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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly Report under Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended October 22, 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: 2,663,605 shares of common stock, no par value, as of December 1, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEET
Oct. 22, 2000 |
|
UNAUDITED |
|
Assets |
|
Current Assets |
|
Cash |
$ 260,923 |
Receivables less allowance for doubtful accounts of $56,569 |
19,894 |
Due from Affiliates |
- |
Inventories |
161,594 |
Prepaid Expenses |
205,571 |
Other Current Assets |
4,000 |
|
|
TOTAL CURRENT ASSETS |
651,982 |
Property, Equipment and Other |
|
Equipment |
2,108,597 |
Leasehold Improvements |
3,028,359 |
|
|
5,136,956 |
|
Less Accumulated Depreciation and Amortization and Impairment Reserves |
3,143,469 |
|
|
1,993,487 |
|
|
|
Deferred Costs Less Accumulated Amortization of $9,318 |
216,096 |
Other Assets |
286,248 |
|
|
TOTAL ASSETS |
$3,147,813 |
|
|
Liabilities and Shareholders' Equity |
|
Current Liabilities |
|
Trade Accounts Payable |
1,382,107 |
Accrued Interest |
261,977 |
Accrued Expenses |
548,990 |
Current Portion of Long-Term Debt |
190,649 |
Current Portion of Debt in Default |
3,105,031 |
|
|
TOTAL CURRENT LIABILITIES |
5,488,754 |
Long-Term Debt, Less Current Portion |
376,187 |
Deferred Revenue |
284,885 |
Net Capital Deficiency |
|
Convertible Preferred Stock, No Par Value - 1,000,000 |
|
Common Stock, No Par Value - 20,000,000 Shares |
5,264,649 |
Additional Paid-in Capital |
110,788 |
Retained Earnings (Deficit) |
(8,777,450) |
|
|
NET CAPITAL DEFICIENCY |
(3,002,013) |
|
|
TOTAL LIABILITIES AND NET CAPITAL DEFICIENCY |
$3,147,813 |
|
See Notes to Financial Statements
Part I--Financial Information
CUCOS INC.
STATEMENTS OF OPERATIONS
UNAUDITED
16 Weeks Ended |
16 Weeks Ended |
||
Oct. 22, 2000 |
Oct. 17, 1999 |
||
Restaurant Operations |
|||
Sales of Food and Beverages |
$ 4,558,800 |
$ 5,399,329 |
|
Restaurant Expenses: |
|||
Cost of Sales |
1,180,016 |
1,505,151 |
|
Restaurant Labor and Benefits |
1,671,460 |
2,002,657 |
|
Other Operating Expenses |
905,728 |
946,624 |
|
Occupancy Costs |
506,857 |
547,760 |
|
|
|
||
Total Restaurant Expenses |
4,264,061 |
5,002,192 |
|
|
|
||
Income from Restaurant Operations |
294,739 |
397,137 |
|
Royalties and Franchise Revenues, Net of Expenses |
|
|
|
Commissary and Other Income |
6,714 |
32,574 |
|
|
|
||
335,646 |
479,094 |
||
Operations Supervision Expenses |
169,475 |
197,893 |
|
Corporate Expenses |
265,296 |
350,214 |
|
Charges Related to Closed Units and Asset Impairment |
- |
(72,968) |
|
|
|
||
Operating Income (Loss) |
(99,125) |
3,955 |
|
Interest Expense |
211,536 |
151,336 |
|
|
|
||
Income (Loss) Before Income Taxes |
(310,661) |
(147,381) |
|
Income Taxes |
- |
- |
|
|
|
||
Net Loss |
$ (310,661) |
$ (147,381) |
|
|
|
||
Weighted Average Shares of Common Stock and |
|
|
|
|
|
||
Net Loss Per Share - Basic and Diluted |
$(0.12) |
$(0.06) |
|
|
|
See Notes to Financial Statements
Part I--Financial Information
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
16 Weeks |
16 Weeks |
|
Ended |
Ended |
|
Oct. 22, 2000 |
Oct. 17, 1999 |
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
$ (164,804) |
$ (96,310) |
INVESTING ACTIVITIES |
||
Proceeds from Sale of Fixed Assets |
- |
25,000 |
Purchase of Property and Equipment |
(41,083) |
(44,389) |
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
(41,083) |
(19,389) |
FINANCING ACTIVITIES |
||
Proceeds from Borrowing |
220,000 |
- |
Principal Payments on Borrowings |
(21,902) |
(24,691) |
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
198,098 |
(24,691) |
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(7,789) |
(140,390) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
268,712 |
516,410 |
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ 260,923 |
$ 376,020 |
|
|
|
NON CASH FINANCING AND INVESTING ACTIVITIES |
||
Property and Equipment Acquired Through a Capital Lease |
$ - |
$ 48,349 |
|
|
See Notes to Financial Statements
CUCOS INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The Company: Cucos Inc. (the "Company") owns and franchises Mexican restaurants under the name "Cucos". At October 22, 2000, twelve Company-owned restaurants and four franchised restaurants were in operation. At the end of the Comparable
Quarter, there were twelve company-owned and five franchised restaurants in operation. Two company-owned restaurants were sold to franchisees during the Comparable Quarter.
