<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 9, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ____________________
Commission file number 0-12701
________________________
CUCOS INC.
(Exact name of registrant as specified in its charter)
LOUISIANA 72-0915435
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 Veterans Boulevard, Metairie, Louisiana 70005
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code--504-835-0306
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,113,747 shares of common
stock, no par value, as of April 9, 1995
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<PAGE> 2
CUCOS INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The Company: Cucos Inc. (the "Company") owns and franchises Mexican
restaurants under the name "Cucos". At April 9, 1995, fifteen
Company-owned restaurants and six franchised restaurants were in
operation.
2. Fiscal Year: The Company uses a 52/53 week year for financial
reporting purposes with the Company's fiscal year ending on the Sunday
closest to June 30 of each year. Fiscal Year 1995 will end on July 2,
1995, and will consist of one sixteen- week quarter ending October 23,
1994, and three twelve-week quarters ending January 15, 1995, April 9,
1995, and July 2, 1995.
3. The accompanying unaudited financial statements have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements have been omitted
pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the Company's Annual
Report for the Fiscal Year ended July 3, 1994. In the opinion of
Management, these financial statements contain all normal recurring
adjustments necessary to fairly present the financial results for the
forty weeks ended April 9, 1995. Operating results for the period
shown are not necessarily indicative of the operating results expected
for the full fiscal year ending July 2, 1995.
4. During the Comparable Three Quarters, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
As permitted under the Statement, the Company elected not to restate
the financial statements of prior years. The cumulative effect as of
July 5, 1993, of adopting Statement 109 increased net income in the
Comparable First Quarter by $152,000 or $.07 per share. During the
Current Three Quarters, management increased the valuation allowance
for deferred tax assets by $116,000.
5. During the Second Quarter, there were charges associated with the
estimated expenses of the future closure and disposal of four
franchised restaurants currently subleased to franchisees (the Closing
Charge). The Closing Charge included a $447,292 reserve established
for rental costs for which the Company will be responsible during the
sale or sublease process. Management expects this process to be
completed within twelve months. The Closing Charge also included a
$98,267 reserve for asset impairment for the two restaurants where
management believes it may not be able to recover all of its costs
over the remainder of the lease. In addition, the Closing Charge
included a $170,610 provision for amounts believed to be uncollectible
from the franchisees due to closures.
<PAGE> 3
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 9, 1995 July 3, 1994
------------- ------------
UNAUDITED
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 556,640 $ 614,835
Certificates of Deposit 33,000 33,000
Receivables:
Trade 831,570 655,821
Due from affiliates 225,414 167,181
Notes receivable from franchisees 60,572 74,932
Less allowance for doubtful accounts (209,616) (73,058)
------------ -------------
907,940 824,876
Inventories 237,601 260,044
Prepaids, deferred taxes and other current assets 536,514 490,809
Preopening costs 0 15,143
Property held for resale 282,383 326,253
------------ -------------
TOTAL CURRENT ASSETS 2,554,078 2,564,960
Deferred Taxes and Noncurrent Receivables 153,044 233,398
Property, Equipment and Other
Land 327,000 327,000
Property and equipment 5,681,832 5,924,318
Building and leasehold improvements 4,129,503 4,228,064
Reacquired franchise rights 575,021 575,021
------------ -------------
10,713,356 11,054,403
Less accumulated depreciation and amortization 4,804,015 4,913,039
------------ -------------
5,909,341 6,141,364
Investment in LaMexiCo, L.L.C. 250,295 254,763
Deferred Cost, less accumulated amortization 28,197 62,593
------------ -------------
$ 8,894,955 $ 9,257,078
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 410,700 $ 290,000
Trade accounts payable 1,459,725 1,204,444
