September 25, 1998
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
RE: Cucos Inc. - Commission File No. 0-12701
Gentlemen:
On behalf of Cucos Inc. (the "Company"), there follows herewith
for filing the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 28, 1998, with exhibits.
Very truly yours,
CUCOS INC.
Vincent J. Liuzza, Jr.
Chairman
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark
One)
/X/ Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
for the fiscal year ended June 28, 1998
/ / Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
for the transition period from ____________ to
___________
Commission file number 0-12701
CUCOS INC.
(Exact name of Small Business Issuer in its charter)
Louisiana 72-0915435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Veterans Blvd., Suite 222 70005
Metairie, Louisiana (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (504) 835-0306
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Check whether the Issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the
Issuer 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 contained in this form,
and no disclosure will be contained, to the best of issuer'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. /X/
Issuer's revenues for its most recent fiscal year: $21,162,000
Aggregate market value (based on the average bid and asked
prices in the over the-counter market) of the voting stock held
by non-affiliates of the Registrant as of September 25, 1998:
approximately $2,411,000.
Number of shares outstanding of each of the Issuer's Classes
of common stock as of September 25, 1998: 2,651,730 shares of
Common Stock, no par value.
Documents Incorporated By Reference.
Portions of the definitive Proxy Statement for the 1998
Annual Meeting of Shareholders (the "1998 Proxy Statement") are
incorporated by reference into Part III.
INTRODUCTORY
Definitions. Except where the context indicated otherwise,
the following terms have the following respective meanings when
used in this Annual Report: the "Registrant" means Cucos Inc.
and the "Fiscal Year" means the 52 weeks ended June 28, 1998,
which is the year for which this Annual Report is filed.
Presentation and Dates of Information. The Item numbers
appearing in this Annual Report correspond with those used in
Securities and Exchange Commission Form 10-KSB (and, to the
extent that it is incorporated into Form 10-KSB, the letters used
in the Commission's Regulation S-B) as effective on the date
hereof, which specifies the information required to be included
in Annual Reports to the Commission. The information contained
in this Annual Report is, unless indicated to be given as of a
specified date or for a specified period, given as of September
25, 1998. In computing the aggregate market value of the
Registrant's voting stock held by non-affiliates disclosed on the
cover page to this Annual Report, the following stockholders were
treated as affiliates: all executive officers and directors of
the Registrant; any person owning more than 10% of the
Registrant's Common Stock.
PART I
Item 1. Business
The Registrant, which was organized in March 1981 by
Vincent J. Liuzza, Jr., Chairman of the Board and Chief Executive
Officer of the Registrant, and other members of the Liuzza
family, operates and franchises full-service restaurants serving
moderately priced Sonoran and Tex-Mex Mexican appetizers and
entrees and complementary alcoholic beverages. The first Cucos
restaurant opened in a suburb of New Orleans (Metairie) in June
1981. At fiscal year end on June 28, 1998, 20 restaurants were
operating under the Cucos name, 15 of which are owned by the
Registrant and 5 by franchisees. During 1998, two franchised
restaurants were closed and one company-owned restaurant was
closed and the property sold. There were twenty-two total
restaurants in operation at the end of fiscal 1997. In October,
1997, the Company opened a new restaurant in Meridian,
Mississippi.
REGISTRANT-OWNED RESTAURANTS
General. Cucos Mexican Restaurants are full service
restaurants serving fresh great tasting Mexican cuisine that
offer only the best quality and taste. It Tastes Better Our Way!
It really does, and there are lots of reasons why. Like our
vegetables. We use only the finest and freshest available, such
as Haas avocados for our made from scratch guacamole that we
prepare fresh every day. We only use fresh, lean hand trimmed
choice sirloin and absolutely fresh chicken. Then there are the
other shortcuts that we simply won't take. For example, we only
use real Monterey Jack and Cheddar cheeses and real dairy sour
cream. No imitations. No substitutions. Just like it should
be. In fact, everything that comes out of our kitchen is
meticulously prepared according to our own very secret, very
special recipes. Some of our dishes take hours. All of them
take effort. But we don't mind. Because it tastes better our
way!
We serve a variety of traditional Mexican dishes and
appetizers such as our sizzling steak, chicken, or shrimp
Fajitas, Burritos, Enchiladas, Tamales, and Chimichangas. We
also serve several huge combination dinners. We have CucosLite
items offering items with reduced fat, calories, and cholesterol
without sacrificing taste. We have delicious Vegetarian items as
well as the biggest and best Burger in town. Let's not forget
our famous award winning margaritas. Cucos' margarita was voted
best Margarita in New Orleans three years in a row. We were also
Best Mexican Restaurant in New Orleans by the readers of New
Orleans Magazine.
We offer a seasonal menu which changes quarterly. Our
seasonal menus feature such items as steak, crawfish enchiladas,
Creole Mex dishes, and our delicious Vegetarian Fajitas.
Our restaurants are decorated with Mexican antiques and
furniture, terra-cotta tile and hand painted large colorful
murals which are unique to each Cucos restaurant. Our Mexican
pottery, southwestern plants, colorful hand made Mexican flowers
and festive lighting add more Mexican touches to our casual
restaurants. During the past fiscal year, we have added colorful
new Fiesta plateware and serving dishes as well as a new Cucos'
cactus margarita glass.
Food sales account for approximately 76% of revenues at
the fifteen Registrant-owned restaurants operated in fiscal 1998,
with alcoholic and other beverages representing approximately
20%. Special Luncheon menu items range in price from $3.99 to
$6.45. The prices of the specialty and combination dinner items
range from $5.45 to $9.95. The per person average check,
including beverage, for fiscal 1998 was $9.90 and the average
dining time per table was approximately 45 minutes.
As a result of the continuing decline in guest counts,
the Registrant undertook a comprehensive review of its
operations. It was decided that the intense emphasis on cost
reductions of the last three years had impacted the food
presentation and the guest experiences resulting in a decline in
guest satisfaction. As a result, it was determined that a change
in philosophy to focus on customer satisfaction was needed and
the President was asked to resign. A new Executive Vice
President was hired to be in charge of operations, and
supervisory responsibilities were restructured. His experience
was with a leading national restaurant concept that placed a high
emphasis on customer satisfaction and food presentation.
Consequently, beginning in late fiscal year 1998, the Registrant
began several new programs which are gradually being implemented
in the restaurants and should be completely installed by the
second quarter of fiscal year 1999. The keystone of these
programs is to place more responsibility for restaurant
operations with the restaurant general managers by implementing
the "GM Empowerment Program". This change should accelerate the
growth, development, and effectiveness of the restaurant
managers, which should also enable them to require less
supervision. One program is to restore the use of garnishments
and to improve the presentation of the food. Another program is
to implement the use of new uniforms and redesigned menus. Also,
the Registrant added a full time key employee to each restaurant
to assume certain duties of the manager to enable the him to
focus more directly on guest satisfaction during meal periods. A
price increase of 3% was instituted and a new seasonal menu was
added. This was the first price increase in over three years,
but the prices still remain competitive. Finally, a new
advertising campaign was developed to emphasize the concept that
the Registrant provides the "Best Mex", because it has the best
tasting, most flavorful food served in a friendly, festive
atmosphere. All of these changes are intended to re-establish
the Registrant's image with a consistent theme. In fiscal 1999,
the costs of these programs may exceed $400,000, and there is no
assurance that these changes will increase guest counts and
thereby restaurant sales. Consequently, restaurant profits may
be adversely affected.
Restaurant Management and Supervision. Each restaurant
is operated in accordance with uniform standards set by
management relating to the preparation and service of food and
drink, appearance and conduct of employees, and cleanliness of
facilities. Food and beverage products are periodically tested
for quality and uniformity of portions. In accordance with the
Registrant's standards, each restaurant is run by a general
manager, assisted by two managers, a kitchen supervisor, a
service supervisor and a bar supervisor. At least one manager is
on duty during all serving periods. Each of Registrant's
restaurant general managers receives, in addition to a salary,
incentive compensation calculated as a percentage of sales and
profits in excess of a predetermined base level.
The Registrant's long-term expansion plans require it
to develop additional trained general managers. The Registrant
requires candidates for general manager to undergo a thorough
training program designed to familiarize them with all aspects of
the Registrant's operations. A candidate serves as an assistant
manager before becoming a general manager. Persons selected for
training as general managers normally have several years of food
service experience.
Expansion Program. During fiscal year 1999, the
Registrant will consider acquisition of sites as they come
available. Management intends that the primary growth in sales
for fiscal 1999 be accomplished by increasing comparable sales
per restaurant through a continuation of existing advertising and
programs to enhance customer satisfaction.
The Registrant is planning for expansion of the Cucos
system over the long-term. In this connection, the Registrant is
currently studying the population densities, traffic patterns,
income levels, competition and comparative cost structures for
other suitable sites.
The ability of the Registrant to open a new restaurant
will depend on locating satisfactory sites, the availability of
bank and lease financing at acceptable terms, having sufficient
working capital, obtaining adequate property, casualty and liquor
liability insurance coverages at a reasonable cost, securing
appropriate local government permits, licenses and approvals, and
on the capacity of the Registrant to supervise construction and
to recruit and train management personnel. Such factors may
cause a delay in the Registrant's planned development schedule.
The Registrant believes that its development plan of
controlled growth will occur in the Southeastern United States.
The Registrant expects in most cases to locate Registrant-owned
and franchised restaurants in high traffic, high growth areas of
commercial or residential concentration, at or near shopping
centers. Registrant-owned and franchised restaurant sites will
be judged by the Registrant's executive management against
certain criteria as to population density, income levels, amount
of competition, ingress/egress and traffic patterns.
