SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
For the transition period from to
Commission file number 0-13642
HUDSON'S GRILL OF AMERICA, INC.
(Name of small business issuer in its charter)
California 95-3477313
(State or other jurisdiction of incorporation)(IRS Employer
Identification Number)
16970 Dallas Parkway, Suite 402, Dallas, Texas 75248
(Address of Principal Executive Offices)
Issuer's telephone number, including area code:
(214) 931-9743
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of each class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B not contained in this
form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB.
[ ]
State issuer's revenues for its most recent fiscal year.
$1,123,224
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act).
Average bid and asked during the week ending 3/29/96 is
$.1875. The Issuer has 6,056,986 shares outstanding; the
market value of the voting stock is $1,135,685.
Note: If determining whether a person is an affiliate will
involve an unreasonable effort and expense, the issuer may
calculate the aggregate market value of the common equity held
by non-affiliates on the basis of reasonable assumptions, if
the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15 (d) of the
Exchange Act after the distribution of securities under a plan
confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
6,056,986
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareholders for
the year ended December 31, 1995, are incorporated by
reference into Parts I and II. Portions of the Proxy
Statement for the Annual Meeting of Shareholders to be held on
May 28, 1996, are incorporated by referenced into Parts II and
III.
PART I
ITEM 1.BUSINESS
Hudson's Grill of America, Inc. (the "Company"), was
incorporated on June 11, 1979, in California, and the
corporation has undergone several name changes since then. The
Company amended its charter to its current name on June 14,
1991. Currently, the Company operates and franchises Hudson's
Grill Restaurants.
Hudson's Grill Restaurants are full service restaurants which
serve lunch and dinner and a wide range of alcoholic
beverages. On December 31, 1995, there were sixteen (16)
Hudson's Grill restaurants; thirteen (13) were franchised and
three (3) were still owned by the Company. In addition, the
Company owned a restaurant called "Hornblowers". The
Company's major focus is to expand the Hudson's Grill
operations through franchising instead of through ownership.
As of December 31, 1995, two (2) restaurants were not yet
under a definitive sales agreement and continue to be operated
indirectly; these are the Pomona Hudson's(which is operated as
a joint venture), and the Whittier Hudson's (which until
January 3, 1995, was operated as a joint venture but since
then is being operated as a subsidiary).
The Hudson's Grill Restaurants are currently operating in
California, Texas, and New Jersey. The Company is actively
seeking more franchises, but the franchise market and the
restaurant market are very competitive. Many other
franchisers have substantially more capital, thereby making it
much more difficult to compete against them.
BRIEF SUMMARY OF MAJOR EVENTS OVER THE PAST THREE YEARS.
On December 15, 1995, the Company signed an agreement with
Wenza, Inc., and Jotar, Inc., permitting an annex to an
existing franchise location in California, and granting rights
to build up to twenty-four (24) restaurants in certain areas
of California,New Jersey and New York.
In June 1995, the Company agreed to sell its "Hornblowers"
restaurant in Ventura, California. This is the Company's only
restaurant that is not a Hudson's Grill. The purchase price
will be Three Hundred Thousand Dollars ($300,000) and the
purchaser is the current manager. No date has been set for
the closing on the sale.
On August 30, 1994, the Company closed on the sale of its
Lancaster, California restaurant to a company controlled by
Mr. and Mrs. Daniel Pearlstein, who had been former managers
of the restaurant. The Pearlsteins paid Two Hundred Sixty
Eight Thousand Dollars ($268,000) in cash and a note to
purchase certain of the Company's furniture, fixtures and
equipment. They agreed to lease other assets for Four
Thousand Dollars ($4,000) per month for ten years, and they
have become franchisees of the Company.
In May 1994, the Company agreed in writing to sell its
Westlake and Simi Valley,California, restaurants to companies
controlled by Davis Beckham, a former officer of the Company.
He will pay Fifty Seven Thousand Two Hundred Seventy Eight
Dollars($57,278) for the Westlake restaurant and Fifty Nine
Thousand Six Hundred Fifty Five Dollars ($59,655) for the Simi
Valley restaurant. The restaurants will continue as
franchises of the Company, and will also lease certain assets
from the Company. These sales were completed on February 3,
1995.
In May 1994, the Company also agreed to sell its Oxnard,
California, restaurant to its manager, Alvaro Hernandez. In
January 1996, he paid Two Hundred Twenty Eight Thousand
Dollars ($228,000) in cash and notes to buy the restaurant,
and leased certain assets, too.
On January 31, 1994, the Company closed its Irvine restaurant;
the location remained closed until November 1994, when the
Company withdrew its furniture and equipment as part of an
agreement with the Landlord to vacate the premises. The
agreement was in dispute, but in June 1995, the Company
settled with the Landlord.
On December 23, 1993, the Company sold four (4) existing
Hudson's Grill restaurants in the Southern California area.
These four (4) sold for approximately Three Million Dollars
($3,000,000) in cash. These restaurants are now franchises.
This transaction is expected to cut historical operating
losses and contribute franchise revenues to the Company. The
Company sold its State and A restaurant in January 1994. In
addition, it has closed several under performing restaurants.
As of December 31, 1995, the Company's four (4) operating and
joint venture restaurants were located in the following
locations, and the number which appears after each location is
the opening date of the restaurant.
RESTAURANTS AND LOCATIONS:
HUDSON'S: DATE OPENED:
Oxnard 1984 (converted to Hudson's in 1986)
Diamond Bar/Pomona 1989
Whittier 1991
OTHERS:
HORNBLOWERS:
Ventura 1984
OPERATIONS AND RESTAURANT STYLE
HUDSON'S:
Hudson's Grill is a full service, limited menu concept with
alcoholic beverage service. The management teams work with
the philosophy that the customer should be viewed as their
"Guest". They stress quality of product and service,
efficient flow of communications, integrity in job performance
and strong employee morale. These restaurants range in size
from 2,500 to 5,500 square feet. The decor package has the
theme of a "Classic Grill of the 50's and 60's", with the
front end of a Hudson's automobile coming through the wall as
a main feature. Some restaurants are in free standing
buildings, and some are located within in-line shopping
centers. One new restaurant is located at a food court in a
shopping mall. Each Hudson's Grill employs approximately
forty employees, seventy percent of whom are part-time
employees.
With the exception of the new "food court" location, which has
a limited menu and does not serve alcoholic beverages, the
restaurants have similar operations and offer similar food.