Accrued expenses and other 628,700 519,853
Accrued payroll 172,850 208,258
Current portion of long-term debt 793,730 937,651
------------ -------------
TOTAL CURRENT LIABILITIES 3,465,705 3,160,206
Long-Term Debt, less current portion 2,770,656 2,253,862
Deferred Revenue 11,000 75,334
Shareholder's Equity
Preferred Stock, no par value - 1,000,000 shares
authorized, non issued or outstanding
Common Stock, no par value - 20,000,000 shares
authorized, 2,113,747 shares issued and
outstanding at October 23, 1994 and July 3, 1994 4,745,585 4,745,585
Additional paid-in capital 67,849 67,849
Retained earnings (deficit) (2,165,839) (1,045,758)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY 2,647,594 3,767,676
------------ -------------
$ 8,894,955 $ 9,257,078
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
Part I--Financial Information
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
40 Weeks 40 Weeks
Ended Ended
April 9, 1995 April 10, 199
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ (1,120,081) $ 274,129
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by
Operating Activities:
Depreciation and Amortization 694,338 792,677
Deferred Revenue (64,334) (1,000)
Loss (Gain) on Sale of Assets 1,796 4,245
Cumulative Effect of Accounting Change 0 (152,000)
Changes in Operating Assets and Liabilities 433,685 (200,171)
------------- --------------
NET CASH PROVIDED
BY OPERATING ACTIVITIES (54,596) 717,880
INVESTING ACTIVITIES
Change in Certificate of Deposits 0 117,000
Purchases of Property and Equipment (763,016) (359,089)
Investment in LaMexiCo, L.L.C. 4,470 (250,358)
Proceeds From Sale of Assets 347,338 13,656
Net (Additions) Reductions to Deferred Costs 34,936 23,841
------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (376,272) (454,950)
FINANCING ACTIVITIES
Proceeds from Borrowings 1,246,438 663,046
Principal Payments on Borrowings (873,565) (928,209)
------------- --------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 372,873 (265,163)
------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (57,995) (2,233)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 614,835 586,922
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 556,840 $ 584,689
============= ==============
</TABLE>
<PAGE> 5
Part I--Financial Information
CUCOS INC.
STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
12 Weeks 12 Weeks 40 Weeks 40 Weeks
Ended Ended Ended Ended
April 9, 1995 April 10 1994 April 9, 1995 April 10, 1994
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Sales of Food and Beverages $ 4,223,535 $5,052,295 $14,099,663 $ 16,886,552
Franchise Fees and Royalties 90,186 79,023 313,832 328,377
Commissary, Rent and Other Income 67,764 158,284 329,691 360,451
------------- ---------- ----------- ------------
TOTAL REVENUES 4,381,485 5,289,602 14,743,186 17,575,380
COST AND EXPENSES:
Cost of Sales 1,108,381 1,285,063 3,641,086 4,232,946
Restaurant Labor and Benefits 1,444,178 1,727,247 4,797,910 5,731,452
Other Operating Expenses 541,038 764,004 2,182,511 2,690,365
Occupancy Costs 496,101 608,573 1,659,578 2,009,402
Preopening Costs 0 16,292 0 106,744
------------- ---------- ----------- ------------
TOTAL RESTAURANT EXPENSES 3,589,698 4,401,179 12,281,085 14,770,909
Operations and Franchise Expenses 289,246 363,172 1,881,493 1,092,397
Corporate Expenses 398,435 399,984 1,342,740 1,291,928
Interest Expense 102,347 96,389 312,392 298,017
------------- ---------- ----------- ------------
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Change 1,759 28,878 (1,074,524) 122,129
Income Taxes 0 0 45,557 0
------------- ---------- ----------- ------------
Income (Loss) Before Cumulative Effect of
Accounting Change 1,759 28,878 (1,120,081) 122,129
Cumulative Effect of Accounting Change * 0 0 0 152,000
------------- ---------- ----------- ------------
NET INCOME (LOSS) $ 1,759 $ 28,878 $ (1,120,081) $ 274,129
============= =========== ============ ============
Weighted Shares Outstanding 2,105,528 2,204,820 2,144,308 2,182,348
============= =========== ============ ============
INCOME (LOSS) PER SHARE:
Income (Loss) Before Cumulative Effect
of Accounting Change $.00 $.01 $(.52) $.06
Cumulative Effect of Accounting Change $.00 $.00 $ .00 $.07
---- ---- ----- ----
Net Income (Loss) Per Share $.00 $.01 $(.52) $.13
==== ==== ===== ====
</TABLE>
* Represents nonrecurring impact of adopting FAS 109, Accounting for Income
Taxes, during the First Quarter of Fiscal 1994.