The Registrant believes that there are a number of
existing restaurant facilities which have either closed or are
currently operating at a loss or at marginal levels of
profitability. The Registrant believes that a number of these
units may be suitable for conversion to a Cucos restaurant and
can be leased or purchased at attractive prices. The
Registrant's strategy for expansion (with respect to both
Registrant-owned and franchised restaurants), therefore, is
primarily to locate units of this type rather than to follow the
strategy of most specialty restaurant chains, which has been to
construct new restaurant facilities on land owned or leased by
the chain or to enter build-to-suit arrangements under which new
facilities are built to the specifications of the chain. In
addition to the economic benefits of the Registrant's strategy,
such strategy may substantially reduce the delay between the site
selection and the opening of a new restaurant and may allow the
Registrant to gain entry into densely-populated suburban and
urban markets in which land is either not available for the
construction of new restaurants or, if available, is
prohibitively expensive. The Registrant's expansion strategy
may, however, subject it to the same adverse factors that caused
the existing facility to operate marginally or unprofitably prior
to being converted to a Cucos restaurant. The Registrant intends
to combat these adverse factors by providing food and service, in
renovated facilities, that will appeal to the available customer
base.
The Registrant estimates that the initial investment
that will be required in leasing an existing restaurant facility
and converting it for operation as a Registrant-owned restaurant
will be between $550,000 and $740,000. A new (rather than
existing) leased facility could involve substantially higher
costs for leasehold improvements.
When a new Registrant-owned restaurant is opened, the
Registrant temporarily transfers experienced personnel from one
or more of its existing restaurants to the new restaurant. Prior
to opening, personnel at the new location undergo intensive
training, which includes several pre-opening events at which test
meals are served.
The success of the Registrant's expansion program will
depend on, among other factors, capital availability, whether the
Registrant is able to attract and retain sufficient qualified,
experienced managers and assistant managers, and whether
management will be able to ensure that Registrant-owned and
franchise restaurants operate in accordance with the Registrant's
standards.
Purchasing. Management believes that centralized
purchasing is advantageous to the Registrant in that it has
allowed it to take advantage of certain volume discounts. Fresh
produce, beverages and certain other items are purchased by each
Registrant-owned restaurant from local wholesalers. The
Registrant believes that satisfactory local sources of supply are
generally available for all of the other items it regularly uses
in its restaurants.
Insurance. Insurance costs have risen considerably in
the restaurant business, especially for those restaurants with
liquor licenses. The Registrant carries fire and casualty
insurance on its Registrant-owned restaurants and liability
insurance in amounts which management feels is adequate for its
operations.
Marketing. The Registrant advertises primarily by
television advertising. Its advertising promotes the name
"Cucos" and emphasizes quality dining using tasty food in a
festive atmosphere at moderate prices. Periodically, print and
radio advertising are also used.
FRANCHISED RESTAURANTS
At the present time, the Registrant is not actively
seeking franchisees, but should the opportunity arise, it would
offer a franchise on a very selective basis. No assurances can
be given as to the number of franchise development areas that
will be sold during the fiscal year 1999 or the impact of
development fee revenues upon the Registrant's profitability and
cash position during fiscal year 1999.
The development agreements generally obligate the
developer to construct a specified number of Cucos restaurants
within the licensed territory. The restaurants may be either new
restaurants or conversions of existing restaurants, although the
Registrant encourages franchisees to convert existing restaurants
whenever possible (see "Expansion Program"). A developer must
open new Cucos restaurants within the development territory in
accordance with the schedule set forth in the development
agreement. If a developer fails to open restaurants in
accordance with the schedule, generally the Registrant may notify
the developer that it is in default under the development
agreement and may terminate the agreement 30 days thereafter if
the default has not been cured.
Generally, a development agreement expires three years
after the latest date set forth in the development schedule.
During the first year after completion of the schedule, the
Registrant is prohibited from either opening a Cucos restaurant
or granting a franchise to someone other than the developer to
establish a Cucos restaurant within the licensed territory. If
during the second and third year after the completion of the
schedule, the Registrant desires to establish additional
restaurants within the licensed territory, the developer for that
area has a right of first refusal to enter into additional
development agreements with respect to such additional
restaurants so long as the developer is in compliance with the
then existing development agreement. If the developer exercises
its right of first refusal, the developer is required to pay the
fees for each restaurant then being charged to new developers.
Upon expiration of the development agreement, the Registrant may
open Registrant-owned restaurants in the previously licensed
territory or grant franchises to other persons to open additional
franchised restaurants in the previously licensed territory.
Development agreements provide for the payment of an
initial nonrefundable development fee by the developer upon
execution of the agreement. The development fee with respect to
development agreements is generally $15,000 per restaurant up to
five restaurants and $10,000 per restaurant thereafter. The
Registrant anticipates that the amount of the development fee
with respect to future development agreements will be based upon
the size and nature of the area covered by the development
agreement.
Prior to the acquisition of a site for a restaurant in
the licensed territory, the developer must submit to the
Registrant certain information concerning the site and certain
market information. Upon the Registrant's approval of the site,
the developer is required to enter into a license agreement with
the Registrant with respect to the restaurant to be developed
under the development agreement.
The license agreements generally have terms of 20 years
from the date of their execution. However, if the license
agreement pertains to a franchised restaurant that is leased, the
license agreement terminates upon the earlier of 20 years from
the commencement date of the lease or upon the termination or
expiration of the primary term of the lease, plus any options to
renew the lease.
Generally franchisees are required to pay to the
Registrant under the license agreement a continuing royalty fee
equal to 4% of gross revenues at the restaurant. In addition,
franchisees are required to pay a continuing monthly contribution
to an advertising materials fund equal to .5% of gross revenues
at the restaurant and if a national advertising fund or a
regional advertising fund applicable to the franchisee's region
is established by the Registrant (the Registrant has not done so
to date), the franchisees must also pay to the Registrant
continuing monthly contributions, for use by such funds, equal to
amounts not to exceed 1% and 2% of gross revenues of the
restaurant, respectively, for the national media fund or the
regional advertising fund in the franchisee's region. The
Registrant has not established a national or regional advertising
fund and accordingly has not required contributions for such
funds.
The license agreement provides that the franchisees
will comply strictly with the Registrant's standards,
specifications, processes, procedures, requirements and
instructions regarding the operation of the franchisee's
restaurant. The Registrant is obligated to provide initial
training programs for franchisees and to provide personnel for on-
site assistance in opening each franchised restaurant. The
Registrant has the right to approve the person designated by the
franchisee to have overall supervisory authority over franchised
restaurant operations or, if no such overall operations manager
is designed, to approve each restaurant general manager.
Franchisees purchase food products and restaurant
supplies conforming to Registrant's specifications from
independent suppliers. Alternate sources of these items are
generally readily available. The Registrant may sell equipment,
food or supplies to franchisees upon request, but otherwise does
not intend to do so. The Registrant continues to sell a small
amount of proprietary advertising materials and confidential
recipe spice packs to franchisees. The Registrant anticipates
continuing these sales.
EMPLOYEES
At June 28, 1998, the Registrant-owned restaurants
employed approximately 784 part-time and full-time persons, of
which 58 were managers and assistant managers, all of whom are
full-time. In addition, 23 persons were employed at the
Registrant's executive office. The Registrant endeavors to
control its employee turnover rate by offering to all full-time
restaurant employees certain paid benefits, including life
insurance, health insurance and vacation. None of the
Registrant's employees are represented by a labor union. The
Registrant has experienced no work stoppages attributable to
labor disputes and considers its employee relations to be
satisfactory.
COMPETITION
The restaurant business is highly competitive and is
often affected by changes in taste and eating habits, by local
and national economic conditions affecting spending habits, and
by population and traffic patterns. The Registrant believes that
the quality and price of food products are the principal means of
competition in the restaurant industry. Also of importance are
site locations, quality and speed of service, cleanliness,
advertising and attractiveness of facilities.
The Registrant competes with several national chains
including El Patio, Chili's, Applebees, Olive Garden, and
LaFiesta, as well as, several local dining concepts. Several of
the national chains have had significant funding available
provided by public stock offerings, which has enabled them to
expand significantly in the Registrant's smaller markets. These
expansions have adversely impacted the Registrant's guest counts
in the smaller markets. These national chains, as well as some
regional chains, operate more restaurants and have greater
financial resources and greater name recognition than the
Registrant. In addition, gaming operations often offer food at
discounted or below cost prices which provide a new level of
indirect competition in the Registrant's Louisiana and
Mississippi markets.
GOVERNMENT REGULATION
The Registrant's franchise operations are subject to a
variety of laws regulating the marketing of franchises. Federal
Trade Commission regulations impose certain disclosure
requirements on persons engaged in the business of offering
franchises. States in which the Registrant offers franchises
also may have franchising laws that require registration prior to
the offering of franchises for sale in those states or that
afford franchisees substantive rights, including limiting the
circumstances under which franchises may be terminated.
The Registrant is also subject to the Fair Labor
Standards Act, which governs such matters as minimum wages,
overtime, and other working conditions. Many of the Registrant's
food service personnel are paid at rates related to the minimum
wage and, accordingly, increases in the minimum wage increase the
Registrant's labor costs.
Each of the Registrant's restaurants is subject to
licensing and regulation by state liquor control boards and the
state police in Louisiana (with respect to video poker), and by
municipal health, sanitation, safety and fire department
agencies. The Registrant expects that liquor sales and video
poker revenues will account for a significant portion of the
Registrant's revenues. During 1998 liquor sales and video poker
revenues accounted for about 2.4% and 3.1% of food and beverage
revenues, respectively.
During fiscal 1996, the State of Louisiana passed a
local option ordinance on all forms of gambling including video
poker. In November, 1996, all parishes in the state voted
whether to retain video poker and other forms of gambling.
