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Previous: HUDSONS GRILL INTERNATIONAL INC, SB-1/A, EX-4, 2000-08-11 |
Next: LIGHTTOUCH VEIN & LASER INC, NT 10-Q, 2000-08-11 |
Washington, D.C. 20549
Form SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933
(Amendment No. 1)
Hudson's Grill International, Inc.
(Name of small business issuer in its charter)
Texas
(State or jurisdiction of incorporation or organization)
6794 and 5812
(Primary Standard Industrial Classification Code Number)
75-2738727
(I.R.S. Employer Identification No.)
16970 North Dallas Parkway, Suite 402, Dallas, Texas 75248; Tel. No. 972-931-9237
(Address and telephone number of principal executive offices)
16970 North Dallas Parkway, Suite 402, Dallas, Texas 75248
(Address of principal place of business or intended place
of business)
David L. Osborn; 16970 North Dallas Parkway, Suite 402, Dallas, Texas;
Telephone No. 972-931-9237
( Name, address, and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public is July
31, 2000.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box:
CALCULATION OF REGISTRATION FEE
| Title of each
class of securities to be registered |
Dollar
amount to be registered |
Proposed maximum offering
price per unit |
Proposed maximum aggre-gate offering price |
Amount of registration fee |
| Common | $465,989* | N/A | $465,989* | $123.02 |
* No consideration will be received pursuant to this registration
and offering, and since there is no positive book value, the shares were
valued at the price of the last trade of its parent's stock in 1999, which
was $.07.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1 X ; Alternative
2
Hudson Grill International, Inc.
6,656,986 Shares of Common Stock
Prior to this offering, there has been no public market for the common
stock of Hudson's Grill International, Inc. It is anticipated that a public
market will be made in this stock and that the stock will be traded over
the counter on the bulletin board of Nasdaq Stock Market.
The shares of common stock offered under this prospectus are speculative,
and investment in these shares involves a high degree of risk. See "Risk
Factors" on page 1.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Hudson's will not be using any underwriter since the stock will be distributed
on a one to one basis to the shareholders of record on the date of this
prospectus of Hudson's Grill of America, Inc. Consequently, no funds will
raised by this offering, and all expenses of the offering will be paid
by Hudson's.
The date of this Prospectus is July 31, 2000
No dealer, salesman or any other person is authorized by Hudson's
to give any information or to make any representation other than those
contained in this prospectus in connection with the offering described
herein. This prospectus does not constitute an offer of any security other
than the securities to which it relates, or an offer by Hudson's or any
underwriter within the jurisdiction to any person to whom such offering
would be unlawful. This prospectus may be used only in connection with
the offering of the securities to which it relates by Hudson's as contemplated
herein. The delivery of this prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date. However,
if any material changes in the affairs of Hudson's occur, while this prospectus
is required by law to be delivered, it will be amended or supplemented
to describe the changes.
Until October 31, 2000 (90 days after the date of this prospectus),
all dealers effecting transactions in the common stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments
or subscriptions.
TABLE OF CONTENTS
HUDSON'S 1
RISK FACTORS 1
BUSINESS AND PROPERTIES 2
OFFERING PRICE FACTORS 7
USE OF PROCEEDS 9
CAPITALIZATION 10
DESCRIPTION OF SECURITIES 11
PLAN OF DISTRIBUTION 14
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS 15
OFFICERS AND KEY PERSONNEL OF HUDSON'S 15
DIRECTORS OF HUDSON'S 17
PRINCIPAL STOCKHOLDERS 20
MANAGEMENT RELATIONSHIPS TRANSACTIONS AND REMUNERATION 20
LITIGATION 23
FEDERAL TAX ASPECTS 23
MISCELLANEOUS FACTORS 23
FINANCIAL STATEMENTS 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS
24
ACCOUNTANTS TO HUDSON'S 26
COUNSEL TO HUDSON'S 26
INDEPENDENT AUDITOR'S REPORT F-1
AUDITED FINANCIAL STATEMENT FOR THE PERIOD
ENDING DECEMBER 31, 1999 F-12
HUDSON'S
1. Exact corporate name: Hudson's Grill International, Inc. (referred to as "Hudson's")
State and date of incorporation: Texas, October 30, 1997
Street address of principal office: 16970 Dallas Parkway, Suite 402, Dallas, Texas 75248
Hudson's Telephone Number: 972-931-9237
Fiscal year: December 31
Persons to contact at Hudson's with respect to this offering: David
L. Osborn, President; Robert W. Fischer, Director. Mr. Osborn may be contacted
at Hudson's's telephone number; Mr. Fischer may be contacted at 214-361-7301.
RISK FACTORS
2. List in the order of importance the factors which Hudson's considers
to be the most substantial risks to an investor in this offering in view
of all facts and circumstances or which otherwise make the offering one
of high risk or speculative, i.e., those factors which constitute the greatest
threat that the investment will be lost in whole or in part, or not provide
an adequate return.
(1) Operating Restaurants and Franchising Restaurants is Very Speculative,
and Thus, the Risk of Failure is High. Operating a restaurant and franchising
restaurants operated by others is a highly speculative activity in that
most restaurants fail within several years of their opening. There can
be no assurance that restaurants owned and operated by Hudson's, or those
owned and operated by franchisees, will stay in business for very long.
Additionally, some may do well and others may do marginally or poorly and
may need to be closed. Where Hudson's is on a lease or is a guarantor of
a lease, its exposure to losses may continue even after a location is closed.
Because so many restaurants fail every year, the chances that one or more
of Hudson's franchisees may go out of business each year is high, and the
resulting loss of cash flow could have a significant impact on Hudson's.
(2) Undercapitalized Restaurants have Difficulty Competing Against
Better Funded Restaurants, and As a Result, if They Sustain Losses, They
Can't Stay in Business as Very Long. The restaurant industry is highly
competitive, with many different themes used by restaurants and many restaurants,
and varying from large to small in size, and from being a single operation
to being part of a large multinational chain. The restaurant industry is
competitive in large urban markets and even in smaller towns. Competition
can force restaurants to charge lower prices that are not profitable, and
it can reduce sales even when prices are above costs. Even within niche
markets in which Hudson's operates, Hudson's faces many competitors, many
of which are part of larger, more financially sound companies. It also
faces considerable competition in the franchise industry for the sale of
franchises, not just in the restaurant industry but from franchisers of
other non-restaurant businesses. Hudson's and its franchisees do not have
the ability to withstand losses from competition, and thus it would go
out of business in a short time.
(3) Hudson's Lacks Financial Resources; Going Business Concern; Thus,
its Ability to Stay in Business Could be Easily Jeopardized if It Lost
any Material Cash Flow. Hudson's has limited financial resources to
draw upon. Many past and current franchisees owe money to Hudson's, much
of which is uncollectible and is already written off. Hudson's's auditors
have issued an opinion in which they have expressed doubts about Hudson's's
ability to continue as a going concern. See attached financial statements
for the fiscal year ending December 31, 1999. Hudson's's future is dependent
on the success of its current franchisees from whom it collects royalty
payments. After paying Hudson's's overhead and general and administrative
expenses, Hudson's's cash flow has been barely sufficient. At the current
time, Hudson's's ability to grow will be dependant on the success of its
franchisees and on obtaining additional franchisees. After severely reducing
its staff and overhead, Hudson's plans to use its cash flow over the next
year or two to pay off existing debts. If any current franchisees close
down operations, the reduced royalties will substantially impact Hudson's
ability to pay off debts and remain in business. Furthermore, due to the
lack of financial resources, Hudson's has difficulty in attracting new
franchisees, and this decreases the chance of growth and the ability to
stay in business if some of its franchisees go out of business.
(4) Potential Recapture of Hudson's Stock by Creditors of the Parent
Could Result in the Return of Assets to the Parent Including This Stock.
This stock is being distributed by Hudson's Grill of America, Inc., the
parent of Hudson's (referred to as "HGA"), and currently the holder of
100% of Hudson's stock. It represents all of the stock held by HGA; thus,
after this spin-off distribution of Hudson's's stock, HGA will not have
any stock in Hudson's. HGA's creditors, to the extent that they can obtain
judgments in excess of the liquidated assets of HGA that remain during
the next four years, could argue for the return of assets formerly held
by HGA, despite the fact that the spin off of negative assets will probably
actually improve HGA's financial condition. This could include any or all
of the stock in Hudson's formerly held by HGA that has been distributed
pursuant to this spin-off distribution. HGA also lacks financial resources
and has substantial contingent obligations, and unless an adequate merger
or acquisition by another company occurs in the near future, it will probably
cease functioning.
(5) Hudson's Operates in Only One Industry, and Therefore Lacks any
Diversification of Risk; If the Restaurant Industry Suffers a Downturn,
the Effects on Hudson's Will Probably be Significant. Hudson's franchises
restaurants. It is the only industry in which it does business. If the
restaurant business proves to be unprofitable, Hudson's will fail because
it does not engage in other businesses that might offset its losses in
the restaurant industry.
(6) Hudson's has Never Issued any Dividends, and It Does not Plan
to do so; This May Diminish the Demand for Hudson's Stock and There Will
be no Pay Back from Which Investors can Pay for Their Stock. Hudson's
has not paid any dividends to date, and there is no present intention of
doing so in the foreseeable future. Thus, investors who buy and hold Hudson's
stock will have no means by which to recoup their purchase price. Also,
see Risk 9 below.
(7) Retention of Control; Several Shareholders Will Hold Most of
the Stock and Will Control Hudson's; Most Investors Will Have Little Say
in the Management of Hudson's. As of the date of this prospectus, seven
people own, in the aggregate, more than 80% of the outstanding stock of
the parent of Hudson's, HGA; HGA owned 100% of Hudson's's stock prior to
the date of this prospectus. Thus, these people have indirectly controlled
Hudson's because it has been a subsidiary of HGA since its inception. After
the distribution of Hudson's's stock on a one to one basis to the HGA's
shareholders of record as of the date of this prospectus, the same seven
people will now directly control more than 80% of Hudson's. Thus, outside
of these few shareholders, the remaining shareholders probably will have
very little influence on the management of Hudson's and likely will be
unable to change management without the help of the few, large shareholders.
(8) Dependence Upon Present Management Without Much Likelihood of
Being Able to Attract New Management; If the Current Management is not
Very Effective, There are too Little Resources Available to Hire New Management.
Hudson's's operations are conducted principally by its president, David
L. Osborn, who, after the distribution of Hudson's's stock, will be the
largest shareholder. The management of Hudson's will likely remain under
the control of Mr. Osborn or be executed pursuant to his choice of a successor.
Mr. Osborn has already expressed an interest in resigning as President
because he has not taken any compensation for six years, and so a successor
may need to be hired. The current directors of Hudson's will also likely
remain the same for a while, at least until Hudson's is involved in other
corporate actions such as mergers or acquisitions of or by Hudson's. Thus,
the success or failure of Hudson's will be dependent on its current management,
and it is unlikely that Hudson's will have enough resources for some time
until it can hire professional staff needed to increase business.
(9) No Assurance of Marketability; Thus, Shareholders may Have a
Great Deal of Difficulty in Selling Their Stock. Despite the efforts
of Hudson's, Hudson's may have difficulty in obtaining a listing with the
NASDAQ system, and even after getting a listing with NASDAQ, no trading
market may develop. Even if a trading market develops, it may be very thinly
traded. As a result of any of these occurrences, shareholders may have
problems in liquidating their shareholdings, and may be forced to hold
onto their shares for a longer period than desired or anticipated.
