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 11, 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:
2,113,747 shares of common stock, no par value, as of January 31,
1998.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEETS
Jan. 11, 1998
Unaudited
Assets
Current Assets
Cash and Cash Equivalents $573,000
Receivables:
Trade 478,000
Due from Affiliates 202,000
Less Allowance for Doubtful Accounts 169,000
511,000
Inventories 252,000
Prepaid Expenses, Deferred Taxes and Other Current Assets 446,000
TOTAL CURRENT ASSETS 1,782,000
Deferred Taxes and Noncurrent Assets 270,000
Property, Equipment and Other
Land 327,000
Property and Equipment 3,924,000
Building and Leasehold Improvements 5,461,000
Reacquired Franchise Rights 529,000
10,241,000
Less Accumulated Depreciation and Amortization 4,379,000
5,862,000
Investment in LaMexiCo, LLC 241,000
Assets Held for Resale 102,000
Deferred Costs Less Accumulated Amortization 499,000
TOTAL ASSETS $ 8,756,000
Liabilities and Shareholders' Equity
Current Liabilities
Short-Term Debt Payable to Banks $ -
Trade Accounts Payable 1,738,000
Accrued Expenses and Other 538,000
Accrued Payroll 194,000
Current Portion of Long-Term Debt 383,000
TOTAL CURRENT LIABILITIES 2,853,000
Long-Term Debt, Less Current Portion 3,548,000
Convertible Debentures - Non-Interest Bearing 421,000
Deferred Revenue and Other 194,000
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, 2,113,747 Shares Issued and Outstanding 4,746,000
Additional Paid-in Capital 228,000
Retained Earnings (Deficit) (3,234,000)
TOTAL SHAREHOLDERS' EQUITY 1,740,000
TOTAL LIABILITIES AND EQUITY $8,756,000
See Notes to Financial Statements
Part I--Financial Information
[CAPTION]
<TABLE>
CUCOS INC.
STATEMENTS OF OPERATIONS
UNAUDITED
12 Weeks 12 Weeks 28 Weeks 28 Weeks
Ended Ended Ended Ended
Jan 11, 1998 Jan 12, 1997 Jan 11, 1998 Jan 12, 1997
Restaurant Operations
<S> <C> <C> <C> <C>
Sales of Food and Beverages $4,840,000 $4,737,000 $11,345,000 $11,386,000
Restaurant Expenses:
Cost of Sales 1,284,000 1,264,000 3,024,000 3,061,000
Restaurant Labor and Benefits 1,642,000 1,542,000 3,785,000 3,665,000
Other Operating Expenses 847,000 812,000 2,055,000 2,038,000
Occupancy Costs 537,000 502,000 1,212,000 1,179,000
Preopening Costs 23,000 29,000 22,000 67,000
Total Restaurant Expenses 4,333,000 4,149,000 10,098,000 10,010,000
Income from Restaurant Operations 507,000 588,000 1,247,000 1,376,000
Royalties and Franchise Revenues, Net of Expenses
of $6,000 and 7,000; $13,000 and $16,000 25,000 17,000 59,000 44,000
Commissary and Other Income 40,000 39,000 110,000 109,000
572,000 644,000 1,416,000 1,529,000
Operations Expenses 176,000 275,000 472,000 608,000
Corporate Expenses 332,000 369,000 731,000 780,000
Operating Income 64,000 - 213,000 141,000
Interest Expense 127,000 107,000 255,000 251,000
Income (Loss) Before Income Taxes and
Extraordinary Expenses (63,000) (107,000) (42,000) (110,000)
Income Taxes - - - -
Income (Loss) Before Extraordinary Loss (63,000) (107,000) (42,000) (110,000)
Extraordinary Loss Related to Refinancing 166,000 - 166,000 -
Net Income (Loss) ($229,000) ($107,000) ($208,000) ($110,000)
Weighted Average Shares of Common Stock 2,114,000 2,114,000 2,114,000 2,114,000
Net Income (Loss) per Share Before Extraordinary Loss ($0.03) ($0.05) ($0.02) ($0.05)
Net Income (Loss) Per Share ($0.11) ($0.05) ($0.10) ($0.05)
See Notes to Financial Statements
</TABLE>
Part I--Financial Information
[CAPTION]
<TABLE>
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
28 Weeks 28 Weeks
Ended Ended
Jan 11, 1998 Jan 12, 1997
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $574,000 $505,000
INVESTING ACTIVITIES
Purchases of Property and Equipment (645,000) (317,000)
Change in Deferred Costs (417,000) (63,000)
NET CASH USED IN INVESTING ACTIVITIES (1,062,000) (380,000)
FINANCING ACTIVITIES
Proceeds from Borrowings 4,209,000 148,000
Principal Payments on Borrowings (3,624,000) (504,000)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 585,000 (356,000)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 97,000 (231,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 476,000 781,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD $573,000 $550,000
</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 January 11,
1998, sixteen Company-owned restaurants and five franchised
restaurants were in operation. At the end of the Comparable
Quarter, there were fifteen company-owned and six 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 1997 and fiscal 1998 are both 52 week years.
