SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---EXCHANGE ACT OF 1934.
For the quarterly period ended March 17, 1996
--------------
Commission File Number 0-14650
RUDY'S RESTAURANT GROUP, INC.
Nevada 88-0210808
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11900 Biscayne Blvd., Suite 806, Miami, FL 33181
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(305) 895-7200
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 26, 1996
----------------------- -----------------------------
Common Stock, par value 3,765,000
$.01 per share
PAGE
<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 17, 1996
and October 1, 1995 3
Consolidated Statements of Operations -
Twelve weeks and Twenty-four weeks ended
March 17, 1996 and March 19, 1995 4
Consolidated Statements of Cash Flows -
Twenty-four weeks ended March 17, 1996 and
March 19, 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 12
PAGE
<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
ASSETS
<S> <C> <C>
3/17/96 10/1/95
------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 1,964,342 $ 1,476,652
Accounts receivable 30,454 5,915
Inventories 222,904 162,685
Prepaid expenses 127,532 107,924
------------ ------------
Total current assets 2,345,232 1,753,176
------------ ------------
Property and Equipment, net 3,562,351 2,094,841
Goodwill, net of accumulated
amortization of $319,824
at March 17, 1996 and
$309,441 at October 1, 1995 610,050 529,658
Other assets 723,760 204,783
------------ ------------
$ 7,241,393 $ 4,582,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 344,985 $ ---
Due to related parties 107,419 105,076
Accounts payable and accrued expenses 1,067,362 840,364
------------ ------------
Total liabilities 1,519,766 945,440
------------ ------------
Notes payable and other long-term debt,
excluding current maturities 1,239,859 ---
Commitments and contingencies (Note 3)
Stockholders' Equity:
Preferred stock, $.01 par value.
Authorized 10,000,000 shares,
none issued.
Common stock, $.01 par value.
Authorized 30,000,000 shares;
issued and outstanding 3,765,000 shares 37,650 35,200
Paid-in capital 17,852,403 17,823,603
Accumulated (deficit) (13,408,285) (14,221,785)
------------ ------------
Net stockholders' equity 4,481,768 3,637,018
------------ ------------
$ 7,241,393 $ 4,582,458
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> Page 3<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Twelve Weeks Ended Twenty-four Weeks Ended
3/17/96 3/19/95 3/17/96 3/19/95
----------- ----------- ----------- -----------
Total Revenues $3,521,275 $2,721,248 $6,039,218 $5,171,779
Costs and expenses variable
with revenues 1,676,258 1,437,825 2,991,674 2,762,292
Restaurant operating expenses 961,115 754,083 1,709,336 1,505,775
Depreciation and amortization 76,045 51,013 136,618 124,400
----------- ---------- ----------- -----------
Earnings from restaurant
operations 807,857 478,327 1,201,590 779,312
General and administrative
expenses 158,706 135,137 289,997 258,070
Interest expense 13,691 1,684 14,862 3,358
Loss on retirement of assets 331 1,227 5,131 1,227
----------- ---------- ----------- -----------
Income before income taxes 635,129 340,279 891,600 516,657
Income taxes 61,700 58,900 78,100 85,400
----------- ---------- ----------- -----------
Net income $ 573,429 $ 281,379 $ 813,500 $ 431,257
=========== ========== =========== ===========
Net income per common and
common equivalent share
Primary $ .15 $ .08 $ .22 $ .12
=========== ========== =========== ===========
Fully Diluted $ .15 .08 .22 .12
=========== ========== =========== ===========
Average number of common and
common equivalent shares
Primary 3,765,000 3,709,853 3,756,001 3,703,704
=========== ========== =========== ===========
Fully Diluted 3,765,000 3,709,853 3,758,967 3,703,704
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> Page 4<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE><S> <C> <C>
Twenty-four Weeks Ended
3/17/96 3/19/95
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 813,500 $ 431,257
Non-cash items:
Depreciation and amortization 157,575 139,004
Loss on retirement of assets 5,131 1,227
Changes in assets and liabilities:
Increase in indebtedness to related parties 2,343 2,343
(Increase)/Decrease in accounts receivable (24,539) 6,081
(Increase) in inventories (60,219) (10,636)
(Increase)/Decrease in prepaid expenses (19,609) 34,480
Increase in accounts payable and accrued expenses 226,999 71,439
----------- ----------
Total adjustments 287,681 243,938
----------- ----------
Net cash provided by operating activities 1,101,181 675,195
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (357,410) (67,162)
Purchased goodwill (90,774) ---
Purchase of other assets (191,500) (3,369)
----------- ----------
Net cash (used in) investing activities (639,684) (70,531)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 31,250 ---
Principal payments under note payable
and other long-term debt (5,057) ---
----------- ----------
Net cash provided by financing activities 26,193 ---
----------- ----------
Net Increase in Cash and Cash Equivalents 487,690 604,664
Cash and Cash Equivalents, October 1, 1995
and October 2, 1994, respectively 1,476,652 341,477
----------- ----------
Cash and Cash Equivalents, March 17, 1996
and March 19, 1995, respectively $1,964,342 $ 946,141
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> Page 5<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-continued-
(unaudited)
<TABLE><S> <C> <C>
Twenty-four Weeks Ended
3/17/96 3/19/95
----------- ----------
SUPPLEMENTAL DISCLOSURE
Non-cash transactions:
Liabilities assumed in acquisition of restaurants:
7% Promissory Note, $30,010 principal and
interest due monthly over four years $1,253,221 N/A
========== ==========
Non-compete and consulting agreement, discounted
at 7%, $6,667 principal and interest due monthly
over five years $ 336,680 N/A
========== ==========
</TABLE>
<PAGE> Page 6<PAGE>
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Financial Statement Presentation
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the year
ended October 1, 1995.