Results include fifteen company-owned restaurant in fiscal 1995 and eighteen
company-owned restaurants in fiscal 1994.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues and earnings declined for the 12 weeks ended April 9, 1995 (the
"Current Quarter"). Revenues declined 17.2% to $4,381,485, from $5,289,602 for
the twelve weeks ended April 10, 1994 (the "Comparable Quarter"). Revenues for
the Current Three Quarters declined 16.1% to $14,743,186 from $17,575,380 for
the 40 weeks ended April 10, 1994 (the "Comparable Three Quarters"). Earnings
declined to $1,759 ($.00 per share) in the Current Quarter from $28,878 ($.01
per share) in the Comparable Quarter. A Net Loss of $1,120,081 ($.52 per
share) was recorded for the Current Three Quarters compared to Net Income of
$274,129 ($.13 per share) for the Comparable Three Quarters.
Sales of Food and Beverages declined to $4,225,535, down 16.4%, from $5,052,295
achieved during the Comparable Quarter. Sales declined between years primarily
because there were fifteen Company-owned restaurants in operation during the
Current Quarter compared to eighteen in the Comparable Quarter (a 16.7% decline
in the number of restaurants). Comparable sales per restaurant for the fifteen
restaurants opened more than two years declined 3.9%, due to a number of
factors including continued negative effect of gaming in the Louisiana and
Mississippi markets, increased competition and the effect of the negative
report on Mexican food issued by CSPI.
Sales of Food and Beverages for the Current Three Quarters declined 16.5% to
$14,099,663 from $16,886,552 in the Comparable First Three Quarters. The
decrease in sales is attributable to three fewer restaurants and a 3.7% decline
in comparable sales per restaurant between the Current Three Quarters and the
Comparable Three Quarters. Comparable sales per restaurant declined primarily
due to the reasons noted above. The two restaurants remodeled during the
Second Quarter are experiencing increased sales, and the television advertising
in the New Orleans market appears to be successful. However, continued sales
softness is being experienced in the markets outside of New Orleans due to the
previously noted factors.
Franchise Fees and Royalties increased to $90,186 from $79,023 in the
Comparable Quarter. Royalties declined to $43,494 in the Current Quarter from
$79,023 in the Comparable Quarter. The decrease in royalties is primarily due
to there being six franchised restaurants in the Current Quarter compared to
eleven in the Comparable Quarter and lower sales per franchised restaurant.
During the Current Quarter $50,000 of franchise related non-recurring income
from liquidated damages associated with the cancellation of a License for a
franchised restaurant was recorded. There were no Development fee revenues in
either the Current Quarter or the Comparable Quarter. There were no License
fee revenues in either the Current Quarter or the Comparable Quarter. Two
franchised restaurants closed during the Current Quarter.
<PAGE> 7
Franchise Fees and Royalties for the Current Three Quarters decreased to
$313,832 from $328,277 in the Comparable Three Quarters. Royalties decreased
due to the reasons noted above. Development Fees, including liquidated
damages, were $61,000 in the Current Three Quarters compared to $51,000 in the
Comparable Three Quarters. License fee revenues were $20,609 in the Current
Three Quarters compared to $9,425 in the Comparable Three Quarters. Two
franchised restaurants opened in the Current Three Quarters compared to one in
the Comparable Three Quarters. Seven franchised restaurants closed during the
Current Three Quarters. See previous discussion of economic factors and Note 5
for additional discussion.
Commissary Rent and Other Income declined for both the Current Quarter and
Current Three Quarters due to a decline in rental income on the properties held
for resale, which were previously subleased to franchisees.
Total Restaurant Expenses declined 18.4% to $3,589,698 in the Current Quarter
from $4,401,179 in the Comparable Quarter primarily due to having three fewer
restaurants in operation. A brief summary of the various components of
Restaurant Expenses as they relate to Restaurant Sales for the Current Quarter
versus the Comparable Quarter follows:
<TABLE>
<CAPTION>
Current Comparable
Description Quarter Quarter
----------- ------- -------
<S> <C> <C>
Cost of Sales 26.24% 25.44%
Restaurant Labor and Benefits 34.19% 34.19%
Other Operating Expenses 12.81% 15.12%
Occupancy Costs 11.75% 12.05%
Preopening Costs .00% 0.31%
------------- ------------
Total Restaurant Expenses 84.99% 87.11%
============= ============
</TABLE>
Total Restaurant Expenses declined 16.6% to $12,281,085 in the Current Three
Quarters from $14,770,909 in the Comparable Three Quarters primarily due to
having three fewer restaurants in operation. This decrease is consistent with
the sales decline previously noted. A brief summary of the various components
of Restaurant Expenses as they relate to Restaurant Sales for the Current Three
Quarters versus the Comparable Three Quarters follows.