The Company plans to expand primarily through adding
franchises, but is will consider Company owned and operated
units in the future. Since the restaurant industry is very
competitive, the Company plans to attract loyal patrons by
higher levels of service and more exacting specifications for
its products.
MENU
HUDSON'S:
Most Hudson's Grill restaurants open at 11 a.m. and remain
open until midnight, seven days a week, utilizing the same
menu throughout all parts of the day. They specialize in 1/3
pound hamburgers with the beef patties produced to very
exacting specifications. The menu also features an expanded
chicken burger section using top quality chicken breasts and
whole wheat buns. Also on the menu are salads, sandwiches, a
variety of appetizers, fajitas, tacos, and handmade milkshakes
and malts. Cocktails, beer and wine are also available with
food. The full service restaurant concept utilizes booths and
tables with waiters and waitresses serving the guests.
RESTAURANT DEVELOPMENT
HUDSON'S:
The Company does not plan to construct or own units, but may
become involved in the future with a limited number of Company
units to use for demonstration and testing purposes. Instead,
the Company plans to expand almost entirely through adding
franchises.
FRANCHISE AGREEMENTS
HUDSON'S:
The Company has been issued the trademark registration of a
"Hudson's Grill" logo and of the "Hudson's" name. It is
currently seeking registration of several older logos and a
brand new one. The Company has secured a permit from the
California Department of Corporations to issue Hudson's Grill
franchises in California and uses a Uniform Franchise Offering
Circular where permitted. As of December 31, 1995, the
Company had thirteen (13) franchised restaurants that were in
operation. The current standard terms to franchise a
restaurant are an initial fee of Twenty Five Thousand Dollars
and a royalty of four percent of sales, and require that three
percent of sales be used for advertising. For these payments,
the Company is obligated to do the following: screen and train
potential franchisees, review and approve sites, and provide
an operations manual and assistance.
During 1992, one restaurant was opened in Texas. In 1993,
four additional franchise restaurants opened for business or
were converted from Company owned locations. During 1993, the
Company entered into a restaurant development agreement in
Florida. According to the agreement, one restaurant was to be
opened in 1994, but the Florida franchisee has breached its
agreement, which the Company has terminated. During 1995, two
joint ventures were sold and became franchises, and the
Company entered into a Franchise Development Agreement with a
current franchisee to open 24 new restaurants in California,
New Jersey, and New York.
EMPLOYEES AND UNIONS:
At December 31, 1995, the Company employed two (2) persons,
who were corporate employees. One of the two employees is
employed part-time.
The Company is not a party to any collective bargaining
agreements.
ITEM 2.PROPERTIES
At December 31, 1995, the Company was the primary lessee under
leases for its five (5) properties which includes four (4)
restaurants and its headquarters. The leases have varying
monthly rentals and expiration dates, which are as short as
month to month for its headquarters and as long as several
years. A majority of leases provide for a rental based on a
percentage of gross sales against a minimum rent. As of
February 1994, the Company closed its headquarters and moved
to Dallas, Texas, where it shares space with its majority
shareholder.
As the Company moves more into franchising as its sole
business, it will become primarily liable on fewer leases.
Substantially all of the Company's restaurant equipment is
owned by the Company; some is leased to franchisees.
Currently, the Company has no real property and has no real
estate related investments.
ITEM 3.LEGAL PROCEEDINGS
The Company currently is not a defendant in any material
litigation. It has filed a lawsuit against its former
franchise in Bend, Oregon. According to the suit filed in
Oregon, the former franchise has continued to operate a
restaurant that uses the same or similar marks and decor that
they are used in Hudson's Grill Restaurants. The Company is
suing for royalties and breach of its agreement terminating
the Oregon franchise.
ITEM 4. SUBMISSION OF MATTERS OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security
holders of the Company through the solicitation of proxies or
otherwise.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock, no par value, is traded in the
over-the-counter market and trades under the National
Association of Security Dealers Automated Quotation System
("NASDAQ") symbol "HDSG". As of April 2, 1996, there were
approximately Three Hundred Twenty (320) registered holders of
record of the Company's Common Stock (this excludes
shareholders whose stock is held by a nominee or in "street
name", because a nominee is counted as one registered
shareholder even if a nominee is holding stock for several
shareholders). The following table sets forth the reported
high and low bid prices of the Common Stock for the periods
indicated as regularly quoted by NASDAQ. The over-the-counter
market quotations reflect interdealer prices, without retail
mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
FISCAL YEAR ENDED DECEMBER 31, 1995 High Low
First Quarter ended March 31, 1995 1/8 1/32
Second Quarter ended June 30, 1995 1/16 .02
Third Quarter ended September 30, 1995 1/16 .02
Fourth Quarter ended December 31, 1995 1/16 .02
FISCAL YEAR ENDED JANUARY 1, 1995 High Low
First Quarter ended March 31, 1994 3/8 1/8
Second Quarter ended June 30, 1994 1/4 1/16
Third Quarter ended September 30, 1994 3/32 1/16
Fourth Quarter ended December 31, 1994 1/8 1/16
FISCAL YEAR ENDED JANUARY 2, 1994 High Low
First Quarter ended March 31, 1993 1/4 1/16
Second Quarter ended June 30, 1993 1/4 3/16
Third Quarter ended September 30, 1993 1/4 1/32
Fourth Quarter ended December 31, 1993 1/4 1/32
As of March 29, 1996, the closing bid price of the Common
Stock was 3/32 of one dollar (nine and 3/8ths cents)
($.09375). This information was obtained from the National
Quotation Bureau, Inc.
DIVIDENDS
Common Stock
The Company has not paid cash dividends on its common stock,
and the present policy of the Company's Board of Directors
(the "Board") is to retain earnings attributable to common
stock to provide funds for the operation and expansion of the
Company's business. The Company does not expect to pay cash
dividends on its common stock in the foreseeable future.
ITEM 6.MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
For the year ended December 31, 1995, the Company had income
before income taxes and extraordinary items of Thirteen
Thousand Four Hundred Forty Eight Dollars ($13,448). This
compares to losses before income taxes and extraordinary items
of Nine Hundred Twenty Six Thousand Nine Hundred Seventy Four
Dollars ($926,974) for the year ended January 1, 1995, and of
Two Million Ninety Six Thousand Seven Hundred Fifty One
Dollars ($2,096,751) for the year ended January 2, 1994.