The accompanying financial statements have not been examined by independent
accountants in accordance with generally accepted auditing standards, but in
the opinion of management, such financial statements include all adjustments,
consisting of only normal recurring accruals, necessary to summarize fairly
the financial position of Rudy's Restaurant Group, Inc. and Subsidiaries (the
"Company") as of March 17, 1996 and the results of operations for the twenty-
four weeks ended March 17, 1996 and March 19, 1995. The results of operations
for the period ended March 17, 1996 are not necessarily indicative of the
results to be expected for the full year.
BUSINESS. Rudy's Restaurant Group, Inc. (the "Company"), is a Nevada
corporation which, through its wholly-owned subsidiaries, owns and operates
nine Japanese-style steak and seafood restaurants. The Company owns 100% of
the stock of The Samurai, Inc. ("The Samurai"), Maxwell's International Inc.
("Maxwell's") and Rudy's Sirloin Steakburgers, Inc. ("Rudy's").
INCOME PER SHARE. Income per share is calculated using the weighted average
number of shares of common stock outstanding and common stock equivalents if
dilutive.
Note 2: Business Acquisition
On February 5, 1996 the Company completed the purchase of three of the four
restaurants the Company had contracted to purchase pursuant to the terms of an
Asset Purchase and Sale Agreement (the "Agreement") entered into in December
1995 between the Company's Maxwell's subsidiary and Asian Restaurants
International, Inc. The acquisition of the fourth restaurant has been delayed
pending governmental approval of the transfer of certain licenses and the
results of negotiations with the Landlord of the fourth location. The Company
is proceeding in its efforts to complete this acquisition, however, there are
no assurances it will be successful in its efforts.
The Company paid $533,800 in cash, issued a 7% promissory note for $1,253,000,
and entered into a non-compete and consulting agreement with the owner of
Asian Restaurants International, Inc. for the three restaurants. The non-compete
and consulting agreement calls for total payments of $400,000 to be paid over
five years and has been recorded at its discounted value, $336,700, in the
Company's financial statements as an other asset and long-term obligation. The
acquisition has been accounted for as a purchase and the results of restaurant
operations have been included in the accompanying consolidated financial
statements since the date of acquisition. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets
acquired and the liabilities assumed. This allocation resulted in goodwill of
<PAGE> Page 7<PAGE>
approximately $91,000 which is being amortized over 15 years. The allocation
of the purchase price will be finalized during 1996 upon completion of asset
valuations.
The newly acquired restaurants operate under the name Kyoto Steak and Seafood.
Note 3: Contingencies
The Company is not currently a party to any significant legal proceeding.
The Company is subject to such legal proceedings and claims as may arise in
the ordinary course of its business and, to assist in limiting the Company's
exposure to financial loss as a result of such claims, the Company carries
certain comprehensive insurance. The Company does not carry insurance which
would assist in the defense or settlement of those claims which may arise in
employment related matters, such as claims as may be made alleging harassment
or discrimination.
<PAGE> Page 8<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations
RESULTS OF OPERATIONS
---------------------
BUSINESS OVERVIEW. The Company acquired three (3) Japanese steak and seafood
restaurants on February 5, 1996, increasing the number of restaurants owned and
operated from six (6) to nine (9). The newly acquired restaurants operate under
the name Kyoto Steak and Seafood ("Kyoto"). The Kyoto acquisition has been
accounted for as a purchase and the results of restaurant operations for the
six weeks from the date of acquisition to March 17, 1996 have been included in
the accompanying consolidated financial statements. Certain data and discussion
herein is presented in total and as same-restaurant to facilitate understanding
of the Company's current operations before and after the acquisition.