3. In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128,
Earnings per Share. Statement 128 replaced the previously
reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to
the previously reported fully diluted earnings per share.
Common stock equivalents (stock options and convertible
debentures) were antidilutive for the 12 week periods ended
January 12, 1998 and January 11, 1997, and for the 28 week
periods ended January 12, 1998 and January 11, 1997. All
earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the
Statement 128 requirements.
4. Per share amounts are based on the weighted average number
of shares of common stock and dilutive common stock
equivalents outstanding. Common stock equivalents were
antidilutive for the 28 week period ended January 11, 1998.
5. Certain reclassifications of previously reported amounts
have been made to conform to current classifications which
relate primarily to the allocation of convertible debenture
proceeds and the related imputed interest expense.
6. On February 17, 1998, the Board of Directors amended the
agreement related to the Zero-Coupon Convertible Secured
Notes to permit the holders to convert the Zero-Coupon
Convertible Secured Notes to Common Stock of Cucos Inc. two
years after the date of issue rather than five years. On
February 19, 1998, the holders converted the Zero-Coupon
Convertible Secured Notes into common stock. As a result,
stockholders equity increased by $421,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales of Food and Beverages for the 12 weeks ended January 11,
1998 (the "Current Quarter") increased 2.2% to $4,840,000 from
$4,737,000. Sales of Food and Beverages for the 28 weeks ended
January 11, 1998 (the "Current First Half") declined 0.4% to
$11,345,000 from $11,386,000. The increase in the Current
Quarter resulted from additional revenues related to opening a
new restaurant in Meridian in October, 1997, which were offset by
3.8% decline in sales revenues in the existing restaurants. The
decline in Current First Half was the result of an overall
decline in existing restaurant revenues. The existing restaurant
revenues decline is primarily the result of a 4.5% decline in
average guest counts.
Restaurant expenses in the Current Quarter and the Current First
Half increased by 4.4% and 0.9% respectively. Restaurant
Expenses in existing restaurants in the Current Quarter declined
3.6%. However, this decline was more than offset by restaurant
expenses associated with the Meridian restaurant. Similar
results were experienced in the Current First Half.
As a result of the above factors, Income from Restaurant
Operations declined to $507,000 in the Current Quarter from
$588,000 in the Comparable Quarter and $1,247,000 for the Current
First Half from $1,376,000 for the Comparable First Half.
Net Royalties and Franchise Revenues increased $8,000 in the
Current Quarter compared to the Comparable Quarter and $15,000 in
the Current First Half compared to the Comparable First Half.
This increase is the result of higher sales at a newly opened
franchise restaurant in the Current Quarter and Current First
Half compared to the Comparable periods.
Operation Expenses declined to $176,000 in the Current Quarter
from $275,000 in the Comparable Quarter and to $472,000 in the
Current First Half from $608,000 in the Comparable First Half.
The decline was primarily attributable to a decline in losses
related to subleases of $38,000 in the Current Quarter and
$97,000 in the Current First Half.
Corporate Expenses declined 10.0% in the Current Quarter to
$332,000 and 6.3% in the Current First Half to $731,000. This
decline was attributable to additional cost controls that were
implemented by the Company.
As a result of these factors Operating Income increased $64,000
in the Current Quarter compared to the Comparable Quarter and
$72,000 in the Current First half compared to the Comparable
First Half.
Interest expense increased $20,000 in the Current Quarter
compared to the Comparable Quarter and $4,000 in the Current
First Half compared to Comparable First Half. This increase was
attributable to increased borrowings and a slight increase in the
average borrowing rate.
On October 26, 1997, the Company entered into a new credit
facility with a commercial lending institution. In connection
with this refinancing, the Company incurred prepayment penalties
of $166,000 which have been reported as an extraordinary loss.
(See Liquidity and Capital Resources.)
The Loss Before Extraordinary Loss was $63,000 in the Current
Quarter compared to $107,000 in the Comparable Quarter and was
$42,000 in the Current First Half compared to $110,000 in the
Comparable First Half. The Net Loss increased $122,000 to
$229,000 in the Current Quarter and increased $98,000 to $208,000
in the Current First Half. This increase was primarily
attributable to the loss incurred related to the recent
refinancing.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents increased to $573,000 in the Current
Quarter compared to $550,000 in the Comparable Quarter. The
Current ratio is .62 at the end of the Current Quarter compared
to .52 at the end of the Comparable Quarter. Deferred costs
increased $293,000 in the Current Quarter to $499,000 which was
attributable to an increase in preopening costs of $22,000
related to the Meridian restaurant and costs of $262,000 incurred
related to the refinancing.
Long-term debt and short-term debt payable to banks increased
$341,000 in the Current Quarter compared to the Comparable
Quarter. This increase was primarily related to the financing
related to the Meridian restaurant.
On November 26, 1997, the Company entered into a new credit
facility of $3,590,000 with a commercial lending institution.