For the year ended December 31, 1995, the Company had net
income after taxes and extraordinary items of Thirteen
Thousand Four Hundred Forty Eight Dollars ($13,448). This
compares to net income after taxes and extraordinary items of
One Million One Hundred Eighty Nine Thousand Two Hundred Sixty
One Dollars ($1,189,261) for the year ended January 1, 1995,
and to a net loss of One Million Nine Hundred Fifty Six
Thousand Seven Hundred Fifty One Dollars ($1,956,751) for the
year ended January 2, 1994. The net income for the year ended
January 1, 1995, resulted primarily from a gain on
restructuring of troubled debt.
Because the Company intends on becoming primarily a
franchisor, several years ago it began closing poorly
performing restaurants and selling the remaining profitable
ones. Losses due to restaurant closures amounted to Two
Million Six Hundred Seventy Five Thousand Six Hundred Twenty
One Dollars ($2,675,621) for the year ended January 2, 1994
and Eight Hundred Two Thousand Seven Hundred Ninety Nine
Dollars ($802,799) for the year ended January 1, 1995. The
Company intends to dispose of all of its direct and indirect
restaurant operations as soon as practical so that it will be
solely in the franchising business, before proceeding to build
or to operate any new Company owned restaurants.
One of the four restaurants that were either subsidiaries of,
or were under joint ventures with the Company as of January 1,
1996, has already been sold. The other three restaurants
remain for sale or are under an option to purchase.
REVENUES
Because the Company was holding its remaining restaurants for
sale, it had ceased recording sales and expenses from direct
restaurant operations after January, 1994. However, because
the Company terminated the joint venture for the Whittier
Hudson's Grill in January, 1995, and operated it as a
subsidiary, it once again recorded sales and expenses for that
location for 1995. The Company continued to record only joint
venture revenues for the remaining stores which were operated
under joint venture agreements. These revenues will cease
when these stores are sold. Franchise revenues should
continue to increase as new franchises are added. Franchising
revenues have increased from Seventy Two Thousand Thirty One
Dollars ($72,031) for the year ended January 1, 1995, to Two
Hundred Ninety Five Thousand Three Hundred Twelve Dollars
($295,312) for the year ended December 31, 1995. Seventy Four
Thousand Three Hundred Seventy Four Dollars ($74,374) of the
franchise revenues for the year ended December 31, 1995, were
due to one time initial franchise fees of Twenty Five Thousand
Dollars ($25,000) per franchise for three new franchises
(minus minimal costs). There were no new franchise fees for
the year ended January 1, 1995. The remainder of franchise
fees for the year ended December 31, 1995, were the result of
the weekly continuing royalty fees paid by franchisees. Thus,
the continuing franchise revenues for the year ended December
31, 1995, were Two Hundred Twenty Thousand Nine Hundred Thirty
Eight Dollars ($220,938), compared to continuing franchise
revenues for the year ended January 1, 1995, of Seventy Two
Thousand Thirty One Dollars ($72,031).
COSTS AND EXPENSES
Since the Company is and has been selling or closing its
restaurants, an analysis of restaurant costs of sales and of
restaurant operating expenses is no longer meaningful because
almost all of the Company's restaurants have been or are being
sold and converted to franchises, or shut down. General and
administrative expenses, and the depreciation and amortization
expenses for equipment leased to restaurants will continue to
be important. General and administrative expenses for the
year ended December 31, 1995, were Four Hundred Eighty Four
Thousand Six Hundred Fifty Six Dollars ($484,656), as opposed
to Three Hundred Eighty One Thousand One Hundred Eighty Two
Dollars ($381,182) for the year ended January 2, 1995. The
increase in general and administrative expenses results from
increases in franchising activities.
Depreciation and amortization, which for the year ended
December 31, 1995, was Eighty Seven Thousand One Hundred Forty
Seven Dollars ($87,147), and was Two Hundred Ninety Seven
Thousand Four Hundred Ninety One Dollars ($297,491) for the
year ended January 1, 1995, will continue to decrease,
particularly to the extent that furniture, fixtures and
equipment are sold to the purchasers of the Company's
restaurants and to the extent restaurants are closed and
written off.
At the current time, the President and Chief Financial Officer
of the Company are not drawing any salary; only the Secretary
of the Company and one administrative assistant are being
compensated. The Company is paying for a consultant whose job
it is to increase the number of franchises. Because of this
consulting arrangement, which began in May, 1995, the general
and administrative expenses for the year ended December 31,
1995, have increased.
Interest expense has decreased significantly. The Company
recorded interest expense of One Hundred Four Thousand Two
Hundred Twenty Dollars ($104,220) for the year ended December
31, 1995, Two Hundred One Thousand Sixty Three Dollars
($201,063) for the year ended January 1, 1995, and Four
Hundred Fifteen Thousand Six Hundred Forty Four Dollars
($415,644) in the year ended January 2, 1994. The Company
paid off two bank loans in December, 1993, and in January,
1994 it entered into a conditional agreement with its major
secured creditor to reduce the balance of his loan and thus
reduce the monthly payments of interest. The agreement with
the secured creditor was such that the Company lent money to
a company that was, at that time, affiliated with the
creditor; the note with the secured creditor was reduced to
the amount of the indebtedness owed by the company controlled
by him, and an offset agreement was also executed. This
arrangement contributed to the Company receiving One Hundred
Seventy Six Thousand Seven Hundred Thirty Dollars ($176,730)
in interest income for the year ended December 31, 1995.
Thus, the net interest income for the year ended December 31,
1995, is Seventy Two Thousand Five Hundred Ten Dollars
($72,510), which is a substantial improvement from the net
interest expense of Sixty Thousand Six Hundred Forty Eight
Dollars ($60,648), in the year ended January 1, 1995, and the
net interest expense of Four Hundred Fifteen Thousand Six
Hundred Forty Four Dollars ($415,644) in the year ended
January 2, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had a positive working
capital of One Hundred Ninety Five Thousand Five Hundred Six
Dollars ($195,506), as compared to a deficit of Thirty Six
Thousand Seven Hundred Thirty Five Dollars ($36,735) at
January 1, 1995, and a deficit of One Million One Hundred
Eighty Thousand Sixty Seven Dollars ($1,180,067) at January 2,
1994. The increase in working capital is largely attributable
to the sale of restaurants and the conversion of the Company's
secured debt into stock warrants. The proceeds from the sale
of restaurants has been used to pay down bank notes and to
create notes receivable.
