SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 9, 2000.
OR
[ ] Transition Report Pursuant to Section 13 Or 15 (D) of the Securities
Exchange Act Of 1934
Commission file number 0-12701
For the transition period from _______________ to _____________
-----------------------------
CUCOS INC.
(Exact name of small business issuer as specified in its charter)
LOUISIANA 72-0915435
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 Veterans Blvd., Suite 222, Metairie, Louisiana 70005
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code--504-835-0306
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the post 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,651,730 shares of common
stock, no par value, as of February 14, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEET
Jan. 9, 2000
UNAUDITED
Assets
Current Assets
Cash and Cash Equivalents $249,377
Receivables:
Trade, Less Allowance for Doubtful Accounts 67,087
Due from Affiliates 95,915
163,002
Inventories 173,166
Prepaid Expenses 184,015
Other Current Assets 131,900
TOTAL CURRENT ASSETS 901,460
Property, Equipment and Other
Equipment 2,498,311
Leasehold Improvements 3,537,303
6,035,614
Less Accumulated Depreciation and Amortization
and Impairment Reserves 3,810,283
2,225,331
Due from Affiliates 0
Investment in LaMexiCo, LLC 0
Deferred Costs Less Accumulated amortization of $82,784 239,391
Other Assets 239,983
TOTAL ASSETS $3,606,165
Liabilities and Shareholders' Equity
Current Liabilities
Trade Accounts Payable $1,653,971
Accrued Expenses 536,505
Accrued Payroll 150,119
Current Portion of Long-Term Debt 436,799
TOTAL CURRENT LIABILITIES 2,777,394
Long-Term Debt, Less Current Portion 3,081,546
Deferred Revenue 255,063
Net Capital Deficiency
Preferred Stock, No Par Value - 1,000,000 Shares
Authorized, 300,000 Issued and Outstanding 300,000
Common Stock, No Par Value - 20,000,000 Shares
Authorized, 2,651,730 Shares Issued and Outstanding 5,252,774
Additional Paid-in Capital 110,788
Retained Earnings (Deficit) (8,171,400)
NET CAPITAL DEFICIENCY (2,507,838)
TOTAL LIABILITIES AND NET CAPITAL DEFICIENCY $3,606,165
See Notes to Financial Statements
<TABLE>
Part I--Financial Information
<CAPTION>
CUCOS INC.
STATEMENTS OF OPERATIONS
UNAUDITED
12 Weeks 12 Weeks 28 Weeks 28 Weeks
Ended Ended Ended Ended
Jan.9,2000 Jan.10,1999 Jan.9,2000 Jan.10,1999
Restaurant Operations
<s > <C> <C> <C> <C>
Sales of Food and Beverages $3,426,786 $4,631,370 $8,826,116 $10,944,737
Restaurant Expenses:
Cost of Sales 929,205 1,319,367 2,434,356 3,111,725
Restaurant Labor and Benefits ,286,954 1,657,729 3,289,612 3,900,100
Other Operating Expenses 499,304 956,741 1,445,928 ,272,113
Occupancy Costs 371,924 528,465 919,684 1,245,642
Preopening Costs 0 10,905 0 54,525
Total Restaurant Expenses 3,087,387 4,473,207 8,089,580 10,584,105
Income From Restaurant Operations 339,399 158,163 736,536 360,632
Royalties and Franchise Revenues,
Net of Expenses Of $322 and $595 22,851 31,012 72,234 73,485
Commissary and Other Income 16,370 28,515 48,943 66,003
378,620 217,690 857,713 500,120
Operations Supervision Expenses 155,924 152,293 353,817 419,735
Corporate Expenses 318,655 394,926 668,869 834,172
Charges Related to Former
Management Settlement 374,052 0 374,052 0
Charges Related to Closed Units
and Asset Impairment 1,350 0 (71,619) 0
Operating Income (Loss) (471,361) (329,529) (467,406) (753,787)
Interest Expense 139,661 110,641 290,997 262,514
Loss Before Income Taxes (611,022) (440,170) (758,403) (1,016,301)
Income Taxes 0 668 0 668
Net Loss $(611,022) $(440,838) $(758,403) $(1,016,969)
Weighted Average Shares of Common
Stock - Basic and Diluted 2,651,730 2,651,730 2,651,730 2,651,730
Net Loss Per Share - Basic
and Diluted (0.23) (0.17) (0.29) (0.38)
</TABLE>
See Notes to Financial Statements
<TABLE>
Part I--Financial Information
<CAPTION>
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
28 Weeks 28 Weeks
Ended Ended
Jan.9,2000 Jan.10,1999
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $(412,617) $266,878
INVESTING ACTIVITIES
Proceeds from Sale of Fixed Assets 27,100 1,752
Purchase of Property and Equipment (59,937) (113,029)
NET CASH USED IN INVESTING ACTIVITIES (32,837) (111,277)
FINANCING ACTIVITIES
Proceeds from Sale of Preferred Stock 300,000 0
Change in Short Term Debt Payable to Banks 0 (100,000)
Principal Payments on Borrowings (121,579) (220,249)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 178,421 (320,249)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (267,033) (164,648)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 516,410 626,653
CASH AND CASH EQUIVALENTS AT END OF PERIOD $249,377 $462,005
NON CASH FINANCING AND INVESTING ACTIVITIES
Property and Equipment Acquired Through a
Capital Lease $48,349 $ -
</TABLE>
See Notes to Financial Statements
Reclassifications have been made to conform to current classifications.