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 2001 will end on July 1, 2001, and consists of one sixteen-week quarter that ended October 22, 2000, and three twelve-week quarters ending January 14, 2001, and April 8, 2001, and July 1, 2001. Fiscal 2000 was a 53 week year, while fiscal year 2001 will be a 52 week year.
3. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principals. It is suggested that these financial statements be read in conjunction with the Company's Annual Report for the fiscal year ended July 2, 2000. In the opinion of management, these financial statements contain all normal recurring adjustments necessary to fairly present the financial results for the sixteen weeks ended October 22, 2000. Operating results for the period shown are not necessarily indicative of the operating results expected for the full fiscal year ending July 1, 2001.
4. Per share amounts are based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding.
5. 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 2001.
6. 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 sixteen weeks ended October 22, 2000 (the "Current Quarter") decreased $840,529 (15.6%) to $4,558,800 from $5,399,329 for the sixteen weeks ended October 17, 1999 (the "Comparable Quarter"). The decline in sales is due
primarily to two fewer restaurants in operation during the Current Quarter, a reduction in video poker income, and a decline in guest counts in the restaurants open throughout both quarters.
Two company-owned restaurants in Birmingham and Montgomery, Alabama, were closed during the Comparable Quarter accounting for 6.1% of the decline. Sales in restaurants open throughout both the Current and Comparable Quarters declined 8.5%, and the reduction in video poker revenue was .9%.
Restaurant Expenses in the Current Quarter decreased $738,131 (14.8%) to $4,264,061 from $5,002,192. Restaurant Expenses in the existing restaurants open throughout both quarters decreased $391,692 (8.4%).
A summary of the components of restaurant expenses are:
Description |
Current Quarter |
Comparable Quarter |
Cost of Sales |
25.9% |
27.9% |
Restaurant Labor and Benefits |
36.7 |
37.1 |
Other Operating Expenses |
19.9 |
17.5 |
Occupancy Costs |
11.1 |
10.1 |
|
|
|
Total Restaurant Expenses |
93.6% |
92.6% |
|
|
Net Royalties and Franchise Revenues declined $15,190 (30.8%) to $34,193 in the Current Quarter compared to $49,383 in the Comparable Quarter. During the Comparable Quarter, the franchise restaurant in Des Moines, Iowa, closed and the Development Agreement fee of $17,000 forfeited. Royalties from franchised restaurants open throughout both quarters increased 1.1%.
Commissary and Other Income decreased $25,860 (79.4%) to $6,714 from $32,574. During the second quarter of Fiscal Year 2000, the Company's contract to manage a franchised restaurant was cancelled. The reduction in the management fee income was $20,426, and the Company share of profits for this restaurant declined an additional $4,996 versus the Comparable Quarter.
Operations Supervision Expenses declined $28,418 (14.4%) to $169,475 in the Current Quarter compared to $197,893 in the Comparable Quarter. The decrease is primarily a reduction in the labor and benefit costs of the supervision personnel. In addition, costs associated with the supervision of the franchised restaurant discussed above were eliminated.
Corporate Expenses declined $84,918 (24.3%) to $265,296 in the Current Quarter compared to $350,214 in the Comparable Quarter. The reduction is primarily attributed to negotiated reductions of various vendor payables resulting in savings of $46,000. Furthermore, personnel reduction in the administrative and marketing departments as well as the downsize of the corporate offices resulted in additional savings.
Charges Related to Closed Units recorded income of $72,968 during the Comparable Quarter resulting from settlements with landlords to release the Company of its obligations and the forgiveness of accrued expenses for two underperforming closed units. Additionally, the Company recorded a gain on the sale of the Montgomery, Alabama, assets of $25,000 in the Comparable Quarter.
Interest Expenses increased $60,200 (39.8%) to $211,536 in the Current Quarter compared to $151,336 in the Comparable Quarter. This increase is primarily additional interest associated with the Company's credit facility, which is discussed in detail in
the
Liquidity and Capital Resources section. .
LIQUIDITY AND CAPITAL RESOURCES
During the Current Quarter, the Company's operating activities used $164,804 in cash, compared to the Comparable Quarter, when operating activities used $96,310 in cash.
Net cash used by investing activities was $41,083 in the Current Quarter versus $19,389 in the Comparable Quarter. During the Comparable Quarter, the Company received a down payment of $25,000 from the sale of leasehold improvements and equipment for the Montgomery restaurant which was franchised in October of 1999.
Net cash provided by financing activities was $198,098 in the Current Quarter compared to cash used of $24,691 in the Comparable Quarter. During the Current Quarter, the Company signed a line of credit agreement with Jacksonville Restaurant Acquisition Corp. (JRAC) for a maximum of five million dollars. $220,000 was drawn down from the line during the Current Quarter.