In light of the decision to focus primarily on franchising,
the Company anticipates that its accounts payable will
continue to decrease. Thus, it anticipates that the need for
working capital will also decrease. Most of the Company's
cash flow in the year ended December 31, 1995, came from joint
venture revenues, equipment leasing and franchise fees. This
should continue in 1996, but as more of its joint ventures are
sold and converted to franchises, more of its cash flow will
come from franchise royalties, proceeds from the sales of the
restaurants, and from equipment leases; and less will come
from joint venture revenue. After the Company has sold most
or all of its joint ventures, changes in its liquidity and
capital will depend mostly on initial franchise fees and from
continuing royalty fees received from franchisees using the
Company's trademark and restaurant concept, rather than on
equipment leasing, which should remain stable for the next
several years.
The Company received Twelve Thousand One Hundred Eighty Two
Dollars ($12,182) in net cash proceeds from the sale of
restaurants in the year ended December 31, 1995, Twenty Two
Thousand Dollars ($22,000) in net cash proceeds from the sale
of restaurants in the year ended January 1, 1995, and Two
Million Seven Hundred Ninety Thousand Nine Hundred Fifty Four
Dollars ($2,790,954) in net cash proceeds from the sale of
restaurants in the year ended January 2, 1994. The Company
anticipates minimal cash proceeds in 1996 from the sale of its
remaining joint ventures since most of the remaining sales of
joint ventures are to a large extent being financed by the
Company with notes and leases covering furniture, fixtures and
equipment. To the extent that the purchasers of the remaining
joint ventures pay their notes and their lease obligations on
a timely basis, the Company's cash resources and liquidity
will increase.
In January 1994, the Company reached a tentative agreement
with its largest secured creditor to reduce and restructure
the secured debt owed to the creditor and certain other
related liabilities owed to him. As part of this agreement,
the Company loaned money to an entity formerly affiliated with
the creditor, and received a note in return (the "FGA Note").
The scheduled payments on the "FGA Note" are approximately
equal to the amounts payable to the secured creditor under the
restructured credit agreement, and payments not received on
the "FGA Note" may be used to offset payments on the note
payable to the secured creditor. This arrangement will help
reduce the future cash requirements of the Company. The
revision of the credit agreement was finalized and completed
on June 27, 1994.
Subsequent to December 31, 1995, the company formerly
affiliated with the secured creditor formally requested and
obtained from the Company a modification of the FGA Note;
the Company will forego payments until February 1997, at which
time the entire amount of unpaid principal and interest will
be amortized at 8% over ten years. Correspondingly, the
Company began to exercise its right of offset on its note
payable to the secured creditor. The Company was assigned
several notes receivable with an aggregate face value of One
Million One Hundred Ninety Nine Thousand Dollars ($1,199,000)
as additional collateral in connection with this note
modification.
Once the Company has sold all of its joint ventures, the
Company's revenues will be dependent on royalty fees from
franchised restaurants, all of which except one in New Jersey
are currently located in California and Texas.
ITEM 7.FINANCIAL STATEMENTS
Attached following Item 13.
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
ACCOUNTING AND FINANCIAL DISCLOSURE
Incorporated by reference from the Proxy Statement (the "Proxy
Statement") to shareholders relating to the annual meeting to
be held May 28, 1996.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; IN COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Incorporated by reference from the Proxy Statement.
ITEM 10.EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement.
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the Proxy Statement.
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement.
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements; Exhibits
Financial statements are incorporated by reference from Item
7, and are attached following this Item.
Independent Auditor's Reports.
Consolidated Balance Sheets - As of December 31, 1995, and
January 1, 1995.
Consolidated Statements of Operations - Years ended December
31, 1995, January 1, 1995, and January 2, 1994.
Consolidated Statements of Shareholders' Equity (Deficiency)
- - For the Period from January 4, 1993, through December 31,
1995.
Consolidated Statements of Cash Flows - Years ended December
31, 1995, January 1, 1995, and January 2, 1994.
Notes to Financial Statements.
There are no exhibits.
(b) Reports on Form 8-K
The Company filed one (1) Form 8-K during the last quarter of
the fiscal year ending December 31, 1995. No financial
statements were filed with the Form 8-K. Below are the items
reported in the Form 8-K that was filed:
1.December 26, 1995. The Company finalized an agreement with
Jotar, Inc., and Wenza, Inc., regarding building twelve (12)
restaurants in California and twelve (12) restaurants in New
Jersey and New York. The Company announced that a new
franchise would open in New Jersey and that its Pomona joint
venture had terminated.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(Registrant) HUDSON'S GRILL OF AMERICA, INC.
By:
D. Marion Wood, CFO
Date:April 15, 1996
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
Signature Title Date
Chairman of the
DAVID L. OSBORN Board and Chief
Executive Officer
and Director
Principal Financial
D. MARION WOOD Officer and Director
CLIFFORD OSBORN Director
f\sec\960411.O01
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(Registrant) HUDSON'S GRILL OF AMERICA, INC.
By: s/s D. Marion Wood
D. Marion Wood, CFO
Date:April 15, 1996
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
registrant and the capacities and on the dates
indicated.
Signature Title Date
s/s David L. Osborn Chairman of the April 15,
1996
DAVID L. OSBORN Board and Chief
Executive Officer
and Director
s/s D. Marion Wood Principal Financial April 15,
1996
D. MARION WOOD Officer and Director
CLIFFORD OSBORN Director
f\sec\960411.O01
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hudson's Grill of America, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets
of Hudson's Grill of America, Inc. and subsidiaries as of
December 31, 1995 and January 1, 1995, and the related
consolidated statements of operations, shareholders' equity
(deficiency), and cash flows for the periods ended December
31, 1995, January 1, 1995 and January 2, 1994. 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 audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Hudson's Grill of America, Inc. and its
subsidiaries as of December 31, 1995 and January 1, 1995, and
the results of their operations and their cash flows for the
periods ended December 31, 1995, January 1, 1995 and January
2, 1994, in conformity with generally accepted accounting
principles.
The Company has sold and closed several restaurants and is in
the process of disposing of the remainder of its restaurant
operations and converting solely to franchising activities.
As described in Note 4 to the financial statements, at
December 31, 1995 the Company is the primary obligor for
future lease payments on its remaining restaurant locations
and the Company is the secondary obligor for future lease
payments on certain sold locations.