CUCOS INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The Company: Cucos Inc. (the "Company") owns and franchises Mexican
restaurants under the name "Cucos". At January 9, 2000, twelve Company-owned
restaurants and five franchised restaurants were in operation. At the end of
the Comparable Quarter, there were fifteen company-owned and five franchised
restaurants in operation.
2. Fiscal Year: The Company uses a 52/53 week year for financial reporting
purposes with the Company's fiscal year ending on the Sunday closest to June
30 of each year. Fiscal 2000 will end on July 2, 2000, and will consist of
one sixteen-week quarter ending October 17, 1999, and two twelve-week
quarters ending January 9, 2000, and April 2, 2000, and one thirteen-week
quarter ending July 2, 2000. Fiscal 2000 will have a 53 week year, while
fiscal year 1999 was a 52 week year.
3. The accompanying unaudited financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in the financial statements have been omitted pursuant to such rules and
regulations. It is suggested that these financial statements be read in
conjunction with the Company's Annual Report for the fiscal year ended June
27, 1999. In the opinion of management, these financial statements contain
all normal recurring adjustments necessary to fairly present the financial
results for the twenty-eight weeks ended January 9, 2000. Operating results
for the period shown are not necessarily indicative of the operating results
expected for the full fiscal year ending July 2, 2000.
4. Per share amounts are based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding.
5. The Company has a credit facility with a commercial lending institution.
This credit facility consists of a term loan to be repaid in monthly payments
through December 2007, and is secured by restaurant operating properties. In
May 1999, the Company and its commercial lender entered into a forbearance
agreement whereby the commercial lender agreed to defer the Company's
requirement to make required principal and interest payments for May, June
and July 1999 until April 2001, and to defer required principal payments for
August, September and October 1999 until April 2001. The deferred payments
will bear interest at 14.6% until paid. As of the date hereof, the lender has
agreed that the Company will be permitted to make interest only payments on a
month-to-month basis, contingent upon the Company making good faith efforts
to sell the Company or its assets. The Company is attempting to negotiate
additional payment deferrals in fiscal year 2000. There can be no assurances
that the Company will be able to obtain additional deferrals.
6. Because of the Company's recurring losses from operations, its net capital
deficiency, and its default on its credit facility, there is substantial
doubt about the Company's ability to continue as a going concern. The Company
has taken steps to refocus its operations, reverse sales declines and
increase restaurant profitability. However, considering, among other things,
the Company's historical operating losses and the current lack of commitments
from third parties to provide short-term or long-term financial resources,
there can be no assurance that this action will have the expected effect on
the Company's results of operations and its cash flows in fiscal 2000.
7. On February 3, 2000, the Company dismissed its appeal of the judgment
rendered in the case of "Cucos, Inc. Vs. Elie V. Khoury", being Civil Action
No. 532-296 on the docket of the 24th Judicial District court for the Parish
of Jefferson, State of Louisiana. Mr. Elie V. Khoury dismissed his
reconventional demand against the Company. The Company and Mr. Khoury
entered into an agreement of full settlement and release with respect to the
matters involved in the lawsuit.