Note: In addition to the above risks, businesses
are often subject to risks not foreseen or fully appreciated by management.
In reviewing this prospectus potential investors should keep in mind other
possible risks that could be important.
BUSINESS AND PROPERTIES
3. With respect to the business of Hudson's and its properties:
(a) Describe in detail what business Hudson's does and proposes to do,
including what products or goods are or will be produced or services that
are or will be rendered.
Hudson's intends to continue doing the same business it has done prior
to this spin off from HGA. Hudson's's business has been the franchising
of Hudson's Grill restaurants, which have a theme based on the fifties
and sixties era. The decor of the restaurants contains car memorabilia
and includes a hood and a front section of an old Hudson car that appears
to be crashing through a wall. The menu is also based on the same era,
with an emphasis on hamburgers and chicken sandwiches. Milk shakes and
large chocolate desserts are also specialties of the restaurants. Currently
there are ten Hudson's Grill restaurants that are open; all are franchised.
Most are located in California, with some in Texas and in Michigan.
In 1991, HGA commenced franchising its Hudson's Grill concept. Effective
December 1, 1997, HGA assigned all existing franchise rights to Hudson's.
Under the terms of the standard franchise agreement, the franchisees are
obligated to pay Hudson's an initial franchise fee of $35,000, and a weekly
continuing royalty fee of generally 4% of gross restaurant revenues, and
must spend 3% of gross sales on approved advertising, including a weekly
1% marketing fee contributed to Hudson's's marketing fund. Hudson's is
obligated to provide initial training, continuing management assistance,
administration of advertising and sales promotion programs and establishment
and monitoring of a marketing fund.
As a result of its franchising activities, Hudson's receives these royalty
payments from its franchisees. Other than proceeds from notes transferred
to Hudson's several years ago, all of Hudson's revenue stream is from the
royalty payments.
(b) Describe how these products or services are to be produced or rendered
and how and when Hudson's intends to carry out its activities. If Hudson's
plans to offer new products, state the present stage of development, including
whether or not a working prototype is in existence. Indicate if completion
of development of the product would require a material amount of resources
of Hudson's, and the estimated amount. If Hudson's is or is expected to
be dependent upon one or a limited number of suppliers for essential raw
materials, energy or other items, describe. Describe any major existing
supply contracts.
Currently, Hudson's anticipates that its growth will be through franchises,
either through increased sales by current franchisees and/or by the addition
of new franchisees. Hudson's frequently communicates with businessmen who
have expressed an interest in building and operating Hudson's Grills. Most
of the time these inquiries do not materialize, but Hudson's continues
to pursue and explore each opportunity presented to it by potential franchisees.
If Hudson's can get sufficient cash flow in the future, then it might consider
building a restaurant. Hudson's has developed a prototype design that it
considers is the best idea on how to implement the Hudson's Grill theme.
The current design emphasis is on free standing buildings with about 4,700
square feet of space, part of which includes a bar. The building design
uses a lot of glass around the outside of the building so that guests can
see outdoors and to give the building a lot of light and the feeling that
the building is larger than it is. The last three restaurants have used
this new design. In terms of sales at these new locations, one has approximate,
annualized sales of $1,750,000, another has approximate, annualized sales
of $1,150,000, and the third is closed. Because of the success of these
two restaurants, Hudson's feels that this new design is worth using, at
least until it can be shown that a new design is needed. Hudson's does
not plan to alter its basic menu; any changes will be minor and will be
gradually introduced. Some local variations are permitted. Hudson's franchisees
are not dependent on any suppliers, and Hudson's usually encourages using
a variety of sources in order to get competitive prices. Hudson's does,
however, require its franchisees to comply with strict standards for various
ingredients used in its menu items, which many times makes it harder to
get the right ingredients than simply to get normal, off-the-shelf supplies
used by other restaurants.
(c) Describe the industry in which Hudson's is selling or expects to
sell its products or services and, where applicable any recognized trends
within that industry. Describe that part of the industry and the geographic
area in which the business competes or will compete.
Indicate whether competition is or is expected to be by price, service,
or other basis. Indicate, by attached table if appropriate, the current
or anticipated prices or price ranges for Hudson's's products or services,
or the formula for determining prices, and how these prices compare with
those of competitors' products or services, including a description of
any variations in product or service features. Name the principal competitors
that Hudson's has or expects to have in its area of competition. Indicate
the relative size and financial and market strengths of Hudson's's competitors
in the area of competition in which Hudson's is or will be operating. State
why Hudson's believes it can effectively compete with these and other companies
in its area of competition.
Note. Because this Offering Circular focuses primarily
on details concerning Hudson's rather than the industry in which Hudson's
operates or will operate, potential investors may wish to conduct their
own separate investigation of Hudson's's industry to obtain broader insight
in assessing Hudson's's prospects.
Hudson's franchises restaurants. As such it is subject to trends in
both the restaurant industry and the franchise industry. Both industries
are very competitive, with many businesses engaged in one or both industries.
Hudson's's theme, suggested pricing and menu selection are oriented toward
sit-down dining in a casual environment with premium hamburger sandwiches,
milk shakes, desserts and alcoholic beverages. As such, it doesn't compete
with franchise restaurant operations like McDonalds or Burger King, even
though they are in the hamburger restaurant franchising industry. Because
of its suggested pricing, about $6 for hamburgers, Hudson's is really in
a middle tier of hamburger restaurants. Although Hudson's feels that it
competes against other restaurants, it does not feel that it competes based
on price; otherwise, it would price its meals in line with McDonalds, etc.
Competition is more along the lines of ambiance and service. Thus, it is
more likely to feel competition from chains and restaurants like Applebee's
and Chili's, which serve hamburgers at about the same price. These two
chains are the most competitive with Hudson's franchisees, but each franchisee
faces its own particular set of competitors based on its location and the
nearness of other, similar restaurants, some of which are parts of chains
and some of which are independent restaurants.
Hudson's has operations and franchisees in three states; California,
with locations from mid-California to L.A., mostly along the coast; Texas,
with both locations in El Paso; and Michigan, with locations in the Detroit
area and upstate. These three areas are not much alike. The locations with
the most sales in these areas, however, seem to be in mid sized markets
of cities of 75,000 to 150,000 people. In mid sized markets, Hudson's sees
chains like Applebee's as its major competitors. These other competitors
are, for the most part, in much stronger financial condition than Hudson's,
and these other competitors can subsidize losing locations whereas Hudson's
is not in a position to do so. Thus, the ability to compete in a particular
market is almost entirely a function of the sales of the franchisee in
that market. Hudson's feels that its concept can be successful in any mid-sized
market and will encourage future franchisees to consider mid-sized markets
first, where it feels that there is less competition for restaurant customers
and it is easier for one restaurant to afford to advertise in the local
media. In larger cities, the cost of advertising is higher and spread out
over areas that are not nearby, and normally it is too high for just one
restaurant to pay.
(d) Describe specifically the marketing strategies Hudson's is employing
or will employ in penetrating its market or in developing a new market.
Set forth in response to Question 4 below the timing and size of the results
of this effort which will be necessary in order for Hudson's to be profitable.
Indicate how and by whom its products or services are or will be marketed,
such as by advertising, personal contact by sales representatives, etc.,
how its marketing structure operates or will operate and the basis of its
marketing approach, including any market studies. Name any customers that
account for, or based upon existing orders will account for a major portion,
20% or more, of Hudson's's sales. Describe any major existing sales contracts.
Hudson's is not intending to employ any full scale marketing efforts.
Its current strategy regarding franchising is to place small stands on
tables of existing restaurants that announce that franchises are available,
whom to contact and the address from which to get more information. Hudson's
also maintains a web site from which it has gotten a number of franchising
inquiries. Although not currently doing so, under its franchise agreements
Hudson's may require that restaurants monthly forward fees that are intended
for a marketing program funded by the fees. If more than one restaurant
is located in the same media area, Hudson's will consider whether it is
economical to do joint advertising in that media market. If Hudson's elects
to do so in a particular media area, the fees it collects from the franchisees
in that area would go to a separate, non-profit entity, operated by the
member-franchisees, whose job it would be to set up cooperative advertising
and marketing. It would be run by the franchisees with input from Hudson's.
Each franchisee is also obligated to set aside 1% of their sales for marketing
their restaurants in their own area.
(e) State the backlog of written firm orders for products and/or services
as of a recent date, within the last 90 days, and compare it with the backlog
of a year ago from that date.
Explain the reason for significant variations between the two figures, if any. Indicate what
types and amounts of orders are included in the backlog figures. State the size of typical
orders, if Hudson's's sales are seasonal or cyclical, explain.
This is not applicable to Hudson's, since all sales are a function of
whichever guests show up at the restaurants, and orders are not placed
in advance such as to produce a backlog of orders, but are placed at the
same time they are produced and consumed by the guests.
(f) State the number of Hudson's's present employees and the number
of employees it anticipates it will have within the next 12 months. Also,
indicate the number by type of employee, i.e., clerical, operations, administrative,
etc., Hudson's will use, whether or not any of them are subject to collective
bargaining agreements, and the expiration dates of any collective bargaining
agreements. If Hudson's's employees are on strike, or have been in the
past three years, or are threatening to strike, describe the dispute. Indicate
any supplemental benefits or incentive arrangements Hudson's has or will
have with its employees.
Currently, Hudson's has one employee, who is administrative. This employee
is not part of a collective bargaining agreement. Supplemental benefits
include: health insurance.
(g) Describe generally the principal properties, such as real estate,
plant and equipment, patents, etc., that Hudson's owns, indicating also
what properties it leases and a summary of the terms under those leases,
including the amount of payments, expiration dates and the terms of any
renewal options. Indicate what properties Hudson's intends to acquire in
the immediate future, the cost of such acquisitions and the sources of
financing it expects to use in obtaining these properties, whether by purchase,
lease or otherwise.
Hudson's owns the contractual rights to the franchise agreements between
Hudson's and its franchisees. Additionally, Hudson's currently leases space
for its headquarter offices on a month to month basis from a partnership
in which its largest shareholder, David Osborn, has a ten percent partnership
interest; the rent is about $800 per month, and the lease is on a month
to month basis.
(h) Indicate the extent to which Hudson's's operations depend or are
expected to depend upon patents, copyrights, trade secrets, knowhow or
other proprietary information and the steps undertaken to secure and protect
this intellectual property, including any use of confidentiality agreements,
covenants-not-to-compete and the like. Summarize the principal terms and
expiration dates of any significant license agreements. Indicate the amounts
expended by Hudson's for research and development during the last fiscal
year, the amount expected to be spent this year and what percentage of
revenues research and development expenditures were for the last fiscal
year.
Hudson's owns several trademark registrations that are used in its franchising
of Hudson's Grills. The registrations cover Hudson's's current logo of
a car underneath the words "Hudson's Classic Grill", which is shown on
the cover of the prospectus; the slogan "Burgers Shakes Rock
'n Roll"; the Hudson's car grill; and the words "Hudson's Grill". As long
as these terms are used in interstate commerce and the appropriate forms
are filed periodically with the Trademark Office, Hudson's will continue
to have the exclusive rights to use and license the marks.
It has no other intellectual property, but it will defend these trademarks
as vigorously as possible if the marks are illegally used or confusion
from similar marks arises. Hudson's has non-compete clauses in its franchise
agreements to prevent current and former franchisees from using the marks
or system used by Hudson's. Under the franchise agreements, which typically
last for 20 years, the franchisees are licensed to use Hudson's's trademarks
in their franchised restaurant operations only. Hudson's does no research
and development, but occasionally will work on a new menu item and recipe.