HEIN + ASSOCIATES LLP
March 8, 1996
Dallas, Texas
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, JANUARY 1,
CURRENT ASSETS: 1995 1995
Cash and cash equivalents $ 48,295 $ 92,750
Accounts receivable, no allowance for doubtful
accounts considered necessary 40,379 44,098
Current portion of notes and leases receivable 217,221 203,005
Prepaid expenses and other 24,826 14,871
Total current assets 330,721 354,724
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 662,879 933,250
Restaurant equipment 480,933 772,812
Furniture and fixtures 196,052 297,266
Total property and equipment 1,339,864 2,003,328
Less accumulated depreciation and amortization (1,206,293) (1,481,435)
Property and equipment, net 133,571 521,893
LONG-TERM PORTION OF NOTES & LEASES RECEIVABLE 2,053,387 1,836,679
LIQUOR LICENSES, net of accumulated amortization
of $67,085 at December 31, 1995 and $60,785
at January 1, 1995 156,530 243,138
OTHER ASSETS 49,735 74,144
Total assets $ 2,723,944 $ 3,030,578
F-2
- - Continued -
HUDSON'S GRILL OFAMERICA, INC.
CONSOLIDATED BALANCE SHEETS, continued
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, JANUARY 1,
1995 1995
CURRENT LIABILITIES:
Current portion of long-term debt $ 65,199 $ 126,684
Accounts payable 37,430 154,309
Accrued liabilities 32,586 110,466
Total current liabilities 135,215 391,459
LONG-TERM DEBT l,172,989 1,238,187
OTHER LONG-TERM LIABILITIES 422,720 523,436
DEFERRED INCOME 450,858 348,782
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none issued or
outstanding--
Common stock, no par value, 10,000,000 shares authorized,
6,056,986 shares issued and outstanding 4,456,457 4,456,457
Accumulated deficit (3,914.295) (3,927,743)
Total Shareholders' Equity 542.162 528,714
Total Liabilities & Shareholders' Equity $ 2,723,944 $ 3,030,578
See accompanying notes to these financial statements.
F-3
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
REVENUES:
Net sales $ 592,316 $ 44,469 $ 12,574,295
Joint venture revenues 171,606 489,682 111,000
Franchising revenues 295,313 72,031 189,578
Equipment lease income 63,989 48,000
Total revenues 1,123,224 654,182 12,874,873
COST AND EXPENSES:
Cost of sales 732,343 175,700 11,970,123
General and administrative 484,656 381,182 477,843
Depreciation and amortization 87,147 297,491 575,246
Total costs and expenses 1,304,146 854,373 13,023,212
Loss from Operations (180,922) (200,191) (148,339)
OTHER INCOME (EXPENSE):
Interest expense (104,220) (201,063) (415,644)
Interest and dividend income 176,730 140,415
Amortization of deferred income - - 213,678
Gain on sales of restaurants 21,777 47,751 855,211
Gain (loss) on restaurant closures 86,766 (802,799) (2,675,621)
Other 13,317 88,913 73,964
Total Other Income (Expense) 194,370 (726,783) (1,948,412)
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 13,448 (926,974) (2,096,751)
BENEFIT FOR INCOME TAXES- 369,002
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM: 13,448 (557,972) (2,096,751)
Extraordinary gain on restructuring of debt - 1,747,233 140,000
NET INCOME(LOSS) $ 13,448 $1,189,261 $(1,956,751)
INCOME (LOSS) PER SHARE:
Before extraordinary item $ - $ (.06) $ (.35)
Extraordinary item - .20 .02
Net Income (Loss) Per Share $ - $ .14 $ (.33)
See accompanying notes to these financial statements.
F-4
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM JANUARY 4, 1993 THROUGH DECEMBER 31, 1995
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
BALANCES, January 4, 1993 6,056,986 $4,456,457 $(3,160,253) $ 1,296,204
Net loss - - (1,956,751) (1,956,751)
BALANCES, January 2, 1994 6,056,986 4,456,457 (5,117,004) (660,547)
Net income - - 1,189,261 1,189,261
BALANCES, January 1, 1995 6,056,986 4,456,457 (3,927,743) 528,714
Net income - - 13,448 13,448
BALANCES, Dec. 31, 1995 6,056,986 $4,456,457 $(3,914,295) $ 542,162
See accompanying notes to these financial statements.
F-5
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 13,448 $ 1,189,261 $ (1,956,751)
Adjustments to reconcile net
income (loss) to cash
from operating activities:
Depreciation and amortization 87,147 297,491 575,246
Gain on sales of restaurants (21,777) (47,751) (855,211)
(Gain)loss on restaurant closures(86,766) 802,799 2,675,621
Amortization of deferred income - - (213,678)
Loss on liquor license valuation - - 154,615
Forgiveness of debt, net of
write-oft of related
assets - (1,747,233) (140,000)
Changes in assets and liabilities:
Accounts receivable (57,715) 180,030 (165,724)
Inventories - 86,052 176,330
Prepaid expenses and other (11,865) 34,875 11,812
Accounts payable 36,756 (368,144) (319,473)
Accrued liabilities and other (314,674) (729,888) (913,502)
Net cash used by operating
activities (355,446) (302,508) (970,715)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment - - (45,532)
Net proceeds from sales of assets 12,182 22,000 2,790,954
Increase in note receivable - (1,000,000) -
Notes receivable principal payments 124,204 239,684 118,797
Payments received on leases
receivable 101,300 15,000 -
Decrease in other assets 24,409 - 38,955
Net cash provided (used)
by investing activities 262,095 (723,316) 2,903,174
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 40,000 - 222,657
Repayments of notes payable (141,104) (176,028) (1,144,479)
Repayments of capital lease
obligations - - (51,717)
Buydown of franchise fees 150,000 - -
Net cash provided (used) by
financing activities 48,896 (176,028) (973,539)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (44,455) (1,201,852) 958,920
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 92,750 1,294,602 335,682
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 48,295 $ 92,750 $ 1,294,602
- -Continued-
F-6
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
YEARS ENDED
December 31, January 1, January 2,
1995 1995 1994
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 103,714 $ 102,242 $ 292,046
Income taxes paid (recovered) $ - $(369,002) -
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Year Ended December 31, 1995 - In connection with the sale of restaurants,
the Company received two notes receivable totaling $100,000 and leases
receivable totaling $320,000.