Voters in four parishes in which the Registrant operates voted to
end video poker and other forms of gambling. The ban on video
poker at these locations will be effective in fiscal 2000. In
1998 the Registrant recorded video poker revenues at these
locations of 1.6% of sales of food and beverages. Legislation was
considered in the current session of the Louisiana Legislature to
further restrict video poker activities. This legislation was
defeated in this session; however, future legislative sessions
may consider legislation that might adversely impact the
Registrant's remaining video poker activities.
The loss of an existing liquor license or video poker
license or the inability to obtain a liquor or video poker
license at a new restaurant would adversely affect the
Registrant's operations at that restaurant.
The Registrant is also subject to the provisions of
Americans with Disabilities Act. The Registrant has remodeled
its restaurants to meet these requirements where necessary.
MISCELLANEOUS
Customers. No material part of the Registrant's
business is dependent upon a single customer, or a very few
customers, the loss of any one of which would have a material
adverse effect on the Registrant. No single customer accounts
for as much as 10% of the Registrant's total revenues.
Seasonality. The Registrant's results are impacted by
seasonality. Usually the highest sales periods occur in late
Spring and Summer, with sales declining in the Fall and Winter.
This is especially true for the Gulf Coast restaurants where
sales are more dependent on tourism.
Service Marks, Trademarks and Copyrights. The
Registrant is the owner of United States Service Mark
Registrations Nos. 1,509,612, dated October 18, 1988, for the
mark CUCOS and Design; 1,733,801 dated November 17, 1992, for the
mark CUCOS BORDER CAFE and DESIGN; and 1,941,214, dated December
12, 1995, for the mark CUCOS MEXICAN CAFE & DESIGN. The
Registrant is also the owner of United States Trademark
Registrations Nos. 1,405,169, dated August 12, 1986, for the mark
FRESH-ITAS (Cucos' version of fajitas) and 1,465,729, dated
November 17, 1987, for the mark FRESH-ITA NACHOS (Cucos' version
of fajita nachos). The Registrant is also the owner of United
States Service Mark Registration No. 1,996,748, dated August 27,
1996, for the mark THE TASTE TO MAKE YOU SAY OLE` and United
States Service Mark Registration No. 2,019,308, issued November
27, 1996, for the mark IT TASTES BETTER OUR WAY. Those
registrations which issued prior to November 16, 1989, have an
effective term of 20 years and those issued on or after November
16, 1989, have an effective term of 10 years, unless sooner
terminated by law, and all may be renewed for successive terms so
long as the marks continue to be used by Registrant in interstate
commerce for the specified services or goods. The Registrant
also owns a service mark registration as issued by the State of
Louisiana, dated July 14, 1987; a Tennessee State Registration,
issued July 2, 1987; a Florida State Registration No. 707,637,
dated July 17, 1987; an Alabama State Registration No. 103,383,
issued July 14, 1987; a Mississippi State Registration No.
1,509,612, issued on July 27, 1987; and an Arkansas State
Registration No. 181-87, issued on July 8, 1987. for the service
mark CU-CO's. These registrations are effective for a term of 10
years and may be renewed for successive terms. All of these
registrations are valid and subsisting. In addition, Registrant
is the owner of Copyright Registration No. TXU 357-784 for the
Cucos Power Manual and Copyright Registration No. PAU 1,195,506
for the Video, both dated November 4, 1988.
Item 2. Properties.
The following table summarizes certain information
concerning Registrant-owned restaurants located in facilities
that are leased from others as of September 1, 1998.
Lease
Size Dining Lease Option(s)
Location Opened/Acquired (Sq. Ft.) Capacity Expires Through
New Orleans -
Metairie June 1981 5138 136 2007 2027
Biloxi, MS April 1982 5600 159 2002 2032
New Orleans -
Westbank September 1983 4800 147 2001 2010
Monroe, LA June 1984 4476 146 1999 2019
Slidell, LA November 1984 5300 139 2008 2018
Alexandria, LA March 1985 5125 143 2000 2015
New Orleans -
Uptown November 1985 4539 120 2000 2015
Pascagoula, MS December 1989 5160 130 2011 2021
Hammond, LA July 1990 6062 130 2001 None
Birmingham, AL March 1992 4560 150 2006 2012
Houma, LA September 1992 6000 148 2007 2017
Birmingham, AL February 1993 5000 160 2006 2026
Montgomery, AL February 1993 5100 170 2002 2012
Ruston, LA February 1996 5476 162 2003 2026
Meridian, MS October 1998 5374 221 2007 2017
The New Orleans-Westbank location, the Slidell location
and the second Birmingham and Montgomery, Alabama, locations are
in strip shopping centers. The Hammond, first Birmingham, Houma,
and Meridian locations are in shopping malls. Seven leased
locations are free-standing buildings. The restaurant leases
require the Registrant to pay real estate taxes, insurance and
utilities, and to bear repair, maintenance and other expenses
normally borne by the lessee under a triple net lease.
In addition to the leases above, the Registrant has
leases on three restaurant properties that are no longer used in
its operations. The properties have been subleased to other
companies.
Location Lease Expires Sublease Expires
Columbus, GA 2004 2004
Cutler Ridge, FL 2005 2005
Macon, GA 2011 2011
Item 3. Legal Proceedings.
On April 11, 1990, a franchisee filed a complaint
against the Registrant and certain of its officers alleging
breach of contract and misrepresentation and seeks damages in
excess of $1.6 million. There has been no activity in this
litigation for more than seven years except for a discovery
request filed in January, 1997, which avoided a dismissal of the
litigation for non-prosecution. The Registrant believes the
claims are without merit and the likelihood of a loss is remote.
A contractor built a restaurant for a franchisee,
L.B.G., Inc. The contractor was not paid by L.B.G., Inc. and the
contractor has sued the Registrant for $65,000. The Registrant
believes the claim against it is without merit and it is more
probable than not that it will prevail in this matter.
Item 4. Submission of Matters to a Vote of Security
Holders.
No matters were submitted to a vote of the Registrant's
security holders, through the solicitation of proxies or
otherwise, during the fourth quarter of the Fiscal Year.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters.
Cucos Inc. - Stock Data
The Registrant's common stock is traded on The NASDAQ Small-
Cap Market under the symbol CUCO. The following table sets forth
the range of the high and low bid and ask prices for each of the
quarters indicated for fiscal 1998 and fiscal 1997.
Fiscal 1997 High Bid-Ask Low Bid-Ask
1st Quarter ended 10/19/96 1 3/8 - 1 5/8 1 1/4-1 1/4
2nd Quarter ended 1/11/97 1 1/2-1 5/8 1 1/8-1 1/4
3rd Quarter ended 4/5/97 1 3/8-1 5/8 1 1/4-1 5/16
4th Quarter ended 6/29/97 1 3/8-1 1/2 1 3/16-1 1/4
Fiscal 1998 High Bid-Ask Low Bid-Ask
1st Quarter ended 10/19/97 1 1/2 - 1 7/8 1 1/8 - 1 1/4
2nd Quarter ended 1/11/98 1 1/4 - 1 1/2 1 1/8 - 1/3/8
3rd Quarter ended 4/5/98 1 1/4 23/32 - 1/1/8
4th Quarter ended 6/28/98 1 3/4 - 1
On September 17, 1998, the closing bid and ask prices for
the Registrant's common stock were 1 3/8 bid and 1 3/8 ask.
The foregoing quotations reflect inter-dealer prices,
without retail markup, mark-down or commission and may not
necessarily represent actual transactions.
Since becoming a public company, the Registrant has paid no
cash dividends and has no present intention of paying dividends,
but rather will retain its earnings to provide funds for
expansion of its business and other corporate purposes.
Approximate number of shareholders (including beneficial
shareholders through nominee registration) as of September 15,
1998: 825. Market makers: Herzog, Heine, Geduld, Inc., Paragon
Capital Corp. and Morgan, Keegan & Company.
Item 6. Management's Discussion and Analysis or Plan of
Operation.
1998 Compared to 1997
Sales of Food and Beverages declined $302,000 (1.4%) to
$21,162,000 from $21,464,000. This decrease was due to a 4.7%
decline in existing restaurant sales resulting from a 6.0%
decline in weekly guest counts at comparable restaurants. This
decrease in sales occurred primarily in the Registrant's smaller
markets and was partially offset by the opening of the
Registrant's restaurant in Meridian, Mississippi.
Commissary and Other Income increased $33,000 to $173,000
from $140,000, primarily resulting from the sale of a restaurant.
Cost of Sales decreased $146,000 (2.9%) to $5,591,000 from
$5,737,000. This decrease is primarily due to the decline in
sales of food and beverages discussed above.
Restaurant Labor and Benefits increased $186,000 (2.7%) to
$7,091,000 from $6,905,000. This increase resulted from the
increase in minimum wage in September, 1997, and the opening of
the restaurant in Meridian, offset in part by a 2.0% decline in
restaurant sales and benefit costs at existing restaurants.
Other Operating Expenses increased $203,000 (5.0%) to
$3,954,000 from $3,751,000. This increase primarily resulted
from the opening of the restaurant in Meridian.
Occupancy Costs increased $124,000 (5.6%) to $42,324,000
from $2,200,000. This increase was primarily due to the opening
of the restaurant in Meridian.
Royalties and Franchise Revenues increased $43,000 due to
the opening of a franchised restaurant in Des Moines, Iowa, and a
decline in expenses as no new franchise restaurants were opened
in 1998.
Operations Expenses decreased $88,000 (8.3%) to $968,000
from $1,056,000, which primarily related to a decrease in costs
related to subleased restaurant facilities which was partially
offset by an increase in costs related to hiring new employees.
Corporate Expenses increased $72,000 (4.9%) to $1,533,000
from $1,461,000. This was primarily the result of an increase in
workmen's compensation costs and the write-off of deferred site
costs related to locations no longer being considered as possible
restaurant locations. Due to revisions in its estimates, the
Company provided an additional $178,000 for charges related to
closed restaurants.
