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 June 9, 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 July 24, 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 - June 9, 1996
and October 1, 1995 3
Consolidated Statements of Operations -
Twelve weeks and Thirty-six weeks ended
June 9, 1996 and June 11, 1995 4
Consolidated Statements of Cash Flows -
Thirty-six weeks ended June 9, 1996 and
June 11, 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Results of Operations 9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 12
<PAGE> Page 2<PAGE>
<TABLE> RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<S> <C> <C>
6/9/96 10/1/95
------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 2,227,372 $ 1,476,652
Accounts receivable 21,337 5,915
Inventories 220,447 162,685
Prepaid expenses 134,611 107,924
------------ ------------
Total current assets 2,603,767 1,753,176
------------ ------------
Property and Equipment, net 3,623,140 2,094,841
Goodwill, net of accumulated
amortization of $326,062
at June 9, 1996 and
$309,441 at October 1, 1995 603,811 529,658
Other assets 701,488 204,783
------------ ------------
$ 7,532,206 $ 4,582,458
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 345,925 $ ---
Due to related parties 108,590 105,076
Accounts payable and accrued expenses 949,469 840,364
------------ ------------
Total liabilities 1,403,984 945,440
------------ ------------
Notes payable and other long-term debt,
excluding current maturities 1,156,177 ---
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) (12,918,008) (14,221,785)
------------ ------------
Net stockholders' equity 4,972,045 3,637,018
------------ ------------
$ 7,532,206 $ 4,582,458
============ ============
<FN> See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> Page 3
<PAGE>
<TABLE> RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION
(unaudited)
<S> <C> <C> <C> <C>
Twelve Weeks Ended Thirty-six Weeks Ended
6/9/96 6/11/95 6/9/96 6/11/95
----------- ----------- ----------- -----------
Total Revenues $ 3,870,405 $2,585,224 $9,909,623 $7,757,003
Costs and expenses
applicable to revenues 1,929,190 1,394,620 4,920,864 4,156,912
Restaurant operating expenses 1,111,804 743,818 2,821,140 2,249,593
Depreciation and amortization 91,515 51,013 228,133 175,413
----------- ----------- ----------- -----------
Earnings from restaurant
operations 737,896 395,773 1,939,486 1,175,085
Administrative expenses 174,727 131,591 464,724 389,661
Interest expense 25,992 1,026 40,854 4,384
Other (expense) income --- (50,000) (5,131) (51,227)
----------- ----------- ----------- -----------
Income before income taxes 537,177 213,156 1,428,777 729,813
Income taxes 46,900 22,700 125,000 108,100
----------- ----------- ----------- -----------
Net income $ 490,277 $ 190,456 $1,303,777 $ 621,713
=========== =========== =========== ===========
Net income per common and
common equivalent share
Primary $ .13 $ .05 $ .35 $ .17
=========== =========== =========== ===========
Fully Diluted $ .13 $ .05 $ .35 $ .17
=========== =========== =========== ===========
Average number of common and
common equivalent shares
Primary 3,765,000 3,714,597 3,762,416 3,707,335
=========== =========== =========== ===========
Fully Diluted 3,765,000 3,714,597 3,763,000 3,707,335
=========== =========== =========== ===========
<FN> See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> Page 4<PAGE>
<TABLE> RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<S> <C> <C>
Thirty-six Weeks Ended
6/9/96 6/11/95
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,303,777 $ 621,713
Non-cash items:
Depreciation and amortization 275,594 197,318
Loss on retirement of assets 5,131 1,227
Changes in assets and liabilities:
Increase in indebtedness to related parties 3,514 3,514
(Increase)/Decrease in accounts receivable (15,423) 4,448
(Increase)in inventories (57,763) (10,807)
(Increase)/Decrease in prepaid expenses (26,687) 10,636
Increase in accounts payable and
accrued expenses 109,107 112,332
----------- -----------
Total adjustments 293,473 318,668
----------- -----------
Net cash provided by operating activities 1,597,250 940,381
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (507,707) (170,289)
Purchased goodwill (90,774) ---
Purchases of other assets (191,500) (3,369)
----------- -----------
Net cash (used in) investing activities (789,981) (173,658)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 31,250 ---
Principal payments under note payable
and other long-term debt (87,799) ---
----------- -----------
Net cash (used in) financing activities (56,549) ---
----------- -----------
Net Increase in Cash and Cash Equivalents 750,720 766,723
Cash and Cash Equivalents, October 1, 1995
and October 2, 1994, respectively 1,476,652 341,477
----------- -----------
Cash and Cash Equivalents, June 9, 1996
and June 11, 1995, respectively $2,227,372 $1,108,200
=========== ===========
<FN> See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> Page 5<PAGE>
<TABLE> RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
-continued-
<S> <C> <C>
Thirty-six Weeks Ended
6/9/96 6/11/95
----------- -----------
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
========== ==========
<FN> See accompanying notes to consolidated financial statements.