(i) If Hudson's's business, products, or properties are subject to material
regulation, including environmental regulation, by federal, state, or local
governmental agencies, indicate the nature and extent of regulation and
its effects or potential effects upon Hudson's.
Hudson's's and its franchisees' operation of restaurants are not government
regulated except to the extent that local authorities issue certificates
of occupancy and the operations need licenses from or are subjected to
inspections from local health authorities that they need to pass and also
need liquor licenses. Each operation must also comply with federal labor
laws affecting its employees, such as overtime, minimum wages, etc., and
also environmental laws applicable to leftover food and wastes from chemicals
used in cleaning its restaurant operations. Hudson's does not feel that
regulation has a material effect on its or its franchisees' operation.
(j) State the names of any subsidiaries of Hudson's, their business
purposes and ownership, and indicate which are included in the Financial
Statements attached hereto. If not included, or if included but not consolidated,
please explain.
Currently, Hudson's has no subsidiaries.
(k) Summarize the material events in the development of Hudson's, including
any material mergers or acquisitions, during the past five years, or for
whatever lesser period Hudson's has been in existence. Discuss any pending
or anticipated mergers, acquisitions, spin-offs or recapitalizations. If
Hudson's has recently undergone a stock split, stock dividend or recapitalization
in anticipation of this offering, describe and adjust historical per share
figures elsewhere in this Offering Circular accordingly.
Hudson's was incorporated on October 30, 1997. Since its incorporation,
it has been owned entirely by its parent, HGA, which now is distributing
Hudson's's stock to HGA's current shareholders as part of the spinning
off of Hudson's to HGA's shareholders. Hudson's has not been involved in
any mergers, acquisitions or recapitalizations.
4. (a) If Hudson's was not profitable during its last fiscal year, list
below in chronological order the events which in management's opinion must
or should occur or the milestones which in management's opinion Hudson's
must or should reach in order for Hudson's to become profitable, and indicate
the expected manner of occurrence or the expected method by which Hudson's
will achieve the milestones.
|
Event or Milestone |
Expected manner of occurrence or method of achievement |
Date or number of months after receipt of proceeds when should be accomplished | |
| (1) | Additional franchises; need to net at least four additional franchises | Turning franchisee inquiries into franchisees | No receipts are being raised by this prospectus; Hudson's goal is to net one or two franchises each year |
(b) State the probable consequences to Hudson's of delays in achieving
each of the events or milestones within the above time schedule, and particularly
the effect of any delays upon Hudson's's liquidity in view of Hudson's's
then anticipated level of operating costs. See Question Nos. 11 and 12.
Note: After reviewing the nature and timing of each event
or milestone, potential investors should reflect upon whether achievement
of each within the estimated time frame is realistic and should assess
the consequences of delays or failure of achievement in making an investment
decision.
If Hudson's does not sell at least one or two franchises in the next
six months, its ability to stay in business and pay all of its ongoing
debts is questionable, unless other funds are obtained through loans or
equity sales. Hudson's probably cannot obtain loans because of its financial
condition; it has one franchisee that is trying to sell its restaurant,
and if that franchisee is successful in selling, then a note owed by the
franchisee might be paid off, resulting in a one time cash flow. Even after
recently reducing its overhead expenses, and after paying its ongoing expenses,
Hudson's has been paying its accounts out over time, some of which past
due accounts are scheduled to be paid out over 48 months. Any extraordinary
expense may force Hudson's into bankruptcy or liquidation. Currently, if
Hudson's does not sustain any unplanned expenses, it could continue on
indefinitely, but would have to do so without any paid management. After
paying off debts for two years, Hudson's hopes to be able to hire a president,
who will also be responsible for selling franchises.
OFFERING PRICE FACTORS
If the securities offered are common stock, or are exercisable for or
convertible into common stock, the following factors may be relevant to
the price at which the securities are being offered.
5. What were net, after-tax earnings (losses) for the last fiscal year?
Total $ (92,813) ($ (0.02) per share)
6. If Hudson's had profits, show offering price as a multiple of earnings.
Adjust to reflect for any stock splits or recapitalization, and use conversion
or exercise price in lieu of offering price, if applicable.
Offering Price Per Share = N\A
Net After-Tax Earnings Last Year Per Share price/earnings multiple
7. (a) what is the net tangible book value of Hudson's? If deficit,
show in parentheses. For this purpose, net tangible book value means total
assets, exclusive of copyrights, patents, goodwill, research and development
costs and similar intangible item, minus total liabilities.
$ (368,316) ($ (0.055) per share) (as of the last fiscal year end)
If the net tangible book value per share is substantially less than
this offering, exercise or conversion price per share, explain the reasons
for the variation. N\A
(b) State the dates on which Hudson's sold or otherwise issued securities
during the last 12 months, the amount of such securities sold, the number
of persons to whom they were sold, any relationship of such persons to
Hudson's at the time of sale, the price at which they were sold and, if
not sold for cash, a concise description of the consideration. Exclude
bank debt.
Hudson's issued a 600,000 share stock dividend to its parent in November
1999 so that its shares outstanding would be the same number as the shares
outstanding of its parent, HGA. In addition, 300,000 options, with an exercise
price of $0.10 per share and a term of seven years, and 300,000 shares,
to be issued when this distribution is completed but which are not part
of this registration, will be issued to the interim president in order
to retain his services until this stock offering is effective and distributed.
Additionally, 100,000 options with an exercise price of $0.10 per share
will be issued to the interim president for each month he serves as president
after March 31, 2000, until this registration is effective. The interim
president will not pay for either the shares or the options being granted
to him.
8. (a) What percentage of the outstanding shares of Hudson's will the
investors in this offering have? Assume exercise of outstanding options,
warrants or rights and conversion of convertible securities, if the respective
exercise or conversion prices are at or less than the offering price. Also
assume exercise of any options, warrants or rights and conversions of any
convertible securities offered in this offering.)
If the maximum is sold: %
If the minimum is sold: %
N\A. The distributees of Hudson's's stock will end up with 100% of Hudson's's
stock after Hudson's is spun off from HGA. Because of provisions in certain
warrant agreements with HGA, if HGA spins off stock to HGA's shareholders,
then certain warrantholders of HGA also become warrantholders of Hudson's
for the same percentage of shares after the spin off. The recent warrants
to be issued to the interim president are only 4.5% of the shares that
will be outstanding and 2.7% of the potential shares that could be outstanding
if all warrants were exercised. None of these warrants are being registered
with this registration.
(b) What post-offering value is management implicitly attributing to
the entire Hudson's by establishing the price per security set forth on
the cover page or exercise or conversion price if common stock is not offered?
Total outstanding shares after offering times offering price, or exercise
or conversion price if common stock is not offered.
If maximum is sold: $ N\A *
If minimum is sold: $ N\A *
These are not applicable because this offering will not raise any proceeds,
and thus there is no valuing of Hudson's.
For above purposes, assume outstanding options are exercised in determining
"shares" if the exercise prices are at or less than the offering price.
All convertible securities, including outstanding convertible securities,
shall be assumed converted and any options, warrants or rights in this
offering shall be assumed exercised.
* These values assume that Hudson's's capital structure
would be changed to reflect any conversions of outstanding convertible
securities and any use of outstanding securities as payment in the exercise
of outstanding options, warrants or rights included in the calculation.
The type and amount of convertible or other securities thus eliminated
would be: N/A These values also assume an increase in cash in Hudson's
by the amount of any cash payments that would be made upon cash exercise
of options, warrants or rights included in the calculations The amount
of such cash would be $ N/A .
Note: After reviewing the above, potential investors should
consider whether or not the offering price, exercise or conversion price
for the securities is appropriate at the present stage of Hudson's's development.
USE OF PROCEEDS
9. (a) The following table sets forth the use of the proceeds from this
offering:
There is no table. It is not applicable to this offering, since no funds
will be raised from the offering. Hudson's's stock will be distributed
to the existing shareholders of HGA as part of the spinning off of Hudson's
from HGA.
(b) If there is no minimum amount of proceeds that must be raised before
Hudson's may use the proceeds of the offering, describe the order of priority
in which the proceeds set forth above in the column "If Maximum Sold" will
be used. N/A
Note: After reviewing the portion of the offering allocated
to the payment of offering expenses, and to the immediate payment to management
and promoters of any fees, reimbursements, past salaries or similar payments,
a potential investor should consider whether the remaining portion of his
investment, which would be that part available for future development of
Hudson's's business and operations, would be adequate.
10. (a) If material amounts of funds from sources other than this offering
are to be used in conjunction with the proceeds from this offering, state
the amounts and sources of such other funds, and whether funds are firm
or contingent. If contingent, explain.
N/A No funds are being raised with this offering, and no funds are currently
anticipated to be borrowed or raised.
(b) If any material part of the proceeds is to be used to discharge
indebtedness, describe the terms of such indebtedness, including interest
rates. If the indebtedness to be discharged was incurred within the current
or previous fiscal year, describe the use of proceeds of such indebtedness.
N/A
(c) If any material amount of proceeds is to be used to acquire assets,
other than in the ordinary course of business, briefly describe and state
the cost of the assets and other material terms of the acquisitions. If
the as sets are to be acquired from officers, directors, employees or principal
stockholders of Hudson's or their associates, give the names of the persons
from whom the assets are to be acquired and set forth the cost to Hudson's,
the method followed in determining the cost, and any profit to such persons.
N/A
(d) If any amount of the proceeds is to be used to reimburse any officer,
director, employee or stockholder for services already rendered, assets
previously transferred, or monies loaned or advanced, or otherwise, explain:
N/A
11. Indicate whether Hudson's is having or anticipates having within
the next 12 months any cash flow or liquidity problems and whether or not
it is in default or in breach of any note, loan, lease or other indebtedness
or financing arrangement requiring Hudson's to make payments. Indicate
if a significant amount of Hudson's's trade payables have not been paid
within the stated trade term. State whether Hudson's is subject to any
unsatisfied judgments, liens or settlement obligations and the amounts
thereof. Indicate Hudson's's plans to resolve any such problems.
Hudson's will have cash flow problems within several months unless it
collects on a judgment owed it or sells some more franchises. To the best
of its knowledge, Hudson's is not in default on any loan, note, lease or
other indebtedness. Hudson's has failed to pay several of its vendors,
and a significant part of its payables remains unpaid. Hudson's plans to
resolve these problems by selling at least one franchise and by ceasing
to lend money to its parent, which needed the money to support the Richardson,
Texas Hudson's Grill, which location is now closed. Hudson's does not currently
have any unsatisfied judgments, liens or settlement obligations.
12. Indicate whether proceeds from this offering will satisfy Hudson's's
cash requirements for the next 12 months, and whether it will be necessary
to raise additional funds. State the source of additional funds, if known.
Since no funds are being raised by this spin off of stock, this spin
off will not help Hudson's's cash flow problems. If funds are needed, then
major shareholders will be asked to lend Hudson's money; currently none
of the major shareholders is willing to lend Hudson's any money. There
is little likelihood, therefore, that Hudson's will be able to obtain funds,
even from its shareholders. Hudson's anticipates that funds will be needed
by Summer or Fall 2000 if it does not sell at least one franchise or collect
something on a judgment. Hudson's has a joint judgment against three debtors:
one is bankrupt, one is out of business, and the third one currently is
avoiding service for a debtor's examination. The amount, if any, that can
be collected from the judgment is unknown. Hudson's is pursuing collection,
but will not know what, if anything, can be gotten from the debtors until
at least July 2000, when a deposition of one the debtors is scheduled.