A contractor built a restaurant for a franchisee and affiliated company,
L.B.G., Inc. The contractor was not paid by L.B.G. Inc. and the contractor
has sued the Company for $65,000.
On April 11, 1990, a franchisee filed a complaint against the Company 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 eight years except for a discovery request filed in
January, 1997, which avoided a dismissal of the litigation for non-
prosecution. The Company believes it will prevail in this matter.
The Company has various other lawsuits arising from its normal operations for
which the Company carries appropriate levels of insurance. 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.
8. Certain reclassifications of previously reported amounts have been made to
conform to current classifications.
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales of Food and Beverage for the twelve weeks ended January 9, 2000 (the
"Current Quarter") decreased $1,204,584 (26.01%) to $3,426,786 from $4,631,370
for the twelve weeks ended January 10, 1999 (the "Comparable Quarter").
Sales of Food and Beverage for the First Half ended January 9, 2000 ("Current
First Half") decreased $2,118,621 (19.4%) to $8,826,116 from $10,944,737 for
the First Half ended January 10, 1999 (the "Comparable First Half"). This
decline is due primarily to twelve restaurants operating in the Current
Quarter and First Half compared to fifteen restaurants in operation during
the Comparable Quarter and Comparable First Half. Sales in the restaurants
open throughout both Quarters ("existing restaurants") declined 14.3%. Guest
counts in the existing restaurants declined 17.4% in the Current Quarter
compared to the Comparable Quarter. In addition, video poker revenues
declined 60.4% to $57,063 in the Current Quarter compared to $144,223 in the
Comparable Quarter. This reduction was due to the ban on video poker devices
in five parishes in which the Company operates in Louisiana. The ban became
effective June 30, 1999.
Two company-owned restaurants were closed during the First Quarter of the
Current Fiscal Year -- Birmingham, Alabama, on July 18, 1999, and Montgomery,
Alabama, on October 16, 1999. Both restaurants were sold to former
employees who are operating the locations as franchisees of the Company.
The Company owned restaurant in Meridian, Mississippi, closed during the
Third Quarter of Fiscal Year 1999.
Restaurant Expenses in the Current Quarter and the Current First Half decreased
$1,385,820 (31%) to $3,087,387 from $4,473,207 and $2,494,525 (23.6%) to
$8,089,580 from $10,584,105, respectively. Restaurant Expenses in the existing
restaurants open throughout both Quarters decreased 16.9% in the Current
Quarter compared to the Comparable Quarter.
A summary of the components of restaurant expenses are:
Current Comparable
Description Quarter Quarter
Cost of Sales 27.12% 28.49%
Restaurant Labor and Benefits 37.56 35.79
Other Operating Expenses 14.57 20.66
Occupancy Costs 10.85 11.41
Preopening Costs 0.00 0.24
Total Restaurant Expenses 90.10% 96.59%
Income from Restaurant Operations increased to $339,399 in the Current Quarter
from $158,163 in the Comparable Quarter -- a net improvement of $181,236
(114.6%). Income from restaurants open throughout both periods increased
$52,469 (17.6%). Income from Restaurant Operations for the Current First
Half increased $375,904 (104.2%) to $736,536 compared to $360,632 during
the Comparable First Half.
Net Royalties and Franchise Revenues decreased $8,161 (26.3%) to $22,851 in the
Current Quarter compared to $31,012 in the Comparable Quarter. Net Royalties
and Franchise Revenues decreased $1,251 (1.7%) to $72,234 from $73,485 for
the Current and Comparable First Halves, respectively. The decrease in
royalty revenue in the Current Quarter is primarily due to the closed
franchised restaurants in Des Moines, Iowa, and Boynton Beach, Florida,
which were open a full quarter in the Comparable Quarter. The Royalty
Revenue from the two franchised restaurants opened in the First Quarter of
Fiscal 2000 were considerably less than the Revenue from the established,
now closed restaurants.
Commissary and Other Income declined $12,145 (42.6%) to $16,370 in the Current
Quarter compared to $28,515 in the Comparable Quarter, and declined $17,060
(25.9%) to $48,943 in the Current First Half from $66,003 in the Comparable
First Half. The decrease is primarily due to a reduction in management fee
income associated with a franchised restaurant, and to reduced internal
sales of items carried by the Commissary.