Interest Expense increased $64,000 to $517,000 from
$453,000. This increase was due to higher average borrowings and
amortization of debt issuance costs offset in part by a small
decline in the average overall borrowing interest rate.
Because of lower than expected revenues and earnings,
management increased the valuation allowance for deferred income
tax assets resulting in income tax expense of $107,000.
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 $162,000 which have been reported as an extraordinary loss.
(See Liquidity and Capital Resources.)
Liquidity and Capital Resources
In 1998 and 1997, despite net losses of $1,064,000 and
$446,000, the Company's operating activities provided cash flow
of $158,000 and $881,000, respectively. Management has
implemented certain actions, which are described on page 4, 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.
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.
Net cash provided by operations decreased $723,000 from 1997
which primarily resulted from a decline in income from restaurant
operations. Net cash provided by investing activities was
$195,000 in 1998 compared to cash used of $525,000 in 1997, or an
improvement of $445,000 and primarily included the purchase of
property and equipment, offset by the sale of the Pensacola
property. Net cash used in financing activities was $150,000 in
1998 and included principal payments on borrowings, debt issuance
costs and debt restructuring penalties which were substantially
offset by additional long-term borrowings.
On October 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. In
connection with this refinancing, the Company incurred a charge
to earnings in the Second Quarter of $162,000 and is related to
repayment penalties associated with the existing debt. This loan
is part of a pool of loans financed by the lender. A provision
of this loan requires the Company to pay additional interest if
certain conditions of the loan pool are not met. This provision
would require the Company to pay additional interest each month
if the loan pool conditions are not met. These monthly payments,
if required, may increase the interest costs by a maximum of
$400,000 over the life of the loan. At year end, the Company had
paid no additional interest.
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 June 28, 1998.
In January 1998, the Board of Directors amended the terms of
the Company's debentures permitting immediate conversion. On
February 19, 1998, the debenture holders exercised their
conversion rights and converted the debentures into 527,983
shares of common stock.
Impact of Inflation and Changing Prices
Inflation in food, labor, construction costs and interest
rates can affect the CompanyOs operations. Many of the CompanyOs
employees are paid hourly rates related to the minimum wage.
Management reviews its pricing regularly to ensure it is
priced competitively, that it offers outstanding value to its
customers, and that margins are maintained. Inflation can also
affect food costs, rent, taxes, maintenance, and insurance costs.
Seasonality
The Company's results are affected by seasonality. Usually
the highest sales periods occur in late Spring and Summer, with
sales declining in the Fall and Winter. This is especially true
for the Gulf Coast restaurants where sales are more dependent on
tourism.
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.
Impact of Year 2000
Some of the company's older computer programs were written
using two digits rather than four to define the applicable year.
As a result, those computer programs have time-sensitive software
that recognize a date using "00" as the year 1900 rather than the
year 2000. This could cause a system failure or miscalculations
causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has completed an assessment and will have to
modify or replace hardware and software of its software so that
its computer systems will function properly with respect to dates
in the year 2000 and thereafter. In 1998, the Company replaced
substantially all of its restaurant point of sales systems. The
new systems do not have any year 2000 issues. The total Year
2000 project cost is estimated at approximately $50,000 for the
purchase of new software and hardware that will be capitalized.
The project is estimated to be completed not later than
December 31, 1999, which is prior to any anticipated impact on
its operating systems. The Company believes that with
modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The costs of the project and the date on which the Company
believes it will complete the Year 2000 modifications are based
on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and
cost of personnel trained in this area and the availability of
software and hardware.
The Company has initiated communications with all of its
significant suppliers to determine the extent to which the
Company's interface systems are vulnerable to those third
parties' failure to remediate their own Year 2000 Issues. There
is no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not
have an adverse effect on the Company's systems.
Item 7. Financial Statements.
Balance Sheet - Cucos Inc.
June 28, 1998
Assets
Current Assets
Cash and Cash Equivalents $679,000
Receivables:
Trade 590,000
Due from Affiliates 166,000
Less Allowance for Doubtful Accounts 257,000
499,000
Inventories 233,000
Prepaid Expenses 260,000
Deferred Taxes and Other Current Assets 5,000
TOTAL CURRENT ASSETS 1,676,000
Deferred Taxes and Noncurrent Assets 264,000
Property, Equipment and Other
Equipment 3,774,000
Leasehold Improvements 5,203,000
Reacquired Franchise Rights 529,000
9,506,000
Less Accumulated Depreciation and Amortization 4,412,000
5,094,000
Investment in LaMexiCo, L.L.C. 242,000
Deferred Costs, Less Accumulated Amortization of $130,000 397,000
$7,673,000
Liabilities and Shareholders' Equity
Current Liabilities
Short-Term Debt Payable to Banks $100,000
Trade Accounts Payable 1,412,000
Accrued Expenses and Other 572,000
Accrued Payroll 215,000
Current Portion of Long-Term Debt 387,000
TOTAL CURRENT LIABILITIES 2,686,000
Long-Term Debt, Less Current Portion 3,452,000
Deferred Revenue and Other 262,000
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) (4,090,000)
TOTAL SHAREHOLDERS' EQUITY 1,273,000
$7,673,000
See notes to financial statements.
<TABLE>
Statements of Operations - Cucos Inc.
<CAPTION>
Fiscal Year Ended
June 28, 1998 June 29, 1997
<S>
Restaurant Operations <C> <C>
Sales of Food and Beverages $21,162,000 $21,464,000
Restaurant Expenses:
Cost of Sales 5,591,000 5,737,000
Restaurant Labor and Benefits 7,091,000 6,905,000
Other Operating Expenses 3,954,000 3,751,000
Occupancy Costs 2,324,000 2,200,000
Preopening Costs 87,000 97,000
Total Restaurant Expenses 19,047,000 18,690,000
Income From Restaurant Operations 2,115,000 2,774,000
Royalties and Franchise Revenues, net of
expenses of $23,000 and $96,000 113,000 70,000
Commissary and Other Income 173,000 140,000
2,401,000 2,984,000
Operations Supervision Expenses 968,000 1,056,000
Corporate Expenses 1,533,000 1,461,000
Charges Related to Closed Units and Asset Impairment 178,000 460,000
Operating Income (Loss) (278,000) 7,000
Interest Expense 517,000 453,000
Loss Before Income Taxes and Extraordinary Item (795,000) (446,000)
Income Taxes 107,000 -
Loss Before Extraordinary Item (902,000) (446,000)
Extraordinary Item - Debt Restructuring Penalties (162,000) -
Net Loss $(1,064,000) $(446,000)
Weighted Average Number of Common Shares and Common
Share Equivalents Outstanding - Basic and Diluted 2,306,000 2,114,000
Net Loss Per Share Before Extraordinary Items - Basic ($0.39) ($0.21)
and Diluted
Extraordinary Item - Basic and Diluted $0.07 $ -
Net Loss Per Share - Basic and Diluted ($0.46) ($0.21)
</TABLE>
See notes to financial statements.
<TABLE>
Statements of Cash Flows - Cucos Inc.
<CAPTION>
Fiscal Year Ended
June 28, 1998 June 29, 1997
Operating Activities
<S> <C> <C>
Net Loss ($1,064,000) ($446,000)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Deferred income Taxes 107,000 -
Debt Restructuring Penalties 162,000 -
Depreciation and Amortization 920,000 1,053,000
Decrease in Deferred Revenue and Other (209,000) (30,000)
Gain on Sale of Assets and Other (187,000) -
Asset Impairment and Rent Reserve 178,000 460,000
Accretion of Discount on Convertible Debenture 21,000 32,000
Equity in Earnings of Equity Investee,
Net of Distributions of $44,000 and $17,000 11,000 (8,000)
Change in Operating Assets and Liabilities:
Receivables 105,000 (54,000)
Inventories 21,000 (10,000)
Prepaids and Other 141,000 (119,000)
Deferred Costs (5,000) (16,000)
Accounts Payable (143,000) 78,000
Accrued Expenses 88,000 (61,000)
Accrued Payroll 12,000 2,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 158,000 881,000
Investing Activities
Purchases of Property and Equipment (639,000) (525,000)
Proceeds From Sale of Assets 834,000 -
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 195,000 (525,000)
Financing Activities
Change in Short-Term Debt Payable to Banks (50,000) 57,000
Proceeds From Long-Term Borrowings 4,506,000 452,000
Debt Restructuring Penalties (162,000) -
Principal Payments on Borrowings (4,155,000) (1,170,000)
Debt Issuance Costs (289,000) -
NET CASH USED IN FINANCING ACTIVITIES (150,000) (661,000)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 203,000 (305,000)
Cash and Cash Equivalents at Beginning of Year 476,000 781,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $679,000 $476,000
Non Cash Financing and Investing Activities
Equipment and Leasehold Improvements Financed by
Capital Leases $400,000 $29,000
</TABLE>
See notes to financial statements.
<TABLE>
Statements of Shareholders' Equity
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings Total
Capital (Deficit)
<S> <C> <C> <C> <C>
Balance as of June 30, 1996 $4,746,000 $228,000 $(2,581,000) $2,393,000
Net Loss for the year - - (446,000) (446,000)
Balance as of June 29, 1997 4,746,0000 228,000 (3,027,000) 1,947,000
Net Loss for the year - (1,064,000) (1,064,000)
Conversion of Debenture 500,000 (117,000) - 383,000
Common Stock for Services 7,000 - - 7,000
Balance as of June 28, 1998 $5,2536,000 $111,000 ($4,091,000) $1,273,000
</TABLE>
Cucos Inc.
June 28, 1998
Notes to Financial Statements
Note A - Significant Accounting Policies
Fiscal Year: The Company uses a 52/53 week year for
financial reporting purposes with its fiscal year ending on the
Sunday closest to June 30. 1998 and 1997 were fifty-two week
years.
