2/18/00

Update... Acquired by Carrols Corporation

• Company Profile

Taco Cabana operates and franchises restaurants of Mexican patio style under the names of ``Taco Cabana'' and ``Two Pesos'', primarily located in the Southwestern U.S. For the 39 weeks ended 10/3/99, revenues rose 14% to $119.8 million. Net income rose 28% to $10.3 million. Revenues reflect increased sales at existing restaurants and the opening of higher than average volume restaurants. Earnings reflect lower cost of sales and administrative costs as a percentage of sales.

Taco Cabana, Inc. operates and franchises a total of 119 such restaurants system-wide. Of these, the Company owns and operates 109 Taco Cabana restaurants with the remainder owned and operated by franchisees. The Company's restaurants (including franchises) are located primarily in Texas, and are also located in Georgia, Indiana, New Mexico, and Oklahoma. Taco Cabana restaurants feature generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food at an exceptional value. The restaurants provide interior, semi-enclosed and patio dining areas with a festive Mexican theme. Menu items include flame-grilled beef and chicken fajitas served on sizzling iron skillets, Chicken Flameante (a marinated rotisserie chicken), quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh, hot flour tortillas. Unlike many of its competitors, the company makes most menu items fresh daily in each of its restaurants.

• Products

The Company is committed to selling premium food which it believes to be among the highest quality of any chain in the restaurant industry. This process begins with the selection of the freshest available ingredients. The Company's menu items are prepared strictly in accordance with authentic and well-tested recipes. Taco Cabana restaurants also offer a variety of beverage choices, including margaritas and beer. Alcoholic beverages currently account for less than 5% of gross sales.

The Ingredients. The Company has implemented a purchasing program structured to ensure that all of the ingredients used in the preparation of the Taco Cabana menu items are of the highest quality. The Company regularly inspects its vendors to ensure both that the products purchased by the Company conform to its standards, and that the prices offered are competitive. The meat used in making fajitas as well as most other principal ingredients are purchased through supply contracts to ensure availability and minimize the risks of price fluctuation.

The Preparation. The menu items offered at any Taco Cabana restaurant are prepared at that restaurant from fresh meat and produce ingredients delivered by suppliers to most restaurants at least three times each week. The Company is committed to differentiating itself from other quick service competitors by utilizing fresh, high quality ingredients as well as the preparation of most items "from scratch". The Company uses a number of pre-prepared items and is currently testing other pre-prepared items in order to simplify restaurant operations.

 Pricing Philosophy. The Company offers value by pricing its menu items below the price of comparable menu items in sit-down Mexican restaurants. Although Taco Cabana's food costs (as a percentage of sales) are generally higher than quick service chains as a result of the premium quality of ingredients used, the Company believes that this point of differentiation contributes to the achievement of average unit volumes in excess of most quick service restaurants.

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• Marketing  

The Company utilizes an integrated, multi-level marketing approach which includes periodic company-wide promotions, direct mail, in-store promotions, local store marketing, and other strategies, including the use of radio advertising in its major markets. The Company expects to execute this plan utilizing a marketing budget of approximately 3.75% of sales.

• Management

Stephen V. Clark   Chief Executive Officer, President and Director

 Mr. Clark has served as the Company's Chief Executive Officer since November 1996, and as the President, Chief Operating Officer, and as a Director since April 1995. Prior to that, Mr. Clark was with Church's Chicken, a division of America's Favorite Chicken, for seventeen years with his final title having been Senior Vice President and Concept General Manager. He also served on the executive committee of America's Favorite Chicken and was on the Board of Directors of Church's Operators Purchasing Association. In his final position with America's Favorite Chicken, Mr. Clark was primarily responsible for the day-to-day operations of over 1100 company-owned and franchised units with aggregate sales volume in excess of $600 million.

Douglass Gammon   Senior Vice President - Human Resources and People Development

Mr. Gammon joined the Company in March 1997 as Senior Vice President, Human Resources and People Development. From December 1989 to March 1997, Mr. Gammon served as Vice President of Human Resources at Marriott International which has over 15,000 employees in 50 states. Mr. Gammon has over 18 years of experience in the human resources field as well as over six years experience in restaurant operations. He was the past President for the Council of Hotel and Restaurant Trainers.

Dennis Greenia     Senior Vice President - Marketing

Mr. Greenia joined the Company in July 1998 as Senior Vice President - Marketing. From January 1989 to July 1998, Mr. Greenia served as President of the Merrill Group, a marketing consulting firm in Atlanta GA., whose clients included the Coca-Cola Company, Dominos Pizza, Bally's Total Fitness and Hardee's Foods. Mr. Greenia has over 19 years experience both nationally and internationally in the food service industry holding positions with Burger King Corporation, J. Walter Thompson Advertising and Coca Cola USA. Mr. Greenia is also a majority partner in Mobile Media Network of Atlanta, Inc.

David G. Llyod  Senior Vice President - Finance, Chief Financial Officer, Secretary and Treasurer

Mr. Lloyd joined the Company in October 1994 as Vice President - Finance, Chief Financial Officer, Secretary and Treasurer and was promoted to Senior Vice President in May 1996. From August 1985 to October 1994, Mr. Lloyd served in various capacities with Deloitte & Touche (the Company's independent auditors), with his last position being Senior Audit Manager. Mr. Lloyd is a certified public accountant.

