SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 14, 1996
OR
[ ] Transition Report Pursuant to Section 13 Or 15 (D) of the
Securities Exchange Act Of 1934
Commission file number 0-12701
For the transition period from _____________ to _____________
-----------------------------
CUCOS INC.
(Exact name of small business issuer as specified in its charter)
LOUISIANA 72-0915435
(State or other jurisdiction of (IRSEmployer
incorporation or organization) Identification No.)
110 Veterans Blvd., Suite 222, Metairie, Louisiana70005
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code--504-835-0306
Check whether the issuer: (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Exchange Act during the
post 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 [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
2,113,747 shares of common stock, no par value, as of January 31,
1996.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
CUCOS INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The Company: Cucos Inc. (the "Company") owns and franchises
Mexican restaurants under the name "Cucos". At January 14,
1996, fifteen Company-owned restaurants and four franchised
restaurants were in operation. At the end of the Comparable
Quarter, there were fifteen company-owned and thirteen
franchised restaurants 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 1996 will end on June 30, 1996, and will consist of
one sixteen-week quarter ending October 22, 1995, and three
twelve-week quarters ending January 14, 1996, and April 7,
1996, and June 30, 1996. Fiscal 1995 and fiscal 1996 are
both 52 week years.
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 2, 1995. In the
opinion of management, these financial statements contain
all normal recurring adjustments necessary to fairly present
the financial results for the twenty-eight weeks ended
January 14, 1996. Operating results for the period shown
are not necessarily indicative of the operating results
expected for the full fiscal year ending June 30, 1996.
4. On July 28, 1995, the Company issued $500,000 of zero-coupon
convertible unregistered Notes due June 30, 2015 (the
"Notes"). The Notes do not bear interest and are
convertible into 527,983 shares of the Company's common
stock. The Notes are not convertible for five years except
under certain conditions primarily relating to the sale or
change in control of the Company. The Notes are secured by
an assignment of one of the Company's restaurant leases and
a lien on the Company's tangible personal property located
at that restaurant. The proceeds were used for working
capital purposes.
5. During the Comparable 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. 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 the
closures.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues and earnings increased for the 12 weeks ended January
14, 1996 (the "Current Quarter"), and for the 28 weeks ended
January 14, 1996 (the "Current First Half"). Revenues increased
8.1% to $4,740,012, from $4,382,936 for the twelve weeks ended
January 15, 1995 (the "Comparable Quarter"). Revenues for the
Current First Half increased 7.2% to $11,109,028 from $10,361,701
for the 28 weeks ended January 15, 1995 (the "Comparable First
Half"). Net Income of $5,673 ($.00 per share) resulted in the
Current Quarter compared to a net loss of $889,971 ($.42 per
share) in the Comparable Quarter. Net Income for the Current
First Half was $9,064 ($.00 per share) compared to a net loss of
$1,121,840 ($.53 per share) in the Comparable First Half.
Sales of Food and Beverages for the Current Quarter increased to
$4,623,581, up 10.5%, from $4,182,710 during the Comparable
Quarter. The formula of remodeling, television advertising, and
lower prices is working. During the last half of fiscal 1995 and
first half of fiscal 1996, six remodels were completed. These
remodels in conjunction with a new television campaign and lower
prices resulted in sales per company-owned restaurant advancing
by 10.5% during the Current Quarter. Restaurant level profits
advanced to $615,017 in the Current Quarter, up 36.5% from
$450,597 in the Comparable Quarter, also primarily due to these
factors.
Sales of Food and Beverages for the Current First Half increased
9.7% to $10,834,073 from $9,876,128 in the Comparable First Half.
Sales increased primarily due to the reasons noted above.
Restaurant level profits for the Current First Half increased
21.4% to $1,438,003 compared to $1,184,741 in the Comparable
First Half.
Franchise Fees and Royalties declined to $43,845 from $103,994 in
the Comparable Quarter. The decrease is primarily due to having
fewer franchised restaurants. There were four franchised
restaurants in operation at the end of the Current Quarter
compared to thirteen franchised restaurants in operation at the
end of the Comparable Quarter.