If a sufficient amount of funds can be recovered from the debtors, then
Hudson's other cash flow needs will be changed accordingly. As of December
31, 1999, Hudson's payables on its financial statements were $201,224.
CAPITALIZATION
13. Indicate the capitalization of Hudson's as of the most recent balance
sheet date, adjusted to reflect any subsequent stock splits, stock dividends,
recapitalizations or refinancings, and as adjusted to reflect the sale
of the minimum and maximum amount of securities in this offering and the
use of the net proceeds therefrom:
Since this spin off will not raise any funds, there is no maximum or
minimum funds being raised; thus, the following capitalization chart does
not show any effects for the raising of capital.
|
March 31, 2000 |
|
| Debt: | |
| Short term debt (non interest bearing) | $99,331.00 |
| Long term debt | $0.00 |
| Total debt | $99,331.00 |
| Stockholders equity (deficit): | |
| Preferred stock - no par value; up to 15,000,000 may be authorized as a series of Class B stock; none are issued and none are outstanding | $0.00 |
| Class A common stock, no par value; 100,000,000 authorized; 6,656,986 issued and outstanding | $118,545.00 |
| Additional paid in capital | $54,000.00 |
| Accumulated deficit | ($533,023.00) |
| Deferred compensation | ($9,000.00) |
| Total shareholders deficit | ($369,478.00) |
| Total capitalization | ($270,147.00) |
Up to 15,000,000 of Class B stock may be issued; Class B stock is to
be issued in series and may be preferred if the directors elect to make
it so when creating a new series of Class B stock; no Class B stock is
issued or has ever been issued
Number of common shares reserved to meet conversion requirements or
for the issuance upon exercise of options, warrants or rights:
Hudson's has not reserved any shares for the warrants that are outstanding.
DESCRIPTION OF SECURITIES
14. The securities being offered hereby are:
[X] Common Stock
[ ] Preferred or Preference Stock
[ ] Notes or Debentures
[ ] Units of two or more types of securities composed of:
[ ] Other:
15. These securities have:
Yes No
[ ] [X] Cumulative voting rights
[ ] [X] Other special voting rights
[ ] [X ] Preemptive rights to purchase in new issues of shares
[ ] [X ] Preference as to dividends or interest
[ ] [X ] Preference upon liquidation
[ ] [X ] Other special rights or preferences (specify):
Explain: None of the above apply to the Class A stock being offered.
16. Are the securities convertible? [ ] Yes [X] No
If so, state conversion price or formula:
Date when conversion becomes effective:
Date when conversion expires:
17. (a) If securities are notes or other types of debt securities: N/A
(1) What is the interest rate? _%
If interest rate is variable or multiple rates, describe:
(2) What is the maturity date?
If serial maturity dates, describe:
(3) Is there a mandatory sinking fund?
[ ] Yes [ ] No
Describe:
(4) Is there a trust indenture? [ ] Yes [ ] No
Name, address and telephone number of Trustee
(5) Are the securities callable or subject to redemption? [ ] Yes [X]
No
Describe, including redemption prices:
(6) Are the securities collateralized by real or personal property?
[ ] Yes [X] No
Describe:
(7) (a) If these securities are subordinated in right of payment of
interest or principal, explain the terms of such subordination.
How much currently outstanding indebtedness of Hudson's is senior to the securities in
right of payment of interest or principal? N/A
How much indebtedness shares in right of payment on an equivalent (pari
passu) basis? N/A
How much indebtedness is junior or subordinated to the securities? N/A
(b) If notes or other types of debt securities are being offered and
Hudson's had earnings during its last fiscal year, show the ratio of earnings
to fixed charges on an actual and pro forma basis for that fiscal year.
"Earnings" means pretax income from continuing operations plus fixed charges
and capitalized interest. "Fixed charges" means interest, capitalized interest,
amortization of debt discount, premium and expense, preferred stock dividend
requirements of majority owned subsidiary, and such portion of rental expense
as can be demonstrated to be representative of the interest factor in the
particular case. The pro forma ratio of earnings to fixed charges should
include incremental interest expense as a result of the offering of the
notes or other debt securities.
This not applicable because these securities are not debt securities
and because Hudson's did not have earnings during its last fiscal year.
Note: Care should be exercised in interpreting the significance
of the ratio of earnings to fixed charges as a measure of the "coverage"
of debt service, as the existence of earnings does not necessarily mean
that Hudson's's liquidity at any given time will permit payment of debt
service requirements to be timely made. See Question Nos. 11 and 12. See
also the Financial Statements and especially the Statement of Cash Flows.
18. If securities are Preference or Preferred stock: N/A
Are unpaid dividends cumulative? [ ] Yes [ ] No
Are securities callable? [ ] Yes [ ] No
Explain:
Note: Attach to this Offering Circular copies or a summary
of the charter, bylaw or contractual provision or document that gives rise
to the rights of holders of Preferred or Preference Stock, notes or other
securities being offered.
19. If securities are capital stock of any type, indicate restrictions
on dividends under loan or other financing arrangements or otherwise:
Dividends on these Class A shares are not restricted because of any
loan or other financing arrangements or otherwise.
20. Current amount of assets available for payment of dividends; if
deficit must be first made up, show deficit in parenthesis: ($369,478)
PLAN OF DISTRIBUTION
21. The selling agents, the persons selling the securities as agent
for Hudson's for a commission or other compensation, in this offering are:
Hudson's will not engage any persons to sell, for commission or otherwise,
the securities being offered pursuant to this prospectus.
22. Describe any compensation to selling agents or finders, including
cash, securities, contracts or other consideration, in addition to the
cash commission set forth as a percent of the offering price on the cover
page of this Prospectus. Also indicate whether Hudson's will indemnify
the selling agents or finders against liabilities under the securities
laws. "Finders" are persons who for compensation act as intermediaries
in obtaining selling agents or otherwise making introductions in furtherance
of this offering.
Hudson's will not engage any persons to be selling agents or finders,
and it will not pay anyone to be so.
23. Describe any material relationships between any of the selling agents
or finders and Hudson's or its management.
N/A, since no one will be hired or paid to be selling agents or finders.
Note: After reviewing the amount of compensation to the
selling agents or finders for selling the securities, and the nature of
any relationship between the selling agents or finders and Hudson's, a
potential investor should assess the extent to which it may be inappropriate
to rely upon any recommendation by the selling agents or finders to buy
the securities.
24. If this offering is not being made through selling agents, the names
of persons at Hudson's through which this offering is being made:
This is not applicable because the shares being offered by this prospectus
are going to be distributed initially to the shareholders of record of
HGA as of the date of this prospectus; the stock will be distributed by
HGA's stock transfer agent or a new stock transfer agent chosen by Hudson's.
25. If this offering is limited to a special group, such as employees
of Hudson's, or is limited to a certain number of individuals, as required
to qualify under Subchapter S of the Internal Revenue Code, or is subject
to any other limitations, describe the limitations and any restrictions
on resale that apply:
This offering is being made only to the shareholders of HGA as of record
on the date of the effectiveness of this offering. To the extent that shares
are distributed to insiders of Hudson's and shareholders owning more than
10% of the beneficial shares of Hudson's stock, Hudson's will request its
transfer agent to restrict the transfer of the insiders' shares, and require
that a legal opinion be given to Hudson's prior to any transfer, showing
that the intended transfer complies with the federal securities laws.
Will the certificates bear a legend notifying holders of such restrictions?
[ ] Yes [X ] No
26. (a) Name, address and telephone number of independent bank or savings
and loan association or other similar depository institution acting as
escrow agent if proceeds are escrowed until minimum proceeds are raised:
N/A; no proceeds are being raised, and thus, none are being escrowed.
(b) Date at which funds will be returned by escrow agent if minimum
proceeds are not raised:
N/A
Will interest on proceeds during escrow period be paid to investors?
[ ] Yes [ ] No
27. Explain the nature of any resale restrictions on presently outstanding
shares, and when those restrictions will terminate, if this can be determined:
There are no currently outstanding shares with any resale restrictions;
nonetheless, until this offering is effective, Hudson's shares may not
be publicly traded. Certain shareholders will be restricted under federal
securities laws from trading their shares because of being officers, directors
and shareholders holding more than 10% of Hudson's's stock. Other than
these insiders, there are no resale restrictions by Hudson's on the shares
being offered by this prospectus.
Note: Equity investors should be aware that unless Hudson's
is able to complete a further public offering or Hudson's is able to be
sold for cash or merged with a public company that their investment in
Hudson's may be illiquid indefinitely.
DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS
28. If Hudson's has within the last five years paid dividends, made
distributions upon its stock or redeemed any securities, explain how much
and when:
No dividends have ever been made by Hudson's on its stock, and it has
never redeemed any securities.
OFFICERS AND KEY PERSONNEL OF Hudson's
29. Chief Executive Officer: Title: Interim President
Name: David L. Osborn Age: 52
Office Street Address: 16970 Dallas Parkway Telephone No.: 972-931-9237
Suite 402
Dallas, Texas 75248
Residential Street Address: 5532 Frankford Ct.
Dallas, Texas 75252
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
President of Hudson's Grill of America, Inc., from 1993 to 1999. President
of Hudson's since its inception in 1997. Since 1989, Mr. Osborn has been
the Chief Executive Officer of Southpoint Management Corporation, which
owns and operates restaurants, and is Chief Executive Officer of Famous
Bars, Grills & Cafes of America, Inc., which has been a franchisee
of Hudson's Grill. He is also a partner in D.A.C. Associates, which has
been a franchisee of Hudson's Grill since 1986, and he is a partner in
Wood, Osborn and Osborn, which is the landlord of the premises that Hudson's
leases as its headquarters.
Education, giving the degrees, schools, and dates:
B.A. Economics, Northwestern University, 1969
Also a Director of Hudson's [ ] Yes [X] No
Indicate amount of time to be spent on Hudson's matters if less than
full time:
Mr. Osborn will work on a part time, as needed, basis on Hudson's matters
until replaced.
30. Chief Operating Officer: none
31. Chief Financial Officer: Title: Treasurer
Name: Mitzy Ferguson Age: 42
Office Street Address: 16970 Dallas Parkway Telephone No.: 972-931-9237
Suite 402
Dallas, Texas 75248
Residential Street Address: 2716 Crepe Myrtle
Flower Mound, Texas 75028
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Secretary of Hudson's Grill of America, Inc., since 1993. Administrative
and clerical positions with Southpoint Management since 1989. Secretary
of Hudson's since its inception in 1997.
Education, giving the degrees, schools, and dates:
University of Missouri at Columbia, no degree
Also a Director of Hudson's? [ ] Yes [X] No
Indicate amount of time to be spent on Hudson's matters if less than
full time:
Ms. Ferguson holds the title of treasurer but no longer works on Hudson's
matters.
32. Other Key Personnel: none
DIRECTORS OF HUDSON'S
33. Number of Directors: 2. If Directors are not elected annually, or
are elected under a voting trust or other arrangement, explain: N/A
34. Information concerning outside or other Directors, i.e., those not
described above:
(A) Name: Robert W. Fischer, Esq. Age: 49
Office Street Address: 5956 Sherry Lane Telephone No.: 214-361-7301
Suite 1204
Dallas, Texas 75225
Residential Street Address: 3231 Bryn Mawr Drive
Dallas, Texas 75225
Names of employers, titles and date of positions held during past five
years with an indication of job responsibilities.