Industry: The Company is a full-service casual dining
restaurant chain offering Mexican appetizers, entrees and
complementing beverages. At year end, the Company operated
fifteen restaurants and franchised five restaurants.
Use of Estimates: The preparation of the financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents: The Company considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories: Inventories, consisting primarily of food and
beverages, are stated at the lower of cost (first-in, first-out
method) or market.
Property, Equipment, and Other: Property, Equipment and
Other is stated on the basis of cost. Depreciation and
amortization are computed by the straight-line method over the
assets' useful lives or their lease terms, whichever is shorter.
Amortization of assets recorded under capital leases is included
in depreciation expense. The useful lives of equipment range
from 3-10 years; the useful lives of leasehold improvements are
generally 15 years, and the useful lives of reacquired franchise
rights, which represents the costs to reacquire franchised
restaurants in excess of the tangible assets acquired, are 15
years.
Deferred Costs: Deferred costs represent site costs, debt
issuance costs and other, primarily trademarks. Deferred site
costs incurred in the selection of sites for new company-owned
restaurants are capitalized and amortized on a straight-line
basis over a 10-year period; costs incurred in the selection of
sites for franchised restaurants are accumulated and expensed
when the related franchise revenue is recognized. If a potential
site is abandoned, the deferred costs related to that site are
charged to current operations. Deferred debt issuance costs are
amortized over the life of the related debt. Other deferred
costs, primarily trademarks, are amortized on a straight-line
basis over 20 years.
Advertising Costs: Advertising costs are expensed as
incurred. Advertising expense was $982,000 and $954,000 in 1998
and 1997, respectively.
Franchise Fees and Royalties: The Company sells exclusive
rights to develop Cucos restaurants in designated territories
(Area Development Agreements), as well as individual franchises
for each restaurant. The Area Development Agreements call for a
nonrefundable fee paid to the Company in exchange for territorial
exclusivity. Franchise development fee revenue from these
agreements is deferred and recognized as income on a pro rata
basis as restaurants are developed in the designated territory or
when the developer forfeits the development rights under the
agreement. Franchise fee revenue related to the individual
restaurants is recognized as income when all obligations of the
Company are substantially fulfilled, which occurs when the
franchise restaurant begins operations. Royalty income is based
upon a percentage of franchise sales and is recognized as income
when earned. Royalties and other receivables are often
collaterized by personal guarantees and sometimes by equipment
owned by the franchisee.
Investment in LaMexiCo, L.L.C.: The Company accounts for
its investment using the equity method of accounting. The
difference between the carrying amount of the investment and the
amount of the underlying equity in the net assets of the investee
($26,000) is being amortized over the term of the franchise
agreement.
Income Taxes: The Company accounts for income taxes using
the liability method. Under this method deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Impairment of Long-Lived Assets: The Company reviews long-
lived assets to be held and used in the business, including
reacquired franchise rights, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset or a group of assets may not be recoverable. Assets are
evaluated for impairment at the operating unit level. The
Company considers a history of operating losses to be its primary
indicator of potential impairment. An asset is deemed to be
impaired if a forecast of undiscounted future operating cash
flows directly related to the asset, including disposal value if
any, is less than its carrying amount. If an asset is determined
to be impaired, the loss is measured as the amount by which the
carrying amount of the asset exceeds its fair value. The Company
generally estimates fair value by discounting estimated future
cash flows. Considerable judgment is necessary to estimate cash
flows. Accordingly, it is reasonably possible that actual
results could vary significantly from such estimates.
Stock-Based Compensation: The Company accounts for its stock
compensation arrangements under the provision of Accounting
Principles Board (OAPBO) No. 25, OAccounting for Stock Issued to
EmployeesO.
Reclassifications: Certain balances in the prior fiscal year
have been reclassified to conform with the presentation in the
current fiscal year.
<TABLE>
Note B - Debt
<CAPTION>
<S> <C>
Note payable to insurance company - fixed interest rate - 9.5% -
monthly payments of $4,000 $127,000
Notes payable to commercial lender - fixed interest rate - 11.6% -
monthly payments of $55,000 3,340,000
Capital lease obligations - fixed interest rates of 12.11% to 14.2%
- monthly payments of $9,000 372,000
3,839,000
Less current portion 387,000
$3,452,000
</TABLE>
In November 1997, the Company used the proceeds from a loan
by a commercial lending company to refinance all of its
outstanding notes payable to banks and finance companies, capital
lease obligations, and other long-term debt that was outstanding
at that time. This loan is part of a pool of loans financed by
the lender. A provision of this loan required the Company to pay
additional interest if certain conditions of the loan pool are
not met. This provision would require the Company to pay
additional interest each month if the loan pool conditions are
not met. These monthly payments, if required, may increase the
interest costs by a maximum of $400,000 over the life of the
loan. At year end, the Company had paid no additional interest.
The Company's debt is collateralized by substantially all of
the restaurant equipment and leasehold improvements and other
assets and is guaranteed by a company officer.
Maturities of long-term debt for each of the next five
fiscal years are $387,000 in 1999; $435,000 in 2000; $489,000 in
2001; $425,000 in 2002; and $386,000 in 2003. Interest expense
approximates interest paid for each of the last two fiscal years.
The Company has a line-of-credit agreement which provides up
to $100,000 of short-term financing at prime plus 2%. There were
no amounts available to borrow under that agreement as of year
end. Borrowings under this agreement are unsecured and mature in
December 1998. At year end the prime rate was approximately 8.5%.
The weighted average interest cost on the short-term
borrowings at year end was 10.25% and the overall average
interest rate on long term debt was 12.1%.
Certain credit and long-term debt agreements contain
covenants which include provisions for the maintenance of various
ratios. At year end the Company was in compliance with all such
covenants.
In July 1996, the Company issued $500,000 of Zero-Coupon
Convertible unregistered debentures. The debentures were
convertible into 527,983 shares of the Company's common stock
beginning on July 2000. In January 1998, the Board of Directors
amended the terms of the Company's debentures permitting
immediate conversion. On February 19, 1998, the debenture
holders exercised their conversion rights and converted the
debentures into 527,983 shares of common stock. At the time of
conversion, the debentures were owned by related parties.
The carrying amounts reported in the balance sheet for debt
approximate fair value, as estimated using discounted cash flow
analyses, based on the CompanyOs current incremental borrowing
rates for similar types of borrowing instruments.
Note C - Income Taxes
Significant components of the CompanyOs deferred tax assets and
liabilities are as follows:
Deferred tax assets:
Net operating loss carryforwards $991,000
Tax credit carryforwards 642,000
Property 335,000
Other - net 161,000
Total deferred tax assets 2,129,000
Valuation allowance for deferred tax assets 2,016,000
113,000
Deferred tax liabilities:
Prepaid and deferred costs 113,000
Net deferred tax assets $ -
The following is a reconciliation of income taxes at the
Federal statutory rate of 34% to income taxes reported in the
statements of operations based on loss before income taxes:
<TABLE>
<CAPTION>
June 28, 1998 June 29, 1997
<S> <C> <C>
Income tax benefit at the Federal statutory rate $(364,000) $(152,000)
State taxes, net of Federal deductions (47,000) (24,000)
Tax credits - (117,000)
Miscellaneous items not deductible for Federal income - 41,000
taxes
Change in valuation allowance 828,000 252,000
Income Taxes $ - $ -
</TABLE>
At year end for federal income tax purposes, the Company had
net operating loss carryforwards of approximately $2,608,000 and
investment and jobs tax credits carryforwards of approximately
$642,000. These carryforwards expire beginning in 1999.
The Company has provided a valuation allowance for deferred
tax assets, which may not be realized through future taxable
income and the reversals of taxable temporary differences.
Because of lower than expected revenues and earnings, management
increased the valuation allowance resulting in income tax expense
of $107,000.
Note D - Leases
The Company leases eighteen restaurant facilities and its
corporate headquarters under noncancelable operating lease
agreements with initial lease terms expiring between 1999 and
2011. Eighteen of the restaurant leases have remaining renewal
options, and fifteen provide for contingent rentals based on
sales performance in excess of specified minimums. Contingent
rentals were not material in any year. Some of the leases also
have varying escalation clauses based either on fixed dollar
increases, a percentage of the previous minimum annual rental, or
the consumer price index. Amortization of assets recorded under
capital leases is included in depreciation expense.
The Company subleases three restaurant facilities under
noncancelable sublease agreements with lease terms expiring from
2005-2012. The Company revised and increased its reserve for the
difference between anticipated sublease income and the Company's
minimum commitment under these leases by $1,630,000. This
reserve is included in deferred revenue and other liabilities.
Future minimum lease and sublease payments were as follows
at year end:
Operating Leases
Lease Sublease Net Capital Leases
1999 $1,439,000 $231000 $1,128,000 $111,000
2000 1,365,000 233,000 1,056,000 111,000
2001 1,199,000 265,000 854,000 111,000
2002 1,113,000 265,000 767,000 111,000
2003 865,000 265,000 540,000 55,000
Thereafter 3,402,000 1,048,000 2,354,000 -
499,000
Less unamortized discount (12.1-14.2%) (127,000)
$372,000
Rent expense for real estate on all the CompanyOs operating
leases was $1,594,000 in 1998 and $1,560,000 in 1997.
Included in Property, Equipment and Other are assets subject
to capital leases of:
Equipment and Leasehold Improvements $649,000
Accumulated Amortization (245,000)
$404,000
Note E - Related Party Transactions
The Company is affiliated with L.B.G., Inc. ("LBG"), through
common ownership. The Company charges LBG for accounting and
administrative services based on the gross sales of each company.