The Company's second quarter 1996 earnings, $573,000, increased 103.8% as
compared to second quarter 1995 earnings of $281,000. Same-restaurant earnings
represented over 60% of this increase. Year-to-date 1996 earnings, $813,000,
represent an 88.6% increase over year-to-date 1995 earnings of $431,000. Same-
restaurant year-to-date 1996 earnings increased 60.1%. As more fully discussed
below, the improvement in same-restaurant earnings is the result of a
combination of factors, including changes in the use of coupons, higher menu
prices and declining product costs.
REVENUES. Total revenues for the second quarter 1996 and year-to-date 1996, as
compared to 1995, increased $800,000, 29.4% and $867,400, 16.8%, respectively.
Same-restaurant sales in the second quarter 1996 and year-to-date 1996
increased 3.7% and 3.0%, respectively.
After analysis of customer traffic patterns, the Company determined that a
reduction in coupon offers was necessary to better utilize restaurant
facilities and personnel and improve earnings. The implementation of this
program resulted in an approximately 17% decline in customers using coupon
offers in the second quarter 1996, 18% in fiscal 1996 as compared to 1995.
During this same period customers ordering from the full price menu increased.
As more fully discussed below, through this increase in customers ordering from
the full price menu, the overall effect of the decrease in coupon utilization
was to improve earnings.
The change in customers using discounted coupon offers to full-price menu items
together with modest price increases implemented periodically combined to
increase the average check 3.8% in the second quarter and 3.5% year-to-date as
compared to the same time periods in 1995.
Revenues and customer traffic at the Kyoto restaurants increased 13.6% and 7%,
respectively, in the six weeks of operations included in the Company's results
of operations compared to available information for the same six weeks in 1995.
Because of the limited number and diverse geographic location of its
restaurants, it is not economically beneficial for the Company to use extensive
mass-media advertising available to larger restaurant companies. In addition to
being highly competitive, the restaurant industry is affected by changes in the
public's eating habits and local and national economic conditions.
Historically, the Company's customers have shown strong loyalty to the
Company's product and type of service, however, management believes the
<PAGE> Page 9<PAGE>
increase in revenues in 1996 does not necessarily represent a trend but rather
parallels economic and competitive conditions in the areas in which the
Company's restaurants are located.
COSTS AND EXPENSES VARIABLE WITH REVENUES.
PERCENT OF REVENUES
COSTS AND EXPENSES: FY 1996 FY 1995 Change
- ------------------- ----------------------------
Second Quarter: Food, beverage and supplies 25.8% 29.5% (3.7%)
Labor and related costs 21.8% 23.3% (1.5%)
----------------------------
47.6% 52.8% (5.2%)
============================
Year-to-date : Food, beverage and supplies 26.4% 29.5% (3.1%)
Labor and related costs 23.1% 23.9% ( .8%)
----------------------------
49.5% 53.4% (3.9%)
============================
Seafood costs declined approximately 6% and meat and chicken costs declined
approximately 11.3% in the second quarter 1996 compared to 1995. Year-to-date
seafood costs declined approximately 5% and meat and chicken costs declined
approximately 7.9% compared to 1995. Approximately 1.5% of the 3.7% improvement
in food, beverage and supplies costs in the second quarter 1996 is attributable
to reductions in these costs. Year-to-date food, beverage and supplies costs
improved approximately 1.1% due to reductions in these costs. As evidenced by
double digit increases in these costs experienced in 1995 and the significant
decreases to date in 1996, the cost of meat, chicken and seafood varies with
market supply and demand and there are no assurances that savings attributable
to reduced prices will continue.
The balance of the improvement in food, beverage and supplies costs in both the
second quarter and year-to-date costs is the result of higher menu prices and
changes in the average check attributable to reduced coupon utilization
discussed above. Although food, beverage and supplies costs at the Kyoto
restaurants are lower than at the previously owned restaurants (the Kyoto
restaurants have minimal coupon offers and serve fewer high-cost menu items),
the impact of these lower costs was minimal during the period included herein
since the current period includes only six weeks of operations from these
restaurants.
The improvement in labor and related costs, 1.5% in the second quarter and .8%
in year-to-date costs, is the result of higher menu prices, changes in the
average check due to reduced coupon utilization and lower labor costs at the
Kyoto restaurants. On a per customer served basis, same-restaurant labor and
related costs increased 1% in the second quarter 1996 and .3% in year-to-date
costs as compared to 1995. Labor costs have risen as a result of increases in
base wage rates necessary to meet prevailing wage scales. Management expects
labor costs to continue to increase as the economy improves making higher base
wage rates necessary to retain qualified personnel. Although fringe benefit
costs have improved moderately in 1996, due to high current year health
insurance claims experience, management expects the cost of providing health
insurance will increase in future periods.