Mr. Fischer works full time as an attorney for Fischer & Sanger,
where he has been a partner for 15 years. His major areas of practice are
general business transactions, securities, tax and civil litigation.
Education, giving the degrees, schools, and dates:
B.A. Economics, The Pennsylvania State University, 1972;
M.A. Economics, The Pennsylvania State University, 1974;
J.D., Southern Methodist University, 1978;
C.P.A., issued by the Texas State Board of Public Accountancy, 1981.
(B) Name: Anthony B. Duncan Age: 43
Office Street Address: 1770 Lee Trevino Telephone No.: 915-595-2769
El Paso, Texas 79936
Residential Street Address: 10732 Alta Loma
El Paso, Texas 79935
Names of employers, titles and dates of positions held during past five
years with an indication of job responsibilities.
Anthony B. Duncan has been in the restaurant business for more than
28 years, and progressed from trainee, to assistant manager, to manager
of his own Pelican's Restaurant in El Paso, Texas, at the age of 21. He
formed his own operating Hudson's, and proceeded to purchase interests
in two additional Pelican's. At one time, he was the president and minority
owner of Southpoint Management Corporation, the parent Hudson's of multiple
dinner houses and casual dining restaurants and bars. He is the current
owner of the two franchised Hudson's Grills in El Paso, and is the owner
and sole shareholder of Borderland Grills, Inc. Mr. Duncan previously was
president of the Texas Restaurant Association, and currently serves on
its Board of Directors.
Education, giving the degrees, schools, and dates:
University of Texas, 1974-75
University of Texas at El Paso, 1975, no degree
35. (a) Have any of the Officers or Directors ever worked for or managed
a company, including a separate subsidiary or division of a larger enterprise,
in the same business as the company?
[X] Yes [ ] No
Explain: See descriptions of work experience above.
(b) If any of the Officers, Directors or other key personnel have ever
worked for or managed a Hudson's in the same business or industry as Hudson's
or in a related business or industry, describe what precautions, if any,
including the obtaining of releases or consents from prior employers, have
been taken to preclude claims by prior employers for conversion or theft
of trade secrets, know-how or other proprietary information.
No precautions will be needed because all key personnel of Hudson's
have worked for Hudson's for the past two years, and prior to that worked
for the parent Hudson's, which will no longer be in the restaurant or franchise
business. Other prior and current jobs held by the key personnel were with
businesses owned by the personnel, and so prior employers will not be a
problem.
(c) If Hudson's has never conducted operations or is otherwise in the
development stage, indicate whether any of the Officers or Directors has
ever managed any other Hudson's in the start-up or development stage and
describe the circumstances, including relevant dates.
Hudson's has been in operation since 1997; it is the successor to certain
of the operations of Hudson's Grill of America, Inc., which has operated
and franchised restaurants for twenty years.
(d) If any of Hudson's's key personnel are not employees but are consultants
or other independent contractors, state the details of their engagement
by Hudson's.
No key personnel are consultants.
(e) If Hudson's has key man life insurance policies on any of its Officers,
Directors or key personnel, explain, including the names of the persons
insured, the amount of insurance, whether the insurance proceeds are payable
to Hudson's and whether there are arrangements that require the proceeds
to be used to redeem securities or pay benefits to the estate of the insured
person or a surviving spouse.
Hudson's does not carry key man life insurance on anyone.
36. If a petition under the Bankruptcy Act or any State insolvency law
was filed by or against Hudson's or its Officers, Directors or other key
personnel, or a receiver, fiscal agent or similar officer was appointed
by a court for the business or property of any such persons, or any partnership
in which any of such persons was a general partner at or within the past
five years, or any corporation or business association of which any such
person was an executive officer at or within the past five years, set forth
below the name of such persons, and the nature and date of such actions.
None are known
Note: After reviewing the information concerning the background
of Hudson's's Officers, Directors and other key personnel, potential investors
should consider whether or not these persons have adequate background and
experience to develop and operate this Hudson's and to make it successful.
In this regard, the experience and ability of management are often considered
the most significant factors in the success of a business.
PRINCIPAL STOCKHOLDERS
37. List the principal owners of Hudson's who beneficially own directly
or indirectly 10% or more of the common and preferred stock presently outstanding,
starting with the largest common stockholder. Include separately all common
stock issuable upon conversion of convertible securities, identifying them
by asterisk, and show average price per share as if conversion has occurred.
Indicate by footnote if the price paid was for a consideration other than
cash and the nature of any such consideration.
Since no stock is convertible, and since this is a spin off of Hudson's,
the current shareholders consist solely of the parent, HGA, which owns
100% of the stock. HGA shares offices with Hudson's and also shares telephone
lines and numbers. HGA may be contacted by contacting Hudson's. HGA will
distribute its stock in Hudson's to the current shareholders of HGA on
a one for one basis after the Class A stock of Hudson's is publicly registered
pursuant to this registration and prospectus. After the distribution, Hudson's
will be owned by the current shareholders of HGA, and subject to the exercise
of warrants by the certain warrantholders of HGA.
38. Number of shares beneficially owned by Officers and Directors as
a group:
Before offering: 0 shares (0.00% of total outstanding)
After offering:
a) Assuming minimum securities sold:
3,376,125 shares (30.0% of the total outstanding)
b) Assuming maximum securities sold:
3,376,125 shares 30.0% of the total outstanding)
Assumes all current options are exercised, shares granted to the president
upon the effectiveness of this registration are issued, and all convertible
securities are converted; some options may be canceled in the future if
HGA can negotiate their cancellation.
MANAGEMENT RELATIONSHIPS TRANSACTIONS AND REMUNERATION
39. (a) If any of the Officers, key personnel or principal stockholders
are related by blood or marriage, please describe.
No officers or key personnel are related.
(b) If Hudson's has made loans to or is doing business with any of its
Officers, Directors, key personnel or 10% stockholders, or any of their
relatives or any entity controlled directly or indirectly by any such persons,
within the last two years, or proposes to do so within the future, explain.
This includes sales or lease of goods, property or services to or from
Hudson's, employment or stock purchase contracts, etc. State the principal
terms of any significant loans, agreements, leases, financing or other
arrangements.
Hudson's leases offices for its headquarters from Wood, Osborn and Osborn
for $1,440.00 per month. This is a partnership that includes David L. Osborn,
the interim president, who owns a ten percent interest in the partnership.
Robert W. Fischer, one of the directors, is Hudson's's outside legal counsel;
his law firm was paid $4,202.26 in 1999, and as of May 1, 2000, is owed
$98,323.87, and was owed about $85,000 as of December 31, 1999. Mr. Fischer
has performed substantial legal services for Hudson's from its inception,
including handling most of Hudson's corporate, securities and litigation
issues.
Hudson's has also advanced funds to HGA to help it meet obligations
related to keeping its status as a public company and to help it open and
operate a sister subsidiary, Hudson's Grill of Richardson, Inc. ("HGR").
HGR owned and operated a Hudson's Grill restaurant near Richardson, Texas,
which was open from January 1999 until it was closed in February 2000.
This location was near Hudson's headquarters. Whenever needed, Hudson's
intended to use the HGR restaurant as a training facility for new franchisees
and as a nearby place to try out new recipes and ideas. Hudson's also had
hoped to use the HGR restaurant as an example of a Hudson's Grill that
used its new design; also, potential franchisees could be taken to a nearby
facility as part of the sales effort to get more franchisees. Hudson's
loaned money to the parent until it became obvious that the Richardson
location would not become profitable or merely sustain marginal losses.
Hudson's cut off all loans to HGA when it became clear that HGA and HGR
would not be able to pay off the loans. Instead, Hudson's will probably
use the Hudson's Grill restaurants in El Paso, Texas, which are owned by
Anthony Duncan, a director of Hudson's. Hudson's will pay Mr. Duncan for
the use of his restaurants whenever they are needed by Hudson's for training
or for exhibition to prospective franchisees. The fees for training or
for exhibition have not been agreed to yet.
(c) If any of Hudson's's Officers, Directors, key personnel or 10% stockholders
has guaranteed or co-signed any of Hudson's's bank debt or other obligations,
including any indebtedness to be retired from the proceeds of this offering,
explain and state the amounts involved.
None of Hudson's's officers, directors, key personnel or 10% stockholders
has guaranteed or co-signed any of Hudson's's obligations.
40. (a) List all remuneration by Hudson's to Officers, Directors and
key personnel for the last fiscal year:
| Cash | Other | |
| Chief Executive Officer | $0.00 | $0.00 |
| Chief Operating Officer | N/A | N/A |
| Chief Accounting Officer | N/A | N/A |
| Key Personnel: none | N/A | N/A |
| Others: none | N/A | N/A |
| Total: | $0.00 | $0.00 |
| Directors as a group
(number of persons - 2)* |
$0.00 | $0.00 |
* Robert W. Fischer, one of the directors, is Hudson's's outside legal
counsel; his law firm was paid $4,202.26 in 1999. Mr. Osborn will be granted
300,000 shares and 300,000 options upon the effectiveness of this offering
and the distribution of stock pursuant to this spin off. See above.
(b) If remuneration is expected to change or has been unpaid in prior
years, explain:
Robert W. Fischer's law firm is owed $98,323.87 as of May 1, 2000.
(c) If any employment agreements exist or are contemplated, describe:
None exist; the board has discussed the possibility that it would hire
someone to replace David Osborn as president, but it only has stock and
options to offer as compensation. He has agreed to act as interim president
until the offering is effective or until replaced by the directors. The
directors may temporarily manage Hudson's until funds and equity will be
able to attract a new president. If this occurs, Hudson's probably would
enter into an employment agreement with the new president. The board has
contemplated using stock and stock options as most of the consideration
for such an agreement.
41. (a) Number of shares subject to issuance under presently outstanding
stock purchase agreements, stock options, warrants or rights: after the
spin off 4,300,000 shares, which is 41.5% of total shares to be outstanding
after the completion of the offering if all securities sold, assuming exercise
of options and conversion of convertible securities. Also 300,000 options
will be granted to Mr. Osborn as compensation for acting as interim president,
when this offering is completed, provided he stays on as interim president.
See above.
Indicate which have been approved by shareholders. State the expiration
dates, exercise prices and other basic terms for these securities:
All have been directly or indirectly approved by Hudson's's shareholder;
in fact, the warrants are the result of warrants originally issued by the
parent-shareholder for the parent-shareholder's stock. The predecessor
warrants provide that, in the event of a spin off or reorganization of
the parent, the warrants would apply to the successor's stock as well.
As of December 31, 1999, 4,300,000 options
and warrants have been granted and will be exercisable upon the spin off
of Hudson's. If not previously exercised, warrants and options outstanding
will expire as follows:
| Expires in Year | Number of
Shares |
Weighted Average
Exercise Price |
| 2003 | 300,000 | .14 |
| 2004 | 4,000,000 | .06 |
| 4,300,000 | .07 |
(b) Number of common shares subject to issuance under existing stock
purchase or option plans but not yet covered by outstanding purchase agreements,
options or warrants: 300,000 shares. These are options that will
be granted to Mr. Osborn if he stays on as president until this offering
is completed.
(c) Describe the extent to which future stock purchase agreements, stock
options, warrants or rights must be approved by shareholders.
Hudson's is not required to obtain the approval of shareholders prior
to the granting of stock purchase agreements, stock options, warrants or
rights.