<TABLE>
<CAPTION>
Current Comparable
Description Quarter Quarter
----------- ------- -------
<S> <C> <C>
Cost of Sales 25.82% 25.07%
Restaurant Labor and Benefits 34.03% 33.94%
Other Operating Expenses 15.48% 15.93%
Occupancy Costs 11.77% 11.90%
Preopening Costs .00% 0.63%
------------- ------------
Total Restaurant Expenses 87.10% 87.47%
============= ============
</TABLE>
Operations and Franchise Expenses for the Current Quarter declined 20.3% to
$289,246 from $363,172 in the Comparable Quarter primarily due to fewer
<PAGE> 8
restaurants. Operations and Franchise Expenses for the Current Three Quarters
increased to $1,881,493 from $1,092,397 in the Comparable Three Quarters.
Included in the results were charges associated with the estimated expenses
with the closure and future disposal of four franchised restaurants currently
subleased to franchisees. These closing charges include a $447,292 reserve
established for future rental costs, a $98,267 reserve for asset impairment and
a $170,910 provision for bad debts for amounts estimated to be uncollectible
from these franchisees. The combination of the flood in Macon, Georgia, the
effect of casino gambling on the Bossier City restaurant, and the effect of the
CSPI report on Mexican food contributed to a significant reduction in franchise
profitability during the Current Quarter and Current Three Quarters.
Corporate Expenses for the Current Quarter declined to $398,435 from $399,984
in the Comparable Quarter. Corporate Expenses for the Current Three Quarters
increased 3.9% to $1,342,740 from $1,291,928 in the Comparable Three Quarters
primarily due to higher marketing research and legal expenses.
Interest Expense for the Current Quarter increased to $102,347 from $96,389 in
the Comparable Quarter primarily due to higher debt levels between years.
Interest Expense for the Current Three Quarters increased to $312,392 from
$298,017 in the Comparable Three Quarters due to higher average debt levels
between years and higher interest rates on floating rate debt.
No income tax expense has been recorded in the Current Quarter or Comparable
Quarter because of utilization of prior year net operating losses and tax
credit carry-forwards. During the First Quarter of Fiscal 1994, the Company
adopted FAS 109, Accounting for Income Taxes, which resulted in a non-recurring
cumulative effect adjustment of $152,000 or $.07 per share.
LIQUIDITY AND CAPITAL RESOURCES
At April 9, 1995, the Company had cash and cash equivalents and certificates of
deposit of $589,640 compared to $647,835 at the end of fiscal 1994 and $617,689
as of April 4, 1993.
The current ratio was .74 at the end of the Current Quarter compared to .81 at
the end of fiscal 1994, and .83 at the end of the Comparable Quarter. At the
end of the Current Quarter there was an additional $110,000 of construction
line financing in comparison to the end of the Comparable Quarter. In
addition, the reserve for future rents for the four restaurants to be sold or
subleased was $348,969 at the end of the Current Quarter and was classified as
part of Accrued Expenses and Other.
Capital expenditures were $763,016 and consisted primarily of expenditures
associated with remodeling the Slidell, Metairie, and Gretna locations.
Capital expenditures of $359,059 were primarily for normal replacements in
fiscal 1994. During the First Quarter of fiscal 1995, the Company completed
the sale of its Gainesville restaurant resulting in $347,338 of proceeds.
<PAGE> 9
Long-term Debt increased to $2,770,656 at the end of the Current Quarter
compared to $2,253,862 at the end of fiscal 1994 and $1,993,780 at the end of
the Comparable Quarter. The long-term debt/equity ratio increased to 1.05 to
1.00 at the end of the Current Quarter from .60 to 1.00 at the end of the last
fiscal year. During fiscal 1995 the Company negotiated about $300,000 of
principal due during the next 18 months to long-term. These renegotiations in
conjunction with long-term financing for the remodels were the primary reasons
for the increase in long-term debt.