• Facilities

 Taco Cabana restaurants average approximately 3,200 square feet (exclusive of the exterior dining area) and provide seating for approximately 80 customers, with additional patio seating for approximately 50 customers. Taco Cabana restaurants are typically a vivid pink color (with painted and neon accents), conveying a distinctive Mexican theme and permitting easy identification by passing motorists. Inside, exposed elements of the kitchen display the freshness of Taco Cabana's food and the authenticity of its preparation. Taco Cabana's restaurant design enables customers to observe fresh fajitas cooking on a charcoal grill, a machine making fresh, hot flour tortillas, Chicken FlameanteTM rotating on spits and the preparation of other food items. Upon entry, the customer places an order selected from an overhead menu board, proceeds down a service line to where the order is picked up, and then passes a Salsa Bar en route to the dining area. The distinctive Salsa Bar offers Taco Cabana customers freshly prepared, authentic Tex-Mex ingredients such as Salsa de Fuego (made with charred peppers and tomatoes), pico de gallo and salsa (all "made from scratch" throughout the day at each restaurant), and cilantro, pickled jalapeno slices, crisp chopped onions, and fresh sliced limes. According to the season, time of day and personal preference, the customer may choose to dine either in the restaurant's brightly colored and festive interior dining area or the semi-enclosed or outdoor patio areas. The addition of traditional and contemporary Latin music, tropical landscaping, and authentic decorative artifacts create an overall dining environment which the Company believes is both attractive and festive. Most Taco Cabana restaurants also offer drive-thru service.

• Expansion Strategy

The Company's near-term strategy is to achieve a dominant or leading position among quick service Mexican food restaurants in each of its targeted principal markets in order to obtain marketing and operating efficiencies. The Company seeks to implement this strategy by selectively adding restaurants in existing markets in order to expand its existing market share. In accordance with this strategy, the Company may locate new restaurants in close proximity to existing Taco Cabana restaurants in order to provide the Company with increased market penetration and market profitability, even if this may result in a reduction in comparable store sales volumes of certain restaurants. Additionally, the Company is planning to expand into new markets, beginning with the Oklahoma City market in 1999. The Company's 1999 objective is to open ten to twelve freestanding restaurants in existing markets and in Oklahoma City. The Company believes the site selection process is very important in determining the potential success of a particular restaurant and senior management devotes substantial time and resources to analyzing each prospective site. The Company focuses on selecting locations which clear stringent hurdles with regards to the projected return on initial investment. A variety of factors are considered in the site selection process, including local market demographics, site visibility and accessibility (including drive-by traffic and ease of drive-thru accessibility), proximity to competitive operations, and proximity to generators of potential customers, such as major retailers, retail centers, medical or hospital facilities, office complexes, hotel concentrations, and stadiums, arenas, theaters or other entertainment centers.

• Evaluation and Conclusion

We've been following numerous companies very closely, most in the white hot technology sector. Many have remarkable products and services that if properly developed and marketed present opportunistic buys. Some of the companies need to demonstrate a further ability to carry out their projected business models, others are simply over priced from our viewpoint. We will continue to closely monitor these stocks as well as other stocks in more traditional sectors. So with all the high flying tech stocks out there, what did we come up with? A TACO, that's right a taco but not any ordinary taco. Taco Cabana is our new "Feature Stock". 

 Taco Cabana Corporation currently has seven analysts following the stock. All seven have a strong buy rating on Taco Cabana, resulting in a 1st place ranking of the 68 stocks in its sector. Taco Cabana is also a member of the Small Cap 600 index. In addition the last three insider transactions have been buys above the currently traded price. Record revenues were recorded in the company's last quarter but the stock still languishes due to a weak restaurant sector. If that's not enough the stock is trading at a 52 week low and management recently increased the number of authorized shares in its on-going share repurchase program. Taco Cabana is also sporting  a long term growth rate of 20-25 percent and has to be the ultimate value play at this point.2/17/00

2/18/00

(This report was written by SmallCapReview.com and has not been paid for or approved by Taco Cabana Corporation (TACO). SmallCapReview.com feature stock reports are intended to be stock ideas, NOT recommendations. Please do your own research before investing. It is crucial that you at least look at current SEC filings and read the latest press releases. More information can be found by reading our disclaimer page.) For continuing coverage of TACO, please sign up for our free newsletter, SmallCapReview News. Information contained in this report was extracted from current SEC documents, particularly the Annual Report filed by TACO and from other sources deemed reliable. This information was not supplied to SmallCapReview.com by the company and SmallCapReview.com has received no compensation from the company for this article. TACO has not assisted in any form or manner in the gathering of information presented herein. For more information see our disclaimer section, a link of which can be found on the home page of this site. This document contains forward-looking statements, particularly as related to the business plans of the Company, within the meaning of Section 27A of the Securities Act of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to the safe harbor created by these sections. Actual results may differ materially from the Company's expectations and estimates.

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