42. If the business is highly dependent on the services of certain key
personnel, describe any arrangement to assure that these persons will remain
with Hudson's and not compete upon any termination:
Hudson's is not highly dependent on any one person. Hudson's does not
have any non-competition agreements with its employee, and Hudson's cannot
be assured that its employee will remain with Hudson's. Hudson's interim
president will receive stock and options, as previously described, if he
stays with Hudson's until this offering is effective. If he does not stay
involved with Hudson's, then the directors will either try to find a replacement,
which is unlikely because Hudson's has no money to pay an officer, or the
directors will directly have to manage Hudson's. This is the only means
that Hudson's currently has in place to attempt to keep its officers or
employee involved in Hudson's.
Note: After reviewing the above, potential investors should
consider whether or not the compensation to management and other key personnel
directly or indirectly, is reasonable in view of the present stage of Hudson's's
development.
LITIGATION
43. Describe any past, pending or threatened litigation or administrative
action which has held or may have a material effect upon Hudson's business,
financial condition, or operations, including any litigation or action
involving Hudson's Officers, Directors or other key personnel. State the
names of the principal parties, the nature and current status of the matters,
and amounts involved. Give an evaluation by management or counsel, to the
extent feasible, of the merits of the proceedings or litigation and the
potential impact on Hudson's's business, financial condition, or operations.
Hudson's is currently a counter-defendant in an adversary proceeding
in bankruptcy court in the Central District of California. Hudson's is
pursuing the collection of a judgment for about $390,000 against a former
franchisee in Pomona, California, and its two partners, and it is defending
an appeal by the same parties against whom Hudson's has obtained the judgment.
One of the parties against whom Hudson's has the judgment has filed for
bankruptcy protection under chapter 7 of the federal Bankruptcy Code. Hudson's
suspects that the debtor moved funds out of the partnership; thus Hudson's
filed complaints objecting to dischargeability of the debt and objections
to discharge of the debtor. The debtor has counterclaimed that Hudson's
owes it about the same amount that the debtor owes Hudson's, and wants
to use the counterclaim as an offset against Hudson's judgment. None of
these is likely to affect Hudson's negatively. Hudson's will be greatly
benefitted if it can collect any material amounts from the judgment debtor;
nevertheless, Hudson's is unlikely to collect much on this judgment, but
it hopes to get at least something. Hudson's is currently attempting to
discover what assets, if any, of the debtor might be available for collection.
FEDERAL TAX ASPECTS
44. If Hudson's is an S corporation under the Internal Revenue Code
of 1986, and it is anticipated that any significant tax benefits will be
available to investors in the offering, indicate the nature and amount
of such anticipated tax benefits and the material risks of their disallowance.
Also, state the name, address and telephone number of any tax advisor that
has passed upon these tax benefits. Attach any opinion or description of
the tax consequences of an investment in the securities by the tax advisor.
Hudson's has not obtained any opinions by tax advisors since the motive
behind the spin off of Hudson's's stock is not tax-motivated. There may
be tax consequences, however, due to the spinning off of Hudson's from
its parent.
Note: Potential investors are encouraged to have their
own personal tax consultant contact the tax advisor to review details of
the tax benefits and the extent that the benefits would be available and
advantageous to the particular investor.
MISCELLANEOUS FACTORS
45. Describe any other material factors, either adverse or favorable,
that will or could affect Hudson's or its business, or which are necessary
to make any other information in this Offering Circular not misleading
or incomplete. For example, discuss any defaults under major contracts,
any breach of bylaw provisions, etc.
Hudson's is not aware of any other material factors or events that would
affect Hudson's.
FINANCIAL STATEMENTS
46. Provide the financial statements required by Part F/S of this Offering
Circular section of Form 1-A.
Hudson's's most recent audited financial statements for the fiscal years
ending December 31, 1999, and January 3, 1999, are attached.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN RELEVANT FACTORS
47. If Hudson's's financial statements show losses from operations,
explain the causes underlying these losses and what steps Hudson's has
taken or is taking to address these causes.
Hudson's's losses in the fiscal year ending December 31, 1999, stem
from three major areas. Hudson's has had a decrease in franchise royalty
fees and equipment lease income. For example, these fees and income from
franchisees decreased to $208,769 for the year ending December 31, 1999,
from the year earlier amount of $303,290 (net of $38,000 of bad debt expense).
This is a result of fewer franchisees and from some of the franchisees'
failure to pay the fees and the payments due on leased equipment and promissory
notes owed to Hudson's. Foremost among these is the Pomona franchisee,
against whom Hudson's has obtained a judgment of about $386,000 plus interest
and costs; Hudson's is attempting to collect on the judgment at the same
time as it is defending an appeal by the franchisee. The primary partner
involved in the Pomona partnership that held the franchise, filed for protection
under chapter 7 of the federal Bankruptcy Code. See the Litigation section
above. Despite the judgment, Hudson's has written off the receivables due
from this restaurant as well as other restaurants that have closed while
owing Hudson's fees and payments. Fortunately, Hudson's does not have any
collection problems with other franchisees except for the Oxnard, California,
franchisee, who has had financial difficulties and is usually late or several
payments behind in its royalty payments. Hudson's is helping the franchisee
to sell its restaurant in the hopes that Hudson's will be cashed out on
the equipment that its has leased to the franchisee and will get a stronger
franchisee to replace the current one.
Additionally, in the process of obtaining the judgment and defending
the appeal of the judgment and also the working out of settlements with
former landlords of franchisees, Hudson's has also incurred material obligations
for attorney's fees in Texas and California, currently estimated at about
$160,000. The problems encountered with landlords has constantly surfaced
in the past because of leases that were originally signed by HGA. Even
though the parent has assigned these leases to others many years ago, if
a current tenant goes out of business, then the landlord goes against all
of the previous tenants, including HGA. If a location involves a former
franchisee, then landlords look to HGA and Hudson's to guaranty the lease's
payments. Hudson's will not pay for any attorney's fees to defend HGA from
landlords after it is spun off unless it feels that to do so is necessary
to prevent potential exposure to Hudson's. Hudson's knows of only two instances
currently where landlords have raised issues potentially damaging; these
involve former Hudson's Grill restaurants at Pomona, California, and Lancaster,
California, and both involve HGA since it was a previous tenant at those
locations and may still be a guarantor, and neither involve Hudson's.
Hudson's has also sustained losses in cash flow because of the restaurant
opened by a HGA subsidiary ("HGR") in Dallas in January 1999. The restaurant
ran over budget and thus cost more than anticipated. Furthermore, expenses
related to getting the restaurant opened and promoted, while anticipated,
still resulted in extraordinary, one-time expenses. HGA was forced to rely
on money obtained from Hudson's in order to make up some of the shortfalls
in funds caused by losses at the Dallas restaurant. As a result Hudson's
advanced more than $207,303 to its parent. It is questionable whether any
of the advances made to the parent will ever be collected, and this receivable
has been written off in its entirety and accounted for as a distribution
in the fiscal year ending December 31, 1999. HGR closed down the restaurant
in February 2000, and so the need to advance funds to HGA will cease. The
write down in receivables in 1998 was due to writing off two notes, more
specifically described in footnote 3 to the financial statements for the
fiscal year ending December 31, 1999, which financial statements are attached.
During the first quarter of 2000, Hudson's showed a profit of $38,549,
which indicates that Hudson's attempts to get beyond its past problems
may be working.
48. Describe any trends in Hudson's's historical operating results.
Indicate any changes now occurring in the underlying economics of the industry
or Hudson's's business which, in the opinion of Management, will have a
significant impact, either favorable or adverse, upon Hudson's's results
of operations within the next 12 months, and give a rough estimate of the
probable extent of the impact, if possible.
Hudson's has historically lost money. See the financial statements that
are part of this prospectus. As it and its parent HGA have tried to get
past obligations owed on leases formerly operated by franchisees that have
failed and to pay off these settlements and the attorney fees associated
with these settlements, its number of franchisees that are financially
stable has decreased, resulting in even less cash flow and greater losses.
Since the restaurant industry is extremely competitive, the ability of
Hudson's's franchisees to stay in business and prosper has become more
difficult. In the meantime Hudson's has added two new franchisees during
the past year, and these two new franchisees appear to be doing well. They
are in mid-sized cities, and Hudson's believes that its type of restaurant
may be more successful if located in smaller cities, where there is less
competition. Hudson's is constantly talking to prospective franchisees,
and to the extent that it is able to sign up strong operators to be franchisees,
its future will be brighter. Also, collecting on a judgment against its
Pomona franchisee or getting paid off by its Oxnard franchisee will help
pay off advances made to Hudson's, which in turn were advanced to Hudson's's
parent, HGA, to build and operate the Dallas restaurant.
49. If Hudson's sells a product or products and has had significant
sales during its last fiscal year, state the existing gross margin, which
is calculated as net sales less cost of such sales as presented in accordance
with generally accepted accounting principles, as a percentage of sales
for the last fiscal year: Hudson's did not sell any products in its last
fiscal year. What is the anticipated gross margin for the next year of
operations? None; not applicable. See previous answer in this paragraph.
If this is expected to change, explain. Hudson's does not have any current
plans to open a restaurant. Also, if reasonably current gross margin figures
are available for the industry, indicate these figures and the source or
sources from which they are obtained.
Hudson's does not have information about similar companies in the market
niche that it is in.
50. Foreign sales as a percent of total sales for last fiscal year:
0%. Domestic government sales as a percent of total domestic sales for
last fiscal year: 0%. Explain the nature of these sales, including any
anticipated changes:
Hudson's has not made these types of sales.
51. Describe the indemnification provisions for directors, officers
and controlling persons of Hudson's against liability under the Securities
Act.
Hudson's's articles of incorporation provide for the indemnification
of directors, officers, agents and employees of Hudson's in the event that
they are sued because of their holding such a position. The articles provide
for indemnification against reasonable expenses incurred in connection
with the defense or settlement of a suit, including: (1) expenses, including
attorney's fees; (2) amounts paid in settlement; (3) judgments; and (4)
fines. Hudson's will indemnify these persons if they win on the merits
or if they acted in good faith in the transaction which is the subject
of the suit. The determination of whether the appropriate standards is
met can be made by any one of the following: (1) the directors; (2) an
independent legal counsel; or (3) the shareholders of Hudson's.
The following is the opinion of the Securities and Exchange Commission
and is not the opinion of Hudson's: Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable.
ACCOUNTANTS TO HUDSON'S
Hein + Associates LLP
Certified Public Accountants
12770 Coit Road, Suite 1150
Dallas, Texas 75251
972-458-2296
COUNSEL TO HUDSON'S
Robert W. Fischer, Esq.
Fischer & Sanger
5956 Sherry Lane, Suite 1204
Dallas, Texas 75225
214-361-7301
Mr. Fischer is also a director of Hudson's.
HUDSON'S GRILL INTERNATIONAL, INC.
(a wholly-owned subsidiary of
Hudson's Grill of America, Inc.)