Franchise Fees and Royalties for the Current First Half decreased
to $100,867 from $223,646 in the Comparable First Half primarily
due to having fewer franchised restaurants. License fee revenues
were zero in the Current First Half compared to $31,609 in the
Comparable First Half. No franchised restaurants opened in the
Current First Half compared to two in the Comparable First Half.
Total Restaurant Expenses increased 7.4% to $4,008,564 in the
Current Quarter from $3,732,113 in the Comparable Quarter
primarily due to increased sales and guest counts in the Current
Quarter compared to the Comparable Quarter. 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:
Current Comparable
Description Quarter Quarter
Cost of Sales 27.18% 25.85%
Restaurant Labor and Benefits 33.48% 34.17%
Other Operating Expenses 15.73% 17.08%
Occupancy Costs 10.31% 12.13%
Total Restaurant Expenses 86.70% 89.23%
Cost of sales as percent of sales of Food and Beverage increased
1.33% due to a lower sales price per guest and food cost
inflation. Restaurant labor and benefits was virtually the same
as the prior year. Other operating expenses which include
utilities, advertising, etc. were higher than the prior year due
to higher media advertising, but declined as a percentage of
sales due to the semi-fixed nature of these expenses. Occupancy
costs declined in both absolute terms and as a percent of sales
primarily due to savings in insurance costs and real estate and
personal property taxes.
Total Restaurant Expenses increased 8.1% to $9,396,070 in the
Current First Half from $8,691,387 in the Comparable First Half
primarily due to having higher guest counts. A brief summary of
the various components of Restaurant Expenses as they relate to
Restaurant Sales for the Current First Half versus the Comparable
First Half follows:
Current Comparable
Description Quarter Quarter
Cost of Sales 26.78% 25.64%
Restaurant Labor and Benefits 33.05% 33.96%
Other Operating Expenses 16.56% 16.62%
Occupancy Costs 10.34% 11.78%
Total Restaurant Expenses 86.73% 88.00%
Operations and Franchise Expenses for the Current Quarter
declined to $296,973 in the Current Quarter from $1,061,348
recorded in the Comparable Quarter. Included in the Comparable
Quarter were charges associated with the estimated expenses of
the future closure and disposal of four franchised restaurants
previously subleased to franchisees (the Closing Charge). The
Closing Charge in the prior year included a $447,292 reserve for
rental costs for which the Company will be responsible during the
sale or sublease process. The Closing Charge also included a
$98,267 reserve for asset impairment for the two restaurants and
a $170,610 provision for amounts believed to be uncollectible
from the franchisees due to closures. There were no similar
charges during the Current Quarter.
Operations and franchise expenses decreased to $682,226 in the
Current First Half from $1,592,247 in the Comparable First Half
primarily due to the reasons noted above.
Corporate Expenses for the Current Quarter declined by 14.4% to
$334,657 from $390,958 in the Comparable Quarter primarily due to
corporate level cost savings actions, including an 8.0% reduction
in administrative staff and a 10.0% salary decrease for officers
and supervisors. Corporate Expenses for the Current First Half
declined 15.1% to $802,177 from $944,305 in the Comparable First
Half.
Interest Expense for the Current Quarter increased to $99,145
from $88,488 in the Comparable Quarter primarily due to higher
debt levels. Interest Expense for the Current First Half
increased to $219,491 from $210,045 in the Comparable First Half
for the same reason.
LIQUIDITY AND CAPITAL RESOURCES
At January 14, 1996, the Company had cash and cash equivalents
and certificates of deposit of $808,999 compared to $599,740 at
the end of fiscal 1995 and $522,582 at the end of the Comparable
Quarter.
The current ratio was .68 at the end of the Current Quarter
compared to .61 at the end of fiscal 1995 and .71 at the end of
the Comparable Quarter. Included in current liabilities are
notes payable to banks for remodeling expenditures of about
$150,000, a part of which the Company anticipates it will
refinance during the Third or Fourth Quarter.
Long-term Debt decreased to $2,666,912 at the end of the Current
Quarter compared to $2,838,359 at the end of the fiscal year and
decreased from $2,681,160 at the end of the Comparable Quarter.