Year Ended January 1, 1995- In connection with the sale of a restaurant and
equipment the Company received a note receivable of $262,800 and a lease
receivable of $223,000. In addition, liabilities of $2,780,000 were forgiven
in a debt restructuring transaction.
Year Ended January 2, 1994 - In connection with the sale of restaurants, the
Company received a note receivable of $490,000. In addition, $140,000 of
bank debt was forgiven in connection with repayment of the remainder of the
debt in 1993.
See accompanying notes to these financial statements.
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Hudson's Grill of America, Inc. (the "Company") franchises and
previously owned and operated full service restaurants,
primarily in Southern California and Texas. As of December 31,
1995, the Company has thirteen franchised restaurants.
Additionally, it owns four restaurants, all of which are held
for sale. The Company previously operated eleven Wendy's
restaurants. (See Notes 2 and 8).
The consolidated financial statements include the Company and
its wholly-owned subsidiaries, Equipco, Inc. and Hudson's Grill
of Whittier, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
Management is in the process of attempting to sell and
franchise the Company's restaurants and believes that these
and other cost cutting actions will assist the Company in
meeting its cash flow requirements over the next twelve
months.
Restaurants Held for Sale
As of December 31, 1995, all but one of the restaurants held
for sale are operated under formal or informal joint venture
agreements with prospective purchasers. The Company has ceased
recording operating revenues and expenses on these restaurant
locations, but records joint venture and equipment rental fees
(see Note 8). One restaurant held for sale is operated by the
Company as of December 31, 1995 following a foreclosure under
a joint venture agreement during 1995. The assets of the
restaurants held for sale are primarily property and equipment
and liquor licenses. Management has evaluated the remaining
net assets of the restaurants held for sale and believes the
carrying values do not exceed the net realizable values of
those assets.
Cash and Cash Equivalents
Cash and cash equivalents for purposes of the statement of
cash flows consist of cash and short-term investments
purchased with an original maturity of three months or less.
Non-Current Assets
All of the Company's property and equipment is leased under
operating leases to prospective purchasers, with the exception
of the property and equipment in one restaurant, which had a
carrying value of $30,000 at December 31, 1995.
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.
F-8
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill was recorded as the difference between the purchase
price and the fair value of net assets acquired upon purchase
of the initial restaurants, and was amortized on the
straight-line method over forty years. The Company charged
against income a total of approximately $3,500,000 of the
remaining goodwill balances during the periods ended January
1, 1995 and January 2, 1994 in connection with the sales and
closures of the related restaurants and the restructuring of
the related acquisition debt.
Liquor licenses are recorded at cost and are amortized over
ten years.
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.
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.
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.
Income (loss) per share
Income (loss) per common share is computed based upon the
weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are not
considered if their effect is antidilutive. Common stock
equivalents consist of outstanding stock options and warrants.
Common stock equivalents are assumed to be exercised with the
related proceeds used to repurchase outstanding shares except
when the effect would he antidilutive. Common equivalent
shares were antidilutive in the periods ended December 31,
1995 and January 2, 1994.
The weighted average number of shares outstanding used in the
income (loss) per share computation was 6,056,986 for the year
ended December 31, 1995, 8,845,589 for the year ended January
1, 1995, and 6,056,986 for the year ended January 1, 1994.
F-9
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FRANCHISE ACTIVITIES
In 1991, the Company commenced franchising its Hudson's Grill
concept. Under the terms of the standard franchise agreement,
the franchisees are obligated to pay the Company an initial
franchise fee of $25,000, and a weekly continuing royalty fee
of 4% of gross restaurant revenues, and must spend 3% of
gross sales on approved advertising, including a weekly 1%
marketing fee contributed to the Company's marketing fund. The
Company is obligated to provide initial training, continuing
management assistance, administration of advertising and sales
promotion programs and establishment and monitoring of a
marketing fund. Franchising revenues consisted of:
PERIODS ENDED
DECEMBER 31, JANUARY 1, JANUARY 2,
1995 1995 1994
Initial franchise revenues $ 74,374 $ - $ 100,000
Continuing franchise revenues 220,938 72,031 89,578
Total franchise revenues $ 295,312 $ 72,031 $ 189,578
In November 1995, the Company received $150,000 from a
franchisee to prepay franchise fees. The Company recorded the
amount received as deferred income and will amortize it to
income over the life of the agreement. The balance at December
31, 1995 is $145,731.
The Company formerly was a party to franchise agreements with
Wendy's, Inc. ("Wendy's"). In 1991, the Company sold its
Wendy's franchises. Amortization of deferred income of
$213,678 during the year ended of January 2, 1994 represents
amounts formerly payable to Wendy's, payment of which Wendy's
agreed in 1988 to waive as consideration for the Company's
performance of certain conditions, including the continued
operation for at least five years of the Wendy's restaurants
formerly operated by the Company. Although the Wendy's
franchises were sold during 1991, this agreement continued to
be in effect. The agreement, as amended, provided that these
amounts were earned by the Company each year on a
straight-line basis over the five year period ending January
1994.
3. NOTES AND LEASES RECEIVABLE
At December 31, 1995 and January 1, 1995 the Company had a
note receivable with a balance of $1,199,114 from its Texas
franchisee. A principal shareholder of the Company owns an
interest in this entity and Travis L. Bryant (see Note 5)
owned an interest in this entity until 1994. Monthly payments
of principal and interest in the amount of $14,006 were
required for ten years at which time all remaining principal
and accrued interest was due. The note bears interest at a
rate of 8% per year and is collateralized by restaurant
equipment and improvements. In addition, an offset agreement
exists in which the Company can offset any past due amounts on
the note against a note payable to Travis L. Bryant with a
balance of $1,148,110 and $1,154,420 at December 31, 1995 and
January 1, 1995 respectively. See Note 5.
F-10
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Only three payments were received in 1995 from the Texas
franchisee and were applied to accrued interest. The Company
began to exercise its right of offset on its note payable to
Travis L. Bryant beginning in February 1996. Subsequent to
December 31, 1995, the Company and the Texas franchisee agreed
to modify the note by forgoing payments until February 1997,
at which time the entire amount of unpaid principal and
interest is to be amortized at 8% over ten years. The Company
was assigned several notes receivable with an aggregate face
value of $1,199,000 as additional collateral in connection
with the modification agreement. These notes arose from the
sale by the Texas franchisee of four of its restaurants and
are collateralized by the assets of the restaurants.