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
FOR THE FISCAL YEARS ENDED
DECEMBER 31, 1999 AND JANUARY 3, 1999
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hudson's Grill International, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Hudson's Grill International,
Inc. as of December 31, 1999 and January 3, 1999, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the fiscal
years ended December 31, 1999 and January 3, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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 audits provide 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 Hudson's Grill International,
Inc. as of December 31, 1999 and January 3, 1999, and the results of its
operations and its cash flows for the periods ended December 31, 1999 and
January 3, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations and currently has a shareholders' deficit, which raise substantial
doubt about its ability to continue as a going concern. Managements's plans
in regard to these matters are described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Hein + Associates llp
April 3, 2000
Dallas, Texas
BALANCE SHEETS
ASSETS
| December 31, | January 3, | |
| 1999 | 1999 | |
| CURRENT ASSETS: | ||
| Cash and cash equivalents | $ 28,680 | $ 19,771 |
| Accounts receivable, net of allowance for doubtful accounts of
$62,000 each year |
8,887 |
9,992 |
| Current portion of note receivable | 45,000 | 60,350 |
| Prepaid expenses and other | 13,450 | 15,625 |
| Total current assets | 96,017 | 105,738 |
| PROPERTY AND EQUIPMENT, at cost: | ||
| Restaurant equipment | 33,378 | 33,378 |
| Furniture and fixtures | 5,851 | 5,851 |
| Total property and equipment | 39,229 | 39,229 |
| Less accumulated depreciation | (20,495) | (13,763) |
| Property and equipment, net | 18,734 | 25,466 |
| LONG-TERM PORTION OF NOTE RECEIVABLE | 119,397 | 134,521 |
| OTHER ASSETS, net | 7,281 | 12,596 |
| Total assets | $ 241,429 | $ 278,321 |
|
|
||
| CURRENT LIABILITIES: | ||
| Accounts payable | 147,896 | 115,695 |
| Advances, related parties | 53,328 | 10,992 |
| Accrued liabilities | 146,394 | 6,252 |
| Total current liabilities | 347,618 | 132,939 |
| OTHER LONG-TERM LIABILITIES | 65,335 | 130,655 |
| DEFERRED INCOME | 196,792 | 231,852 |
| CONTINGENCY (Note 4) | ||
| SHAREHOLDERS' DEFICIT: | ||
| Class A common stock, no par value, 100,000,000 shares authorized, 6,656,986 shares issued and outstanding |
118,545 |
118,545 |
| Additional paid-in capital | 54,000 | - |
| Accumulated deficit | (522,861) | (222,745) |
| Receivables due from Parent and affiliate | - | (112,925) |
| Deferred compensation | (18,000) | - |
| Total shareholders' deficit | (368,316) | (217,125) |
| Total liabilities and shareholders' deficit | $ 241,429 | $ 278,321 |
STATEMENTS OF OPERATIONS
| Fiscal Years Ended | ||
| December 31, | January 3, | |
| 1999 | 1999 | |
| REVENUES: | ||
| Net sales | $ - | $ 214,041 |
| Franchising revenues | 208,769 | 288,943 |
| Equipment lease income | - | 52,347 |
| Other | 70,325 | 69,196 |
| Total revenues | 279,094 | 624,527 |
| COST AND EXPENSES: | ||
| Cost of sales | - | 212,063 |
| General and administrative | 373,604 | 494,624 |
| Depreciation and amortization | 6,812 | 9,865 |
| Loss on default of receivables | - | 165,730 |
| Total costs and expenses | 380,416 | 882,282 |
| Loss from operations | (101,322) | (257,755) |
| OTHER (EXPENSE) INCOME: | ||
| Gain on sale of assets | 30,407 | 24,017 |
| Interest expense | (37,289) | (251) |
| Interest income | 15,391 | 47,335 |
| Total other (expense) income | 8,509 | 71,101 |
| NET LOSS | $ (92,813) | $ (186,654) |
| NET LOSS PER SHARE (basic and diluted) | $ (.02) | $ (.03) |
| WEIGHTED AVERAGE SHARES OUTSTANDING | 6,132,000 | 6,056,986 |
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the periods from December 28, 1997 through December 31, 1999
|
Common Stock |
Additional Paid-In |
Accumulated |
Receivables
due from Parent and |
Deferred |
|||
| Shares | Amount | Capital | Deficit |
|
|
|
|
| BALANCES, December 28, 1997 | 6,056,986 | $ 118,545 | $ | $ (36,091) | $ - | $ | $ 82,454 |
| Advances made to the Parent and an affiliate |
- |
- | - | - | (112,925) | - | (112,925) |
| Net loss | - | - | - | (186,654) | - | - | (186,654) |
| BALANCES, January 3, 1999 | 6,056,986 | 118,545 | - | (222,745) | (112,925) | - | (217,125) |
| Value assigned agreement to issue common stock to creditors for forbearance of amounts due |
- |
- |
36,000 |
- |
- |
- |
36,000 |
| Value assigned agreement to issue common stock to an officer for compensation |
- |
- |
18,000 |
- |
- |
(18,000) |
- |
| Advances made to the Parent and an affiliate | - | - | - | - | (94,378) | - | (94,378) |
| Receivables from the Parent and an affiliate charged to accumulated deficit |
- |
- |
- |
(207,303) |
207,303 |
- |
- |
| Stock dividend issued Parent | 600,000 | - | - | - | - | - | - |
| Net loss | - | - | - | (92,813) | - | - | (92,813) |
| BALANCES, December 31, 1999 | 6,656,986 | $ 118,545 | $ 54,000 | $ (522,861) | $ - | $ (18,000) | $ (368,316) |
STATEMENTS OF CASH FLOWS
| Fiscal Years Ended | ||
| December 31, | January 3, | |
| 1999 | 1999 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net loss | $ (92,813) | $ (186,654) |
| Adjustments to reconcile net loss to net cash used in
operating activities: |
||
| Depreciation and amortization | 6,812 | 9,865 |
| Gain on sale of assets | (30,407) | (24,017) |
| Loss on defaults of receivables | - | 165,730 |
| Provision for bad debts | - | 37,500 |
| Stock issued for debt forbearance | 36,000 | - |
| Changes in assets and liabilities: | ||
| Accounts receivable | 1,106 | (87,510) |
| Prepaid expenses and other | 2,176 | (2,051) |
| Accounts payable | 32,201 | 81,830 |
| Accrued and other liabilities | 70,168 | 2,031 |
| Net cash provided by (used in) operating activities | 25,243 | (3,276) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Net proceeds from sales of assets | - | 20,006 |
| Notes receivable principal payments | 30,474 | 38,274 |
| Leases receivable principal payments | - | 38,795 |
| Advances to Parent and affiliate | (94,378) | (112,925) |
| Decrease in other assets | 5,233 | - |
| Net cash used in investing activities | (58,671) | (15,850) |
| CASH FLOWS FROM FINANCING ACTIVITIES - | ||
| Advances from related parties | 42,337 | - |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | 8,909 | (19,126) |
| CASH AND CASH EQUIVALENTS, beginning of period | 19,771 | 38,897 |
| CASH AND CASH EQUIVALENTS, end of period | $ 28,680 | $ 19,771 |
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||
| Interest paid | $ 1,290 | $ 250 |
| Income taxes paid | - | - |
1. Organization and Summary of Significant Accounting Policies
Hudson's Grill International, Inc. ("the Company") was incorporated
in the state of Texas on October 30, 1997 and is a wholly-owned subsidiary
of Hudson's Grill of America, Inc. ("HGAI" or the "Parent"). Effective
December 1, 1997, HGAI transferred certain assets and liabilities, including
franchise agreements, to the Company in exchange for 100% of the Company's'
outstanding common stock. The Company recorded the assets and liabilities
at HGAI's historical cost.
The Company franchises, owns and operates full-service restaurants,
primarily in California and Texas. As of December 31, 1999, the Company
has ten franchised restaurants. Previously, the Company had owned two restaurants,
both of which were closed in early 1998. In January 1998, the Company took
over the operations of a franchised restaurant which it subsequently sold
in 1998.
Fiscal Year
The Company's fiscal year was changed by the Board of Directors to end
on December 31, starting in 1999. The fiscal year previously was a fifty-two
week period ending on the Sunday nearest December 31. The fiscal years
1999 and 1998, ended on December 31, 1999 and January 3, 1999, respectively.
Cash and Cash Equivalents
Cash and cash equivalents for purposes of reporting cash flows consist
of cash and short-term investments purchased with an original maturity
of three months or less.
Non-Current Assets
Depreciation of property and equipment is recognized using the straight-line
method over the estimated lives of the assets (generally five to seven
years). Amortization of leaseholds is recognized using the straight-line
method over the shorter of the initial term of the respective lease or
the service life of the leased asset.
Liquor licenses are recorded at cost and are amortized over ten years.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", the Company evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of long-lived assets may not be recoverable. An
impairment loss would be recognized when estimated future undiscounted
cash flows associated with an asset and its eventual disposition is less
that the asset's carrying amount.
Revenue Recognition
Initial franchise fees are recognized as revenue when all material services
or conditions relating to the sale have been substantially performed or
satisfied. Continuing franchise fees are recognized as revenue as the fees
are earned and become receivable from the franchisee.
Stock-Based Compensation
The Company accounts for stock options and warrants granted to directors and employees in accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25") "Accounting for Stock Issued to Employees", and related interpretations. Required pro forma disclosures of compensation expense determined under the fair value option pricing model method prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", are discussed in Note 6.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the financial and income
tax reporting bases of assets and liabilities. The deferred tax assets
and liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities
are recovered or settled.
The Company's operating results are included in the consolidated income
tax return of the Parent. The Parent allocates taxable income or loss to
the Company based on the amount that would occur if the Company filed a
separate income tax return.
Continued Operations
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and liquidation of liabilities in the normal course of business. The Company
has incurred recurring losses from operations and has a shareholders' deficit
of $368,316, as of December 31, 1999. These issues raise substantial doubt
about the Company's ability to continue as a going concern. Management
of the Company intends to continue to sell franchises in an attempt to
improve operating results.
Use of 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 of revenues and expenses
during the reporting period. Significant items in the accompanying financial
statements that include estimates are notes and leases receivable and lease
contingencies. Actual results could differ materially from those estimates.
Franchising revenues consisted of:
| Fiscal Years Ended | ||
| December 31, | January 3, | |
| 1999 | 1999 | |
| Initial franchise revenues | $ - | $ 25,000 |
| Continuing franchise revenues | 208,769 | 263,943 |
| Total franchise revenues | $ 208,769 | $ 288,943 |
In connection with the sale of a restaurant in 1997, the Parent received
a $114,200 note with interest equal to the greater of prime plus 2% or
12%. Terms of the note require monthly payments of interest only for one
year, and eighty-four monthly payments in amounts necessary to repay the
remaining principal and interest on the note. At December 28, 1997, the
balance of the note was $81,200, net of an allowance of $33,000. No principal
payments were received on this note and it was written off during the year
ended January 3, 1999 as described below.
In connection with the sale of a restaurant in 1996, the Parent received
a $249,000 note with interest at 10.25%. Terms of the note require forty-seven
monthly payments of principal and interest of $6,400 and a final payment
of $76,655 in June 2000. The Company intends to restructure the note payment
terms when it is due. The portion of the note classified as a current asset
at December 31, 1999, of $45,000, represents management's estimate of principal
payments that will be received in 2000. At December 31, 1999 and January
3, 1999, the balance of the note was $164,397 and $194,871, respectively.
In connection with the sale of a restaurant in 1994, the Parent received
a $262,800 note with interest equal to the greater of prime plus 2% or
9%, adjusted on a quarterly basis. Terms of the note require monthly payments
of interest only for one year, and then ninety-six monthly payments in
amounts necessary to repay the remaining principal and interest on the
note. At December 28, 1997, the balance of the note was $235,272. The note
was written off during the year ended January 3, 1999 as described below.
Certain assets of the respective restaurants collateralize each of
the notes referred to above.
The Parent also leased restaurant equipment to the purchasers of
the restaurants sold in 1997 and 1994 mentioned above. The leases were
classified as sales-type leases. At December 28, 1997, the net carrying
value of the leases was $340,879. However, the lease receivables were written
off during the year ended January 3, 1999 as described below.