Operations Expenses increased $3,631 (2.4%) to $155,924 in the Current Quarter
from $152,293 in the Comparable Quarter. The increase in expenses is primarily
the result of an increase in the allowance for bad debt provision offset by
reduced costs associated with management training labor and benefits and
supervisory expenses. Operation Expenses in the Current First Half declined
$65,918 (15.7%) to $352,817 from $419,735 in the Comparable First Half due to
reduced training and supervisory costs.
Corporate Expenses decreased $76,271 (19.3%) to $318,655 in the Current Quarter
compared to $394,926 in the Comparable Quarter. This decline is attributable
to reductions of personnel in the marketing, construction, accounting, and
legal departments and other cost reduction actions. Corporate Expenses
decreased $165,303 (19.8%) to $668,869 in the Current First Half from
$834,172 in the Comparable First Half.
The Company recorded a one-time expense of $374,052 in the Current Quarter in
connection with the settlement with the former Board and its Chairman and CEO.
This expense includes amounts attributable to the transfer of the Company's
interest in a franchisee to Vincent J. Liuzza, Jr. and the Company's
forgiveness of debts owed to the Company by Mr. Liuzza and his affiliates.
The Company believes that the settlement was in the best interests of the
Company and its shareholders because, among other things, the settlement
will eliminate substantial operating costs that historically were paid to
Mr. Liuzza, his family and associates.
Charges Related to Closed Units during the Current Quarter were $1,350. There
were no charges in the Comparable Quarter. Charges Related to Closed Units
decreased $71,619 in the Current First Half versus the Comparable First Half
due to the settlements management has negotiated with landlords that resulted
in forgiveness of accrued expenses for those units. In addition, the Company
recorded a gain on the sale of the Montgomery, Alabama, assets during the
Current First Half.
As a result of the above factors, the Operating Loss in the Current Quarter
increased $141,832 (43%) to $471,361 versus $329,529 in the Comparable
Quarter. The Operating Loss in the Current First Half decreased $286,381
(38%) to a loss of $467,406 from $753,787 in the Comparable First Half.
Interest Expense increased $29,020 (26.2%) to $139,661 in the Current Quarter
compared to $110,641 in the Comparable Quarter. The increase is due to
additional interest (enhancement charges) on the credit facility which will
be discussed in detail in Part II. Interest increased $28,483 (10.9%) to
$290,997 in the Current First Half from $262,514 in the Comparable First Half.
The Net Loss for the Current Quarter increased $170,184 (38.6%) to a loss of
$611,022 versus a net loss in the Comparable Quarter of $440,838. The Net Loss
for the Current First Half decreased $258,566 (25.4%) to a loss of $758,403
from a loss of $1,016,969 in the Comparable First Half.
LIQUIDITY AND CAPITAL RESOURCES
During the Current First Half, the Company's operating activities used $412,617
compared to the Comparable First Half, when operating activities provided
$266,878. The Company reduced trade accounts payable by $508,000 partially
funded by a $200,000 advance payment of royalties from a franchisee. During
the Comparable First Half, the Company received $350,000 in advance payment of
royalties and management fees from a franchisee and advance video poker
receipts from a video poker vendor.
Cash used by Investing activities was $32,837 in the Current First Half
compared to cash used of $111,277 in the Comparable First Half. The Company
received $25,000 from the sale of leasehold improvements and equipment of
the Montgomery, Alabama, restaurant, which was franchised in October, 1999.
Additional payments aggregating $50,000 are due from the franchisee in
February, March, April and May, 2000.
Cash provided by Financing activities was $178,421 in the Current First Half
compared to cash used of $320,249 in the Comparable First Half. The Company
received $300,000 from the sale of preferred stock during the Current Quarter.
Payments included principal payments on capital leases as well as current and
back installments on the credit facility with a commercial lending institution.
This credit facility consists of a term loan to be repaid in monthly payments
through December, 2007, and is secured by the restaurant operating properties.
In May, 1999, the Company and its commercial lender entered into a forbearance
agreement whereby the commercial lender agreed to defer the Company's required
principal and interest payments for May, June, and July, 1999, until April,
2001, and to defer the required principal payments for August, September,
and October, 1999, until April, 2001. The deferred payments will bear
interest at 14.6% until paid. The Company did not make its required interest
payments on October 1, 1999, nor did it make its required principal and
interest payments on November 1, 1999, and was therefore in default on its
credit facility. However, on January 8, 2000, the Company made payments that
resulted in a month-to-month forbearance agreement based upon the progress
made in selling or merging the Company.