</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 June 9, 1996 and the results
of operations for the thirty-six weeks ended June 9, 1996 and
June 11, 1995. The results of operations for the period ended
June 6, 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, the Agreement
specified certain lease terms be made before the Company would
proceed with this acquisition and to date the landlord at this
location has not agreed to the specified terms. Inasmuch as the
specified lease terms the Company has proposed must be met to
make this acquisition economically feasible to the Company, there
are no assurances that this acquisition will be completed.
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
<PAGE> Page 7
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 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: Commitments and Contingencies
The Equal Employment Opportunity Commission (the "EEOC") has
advised the Company that a former employee has filed charges of
age discrimination, harassment and constructive discharge against
the Company with the EEOC. Although investigation of these
charges by the EEOC is in its initial stages, management believes
these charges are without merit.
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.
The Company is not currently a party to any significant legal
proceedings.
The Company has signed a letter of intent to purchase land and
improvements at one of the locations the Company currently leases
and operates as a Samurai restaurant. The purchase price is
$1,150,000, to be paid in cash at closing. The remaining initial
lease term at this location is four (4) years. Therefore, this
acquisition will relieve the Company of minimum annual rent
obligations of $143,000 and guarantee the ability of the Company
to operate the restaurant in a manner and for so long as it
desires.
<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 eighteen weeks from the date of acquisition to
June 9, 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 third quarter 1996 earnings, $490,000, increased
$300,000, 158%, as compared to third quarter 1995 earnings of
$190,000. Same-restaurant earnings represented over 30% of this
increase. Year-to-date 1996 earnings, $1,304,000, represent a
110% increase over year-to-date 1995 earnings of $622,000. Same-restaurant
year-to-date 1996 earnings increased 29.2%. 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 third quarter 1996 and year-to-date 1996,
as compared to 1995, increased $1,285,200, 49.7%, and
$2,152,600, 27.7%, respectively. Same-restaurant sales in the
third quarter 1996 and year-to-date 1996 increased 1.6% and 2.6%,
respectively.
The third quarter increase in same-restaurant sales includes a
3.4% increase in average check and a 1.8% decline in covers. The
year to date increase in same restaurant sales includes a 4.9%
increase in average check and a 2.3% decline in covers.
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 6.9% decline in customers using coupon offers in
the third quarter 1996, and a decline of 14.6% in fiscal 1996 as
compared to 1995. As more fully discussed below, the overall
effect of the decrease in coupon utilization was to improve
earnings.
Revenues at the Kyoto restaurants increased 8.6% in the third
quarter 1996 compared to available information for 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.
<PAGE> Page 9
COSTS AND EXPENSES VARIABLE WITH REVENUES.
PERCENT OF REVENUES
COSTS AND EXPENSES: FY 1996 FY 1995 Change
- ------------------- ----------------------------
Third quarter:
Food, beverage and supplies 27.0% 29.8% (2.8%)
Labor and related costs 22.8% 24.1% (1.3%)
----------------------------
49.8% 53.9% (4.1%)
============================
Year-to-date:
Food, beverage and supplies 26.7% 29.6% (2.9%)
Labor and related costs 23.0% 24.0% (1.0%)
----------------------------
49.7% 53.6% (3.9%)
============================
A portion of the improvement in food, beverage and supplies costs
is due to the addition of the Kyoto restaurants which have
minimal coupon offers and serve fewer high-cost menu items, and
the improved average check made possible by modest price
increases and reduced coupon utilization at the Samurai
locations. However, a substantial portion of the improvement in
food, beverage and supplies costs is due to seafood costs which
declined approximately 10.7% and meat and chicken costs which
declined approximately 6.7% in the third quarter. Year-to-date
seafood costs declined approximately 6.7% and meat and chicken
costs declined approximately 6.6% compared to 1995. The cost of
meat, chicken and seafood varies with market supply and demand
and current meat and chicken costs are trending toward higher
prices. Accordingly, there are no assurances that savings
attributable to reduced prices will continue.