The long-term debt/equity ratio decreased to 1.20 to 1.00 in the
Current Quarter from 1.26 to 1.00 at the end of the fiscal year.
This ratio was 1.01 to 1.00 at the end of the Comparable Quarter.
Management expects this ratio to increase further by fiscal year
end due to refinancing one of the Company's short-term remodel
lines from short-term to long-term, and new long-term debt for
the Company's new restaurant which will open during the Third
Quarter.
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. The Company's capital budget for normal recurring
equipment replacement and refurbishing is approximately $325,000,
annually.
To fund expansion and major remodels of its restaurants, 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
The Company's positive sales and restaurant profit comparisons
versus the prior year attributable to the strategies noted above
are expected to continue during the second half of 1996.
However, during the first three weeks of the Third Quarter,
weather conditions caused temporary closures of a number of
company-owned restaurants. Management estimates the loss of
sales to be about $60,000 with resulting loss profits of $30,000
- - $36,000. Although management does not know for sure, the
impact of the inclement weather may cause a loss for the Third
Quarter.
The new company-owned restaurant previously discussed will open
on or about March 7, 1996, which will result in about six weeks
of sales and profit impact during the Third Quarter.
In addition, since the end of the Second Quarter, a new area
development agreement was granted in Mississippi. The franchise
has projected that one of the two restaurants to be developed
will be open before the end of the fiscal year.
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEETS
Jan. 14, July 2,
1996 1995
UNAUDITED
Assets
Current Assets
Cash and Cash Equivalents $775,999 $566,740
Certificates of Deposit 33,000 33,000
Receivables:
Trade 570,558 616,470
Due from affiliates 249,047 233,942
Notes receivable from franchisees 14,787 28,864
Less allowance for doubtful accounts (186,760) (194,034)
647,632 685,242
Inventories 222,204 219,653
Prepaids, deferred taxes and other current assets 399,374 302,511
Property held for resale 171,972 217,210
TOTAL CURRENT ASSETS 2,250,181 2,024,356
Deferred Taxes and Noncurrent Receivables 251,019 276,737
Property, Equipment and Other
Land 327,000 327,000
Property and equipment 4,696,789 4,300,009
Building and leasehold improvements 4,529,465 4,275,063
Reacquired franchise rights 528,896 528,896
10,082,150 9,430,968
Less accumulated depreciation and amortization 4,185,366 3,586,795
5,896,784 5,844,173
Investment in LaMexiCo, L.L.C. 246,389 249,053
Deferred Cost, less accumulated amortization 106,038 25,113
$ 8,750,411 $ 8,419,432
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable to bank $ 345,000 $ 313,725
Trade accounts payable 1,652,852 1,469,585
Accrued expenses and other 441,094 564,752
Accrued payroll 177,054 185,133
Current portion of long-term debt 708,581 787,530
TOTAL CURRENT LIABILITIES 3,324,581 3,320,725
Long-Term Debt, less current portion 2,666,918 2,838,359
Convertible Debenture-Non Interest Bearing 500,000 -
Deferred Revenue 500 11,000
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 January 14, 1996 and July 2,1995 4,745,585 4,745,585
Additional paid-in capital 67,849 67,849
Retained earnings (deficit) (2,555,024) (2,564,086)
TOTAL SHAREHOLDERS' EQUITY 2,258,410 2,249,348
$8,750,411 $8,419,432
SEE NOTES TO FINANCIAL STATEMENTS
Part I--Financial Information
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
28 Weeks 28 Weeks
Ended Ended
Jan. 14, Jan. 15,
1996 1995
OPERATING ACTIVITIES
Net Income $9,064 $(1,121,840)
Adjustments to Reconcile Net Income to
Net Cash Provided (Used) by Operating
Activities:
Depreciation and Amortization 447,128 496,876
Deferred Income Taxes 0 45,557
Deferred Revenue (10,500) (57,667)
Loss (Gain) on Sale of Assets 0 (1,142)
Changes in Operating Assets and
Liabilities 50,902 390,121
NET CASH PROVIDED
BY OPERATING ACTIVITIES 496,594 (248,095)
INVESTING ACTIVITIES
Purchases of Property and Equipment (501,199) (576,319)
Investment in LaMexiCo, L.L.C. ( 2,664) 10,111
Proceeds From Sale of Assets 0 346,838
Net (Additions) Reductions to Deferred
Costs and Other (64,357) 75,728
NET CASH USED IN INVESTING ACTIVITIES (568,220) (143,642)
FINANCING ACTIVITIES
Proceeds from Borrowings 904,887 1,351,357
Principal Payments on Borrowings (624,002) (1,084,873)
NET CASH PROVIDED BY FINANCING ACTIVITIES 280,885 266,484
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 209,259 (125,253)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 566,740 614,835
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $775,999 $489,582
Part I--Financial Information
<TABLE>
CUCOS INC.