FORWARD-LOOKING STATEMENTS
Forward-looking statements regarding management's present plans or
expectations for new unit openings, remodels, other capital expenditures,
the financing thereof, and disposition of impaired units, involve risks and
uncertainties relative to return expectations and related allocation of
resources, and changing economic or competitive conditions, as well as the
negotiation of agreements with third parties, which could cause actual
results to differ from present plans or expectations, and such differences
could be material. Similarly, forward-looking statements regarding
management's present expectations for operating results
involve risk and uncertainties relative to these and other factors, such as
advertising effectiveness and the ability to achieve cost reductions, which
also would cause actual results to differ from present plans. Such
differences could be material. Management does not expect to update such
forward-looking statements continually as conditions change, and readers
should consider that such statements speak only as to the date hereof.
Part II-Other Information
ITEM 1. LEGAL PROCEEDINGS.
On February 3, 2000, the Company dismissed its appeal of the judgment
rendered in the case of "Cucos, Inc. Vs. Elie V. Khoury", being Civil
Action No. 532-296 on the docket of the 24th Judicial District court for
the Parish of Jefferson, State of Louisiana. Mr. Elie V. Khoury
dismissed his reconventional demand against the Company. The Company
and Mr. Khoury entered into an agreement of full settlement and release
with respect to the matters involved in the lawsuit.
ITEM 2. CHANGES IN SECURITIES.
As of the date hereof, the Company has issued 400,000 shares of Series A
Convertible Preferred Stock. These preferred shares, if they are not
converted into Common Stock, will have a $400,000 preference in any
liquidation of the Company before any amounts would be paid to the
holders of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company has a credit facility with a commercial lending institution.
This credit facility consists of a term loan to be repaid in monthly
payments through December 2007, and is secured by the restaurant
operating properties. In May 1999, the Company and its commercial lender
entered into a forbearance agreement whereby the commercial lender
agreed to defer the Company's requirement to make required principal and
interest payments for May, June and July 1999 until April 2001, and to
defer required principal payments for August, September and October 1999
until April 2001. The deferred payments will bear interest at 14.6%
until paid. . As of the date hereof, the lender has agreed that the
Company will be permitted to make interest payments only on a month-to-
month basis, contingent upon the Company making good faith efforts to
sell the Company or its assets. The Company is attempting to negotiate
additional payment deferrals in fiscal year 2000. There can be no
assurances that the Company will be able to obtain additional deferrals.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of stockholders during the
period covered by this report. However, effective on Friday, November
5, 1999, the holders of a majority of the Company's outstanding common
stock, acting by written consent, removed six members of the board of
directors, and elected a new group of directors. The new board is
composed of Frank J. Ferrara, Jr. (Chairman and the sole continuing
director), James W. Osborn, Joseph S. Feth, Lee W. Randall, Elias Daher
and Thomas L. McCormick.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
27 - Financial Data Schedule
b. Reports on Form 8-K.
Current Report on Form 8-K filed November 12, 1999.
INDEX TO EXHIBITS
The following exhibits are filed with this Quarterly Report or is
incorporated herein by reference:
Exhibit Number, Title
27 Financial Data Schedule
CUCOS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUCOS INC.
(Registrant)
James W. Osborn
Date: February 23, 2000 By:
James W. Osborn, President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-02-2000
<PERIOD-END> JAN-09-2000
<CASH> 249,377
<SECURITIES> 3,968
<RECEIVABLES> 570,184
<ALLOWANCES> (407,182)
<INVENTORY> 173,166
<CURRENT-ASSETS> 901,460
<PP&E> 6,035,614
<DEPRECIATION> 3,810,283
<TOTAL-ASSETS> 3,606,165
<CURRENT-LIABILITIES> 2,777,394
<BONDS> 0
0
300,000
<COMMON> 5,252,774
<OTHER-SE> (2,507,838)
<TOTAL-LIABILITY-AND-EQUITY> 3,606,165
<SALES> 3,426,786
<TOTAL-REVENUES> 3,466,007
<CGS> 929,205
<TOTAL-COSTS> 3,087,387
<OTHER-EXPENSES> 797,905
<LOSS-PROVISION> 52,076
<INTEREST-EXPENSE> 139,661
<INCOME-PRETAX> (611,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (611,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (611,022)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