RESTAURANT OPERATING EXPENSES. Restaurant operating expenses include restaurant
management and supervision, occupancy costs, repairs and maintenance,
<PAGE> Page 10<PAGE>
utilities, advertising and property and liability insurance. These expenses
increased in absolute terms in both the second quarter fiscal 1996 and year-to-
date, primarily due to costs associated with the Kyoto restaurants. Same-
restaurant operating expenses increased approximately $21,000 in the second
quarter 1996 compared to 1995 and approximately $4,000 year-to-date compared to
1995. Substantially all of the increase in these costs is the result of
increased promotion and occupancy costs.
ADMINISTRATIVE EXPENSES. Administrative expenses increased $23,600 in the
second quarter 1996 compared to 1995, due to professional fees associated with
obtaining audited financial statements for the Kyoto restaurants. Year-to-date
administrative costs increased $32,000 due to these fees and the cost of
performance bonuses granted administrative staff in the first quarter fiscal
1996.
INTEREST EXPENSE. Interest expense increased $12,000 and $11,500 in the second
quarter and year-to-date 1996, respectively. As discussed below, this increase
is directly related to debt incurred with the acquisition of the Kyoto
restaurants. Interest expense will continue to be higher than previous years
for so long as this debt remains outstanding.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operating activities through the twenty-four weeks ended
March 17, 1996 is $1,101,000 as compared to $675,000 in 1995. At March 17, 1996
the Company's current assets exceed its current liabilities by approximately
$825,000.
BUSINESS ACQUISITION. The Company paid $533,800 in cash, issued a 7% promissory
note for $1,253,000, and entered into a non-compete and consulting agreement
with the owner of Asian Restaurants International, Inc. for the purchase of the
three Kyoto restaurants February 5, 1996. The non-compete and consulting
agreement calls for total payments of $400,000 to be paid over five years and
has been recorded at its discounted value, $336,700, in the Company's financial
statements as an other asset and long-term obligation. The acquisition has been
accounted for as a purchase.
CAPITAL EXPENDITURES. Capital expenditures to be funded from cash flow,
excluding capital expenditures related to the Kyoto restaurants, are expected
to total approximately $600,000 in fiscal 1996, including an estimated $450,000
related to anticipated improvements to be made to modernize the existing
facilities and to comply with the Americans with Disabilities Act, the "ADA".
Of this amount, approximately $77,400 was paid in the twenty-four weeks ended
March 17, 1996. The Company's cash payment for the Kyoto restaurants included
$280,000 for assets at the Kyoto restaurants.
OTHER. The restaurant industry is highly labor intensive. Although the Company
presently pays a significant portion of its employees in excess of the Federal
minimum wage and a large number of the Company's employees are tipped employees
whose wages are subject to the Federal tip credit, increases in state and
federal minimum wage rates, if significant, would have an adverse impact on the
Company's results of operations.
Further, although the Company currently provides health insurance benefits to
its employees, the introduction of a national health care program which would
require employers to pay a significant portion of employee health care costs
would have a significant impact on the Company's results of operations.
<PAGE> Page 11<PAGE>
Excluding the newly reopened Miami restaurant facility, the Company's
restaurant facilities were built prior to the enactment of Federal ADA
regulations. The ADA includes certain requirements to alter public facilities,
including restaurants, as necessary to make facilities accessible to and
useable by individuals with disabilities. Although Federal regulations consider
the cost of alterations and the overall financial resources of the Company in
determining the nature and timing of compliance, the cost of such alterations
could have a significant impact on the Company's cash flow. The Company has
engaged certain architects and engineers to develop plans to implement those
alterations which are economically feasible. The required alterations will be
made as soon as possible.
PART II. OTHER INFORMATION
None
<PAGE> Page 12<PAGE>
SIGNATURES
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.
RUDY'S RESTAURANT GROUP, INC.
(Registrant)
Dated: April 29, 1996 /s/ Douglas M. Rudolph
---------------------------------
Douglas M. Rudolph, President
Dated: April 29, 1996 /s/ Marie G. Peterson
---------------------------------
Marie G. Peterson
Vice President,
Chief Financial Officer and
Principal Accounting Officer
<PAGE> Page 13<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> MAR-17-1996
<CASH> 1964342
<SECURITIES> 0
<RECEIVABLES> 30454
<ALLOWANCES> 0
<INVENTORY> 222904
<CURRENT-ASSETS> 2345232
<PP&E> 6725806
<DEPRECIATION> 3163455
<TOTAL-ASSETS> 7241393
<CURRENT-LIABILITIES> 1519766
<BONDS> 0
0
0
<COMMON> 37650
<OTHER-SE> 4444118
<TOTAL-LIABILITY-AND-EQUITY> 7241393
<SALES> 3521275
<TOTAL-REVENUES> 3521275
<CGS> 1676258
<TOTAL-COSTS> 2872124
<OTHER-EXPENSES> 331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13691
<INCOME-PRETAX> 635129
<INCOME-TAX> 61700
<INCOME-CONTINUING> 573429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 573429
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