In connection with the sale of restaurants in the year ended
January 2, 1994, the Company received a note for $490,000 with
annual installments due over four years with the balance due
in the fifth year, plus interest at prime plus 2%. The balance
of the note at December 31, 1995 and January l, 1995 was
$228,409 and $316,667 respectively.
In connection with the sale of a restaurant in the year ended
January 1, 1995, the Company received a note for $262,800. The
note bears interest at a rate equal to the greater of prime
plus 2% or 9%, adjusted on a quarterly basis. Payments of
interest only are required for one year, after which ninety
six monthly payments are required in amounts necessary to
amortize the remaining principal balance of the note. The
balance of the note was $255,752 at December 31, 1995 and
$262,800 at January 1, 1995.
At December 31, 1995 the Company has a $44,216 note receivable
from a franchisee. The note bears interest at 10% and is
payable in equal monthly installments over a two year period.
In connection with the sale of two restaurants in the year
ended December 31, 1995 the Company received notes receivable
totaling $100,000 with annual installments of $24,046 over
five years including interest at 7 1/2 percent. The balance of
the notes receivable at December 31, 1995 totals $62,816.
The notes that arose with the sales of the various restaurants
referred to above are collateralized with certain assets of
those restaurants.
The Company also leased the restaurant equipment to the
purchasers of the restaurants sold in the years ended December
31, 1995 and January 1, 1995. The leases have been classified
as sales-type leases. The net carrying value of the leases
receivable at December 31, 1995 and January 1, 1995 is
$419,093 and $222,233 respectively.
Future lease payments due in fiscal periods ending:
December 29, 1996 $ 160,000
January 4, 1998 144,000
January 3, 1999 120,000
January 2, 2000 48,000
January 1, 2001 48,000
Thereafter 176,307
Total 696,307
Less amount representing
unearned interest (277,214)
$ 419,093
F-11
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES
The Company's restaurant buildings and certain equipment are
operated under non cancelable operating leases. Terms of these
leases extend from 3 to 25 years. Certain leases are
guaranteed by former directors. In addition to amounts
included below, the leases generally provide that the Company
pay taxes, maintenance, insurance and certain other operating
expenses applicable to the leased property, plus a percentage
of gross receipts in excess of certain limits stated in the
lease agreements. As explained in Note 8, most of the
Company's remaining restaurants are operated by third parties
under joint venture agreements and the rental payments are
being made by those parties.
The following is a summary by years of future minimum lease
payments on the restaurant locations:
Fiscal Period Ending:
December 29, 1996 $ 299,898
January 4, 1998 271,680
January 3, 1999 271,680
January 2, 2000 271,680
January 1, 2001 204,480
Thereafter 3,213,412
Total minimum lease payments $ 4,532,830
In addition to the leases discussed above, the Company has
assigned to the purchasers the leases of buildings for eight
of the restaurants sold in the periods December 31, 1995,
January 1, 1995 and January 2, 1994. The Company is
secondarily liable for the lease payments on these restaurants
should the purchasers not fulfill their responsibility under
the leases. The future lease payments for these restaurants
total approximately $9,804,152 at December 31, 1995. In
addition, the Company may be secondarily liable under other
leases for restaurants sold in prior years.
Total rental expenses for operating leases were $31,483,
$106,426 and $1,129,286 for the periods ended December 31,
1995, January 1, 1995 and January 2, 1994, respectively.
F-12
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
Long-term debt at December 31, 1995 and January 1, 1995, which
is collateralized by substantially all
of the assets of the Company, is summarized as follows:
December 31, January 1,
1995 1995
Note payable to Travis L. Bryant, a former
director of the Company and a former part
owner of the Company' s Texas franchisee,
monthly interest payments of $7,696 through
November, 1995 and monthly installments of
$14,006 including interest at 8% through
November, 2005. (See below and Note 3). $ 1,148,110 $ 1,154,420
Note payable to Corona Market Partnership,
due in monthly installments of $5,327,
including interest of 8% through
June, 1997. 90,078 144,414
Note payable in monthly principal
installments of $5,555, plus interest
at prime rate plus 2% (total of 10.5% at
January 1, 1995), due March 1995. - 22,229
Note payable, due in monthly installments
of $1,435, including interest at 12%,
through May 1996. Repaid in 1995. - 23,527
Note payable, due in monthly installments of
$6,793, including interest at 7%, through
March 1995. - 20,281
Total 1,238,188 1,364,871
Less current portion (65,199) (126,684)
Long-term debt $ 1,172,989 $ 1,238,187
Principal payments due in the fiscal periods subsequent to
December 31, 1995 are as follows: (following the modification
to the note agreement with the Texas franchisee referred to in
Note 3).
Fiscal Year Ending:
December 29, 1996 $ 65,199
January 4, 1998 13,342
January 3, 1999 90,529
January 2, 2000 98,043
January 1, 2001 106,180
Thereafter 864,895
Total $ 1,238,188
F-13
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the year ended January 1, 1995, Travis L. Bryant formally
agreed to reduce a $3,360,000 note payable to him into a
$1,300,000 note due in monthly installments as described
above. In addition, Bryant agreed to forgive certain other
amounts due him by the Company, which totaled approximately
$720,000. In connection with the restructuring transaction,
Bryant also received a warrant to purchase 4,000,000 shares of
the Company's common stock at $.0625 per share anytime over
the next ten years. Consummation of the agreement was
contingent on the Company's performance of certain conditions,
including the loan of an additional amount to the Texas
franchisee to increase that note receivable from $300,000 to
$1,300,000 (see Note 3) and the compromise and satisfaction of
certain liabilities due lessors of certain closed restaurant
locations (see Note 4). These conditions were satisfied in the
year ended January 1, 1995 and the debt restructure was
consummated. The total debt forgiveness of $1,747,233, net of
approximately $1,033,000 of the write-oft of associated
goodwill, has been recorded as an extraordinary item.
6. INCOME TAXES
There was no income tax provision in 1995 due to the
application of tax net operating loss carry forwards. The
income tax benefit of $369,002 in the year ended January 1,
1995 resulted from the carry back and receipt of refunds for
income tax losses for prior years. The benefit was not
recorded in prior years due to uncertainty of recovery at that
time. The actual tax expense differs from the "expected" tax
expense computed by applying the U.S. Federal corporate tax
rate of 34% to earnings before income taxes for the year ended
January 1, 1995 primarily due to differences between financial
reporting and income tax treatment of the debt restructuring
described in Note 5.