Since its inception in 1981, the Company's principal sources of capital have
been the funds provided by operations, funds from offerings of common stock,
and proceeds from long-term borrowings.
To fund expansion and major remodels the Company will rely primarily on
landlord financing and the issuance of long-term debt in the form of long-term
notes or capital leases.
PROSPECTIVE INFORMATION
Sales trends in the casual dining category and Mexican Segment remain negative
on a national basis. The remodeling of company-owned restaurants and
television advertising campaigns in southern Louisiana appear to be improving
sales per restaurant, while declining sales in outlying markets are offsetting
these favorable developments. During Period 11 (the first period of the Fourth
Quarter), comparable sales per restaurant declined at a rate of one-half of
that of the Third Quarter.
During the first week of Period 12 (the second period of the Fourth Quarter),
major flooding occurred in the Company's New Orleans and Gulf Coast markets.
While damage was minimal, the Company lost sales for lunch or dinner at five
Company locations and one franchised location during the inclement weather.
Also, during the First Period of the Fourth Quarter, Harrah's opened their
temporary casino and two additional gaming facilities opened in New Orleans.
Increases in the number of gaming establishments have historically hurt sales
of Cucos restaurants in proximity to the gaming operations. In addition, the
higher produce prices due to flooding in northern California that adversely
affected gross profit in the Third Quarter will continue to negatively affect
profits during the Fourth Quarter.
To help offset these negative factors, the Company intends to continue its
remodeling program during the Fourth Quarter. Each remodel will cost between
$50,000 and $100,000. Start-up costs and the cost of having each restaurant
closed for one week during construction will adversely affect earnings by
$10,000 - $20,000 per restaurant remodeled. Three remodels are scheduled to be
completed during the Fourth Quarter of fiscal 1995.
The Company also entered into a Sublease for the Macon restaurant with an
independent restaurant operator. In addition, the Company settled all of its
outstanding receivables from the former franchisee operating this location.
The net effect of these two actions will have an immaterial effect on earnings
during the Fourth Quarter.
<PAGE> 10
All these factors add uncertainty in predicting sales and the level of
corporate results. Based on current trends, management believes that an
operating loss will be recorded during the Fourth Quarter. Management will
continue to attempt to renegotiate the terms of its debt in order to defer the
principal payments on its debt to offset the negative effect of the operating
losses on liquidity. The Company will introduce two new appetizers, several
new drinks and several new entrees during the Fourth Quarter, and is
considering additional cost saving actions to be implemented before the end of
the fiscal year.
<PAGE> 11
Part II-Other Information
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None
b. Reports on Form 8-K.
None
<PAGE> 12
CUCOS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CUCOS INC.
(Registrant)
Date May 23, 1995 /s/ Thomas J. Sandeman
BY: Thomas J. Sandeman
Vice President-Finance and Treasurer
Chief Financial Officer
<PAGE> 13
Exhibit Index
Ex. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-02-1995
<PERIOD-START> JAN-16-1995
<PERIOD-END> APR-09-1995
<CASH> 589,640
<SECURITIES> 0
<RECEIVABLES> 1,117,556
<ALLOWANCES> (209,616)
<INVENTORY> 237,601
<CURRENT-ASSETS> 2,554,078
<PP&E> 10,713,356
<DEPRECIATION> 4,804,015
<TOTAL-ASSETS> 8,894,955
<CURRENT-LIABILITIES> 3,465,705
<BONDS> 2,770,656
<COMMON> 4,745,585
0
0
<OTHER-SE> (2,097,990)
<TOTAL-LIABILITY-AND-EQUITY> 8,894,955
<SALES> 4,223,535
<TOTAL-REVENUES> 4,381,485
<CGS> 1,108,381
<TOTAL-COSTS> 3,589,698
<OTHER-EXPENSES> 687,681
<LOSS-PROVISION> 39,699
<INTEREST-EXPENSE> 102,347
<INCOME-PRETAX> 1,759
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,759
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