The amounts reimbursed in 1998 and in 1997 were nominal. At June
28, 1998, LBG owed the Company $93,000 for food, rent supplies
and service.
The Company owns a 31.0% interest in LaMexiCo, L.L.C.
("LaMexiCo"), a limited liability company, that operates a
franchised Cucos in Metairie, Louisiana. The Company also manages
the restaurant for LaMexiCo, and receives 4% of net sales as
compensation. There was no undistributed income from LaMexiCo
included in the Company's retained earnings at June 28, 1998.
The restaurant opened under the development rights previously
owned by LBG. LBG currently owns 25.3% of LaMexiCo. At year
end, LaMexiCo owed the Company $32,000, which is paid current,
for management fees, royalties and other expenses.
The following summarizes the Company's relationships with
LaMexiCo.
1998 1997
Royalties received $58,000 $54,000
Management fees received $77,000 $80,000
Receivable outstanding at year end $32,000 $17,000
Equity in earnings $33,000 $25,000
LaMexiCo summarized financial information (based on the
investee's fiscal year ending April of each year):
1998 1997
Balance Sheet
Total Liabilities $259,000 $253,000
Members Equity 696,000 777,000
TOTAL ASSETS $955,000 $1,030,000
Statement of Income
Revenues $2,202,000 $1,834,000
Net Income $133,000 $115,000
The Company leases the land, building and improvements for
one Company-owned restaurant from a director. The primary term
of the lease is 15 years and expires in 2000 with an option to
renew for 15 years. The Company paid rent of $127,000 in 1998
and 1997.
The Company has agreements with Brothers Video, Inc., an
affiliated company, to supply video poker machines in nine Cucos
restaurants located in Louisiana. The term of each agreement is
10 years. The Company has the option to renew each contract for
two additional years.
Under the agreements the Company shares in the gross device
revenues less state franchise fees and receives 70% of the net
receipts. The Chairman and Chief Executive Officer of the Company
is the sole stockholder of Brothers Video, Inc. At June 28, 1998,
the Company had a current accounts receivable from Brothers
Video, Inc. of $34,000 for video poker revenues earned. The
Company's share of video poker revenues, included in sales of
food and beverages, was 3.1% and 2.6% of sales of food and
beverages in 1998 and 1997 respectively.
Also see Note B for description of issuance of $500,000 of
non interest bearing convertible debt to related parties. At
various times during 1998 an officer made advances to the Company
totaling $37,000 of which all has been repaid. The high balance
outstanding during the year was $57,000.
Note F - Stock Options
The Company's 1993 Incentive Stock Option Plan (Option Plan)
has authorized the grant of options to directors and management
personnel for up to 509,000 shares of the Company's common stock.
The option price of each incentive stock option granted may not
be less than 100% of the fair market value of the Common Stock at
date of grant. Additionally, the Company may award nonqualified
stock options under the Option Plan at an exercise price of not
less than the fair market value of the Common Stock at the date
of grant. All options granted have 10 year terms and vest and
become exercisable in four equal annual installments beginning
one year after the grant date.
The following table summarizes options outstanding for 1998.
The weighted average contractual life is 8 years.
<TABLE>
<CAPTION>
1998 1997
Weighted Weighted
Shares Avg. Price Shares Avg. Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 370,000 $1.40 395,000 $1.67
Granted 81,700 $1.04 244,000 $1.32
Forfeited (7,500) $1.51 (269,000) $1.73
Exercised - - - -
Outstanding at end of year 444,200 $1.31 370,000 $1.40
Exercisable at end of year 249,000 251,000
Exercise Price $1.18-$1.94 $1.18-$1.94
</TABLE>
The weighted average remaining contractual life of the
options outstanding is 8.5 years. The weighted average fair
value of options granted during 1998 and 1997 was $1.00 per
share.
Pro forma information regarding net income and earnings per
share is required by FASB Statement 123, Accounting for Stock
Based Compensation, which also requires that the information be
determined as if the Company has accounted for its employee stock
options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-
average assumptions for 1998 and 1997, respectively: risk-free
interest rates of 6.3% and 5.9%; no dividends; volatility factors
of the expected market price of the Company's common stock of .54
and .48; and a weighted-average expected life of the options of 5
years.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information follows (in
thousands except for earnings per share information).
1998 1997
Pro forma net loss ($1,089,000) ($662,000)
Pro forma loss per share-Basic and diluted ($.47) ($.31)
Note G - Per Share Amounts
Basic loss per share amounts are based on the weighted
average number of shares of Common Stock outstanding. Diluted
per share amounts give effect to securities (stock options)
outstanding, if any. Stock options were anti-dilutive in 1998
and 1997. The Financial Accounting Standards Board issued FAS
128, Earnings Per Share, which was effective in the period ending
December 1997. The adoption of this pronouncement had no impact
on the Company's previously reported 1997 or 1998 reported per
share amounts.
Note H - Franchise Operations
In addition to its company-owned restaurants, the Company
had five franchised restaurants in operation at the end of 1998.
During 1998 no franchised restaurants opened and no franchised
restaurants closed. During 1997, one franchised restaurant
opened and none closed.
Note I - Shareholders' Rights Agreement
In 1989 the Company declared a distribution of rights to
purchase the CompanyOs Common Stock at a rate of one right for
each outstanding share of the Company's Common Stock. The rights
were issued in February 1990. The rights are not exercisable
until ten days following the occurrence of one of the following
events: 1) acquisition by a group or person of 15% or more of the
Company's Common Stock, or 2) an announcement by a potential
acquirer of a tender or exchange offer that would result in the
ownership of 15% or more of the Company's Common Stock. Once
exercisable, unless redeemed earlier by the Company, each right
entitles the holder to buy $12 worth of shares of the CompanyOs
Common Stock for an exercise price of $6. The Company may redeem
the rights at $.01 per right at any time until 10 days after 15%
or more of the Company's Common Stock is acquired by a person or
group. The rights will expire on December 31, 1999.
Note J - Defined Contribution Plan
The Company sponsors a defined contribution savings plan
which is available to substantially all employees. Eligible
employees may contribute up to 20% of their compensation. The
Company contributes an additional amount to the plan equal to 15%
of employee contributions up to 5% of compensation. Company
contributions were $15,000 in 1998 and 1997.
Note K - Contingencies
The Company has various lawsuits arising from its normal
operations. It is the opinion of management that the outcome of
these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Shareholders
Cucos Inc.
We have audited the accompanying balance sheet of Cucos Inc.
as of June 28, 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the two years in
the period ended June 28, 1998. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above
present fairly, in all material respects, the financial position
of Cucos Inc. at June 28, 1998, and the results of its operations
and its cash flows for each of the two years in the period ended
June 28, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New Orleans, Louisiana
September 25, 1998
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act of the Registrant.
Reference is made to the information concerning the
directors of the Registrant and the nominees for re-election as
directors appearing under the caption "Election of Directors" in
the 1998 Proxy Statement. Such information is incorporated
herein by reference to the Registrant's 1998 Proxy Statement to
be filed with the Securities and Exchange Commission in October,
1998.
Reference is made to the information concerning the
executive officers of the Registrant who are not directors
appearing under the caption "Executive Officers of the Company"
in the 1998 Proxy Statement. Such information is incorporated
herein by reference to the Registrant's 1998 Proxy Statement to
be filed with the Securities and Exchange Commission in October,
1998.
Reference is made to the information concerning
compliance with Section 16(a) of the Exchange Act appearing under
the caption "Section 16A, Beneficial Ownership's Reporting
Compliance" in the 1998 Proxy Statement. Such information is
incorporated herein by reference to the Registrant's 1998 Proxy
Statement to be filed with the Securities and Exchange Commission
on October, 1998.
Item 10. Executive Compensation.
Reference is made to the information concerning
remuneration of directors and executive officers of the
Registrant appearing under the captions "Additional Information-
Executive Compensation," "Additional Information-Stock Option
Grants During Fiscal 1998," "Additional Information-Aggregated
Stock Option Exercises and Fiscal Year-Ended Option Values," and
"Additional Information-Compensation of Directors," in the 1998
Proxy Statement. Such information is incorporated herein by
reference to the Registrant's 1998 Proxy Statement to be filed
with the Securities and Exchange Commission in October, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information concerning
beneficial ownership of the Registrant's Common Stock, which is
the only class of the Registrant's voting securities, appearing
under the captions "Beneficial Ownership" and "Election of
Directors" in the 1998 Proxy Statement. Such information is
incorporated herein by reference to the Registrant's 1998 Proxy
Statement to be filed with the Securities and Exchange Commission
in October, 1998.
Item 12. Certain Relationships and Related Transactions.
Reference is made to the information regarding certain
relationships and transactions between the Registrant and its
directors, nominees for re-election as directors of the
Registrant, its executive officers, beneficial owners of 5% or
more of its Common Stock and any member of the immediate family
of any of the foregoing persons, appearing under the caption
"Additional Information-Certain Relationships and Related
Transactions" in the 1998 Proxy Statement. Such information is
incorporated herein by reference to the Registrant's 1998 Proxy
Statement to be filed with the Securities and Exchange Commission
in October, 1998.
Item 13. Exhibits and Reports on Form 8-K.
EXHIBITS
The following exhibits are filed with this Annual
Report or are incorporated herein by reference:
Exhibit Title
Number
1 2 - Joint Agreement of Merger, dated February 23,
1983, of Cu-Co's of Biloxi, Inc.
1 3-A - Copy of Articles of Incorporation of the
Registrant.
1 3-A-1 - Copy of Amendment to Articles of Incorporation of
the Registrant.
1 3-A-2 - Copy of Amendment to Articles of Incorporation of
the Registrant.
1 3-A-3 - Copy of Amendment to Articles of Incorporation of
the Registrant.
1 3-B - Copy of By-Laws of the Registrant.