During the year ended January 3, 1999, both of the purchasers of
the restaurants sold in 1997 and 1994 defaulted on their respective note
and lease agreements. As a result, the Company recognized a loss in the
year ended January 3, 1999, of $165,730, which represents the net carrying
value of the receivables offset by the deferred income associated with
the sales of the restaurants.
| December 31, 1999 | January 3, 1999 | |
| Deferred tax assets: | ||
| Allowances for doubtful accounts | $ 38,000 | $ 22,000 |
| Net operating loss | 125,000 | 54,000 |
| Valuation allowance | (163,000) | (76,000) |
| $ - | $ - |
At December 31, 1999 the Company's share of the Parent's operating
loss (NOL) carryforwards for federal income tax purposes was approximately
$260,000, which would expire through 2019.
During November 1999, the Parent issued 600,000 shares of HGAI stock
to four shareholders of the Parent in consideration for their forbearance
in collecting on credit extended to the Company. The Company issued 600,000
shares as a stock dividend to the Parent, so the creditors will receive
the 600,000 Company shares following the stock distribution described in
Note 9. The estimated value of the shares issued has been recorded as interest
expense of $36,000 in 1999.
On December 14, 1999, the Company agreed to issue 300,000 shares
of Company common stock and options to acquire 300,000 shares of Company
common stock to its former president as compensation for his agreement
to serve as acting interim Company president until the stock distribution
described in Note 9 occurs. The Company agreed to issue him an additional
100,000 options each month he serves as interim president after March 31,
2000. In connection with the shares of common stock to be issued, the Company
has recorded deferred compensation of $18,000 to be accreted into expense
over the six month period ending June 30, 2000. The options are exercisable
at any time through 2006 with an exercise price of $0.10 per share. SFAS
123 requires pro forma disclosure of the effect of options on reported
results of operations as if the options were valued based on the fair value
method prescribed by SFAS 123. Since these options were granted in December
1999, the pro forma effect for the year ended December 31, 1999 would be
insignificant.
During the periods ended December 31, 1999 and January 3, 1999, the
Company incurred $61,000 and $41,000, respectively, for legal services
provided by a firm associated with a director of the Company. The Company
has an account payable to this director of approximately $85,000 at December
31, 1999.
The Company leases office space on a month to month basis from an
entity in which an officer and a director of the Company are partners.
The rental expense was approximately $17,000 in each of 1999 and 1998.
Credit risk represents the accounting loss that would be recognized
at the reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customer or counterparties
when they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly affected by changes
in economic or other conditions. In accordance with FASB Statement No.
105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instrument with Concentrations of Credit Risk, the
credit risk amounts shown do not take into account the value of any collateral
or security.
Financial instruments that subject the Company to credit risk consist
principally of accounts receivable, cash on deposit and notes receivable.
At December 31, 1999, accounts receivable totaled $118,387, net of
an allowance for doubtful accounts of $109,500. The Company does not require
collateral for accounts receivable but performs periodic credit evaluations
on its customers' financial condition and believes that the allowance for
doubtful accounts is adequate.
Notes receivable are described in Note 3.
************
HUDSON'S GRILL INTERNATIONAL, INC.
(a wholly-owned subsidiary of
Hudson's Grill of America, Inc.)
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
BALANCE SHEET
March 31, 2000
(Unaudited)
ASSETS
| CURRENT ASSETS: | |
| Cash and cash equivalents | $ 20,565 |
| Accounts receivable, net of allowance for doubtful accounts of $62,000 | 5,382 |
| Current portion of note receivable | 45,000 |
| Prepaid expenses and other | 12,493 |
| Total current assets | 83,440 |
| PROPERTY AND EQUIPMENT, at cost: | |
| Restaurant equipment | 33,378 |
| Furniture and fixtures | 5,851 |
| Total property and equipment | 39,229 |
| Less accumulated depreciation | (22,178) |
| Property and equipment, net | 17,051 |
| LONG-TERM PORTION OF NOTE RECEIVABLE | 110,178 |
| OTHER ASSETS, net | 7,861 |
| Total assets | $ 218,530 |
|
|
|
| CURRENT LIABILITIES: | |
| Accounts payable | 135,588 |
| Advances, related parties | 99,331 |
| Accrued liabilities | 101,564 |
| Total current liabilities | 336,483 |
| OTHER LONG-TERM LIABILITIES | 63,702 |
| DEFERRED INCOME | 187,823 |
| CONTINGENCIES (Notes 2 and 3) | |
| SHAREHOLDERS' DEFICIT: | |
| Class A common stock, no par value, 100,000,000 shares authorized, 6,656,986 shares issued and outstanding |
118,545 |
| Additional paid-in capital | 54,000 |
| Accumulated deficit | (533,023) |
| Deferred compensation | (9,000) |
| Total shareholders' deficit | (369,478) |
| Total liabilities and shareholders' deficit | $ 218,530 |
STATEMENTS OF OPERATIONS
| Three Months Ended | ||
| March 31, | March 31, | |
| 2000
(Unaudited) |
1999
(Unaudited) |
|
| REVENUES: | ||
| Franchising revenues | $ 76,799 | $ 39,988 |
| Other | 17,967 | 28,380 |
| Total revenues | 94,766 | 68,368 |
| COST AND EXPENSES: | ||
| General and administrative | 63,713 | 65,049 |
| Depreciation and amortization | 1,703 | 1,703 |
| Total costs and expenses | 65,416 | 66,752 |
| Income from operations | 29,350 | 1,616 |
| OTHER INCOME (EXPENSE): | ||
| Gain on sale of assets | 5,865 | - |
| Interest expense | (858) | (138) |
| Interest income | 4,192 | 4,399 |
| Total other income (expense) | 9,199 | 4,261 |
| NET INCOME | $ 38,549 | $ 5,877 |
| NET INCOME PER SHARE (basic and diluted) | $ .01 | $ - |
| WEIGHTED AVERAGE SHARES OUTSTANDING | 6,656,896 | 6,056,896 |
STATEMENTS OF CASH FLOWS
| Three Months Ended | ||
| March 31, | March 31, | |
| 2000
(Unaudited) |
1999
(Unaudited) |
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net income | $ 38,549 | $ 5,877 |
| Adjustments to reconcile net loss to net cash used in
operating activities: |
||
| Depreciation and amortization | 1,703 | 1,703 |
| Provision for bad debts | 13,461 | 11,406 |
| Recognition of compensation expense | 9,000 | - |
| Changes in assets and liabilities: | ||
| Accounts receivable | (9,956) | (11,816) |
| Prepaid expenses and other | 956 | 1,261 |
| Accounts payable | (12,308) | (17,801) |
| Accrued and other liabilities | (55,431) | (4,336) |
| Other | - | 1,987 |
| Net cash used in operating activities | (14,026) | (11,719) |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Notes receivable principal payments | 8,619 | 9,576 |
| Other assets | - | 1,291 |
| Net cash provided by investing activities | 8,619 | 10,867 |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Advances from related parties | 46,003 | 6,496 |
| Distributions to Parent and affiliate | (48,711) | - |
| Net cash (used in) provided by financing activities | (2,708) | 6,496 |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (8,115) | 5,644 |
| CASH AND CASH EQUIVALENTS, beginning of period | 28,680 | 19,771 |
| CASH AND CASH EQUIVALENTS, end of period | $ 20,565 | $ 25,415 |
1. Unaudited Information
The consolidated balance sheet as of March 31, 2000 and the consolidated
statements of operations for the three month periods ended March 31, 2000
and 1999 were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all adjustments
(consisting only of normal recurring accruals) which are necessary to properly
reflect the consolidated financial position of the Company as of March
31, 2000 and the results of operations for the three months ended March
31, 2000 and 1999.
Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading. Interim period results are not necessarily indicative of the results to be achieved for an entire year. These financial statements should be read in conjunction with the financial statements and notes to financial statements included in the Company's financial statements for the year ended December 31, 1999.
2. Continued Operations
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred recurring losses from operations and has a shareholders' deficit of $369,478, as of March 31, 2000. These issues raise substantial doubt about the Company's ability to continue as a going concern. Management of the Company intends to continue to sell franchises in an attempt to improve operating results.
3. Contingency
As a result of its closure of two restaurants, the Parent has recorded
an $83,000 liability for the settlement of a lawsuit by the landlord of
one restaurant and is a party to a legal proceeding by the landlord of
the other restaurant in connection with its obligations under a noncancelable
lease agreement. In addition, the Parent is secondarily liable under other
leases for restaurants it sold in prior years. None of these restaurants,
lease agreements or obligations were transferred to or assumed by the Company.
The Company, based upon consultation with its legal counsel, is of the
opinion that the Parent's actual and contingent obligations with respect
to these leases will not ultimately be attributable to the Company, but
that if a creditor obtained a judgment against the Parent, the Parent's
stock in the Company could be subject to attachment or execution by the
creditor. Accordingly, the Company believes these matters will not have
a material adverse effect on the Company's consolidated financial condition
or results of operations, and no provision for any estimated loss is reflected
in the accompanying consolidated financial statements.
**********
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers. The
charter of the Company includes indemnification provisions that are permitted
by state statute in the State of Texas; see exhibit 2 (Edgar EX-3.(i)).
Item 2. Other Expenses of Issuance and Distribution. The
Company estimates that legal expenses will approximate $30,000, accounting
fees will approximate $20,000, printing expenses will approximate $2,500,
and stock transfer agent fees will approximate $2,000. Registration fees
should be about $132 to $200.
Item 3. Undertakings. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable.
Item 4. Unregistered Securities Issued or Sold Within
One Year. There are no unregistered securities issued by the Company in
the previous year. The Company has contracted with its interim president
to issue 300,000 shares to him for agreeing to continue as interim president,
and also issuing 300,000 warrants (and possible more if he continues to
stay after March 2000); these securities have not been issued yet and will
be issued when this registration becomes effective. Additionally, the Company
has authorized the issuance of 600,000 shares to its sole shareholder as
a stock dividend. This has not been issued yet and was done so that the
number of outstanding shares of the Company would be equal in number to
the number of outstanding shares of the sole shareholder, its parent Hudson's
Grill of America, Inc. ("HGA"). This was done for administrative reasons
so that the spin off of the Company's shares to the parent's shareholders
could be accomplished on a one to one basis instead of on a fractional
basis. Although not applicable to the Company, the Company's parent (HGA)
had recently authorized the issuance of 600,000 shares to various creditors
who had not attempted to collect on the HGA's obligations to them. All
of these transactions will be accomplished as private transactions not
requiring registration. These transactions are exempt from registration
as private transactions under section 4(2) of the 1933 Act.
Items 5 and 6. Index to Exhibits and Description of Exhibits.
| Exhibit Number | Description | Edgar Exhibit Number |
| 2 | Articles of Incorporation (charter) | EX-3.(i) |
| 2 | Bylaws | EX-3.(ii) |
| 3 | Stock Certificate Language | EX-4 |
| 6 | Prototype Franchise Agreement | EX-10 |
| 10 | Consents of Accountants and Legal Counsel | EX-23 |
| 11 | Opinion re legality | EX-5 |
| Financial Data Schedule | EX-27 |
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Dallas and State of Texas on January 14, 2000.
Registrant: Hudson's Grill International, Inc.
By: David L. Osborn
Title: Interim President (Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
By: Mitzi Ferguson
Title: Secretary/Treasurer (Principal Financial Officer and Principal Accounting Officer)
Date:
By: Robert Fischer
Title: Director
Date:
By: Anthony Duncan
Title: Director
Date:
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