Deferred income taxes are provided for temporary differences
between income tax and financial reporting as of December 31,
1995 and January 1, 1995 as follows:
December 31, 1995 January 1, 1995
Deferred tax asset:
Depreciation $ 182,000 $ 230,000
Net operating loss 134,000 167,000
Accrued settlement 46,000 60,000
Deferral income and rent 90,000 -
Valuation allowance (452,000) (457,000)
Total $ - $ -
At December 31, 1995, the Company had net operating loss (NOL)
and investment tax credit carry forwards for Federal income
tax purposes of approximately $860,000 and $200,000,
respectively. Use of these carry forwards (with the exception
of approximately $390,000 of the NOL carry forward) were
limited due to issuance of the warrant described in Note 5.
7. SHAREHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of
preferred stock with rights and preferences as designated by
the Board of Directors.
F-14
HUDSON 'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has an incentive stock option plan ("ISO") which
provides for the issuance of options to officers, directors
and employees to purchase up to 825,000 shares of the
Company's common stock. Options are exercisable at prices
equal to the fair market value of common stock at the grant
date, vest 20% annually and expire generally within five
years. In 1993 the shareholders of the Company approved a
Directors' Stock Option Plan ("DSO"). This plan provides for
the issuance of up to 200,000 shares of stock to non-employee
directors in increments of 10,000 shares every two years.
Options will be issued at the average of the closing bid-ask
price on the date of the grant. No options were outstanding as
of December 31, 1995, January 1, 1995 or January 2, 1994 under
either plan.
The Company granted options to a consultant to purchase
400,000 shares of common stock with 100,000 shares vesting
each year from 1995 to 1998. The exercise price is the market
price at time of vesting. The exercise price of the shares
vested in 1995 is $.11 per share. The options expire, if not
exercised in 2003.
The following summarizes information regarding options
granted, outstanding and exercisable:
NUMBER OF SHARES OPTION PRICE
ISO OTHER DSO PER SHARE
Outstanding at January 4, 1993 189,750 305,800 - $.15-$1.14
Canceled (189,750) (305,800) -
Outstanding at January 2, 1994
and January 1, 1995 - - -
Granted - 400,000 - Market Price
Outstanding at December 31, 1995 - 400,000 -
In connection with a transaction with another company in 1991,
the Company issued a warrant to acquire 100,000 shares of the
Company's common stock at $1.00 per share. This warrant
expired unexercised on January 1, 1996.
In January 1994, in connection with a debt restructuring
agreement described in Note 5, the Company issued warrants to
Travis L. Bryant. The warrants are exercisable for 4,000,000
shares of common stock at $.0625 per share and expire in ten
years. The exercise price approximated the market value of the
stock at the time of grant.
8. RESTAURANT SALES AND CLOSURES
During the year ended December 31, 1995, the Company sold two
restaurants and a liquor license for a total loss of $8,550.
Also in 1995, the Company reached a final settlement on a
lease of a closed restaurant in an amount of $86,766 less than
had been previously accrued. This amount was recorded
as a gain in the year ended December 31, 1995.
F-15
HUDSON'S GRILL OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended January 1, 1995, the Company sold one
restaurant and recorded a deferred gain of $348,782 on the
sale, which will be amortized into income over the terms of
the related note and lease receivables (see Note 3). The
balance of the deferred gain at December 31, 1995 and January
1, 1995 was $305,127 and $348,782, respectively.
On January 31, 1994, the Company closed its Irvine restaurant.
In connection with this closure, a loss of $460,000 was
recorded as of January 2, 1994 to write off goodwill and
estimate the settlement of lease obligations. An additional
$188,000 of losses related to the closure of the Irvine
restaurant were recorded in the year ended January 1, 1995.
The Company is endeavoring to sell all remaining restaurants
and has granted purchase options for three of the remaining
restaurants owned. These purchase options also include certain
joint venture provisions, which began in the second half of
the year ended January 2, 1994, whereby, the future purchasers
operate the restaurants and the Company receives a joint
venturer's fee based on sales, net of certain operating
expenses. In addition, certain joint venturers have agreed to
lease in-store assets over the term of the joint venture
agreements, which expire upon sale of the restaurants. Based
on the option price provided in these agreements, management
does not anticipate recording a loss on sale of these
restaurants.
The Company wrote down the carrying value of the one remaining
restaurant held for sale by approximately $587,000 during the
year ended January 1, 1995 due to diminished prospects for the
sale of the restaurant.
9. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
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 customers or counter-
parties when they have similar economic characteristics that
would cause their ability to meet contractual obligations to
be similarly effected 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 Instruments 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 and leases receivable.
At December 31, 1995, accounts receivable totaled $40,379, and
the Company has not provided an allowance for doubtful
accounts. Bad debts were immaterial for 1995 and 1994. The
Company performs periodic credit evaluations on its customers'
financial condition and believes that the allowance for
doubtful accounts is adequate.
F-16
HUDSON'S GRILL OF AMERICA, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company periodically maintains cash balances in excess of
FDIC insurance limits.
Notes and leases receivables are described in Note 3.
Fair Value of Financial Instruments
The estimated fair values of the Company's financial
instruments were determined by management using available
market information and appropriate valuation methodologies.
The estimates are not necessarily indicative of the amounts
the Company could realize in a current market exchange.
At December 31, 1995, cash, accounts receivable and accounts
payable have fair values that approximate book values based on
their short term or demand maturity.
The fair value of notes receivable and notes payable are based
on estimated discounted cash flows. The fair value of these
instruments approximates book value at December 31, 1995.
F-17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE REGISTRANT'S QUARTERLY FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 48,295
<SECURITIES> 0
<RECEIVABLES> 40,379
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 330,721
<PP&E> 1,339,864
<DEPRECIATION> (1,206,293)
<TOTAL-ASSETS> 2,723,944
<CURRENT-LIABILITIES> 135,215
<BONDS> 0
0
0
<COMMON> 4,456,457
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,723,944
<SALES> 592,316
<TOTAL-REVENUES> 1,123,224
<CGS> 732,343
<TOTAL-COSTS> 1,304,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (104,220)
<INCOME-PRETAX> 13,448
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,448
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