2 3-B-1 - Copy of Amendment to By-Laws of Registrant.
9 3-B-2 - Amended and Restated By-Laws of the Registrant.
3 4-A - Rights Agreement, dated as of February 5, 1990,
between the Registrant and Commercial National
Bank in Shreveport.
3 4-B - Letter, dated February 26, 1991, from Whitney
National Bank to the Registrant confirming the
change of Rights Agent from Commercial National
Bank in Shreveport to Whitney National Bank.
3 4-C - Assignment of Rights Agreement, dated August 30,
1993, among Whitney National Bank, Boatmen's
National Bank and the Registrant with respect to
the change of Rights Agent from Whitney National
Bank to Boatmen's National Bank.
11 4-D - Copy of Mortgage and Security Agreement dated
April 25, 1994, with First National Bank of
Commerce for $450,000.
11 4-E - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$200,000.
11 4-F - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$250,000.
11 4-G - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$500,000.
10 4-H - Note Purchase Agreement (with Exhibits).
10 4-I - Amendment No. 1 to Rights Agreement dated March
12, 1991.
12 4-J - Assignment of Rights Agreement dated June 2,
1997, among Boatman's National Bank, ChaseMellon
Shareholder Services, L.L.C. and the Registrant
with respect to the change of Rights Agent to
ChaseMellon Shareholder Services, L.L.C.
4-K - Assignment of Rights Agreement dated September
21, 1998, among ChaseMellon shareholder Services,
L.L.C., Registrar and Transfer Company and the
Registrant with respect to the change of Rights
Agent to Registrar and Transfer Company.
1 10-A - Copy of Registrant's 1983 Stock Option Plan.
1 10-B - Copy of letter agreement between the Registrant
and certain stockholders of the Registrant
relating to piggyback registration rights.
4 10-C - Amendment No. 1 to 1983 Stock Option Plan of
Cucos Inc.
5 10-D - Amendment No. 2 to 1983 Stock Option Plan of
Cucos Inc.
5 10-E - Amendment No. 3 to 1983 Stock Option Plan of
Cucos Inc.
6 10-F - Amendment No. 4 to 1983 Stock Option Plan of
Cucos Inc.
7 10-G - Amendment No. 5 to 1983 Stock Option Plan of
Cucos Inc.
5 10-H - Form of Incentive Stock Option Agreement for 1983
Stock Option Plan.
5 10-I - Form of Non-Qualified (Employee) Stock Option
Agreement for 1983 Stock Option Plan.
5 10-J - Form of Non-Qualified (Director) Stock Option
Agreement for 1983 Stock Option Plan.
8 10-K - Description of Registrant's Bonus Plan.
9 10-L - Copy of Registrant's 1993 Stock Option Plan as
amended.
9 10-M Form of Non-Qualified Stock Option Agreement for
1993 Stock Option Plan
9 10-N Form of Incentive Stock Option Agreement for 1993
Stock Option Plan
23 - Consent of Independent Auditors
27 - Financial Data Schedule
________________________________
1 Filed as an exhibit to the Registrant's Registration
Statement on Form S-18 (Commission File No. 2-87372A) and
incorporated herein by reference.
2 Filed as an exhibit to Form 10-K for the fiscal year ended
July 1, 1984 (Commission File No. 0-12701) and incorporated
herein by reference.
3 Filed as an exhibit to Form 8-K dated February 23, 1991
(Commission File No. 0-12701), as amended by Form 8 dated
March 12, 1991, and incorporated herein by reference.
4 Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-03953) and
incorporated herein by reference.
5 Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-15785) and
incorporated herein by reference.
6 Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-26941) and
incorporated herein by reference.
7 Filed as an exhibit to Form 10-K for the fiscal year ended
June 28, 1992 (Commission File No. 0-12701) and incorporated
herein by reference.
8 Filed as an exhibit to Form 10-K for the fiscal year ended
June 28, 1987 (Commission File No. 0-12701) and incorporated
herein by reference.
9 Filed as an exhibit to Form 10-KSB for the fiscal year ended
July 3, 1994 (Commission File No. 0-12701) and incorporated
herein by reference.
10 Filed as an exhibit to Form 8-K filed August 11, 1995
(Commission File No. 0-12701) and incorporated herein by
reference.
11 Filed as an exhibit to Form 10-KSB for the fiscal year ended
July 2, 1995 (Commission File No. 0-12701) and incorporated
herein by reference.
12 Filed as an exhibit to Form 8-A dated September 11, 1998,
and incorporated herein by reference.
The Registrant is a party to various agreements
defining the rights of holders of long-term debt of the
Registrant, but no single agreement authorizes securities in an
amount which exceeds 10% of the total assets of the Registrant.
Accordingly, such agreements are omitted as exhibits as permitted
by Item 601(b) (4) (ii) of Regulation S-B.
REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the fourth
quarter of Fiscal Year ended June 28, 1998
QUALIFICATION BY REFERENCE
Information contained in this Annual Report as to the
contents of any contract or other document referred to or
evidencing a transaction referred to is necessarily not complete,
and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to this Annual
Report or incorporated herein by reference, all such information
being qualified in its entirety by such reference.
SIGNATURES
In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CUCOS INC.
Date: September 25, 1998 By:/s/ Vincent J. Liuzza, Jr.
Chairman of the Board and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934,
this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated as of
September 25, 1998.
/s/ Sidney C. Pulitzer /s/ Thomas J. Grace
Sidney C. Pulitzer, Director Thomas J. Grace, Director and
Secretary
/s/ Miguel Uria /s/ Frank J. Ferrara, Jr.
Miguel Uria, Director Frank J. Ferrara, Director
/s/ David M. Liuzza /s/ Vincent J. Liuzza, Jr.
David M. Liuzza, Director Vincent J. Liuzza, Jr., Chairman
of the Board of Directors and
Chief Executive Officer
EXHIBIT INDEX
Exhibit Title
Number
(1) 2 - Joint Agreement of Merger, dated February 23,
1983, of Cu-Co's of Biloxi, Inc.
(1) 3-A - Copy of Articles of Incorporation of the
Registrant.
(1) 3-A-1 - Copy of Amendment to Articles of Incorporation
of the Registrant.
(1) 3-A-2 - Copy of Amendment to Articles of Incorporation
of the Registrant.
(1) 3-A-3 - Copy of Amendment to Articles of Incorporation
of the Registrant.
(1) 3-B - Copy of By-Laws of the Registrant.
(2) 3-B-1 - Copy of Amendment to By-Laws of Registrant.
(9) 3-B-2 - Amended and Restated By-Laws of the Registrant.
(3) 4-A - Rights Agreement, dated as of February 5, 1990,
between the Registrant and Commercial National
Bank in Shreveport.
(3) 4-B - Letter, dated February 26, 1991, from Whitney
National Bank to the Registrant confirming the
change of Rights Agent from Commercial National
Bank in Shreveport to Whitney National Bank.
(3) 4-C - Assignment of Rights Agreement, dated August 30,
1993, among Whitney National Bank, Boatmen's
National Bank and the Registrant with respect to
the change of Rights Agent from Whitney National
Bank to Boatmen's National Bank.
(11) 4-D - Copy of Mortgage and Security Agreement dated
April 25, 1994, with First National Bank of
Commerce for $450,000.
(11) 4-E - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$200,000.
(11) 4-F - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$250,000.
(11) 4-G - Copy of Promissory Note dated October 27, 1994,
with First National Bank of Commerce for
$500,000.
(10) 4-H - Note Purchase Agreement (with Exhibits).
(10) 4-I - Amendment No. 1 to Rights Agreement dated March
12, 1991.
(12) 4-J - Assignment of Rights Agreement dated June 2,
1998, among Boatman's National Bank, ChaseMellon
Shareholder Services, L.L.C. and the Registrant
with respect to the change of Rights Agent to
ChaseMellon Shareholders Services, L.L.C.
Assignment of Rights Agreement dated September
4-K - 21, 1998, among ChaseMellon shareholder
Services, L.L.C., Registrar and Transfer Company
and the Registrant with respect to the change of
Rights Agent to Registrar and Transfer Company.
(1) 10-A - Copy of Registrant's 1983 Stock Option Plan.
(1) 10-B - Copy of letter agreement between the Registrant
and certain stockholders of the Registrant
relating to piggyback registration rights.
(4) 10-C - Amendment No. 1 to 1983 Stock Option Plan of
Cucos Inc.
(5) 10-D - Amendment No. 2 to 1983 Stock Option Plan of
Cucos Inc.
(5) 10-E - Amendment No. 3 to 1983 Stock Option Plan of
Cucos Inc.
(6) 10-F - Amendment No. 4 to 1983 Stock Option Plan of
Cucos Inc.
(7) 10-G - Amendment No. 5 to 1983 Stock Option Plan of
Cucos Inc.
(5) 10-H - Form of Incentive Stock Option Agreement for
1983 Stock Option Plan.
(5) 10-I - Form of Non-Qualified (Employee) Stock Option
Agreement for 1983 Stock Option Plan.
(5) 10-J - Form of Non-Qualified (Director) Stock Option
Agreement for 1983 Stock Option Plan.
(8) 10-K - Description of Registrant's Bonus Plan.
(9) 10-L - Copy of Registrant's 1993 Stock Option Plan as
amended.
(9) 10-M Form of Non-Qualified Stock Option Agreement for
1993 Stock Option Plan
(9) 10-N Form of Incentive Stock Option Agreement for
1993 Stock Option Plan
23 - Consent of Independent Auditors
27 - Financial Data Schedule
________________________________
(1) Filed as an exhibit to the Registrant's Registration
Statement on Form S-18 (Commission File No. 2-87372A) and
incorporated herein by reference.
(2) Filed as an exhibit to Form 10-K for the fiscal year ended
July 1, 1984 (Commission File No. 0-12701) and incorporated
herein by reference.