This new credit facility consists of a term loan to be repaid,
primarily, in monthly payments over 10 years and is secured by
the restaurant operating properties. The proceeds from this term
loan has been used to repay substantially all of the existing
long-term debt and short-term debt payable to banks. The amounts
included in the balance sheet of October 19, 1997, for short-term
debt payable to banks and long-term debt reflect the repayment
terms of the new term loan. In connection with this refinancing,
the Company incurred a charge to earnings in the Second Quarter
of $166,000 and is related to prepayment penalties associated
with the existing debt.
On February 17, 1998, the Board of Directors amended the
agreement related to the Zero-Coupon Convertible Secured Notes to
permit the holders to convert the Zero-Coupon Convertible Secured
Notes to Common Stock of Cucos Inc. two years after the date of
issue rather than five years. On February 19, 1998, the holders
converted the Zero-Coupon Convertible Secured Notes into common
stock. As a result, stockholders equity increased by $421,000.
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 December
11, 1997. 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 1,528,752 18,940
Thomas J. Grace 1,528,752 18,940
Elie V. Khoury 1,528,752 18,940
David M. Liuzza 1,528,752 18,940
Vincent J. Liuzza, Jr. 1,528,752 18,940
Sidney C. Pulitzer 1,528,752 18,940
Miguel Uria 1,528,752 18,940
2. Appointment of independent public accountants,
Ernst & Young, LLP, for the year 1998: 1,545,932 votes
for; 710 votes against; and 1,050 votes abstaining.
ITEM 5. OTHER INFORMATION.
On February 17, 1998, the Board of Directors amended
the agreement related to the convertible debentures to
permit the debenture holders to convert the debenture
to common shares two years after the date of issue
rather than five years. On February 19, 1998, the
debenture holders converted the debentures into common
stock. As a result, stockholders equity increased by
$421,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
27 - Financial Data Schedule
4-L - Amendment to Note Purchase Agreement
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
4-L Amendment to Note Purchase Agreement
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: February 20, 1998 By:s/s
Vincent J. Liuzza, Jr.
Chairman, Chief Executive Officer,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-END> JAN-11-1998
<CASH> 573,000
<SECURITIES> 0
<RECEIVABLES> 478,000
<ALLOWANCES> 169,000
<INVENTORY> 252,000
<CURRENT-ASSETS> 1,782,000
<PP&E> 10,241,000
<DEPRECIATION> 4,379,000
<TOTAL-ASSETS> 8,756,000
<CURRENT-LIABILITIES> 2,853,000
<BONDS> 3,969,000
0
0
<COMMON> 4,746,000
<OTHER-SE> 228,000
<TOTAL-LIABILITY-AND-EQUITY> 8,756,000
<SALES> 11,345,000
<TOTAL-REVENUES> 11,514,000
<CGS> 3,024,000
<TOTAL-COSTS> 10,098,000
<OTHER-EXPENSES> 1,203,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,000
<INCOME-PRETAX> (42,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 166,000
<CHANGES> 0
<NET-INCOME> (208,000)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
AMENDMENT OF NOTE PURCHASE AGREEMENT
THIS AGREEMENT made and entered into on this 18th day
of February, 1998, by and between Cucos Inc., a Louisiana
corporation (hereinafter the "Company"), Sadie Ferrara wife
of/and Frank J. Ferrara and Jolie Khoury wife of/and Elie
Khoury (hereinafter collectively the "Purchasers" or each a
"Purchaser").
WHEREAS, on July 28, 1995, the Company and Elie Khoury,
Frank Ferrara and Jerome Karam entered into a Note Purchase
Agreement, under which the Company issued Zero-Coupon
Convertible Secured Notes Due June 30, 2015, in the
aggregate principal amount of $500,000, and Elie Khoury,
Frank Ferrara and Jerome Karam purchased the said Notes; and
WHEREAS, on or about February 24, 1997, Jolie Khoury
wife of/and Elie Khoury and Sadie Ferrara wife of/and Frank
J. Ferrara bought from Jerome Karam, his interest in the
said convertible notes; and
WHEREAS, the Note Purchase Agreement provides that the
Notes can be converted into shares of common stock of the
Company, in whole or in part, at any time during the
"Conversion Period of the Notes"; and
WHEREAS, the Conversion Period of the Notes commences
on the earliest of the "fifth anniversary of the Closing
Date ..." as provided in Section 10.1 of the Note Purchase
Agreement; and
WHEREAS, the parties now wish to amend the said Note
Purchase Agreement to allow the immediate conversion of the
said Notes into shares of common stock of the Company.
NOW THEREFORE KNOW ALL MEN BY THESE PRESENTS:
That for and in consideration of the mutual benefits to
be gained by the Company and the Purchasers, the parties do
hereby agree to amend the Note Purchase Agreement in the
following respects:
1. Section 10.1 of the Note Purchase Agreement is
hereby amended so that the Conversion Period of the Notes is
changed from commencing on the earliest of "the fifth
anniversary of the Closing Date" to "the second anniversary
of the Closing Date...". In all other respects Section 10.1
of the Note Purchase Agreement shall remain unchanged and in
full force and effect.
In all other respects the Note Purchase Agreement shall
remain unchanged and in full force and effect.
Metairie, Louisiana, this 18th day of February, 1998.
CUCOS INC.
By: Vincent J. Liuzza, Jr., Chairman
