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 October 18, 1998
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 (IRS Employer
incorporation or organization) Identification No.)
110 Veterans Blvd., Suite 222, Metairie, Louisiana 70005
(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:
2,651,730 shares of common stock, no par value, as of December 1,
1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEET
Oct. 18, 1998
UNAUDITED
Assets
Current Assets
Cash and Cash Equivalents $639,000
Receivables:
Trade 665,000
Due from Affiliates 179,000
Less Allowance for Doubtful Accounts 271,000
573,000
Inventories 229,000
Prepaid Expenses and Other Current Assets 252,000
TOTAL CURRENT ASSETS 1,693,000
Property, Equipment and Other
Property and Equipment 4,552,000
Building and Leasehold Improvements 5,244,000
Reacquired Franchise Rights 529,000
10,325,000
Less Accumulated Depreciation and Amortization 5,425,000
4,900,000
Investment in LaMexiCo, LLC 237,000
Deferred Costs Less Accumulated Amortization 349,000
Other Noncurrent Assets 249,000
TOTAL ASSETS $7,428,000
Liabilities and Shareholders' Equity
Current Liabilities
Short-Term Debt Payable to Banks $100,000
Trade Accounts Payable 1,939,000
Accrued Expenses and Other 466,000
Accrued Payroll 200,000
Current Portion of Long-Term Debt 461,000
TOTAL CURRENT LIABILITIES 3,166,000
Long-Term Debt, Less Current Portion 3,323,000
Deferred Revenue and Other 242,000
Shareholders' Equity
Preferred Stock, No Par Value - 1,000,000 Shares
Authorized, None Issued or Outstanding -
Common Stock, No Par Value - 20,000,000 Shares
Authorized, 2,651,730 Shares Issued and Outstanding 5,253,000
Additional Paid-in Capital 111,000
Retained Earnings (Deficit) (4,667,000)
TOTAL SHAREHOLDERS' EQUITY 697,000
Total Liabilities and Equity $7,428,000
See Notes to Financial Statements
Part I--Financial Information
[CAPTION]
<TABLE>
CUCOS INC.
STATEMENTS OF OPERATIONS
UNAUDITED
16 Weeks 16 Weeks
Ended Ended
Oct. 18, 1998 Oct. 19, 1997
Restaurant Operations
<S> <C> <C>
Sales of Food and Beverages $6,313,000 $6,506,000
Restaurant Expenses:
Cost of Sales 1,792,000 1,740,000
Restaurant Labor and Benefits 2,242,000 2,142,000
Other Operating Expenses 1,316,000 1,208,000
Occupancy Costs 717,000 675,000
Preopening Costs 44,000 -
Total Restaurant Expenses 6,111,000 5,765,000
Income from Restaurant Operations 202,000 741,000
Royalties and Franchise Revenues, Net of Expenses
of $6,997 and $8,872 42,000 34,000
Commissary and Other Income 38,000 54,000
282,000 829,000
Operations Expenses 267,000 280,000
Corporate Expenses 439,000 400,000
Operating Income (Loss) (424,000) 149,000
Interest Expense 152,000 128,000
Income (Loss) Before Income Taxes (576,000) 21,000
Income Taxes - -
Net Income (Loss) $(576,000) $21,000
Weighted Average Shares of Common Shares and Common
Share Equivalents Outstanding - Basic and Diluted 2,306,000 2,114,000
Net Income (Loss) Per Share - Basic and Diluted ($0.25) $0.01
</TABLE>
See Notes to Financial Statements
Part I--Financial Information
[CAPTION]
<TABLE>
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
16 Weeks 16 Weeks
Ended Ended
Oct. 18, 1998 Oct. 19, 1997
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $86,000 $428,000
INVESTING ACTIVITIES
Purchases of Property and Equipment (71,000) (361,000)
NET CASH USED IN INVESTING ACTIVITIES (71,000) (361,000)
FINANCING ACTIVITIES
Proceeds from Borrowings 74,000 344,000
Principal Payments on Borrowings (129,000) (310,000)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (55,000) 34,000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (40,000) 101,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 679,000 476,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $639,000 $577,000
</TABLE>
See Notes to Financial Statements
CUCOS INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The Company: Cucos Inc. (the "Company") owns and franchises
Mexican restaurants under the name "Cucos". At October 18,
1998, fifteen Company-owned restaurants and five franchised
restaurants were in operation. At the end of the Comparable
Quarter, there were sixteen company-owned and seven
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 1999 will end on June 27, 1999, and will consist of
one sixteen-week quarter ending October 18, 1998, and three
twelve-week quarters ending January 10, 1999, and April 4,
1999, and June 27, 1999. Fiscal 1998 and fiscal 1999 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 June 28, 1998. In the
opinion of management, these financial statements contain
all normal recurring adjustments necessary to fairly present
the financial results for the sixteen weeks ended October
18, 1998. Operating results for the period shown are not
necessarily indicative of the operating results expected for
the full fiscal year ending June 27, 1999.
4. Per share amounts are based on the weighted average number
of shares of common stock and dilutive common stock
equivalents outstanding.
5. Certain reclassifications of previously reported amounts
have been made to conform to current classifications.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net loss for the sixteen weeks ended October 18, 1998 (the
"Current Quarter") was $576,000 compared to a net income of
$21,000 in the sixteen weeks ended October 19, 1997 (the
"Comparable Quarter"). This was primarily the result of the
factors discussed below.
Sales of food and beverages declined to $6,313,000 in the Current
Quarter from $6,506,000 in the Comparable Quarter or a decline of
$193,000 (3.0%). This decline was primarily due to having one
additional restaurant (Pensacola) in 1998. A price increase of
3% was instituted during the Current Quarter and is expected to
increase sales revenue with minimal loss in guest counts.