(3) Filed as an exhibit to Form 8-K dated February 23, 1990
(Commission File No. 0-12701), as amended by Form 8 dated
March 12, 1991, and incorporated herein by reference.
(4) Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-03953) and
incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-15785) and
incorporated herein by reference.
(6) Filed as an exhibit to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-26941) and
incorporated herein by reference.
(7) Filed as an exhibit to Form 10-K for the fiscal year ended
June 28, 1992 (Commission File No. 0-12701) and incorporated
herein by reference.
(8) Filed as an exhibit to Form 10-K for the fiscal year ended
June 28, 1987 (Commission File No. 0-12701) and incorporated
herein by reference.
(9) Filed as an exhibit to Form 10-KSB for the fiscal year ended
July 3, 1994 (Commission File No. 0-12701) and incorporated
herein by reference.
(10) Filed as an exhibit to Form 8-K filed August 11, 1995
(Commission File No. 0-12701) and incorporated herein by
reference.
(11) Filed as an exhibit to Form 10-KSB for the fiscal year ended
July 2, 1995 (Commission File No. 0-12701) and incorporated
herein by reference.
(12) Filed as an exhibit to Form 8-A dated September 11, 1998,
and incorporated herein by reference.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement (Form S-8 No. 33-26941), pertaining
to the 1993 Stock Option Plan of Cucos Inc. of our report
dated September 25, 1998, with respect to the financial
statements of Cucos Inc. included in this Annual Report
(Form 10-KSB) for the year ended June 28, 1998.
Ernst & Young LLP
New Orleans, Louisiana
September 25, 1998
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-28-1998
[PERIOD-END] JUN-28-1998
[CASH] 679,000
[SECURITIES] 4,000
[RECEIVABLES] 756,000
[ALLOWANCES] 257,000
[INVENTORY] 233,000
[CURRENT-ASSETS] 1,790,000
[PP&E] 9,506,000
[DEPRECIATION] 4,412,000
[TOTAL-ASSETS] 7,780,000
[CURRENT-LIABILITIES] 2,686,000
[BONDS] 3,452,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 5,253,000
[OTHER-SE] (3,984,000)
[TOTAL-LIABILITY-AND-EQUITY] 7,780,000
[SALES] 21,162,000
[TOTAL-REVENUES] 21,448,000
[CGS] 5,591,000
[TOTAL-COSTS] 19,047,000
[OTHER-EXPENSES] 2,667,000
[LOSS-PROVISION] 12,000
[INTEREST-EXPENSE] 517,000
[INCOME-PRETAX] (795,000)
[INCOME-TAX] 107,000
[INCOME-CONTINUING] (902,000)
[DISCONTINUED] 0
[EXTRAORDINARY] (162,000)
[CHANGES] 0
[NET-INCOME] (1,064,000)
[EPS-PRIMARY] .39
[EPS-DILUTED] .46
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
\WASHINGTON, D.C. 20549
FORM 8-A/A-4
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES PURSUANT
TO SECTION 12 (b) or (g) OF THE SECURITIES EXCHANGE ACT OF
1934
CUCOS INC.
(Exact name of registrant as specified in charter)
Louisiana 72-0915435
(State of incorporation of (IRS Employer Identification
organization) Number)
110 Veterans Blvd., Suite 222, Metairie, LA 70005
(Address of principal executive offices)
Securities to be Registered Pursuant to Section 12(b) of the
Act:
None
Securities to be Registered Pursuant to Section as (g) of
the Act:
Rights to Purchase Common Stock
(Title of class)
The undersigned registrant hereby amends the following
items of its Application for Registration on Form 8-A as set
forth below:
Item 1. Description of Registrant's securities to be
Registered.
Those portions of registrant's Application for
Registration of Rights to Purchase Common Stock on Form 8-A
filed December 17, 1990 (the "Application") as amended by
Form 8 dated March 12, 1991 (the "First Amendment"), and as
amended by a Form 8 dated August 30, 1993 (the "Second
Amendment"), as amended by a Form 8 dated September 19, 1997
(the "Third Amendment"), and the Rights Agreement (the
"Agreement") dated as of February 5, 1990, between
Registrant and Commercial National Bank in Shreveport
("Commercial") and exhibits thereto, incorporated in the
Application, as so amended by the First Amendment, the
Second Amendment, and the Third Amendment is hereby further
amended so that Registrar and Transfer Company is
substituted for ChaseMellon Shareholder Services, L.L.C. as
Rights Agent and certain minor amendments are effected to
the Rights Agreement, dated as of September 21, 1998,
between the Registrant and the original Rights Agent.
Item 2. Exhibits.
1. Amendment, Assignment and Assumption of
Rights Agreement, dated as of September 21, 1998, among
ChaseMellon Shareholder Services, L.L.C., Registrar and
Transfer Company, and the Registrant.
SIGNATURE
Pursuant to the requirements of Section 12 of the
Securities Exchange Act of 1934, the Registrant has duly
caused this registration statement to be signed on its
behalf by the undersigned, thereto duly authorized.
CUCOS INC.
September 24, 1998 By: /s/
Vincent J. Liuzza, Jr.
Chairman and Chief
Executive Officer
EXHIBIT INDEX
Exhibit Brief Description Page
4-K Amendment, Assignment and 4
Assumption of Rights Agreement
among Registrar and Transfer
Company, ChaseMellon Shareholder
Services, L.L.C., and Cucos Inc.
Exhibit 4-K
AMENDMENT, ASSIGNMENT AND ASSUMPTION OF RIGHTS AGREEMENT
Amendment, Assignment and Assumption of Rights
Agreement, dated as of September 21, 1998, by and among
ChaseMellon Shareholder Services, L.L.C. (the "Assignor"),
with a place of business at 85 Challenger Road, Overpeck
Center, Ridgefield, New Jersey 07667, Registrar and Transfer
Company with a place of business at 10 Commerce Drive,
Cranford, New Jersey 07016 ("Assignee"), and Cucos Inc., a
Louisiana corporation with its principal office at 110
Veterans Boulevard, Suite 222, Metairie, Louisiana 70005
(the "Company").
WITNESSETH:
WHEREAS, the Company and Commercial National Bank
in Shreveport ("CNB") entered into a certain Rights
Agreement, dated as of February 5, 1990 (the "Rights
Agreement"); and
WHEREAS, CNB assigned to The Whitney National Bank
("TWNB"), and TWNB assumed from CNB, CNB's rights, duties
and obligations as Rights Agent under the Rights Agreement;
and
WHEREAS, TWNB assigned to Boatmen's National Bank
("Boatmen's), and Boatmen's assumed from TWNB, TWNB's
rights, duties and obligations as Rights Agent under the
Rights Agreement; and
WHEREAS, Boatmen's assigned to ChaseMellon
Shareholder Services, L.L.C. ("CMSS"), and CMSS assumed from
Boatmen's, Boatmen's rights, duties and obligations as
Rights Agent under the Rights Agreement; and
WHEREAS, Assignor has advised the Company that it
desires to discontinue service as Rights Agent under the
Rights Agreement; and
WHEREAS, after reviewing the terms and conditions
of the Rights Agreement, Assignee has advised the Company
that Assignee desires to assume all of the rights and
obligations of Assignor under the Rights Agreement, subject
to the amendment of the Rights Agreement in certain respects
set forth herein; and
WHEREAS, the Company desires Assignee to assume
Assignor's rights and duties as Rights Agent under the
Rights Agreement effective as of the date of this
Assignment, subject to the amendment of the Rights Agreement
in certain respects set forth herein.
NOW, THEREFORE, in consideration of the promises
and covenants herein contained and for other good and
valuable consideration, intending to be legally bound, the
parties hereby agree as follows:
1. Amendment of Rights Agreement. The Rights
Agreement is hereby amended as follows:
(a) Section 21 of the Rights Agreement is
hereby amended by deleting the fifth sentence in its
entirety and replacing it with the following: "Any
successor Rights Agent, whether appointed by the Company or
by such a court, shall be a corporation organized and doing
business under the laws of the United States or any state
thereof or the District of Columbia which, is in good
standing, is registered as a Transfer Agent in accordance
with the applicable provisions of the Securities Exchange
Act of 1934, as amended, and is qualified to act as a
Transfer Agent under the rules of the New York Stock
Exchange."
(b) As amended hereby, the Rights Agreement
shall remain in full force and effect.
2. Assignment by Assignor. Assignor hereby
assigns and transfer to Assignee all of Assignee's right,
title and interest in and to the Rights Agreement, as
amended hereby, such assignment to become effective as of
the date hereof.
3. Assumption by Assignee. Assignee hereby
accepts the aforesaid assignment and transfer and agrees to
assume the performance of all the terms, covenants,
conditions and obligations of the Rights Agreement, as
amended hereby, to be performed by the Assignee as Rights
Agent thereunder, such assumption to become effective as of
the date hereof.
4. Consent of Company. The Company hereby
consents to the assignment from Assignor to Assignee and
agrees that it shall not look to Assignor for the
performance of any of the terms, covenants and conditions of
the Rights Agreement required to be performed by the
Assignee in its capacity as Rights Agent thereunder.
5. Successor and Assigns Bound. This Assignment
and all the terms, covenants and conditions herein shall
inure to the benefit of, and be binding on, the respective
successors and assigns of the parties hereto.
6. Counterparts. This Assignment may be executed
in one or more counterparts all of which taken together
shall be deemed one original.
IN WITNESS WHEREOF, this document has been
executed by the parties as of the date first written above.
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: /s/ Linda Welch
Authorized Officer
REGISTRAR AND TRANSFER COMPANY
By: /s/ William P. Tatler
Authorized Officer
CUCOS INC.
By: /s/ Vincent J. Liuzza, Jr.
Chairman and Chief
Executive Officer