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 Company did not make its required interest payment on October 1, 1999, nor did it make its required principal and interest payment on November 1, 1999 and December 1, 1999, and was therefore in default on its credit facility. The Company received notice from its commercial lender that under the terms of the credit facility, the entire amount outstanding, $3,105,031 at October 17, 1999 was immediately due, and the lender could take possession of the assets pledged as collateral. Until September 1, 2000, the commercial lender agreed, pursuant a forbearance agreement, to not exercise its rights to the collateral. The Company is attempting to obtain financing through JRAC to repay the debt in default, negotiate a waiver of the credit facility default, or obtain additional payment deferrals in fiscal year 2001. There can be no assurances that the Company will be successful in these efforts.
On September 29, 2000, the Company entered into a ten year Line of Credit Agreement (the "Credit Agreement") with JRAC, the Company's majority shareholder. Under the terms of the Credit Agreement, JRAC may in its discretion lend the Company up to $5 million for working capital, payment of outstanding indebtedness, refurbishing units, establishing new units, and future acquisitions. The loan is secured by substantially all of the assets of the Company. Advances will accrue interest at an annual rate equal to three percentage points above the prime lending rate of Wells Fargo Bank. JRAC will receive an origination fee of two percent of the amount of each cash advance. Beginning January 1, 2001, the outstanding loans (which include $220,000 advanced from August 14, 2000 to October 6, 2000) will be repayable in monthly installments of principal and interest. The Company has the right to prepay in whole or part at any time any indebtedness outstanding under the Credit Agreement. Future advances under this line of credit are subject to the willingness and ability of JRAC to fund such advances. JRAC has advised the Company that it is not willing to make further advances under the Credit Agreement and, instead, has initiated discussions with the Company concerning other financial arrangements.
Because of the Company's recurring net losses, the debt in default, its net capital deficiency, and the lack of firm commitments from third parties to provide short-term or long-term financial resources, there can be no assurance that the Company will be able to meet its obligations as they come due in 2001.
FORWARD-LOOKING STATEMENTS
Forward-looking statements regarding management's present plans or expectations for new unit openings, remodels, other capital expenditures, the financing thereof, and disposition of impaired units, involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with third parties, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding management's present expectations for operating results involve risk and uncertainties relative to these and other factors, such as advertising effectiveness and the ability to achieve cost reductions, which also would cause actual results to differ from present plans. Such differences could be material. Management does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements speak only as to the date hereof.
Part II-Other Information
ITEM 1. LEGAL PROCEEDINGS.
None, except as previously reported.
ITEM 2. CHANGES IN SECURITIES.
In August 2000, pursuant to a tender offer to the Company's shareholders, the Jacksonville Restaurant Acquisition Corp. (JRAC) purchased 1.2 million shares of the Company's Common Stock for $1,200,000 in cash. During fiscal 2000, JRAC purchased 400,000 shares of convertible Preferred Stock at $1 per share.
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 Company did not make its required interest payment on October 1, 1999, nor did it make its required principal and interest payment on November 1, 1999 and December 1, 1999, and was therefore in default on its credit facility. The Company received notice from its commercial lender that under the terms of the credit facility, the entire amount outstanding, $3,105,031 at October 17, 1999 was immediately due, and the lender could take possession of the assets pledged as collateral. Until September 1, 2000, the commercial lender agreed, pursuant a forbearance agreement, to not exercise its rights to the collateral. The Company is attempting to obtain financing through JRAC to repay the debt in default, negotiate a waiver of the credit facility default, or obtain additional payment deferrals in fiscal year 2001. There can be no assurances that the Company will be successful in these efforts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders was held on November 9, 2000. The following matters were voted on and received the specified number of votes for, against and abstaining.
1. Election of Directors:
Name of Nominees |
Votes For |
Votes Withheld |
James W. Osborn |
2,708,511 |
13,121 |
Calvin O. Cox |
2,708,511 |
12,121 |
Elias Daher |
2,708,511 |
13,121 |
Dennis A. Grinn |
2,708,511 |
13,121 |
Thomas L. McCormick |
2,708,511 |
13,121 |
Lee W. Randall |
2,708,511 |
13,121 |
William F. Saculla |
2,708,511 |
13,221 |
2. Appointment of independent public accountants, Ernst & Young, LLP, for the Fiscal Year 2001: 2,721,411 votes for; 320 votes against; and 1 vote abstaining.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
27 - Financial Data Schedule
b. Reports on Form 8-K.
None.
INDEX TO EXHIBITS
The following exhibits are filed with this Quarterly Report or is incorporated herein by reference:
Exhibit Number |
Title |
27 |
Financial Data Schedule |
CUCOS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CUCOS INC. |
||
(Registrant) |
||
Date: December 6, 2000 |
By: /s/ James W. Osborn |
|
James W. Osborn, President and Chief |
||
Executive Officer |
|