The improvement in labor and related costs, 1.3% in the third
quarter and 1% 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. Labor
costs have risen on an absolute basis as a result of increases in
base wage rates necessary to meet prevailing wage scales.
Management expects labor costs to continue to increase as
discussions continue regarding the passage of an increased
Federal minimum wage and as higher base wage rates become
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, utilities, advertising and property and
liability insurance. These expenses increased in absolute terms
in both the third quarter fiscal 1996 and year-to-date due to
costs of operating the Kyoto restaurants. Same-restaurant
operating expenses remained substantially unchanged in the third
quarter and year-to-date compared to 1995.
ADMINISTRATIVE EXPENSES. Administrative expenses increased
$43,000 in the third quarter 1996 and $75,000 year-to-date
compared to 1995. The increase in administrative costs is due to
several factors including cost-of-living wage adjustments due the
chief financial officer for the period from 1991 to present, the
cost of audit fees associated with auditing the Kyoto operations,
and amortization of intangible assets acquired with the Kyoto
restaurants.
<PAGE> Page 10
INTEREST EXPENSE. Interest expense increased $25,000 and $36,500
in the third quarter and year-to-date 1996, respectively. This
increase is directly related to debt incurred with the
acquisition of the Kyoto restaurants. Interest expense will
continue for so long as this debt remains outstanding.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operating activities through the thirty-six
weeks ended June 9, 1996 is $1,597,000 as compared to $940,000 in
1995. At June 9, 1996 the Company's current assets exceed its
current liabilities by approximately $1,200,000.
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. Certain of the Company's lease agreements
include lessee rights of first refusal in the event the landlord
desires to sell property leased to the Company. In July 1996,
pursuant to the terms of one such right of first refusal, the
Company agreed to purchase the land and improvements of one of
its Samurai restaurants for $1,150,000 to be paid in cash at
closing, expected in August, 1996. Capital expenditures to be
funded from cash flow, excluding capital expenditures related to
the Kyoto restaurants and $1,150,000 related to the acquisition
of land and improvements, are expected to total approximately
$700,000 in fiscal 1996, including an estimated $450,000 related
to anticipated improvements to be made to modernize existing
facilities and to comply with the Americans with Disabilities
Act, the "ADA". Of this amount, approximately $230,000 was paid
in the thirty-six weeks ended June 9, 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.
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
<PAGE> Page 11
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
ITEM 1. Legal Proceedings
The Equal Employment Opportunity Commission (the "EEOC") has
advised the Company that a former employee has filed charges of
age discrimination, harassment and constructive discharge against
the Company with the EEOC. Although investigation of these
charges by the EEOC is in its initial stages, management believes
these charges are without merit.
<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: July 23, 1996 /s/ Douglas M. Rudolph
---------------------------------
Douglas M. Rudolph, President
Dated: July 23, 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 SHEET, 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> 9-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> JUN-09-1996
<CASH> 2227372
<SECURITIES> 0
<RECEIVABLES> 21337
<ALLOWANCES> 0
<INVENTORY> 220447
<CURRENT-ASSETS> 2603767
<PP&E> 6876103
<DEPRECIATION> 3252963
<TOTAL-ASSETS> 7532206
<CURRENT-LIABILITIES> 1403984
<BONDS> 0
0
0
<COMMON> 37650
<OTHER-SE> 4934395
<TOTAL-LIABILITY-AND-EQUITY> 7532206
<SALES> 3870405
<TOTAL-REVENUES> 3870405
<CGS> 1929190
<TOTAL-COSTS> 1378046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25992
<INCOME-PRETAX> 537177
<INCOME-TAX> 46900
<INCOME-CONTINUING> 490277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490277
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