Despite the decline in sales, restaurant expenses increased to
$6,111,000 in the Current Quarter from $5,765,000 in the
Comparable Quarter, an increase of $346,000 (6.0%). Had
restaurant expenses been maintained at the same levels in
relation to sales, as have generally been experienced in the
past, restaurant expenses would have been $515,000 less than
actually incurred. These additional costs are primarily related
to programs instituted during the Current Quarter to improve the
guest experience at the restaurants. These programs, which
included improved plate presentations and service and increases
in management staff, advertising and promotional activities, were
substantially implemented by the end of the Current Quarter.
There can be no assurances that these new programs will result in
increased guest counts, but management expects the loss to be
lower in the Second Quarter and the Company may return to
profitability after that. In addition, the Current Quarter was
adversely affected by the increase in prices of dairy and produce
products, primarily cheese and tomatoes, and closures due to
Hurricane Georges. A summary of the component restaurant
expenses are:
Current Comparable
Description Quarter Quarter
Cost of Sales 28.38% 26.74%
Restaurant Labor and Benefits 35.51 32.93
Other Operating Expenses 20.85 18.56
Occupancy Costs 11.36 10.38
Preopening Costs .70 . -
Total Restaurant Expenses 96.80% 88.61%
Operations and corporate expenses increased $27,000, which was
primarily related to increases in insurance and salaries.
Interest expense increased $24,000 as the result of an increased
level of borrowings.
LIQUIDITY AND CAPITAL RESOURCES
During the Current Quarter, despite a net loss of $576,000, the
Company's operating activities provided cash flow of $86,000.
Management has implemented certain actions to improve the guest
experience at the restaurants, which are described above. In an
effort to improve operating results and cash flows, management
believes it will continue to generate cash flow from operating
activities sufficient to allow it to operate and to meet its
obligations. Management also believes there are alternate
sources of financing available to allow the Company to meet short-
term financing needs which may arise. However, there can be no
assurance that management's plans will be successful or that
alternate sources will be available.
Net cash provided by operations together with $74,000 of funds
from borrowings and cash at the beginning of the Current Quarter
were sufficient to fund $71,000 of purchases of property and
equipment and make $129,000 of principal payments on borrowings.
Working capital needs have been and will continue to be financed
from operations and short-term borrowings. Although none is
planned, restaurant expansion and remodeling has been and will
continue to be funded from long term debt, lessor allowances and
leases. Because of the timing of securing long-term debt and
leases, restaurant expansion and remodeling may be temporarily
funded from operations.
The Company's line of credit provides $100,000 which may be used
for working capital needs as well as restaurant expansion and
remodeling. The line of credit bears interest at 2.0% per annum
above the New York Prime Rate and had $100,000 outstanding at
October 18, 1998.
IMPACT OF YEAR 2000
The Company's position on the Year 2000 exposures are described
in the Company's annual report for fiscal year ended June 28,
1998. The Company continues to address this issue and does not
expect any significant problems or exposures arising from this
issue. There have been no significant changes in this area in
the Current Quarter.
FORWARD-LOOKING STATEMENTS
Forward-looking statements regarding management's present plans
or expectations for new unit openings, remodels, other capital
expenditures, the financing thereof, and disposition of impaired
units involve risks and uncertainties relative to return
expectations and related allocation of resources, and changing
economic or competitive conditions, as well as the negotiation of
agreements with third parties, which could cause actual results
to differ from present plans or expectations, and such
differences could be material. Similarly, forward-looking
statements regarding management's present expectations for
operating results involve risk and uncertainties relative to
these and other factors, such as advertising effectiveness and
the ability to achieve cost reductions, which also would cause
actual results to differ from present plans. Such differences
could be material. Management does not expect to update such
forward-looking statements continually as conditions change, and
readers should consider that such statements speak only as to the
date hereof.
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.
The Annual Meeting of Shareholders was held on November
19, 1998. The following matters were voted on and
received the specified number of votes for, against and
abstaining:
1. Election of Directors:
Name of Nominees Votes For Votes Withheld
Frank J. Ferrara 2,113,492 175,320
Thomas J. Grace 2,113,492 175,320
David M. Liuzza 2,113,492 175,320
Vincent J. Liuzza, Jr. 2,113,492 175,320
Sidney C. Pulitzer 2,113,492 175,320
Miguel Uria 2,113,492 175,320
V. M. Wheeler III 2,113,492 175,320
2. Appointment of independent public accountants,
Ernst & Young, LLP, for the year 1999: 2,283,387 votes
for; 3,550 votes against; and 1,875 votes abstaining.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
27 - Financial Data Schedule
b. Reports on Form 8-K.
None.
INDEX TO EXHIBITS
The following exhibits are 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)
Vincent J. Liuzza, Jr.
Date: December 1, 1998 By:
Vincent J. Liuzza, Jr.
Chairman, Chief Executive Officer,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> OCT-18-1998
<CASH> 639,000
<SECURITIES> 4,000
<RECEIVABLES> 844,000
<ALLOWANCES> 271,000
<INVENTORY> 229,000
<CURRENT-ASSETS> 1,693,000
<PP&E> 10,325,000
<DEPRECIATION> 5,425,000
<TOTAL-ASSETS> 7,428,000
<CURRENT-LIABILITIES> 3,166,000
<BONDS> 3,323,000
0
0
<COMMON> 5,253,000
<OTHER-SE> (4,667,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,428,000
<SALES> 6,313,000
<TOTAL-REVENUES> 6,313,000
<CGS> 1,792,000
<TOTAL-COSTS> 6,111,000
<OTHER-EXPENSES> 692,000
<LOSS-PROVISION> 14,000
<INTEREST-EXPENSE> 152,000
<INCOME-PRETAX> (576,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (576,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576,000)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
