthly payments scheduled to commence June 1,
2001 with final payment due on October 31, 2005. The notes are
collateralized by all of the assets of the entities acquired by Three
B's with requirements of the Company to provide satisfaction on
certain liabilities of the entities sold to Three B's. In connection
with this transaction, the Company has provided for a reserve of
$178,500 to cover future possible losses which could arise from
disputes resulting in adjustments in amounts paid on the notes
receivable.

(2)The Company sold its Norman restaurant location to Atomic Restaurant
Group, L.L.C. (ARG) on September 15, 2000. The sales price was a
$370,000 note payable in installments at 8% beginning November 15,
2000 for $3,535.91 until paid in full on September 15, 2007. The
Company sold all its assets at the Norman location but was still
liable for the liabilities in the AB of Norman-I, L.L.C. entity,
which included the obligations on the Norman location equipment. The
Company has provided a $171,500 reserve to cover future possible
losses which could arise from disputes resulting in adjustments in
amounts paid on the note receivable.

The Houston location and the Oklahoma City locations ceased operations
and the equipment at the Houston location has been written down to
$120,000, which is the anticipated sales price of the equipment to Three
B's. The Oklahoma City property has been written down by $200,000 and
the Company is currently paying the rental on this location and is
responsible for the liabilities of the Oklahoma City location.

At December 31, 2000, the Company believes that it has provided for all
potential losses attributable to its decision to dispose of the Atomic
Burrito restaurant concept and has reflected this loss in discontinued
operations of the Company.

14. SUBSEQUENT EVENTS

On March 7, 2001, the Company agreed to the sale of its nightclub business
in Wichita, Kansas for $1,200,000 in cash. The sale includes the equipment
and improvements, the lease, permits and licenses at this location together
with certain other assets at this location. The Company closed on this sale
on April 12, 2001, realizing a gain of approximately $625,000 in connection
with this transaction. Certain notes payable to a mortgage company and a
limited liability partnership, along with accrued interest due, were
satisified in connection with this transaction (See Note 7).

Exhibit 11

ATOMIC BURRITO, INC.

CALCULATION OF EARNINGS PER SHARE

DECEMBER 31, 2000

Weighted
Shares Days Average
Date Outstanding Outstanding Shares
---------- ----------- ----------- ----------

BASIC EARNINGS (LOSS) PER SHARE:
Common shares outstanding
at December 31, 1999 12/31/1999 4,235,721 365 4,235,721

Exercise of stock options 2/29/2000 18,750 214 10,993
Exercise of stock options 3/31/2000 34,250 183 17,172
Exercise of stock options 4/30/2000 105,900 153 44,389
Exercise of stock options 5/31/2000 7,000 122 2,340
Issuance of common stock for 20%
interest in Boots, Inc. 6/30/2000 200,000 93 50,959
Common stock issued for cash 8/18/2000 60,000 43 7,068
Exercise of stock options 8/22/2000 2,000 39 214
Common stock issued for cash 8/22/2000 2,000 39 214
Common stock issued for cash 11/15/2000 250,000 46 31,507
--------- ----------

Common shares outstanding
at December 31, 2000 4,915,621 4,400,577
========= ==========
Net earnings (loss) per share $(1,585,679)
==========
Basic earnings (loss) per share $ (0.36)
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