STATEMENT OF OPERATIONS
UNAUDITED
<CAPTION>
12 Weeks 12 Weeks 28 Weeks 28 Weeks
Ended Ended Ended Ended
January 14, January 15, January 14, January 15,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Sales of Food and Beverages 4,623,581 $4,182,710 10,834,073 $9,876,128
Franchise Fees and Royalties 43,845 103,994 100,867 223,646
Commissary, Rent & Other Income 72,586 96,232 174,088 261,927
Total Revenues 4,740,012 4,382,936 11,109,028 10,361,701
Costs and Expenses:
Cost of Sales 1,256,818 1,081,028 2,901,763 2,532,705
Restaurant Labor and Benefits 1,547,752 1,429,310 3,581,018 3,353,732
Other Operating Expenses 727,474 714,394 1,793,768 1,641,473
Occupancy Costs 476,520 507,381 1,119,521 1,163,477
Total Restaurant Operating Expenses 4,008,564 3,732,113 9,396,070 8,691,387
Operating and Franchise Expenses 296,973 1,061,348 682,226 1,592,247
Corporate Expenses 334,657 390,958 802,177 944,305
Interest Expense 94,145 88,488 219,491 210,045
Income (Loss) Before Cumulative Effect
of Accounting Change 5,673 (889,971) 9,064 (1,076,283)
Income Taxes 0 0 0 45,557
Income (Loss) 5,673 (889,971) 9,064 (1,121,840)
NET INCOME (LOSS) $5,673 ($889,971) $9,064 $(1,121,840)
Weighted Shares Outstanding 2,641,730 2,113,747 2,641,730 2,113,747
INCOME PER SHARE:
Net Income (Loss) Per Share $.00 ($.42) $.00 ($.53)
</TABLE>
Part II-Other Information
ITEM 1. LEGAL PROCEEDINGS.
None, except as previously reported.
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.
1. 27 - Financial Data Schedule
b. Reports on Form 8-K.
None.
INDEX TO EXHIBITS
The following exhibit is filed with this Quarterly
Report or is incorporated herein by reference:
Exhibit Number Title
27 Financial Data Schedule
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)
Thomas J. Sandeman
Date February 27, 1996 By:
Thomas J. Sandeman
Vice President-Finance and
Treasurer, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JAN-14-1996
<CASH> 775,999
<SECURITIES> 0
<RECEIVABLES> 834,392
<ALLOWANCES> (186,760)
<INVENTORY> 222,204
<CURRENT-ASSETS> 2,250,181
<PP&E> 10,082,150
<DEPRECIATION> 4,185,366
<TOTAL-ASSETS> 8,750,411
<CURRENT-LIABILITIES> 3,324,581
<BONDS> 2,666,918
0
0
<COMMON> 4,745,585
<OTHER-SE> (2,487,175)
<TOTAL-LIABILITY-AND-EQUITY> 8,750,411
<SALES> 4,623,581
<TOTAL-REVENUES> 4,740,012
<CGS> 1,256,818
<TOTAL-COSTS> 4,008,564
<OTHER-EXPENSES> 631,630
<LOSS-PROVISION> 54,456
<INTEREST-EXPENSE> 94,145
<INCOME-PRETAX> 5,673
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,673
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
