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 December 22, 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 February 7, 1997
- ------------------------- -------------------------------
Common Stock, par value 3,765,000
$.01 per share
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets - December 22, 1996
and September 29, 1996 3
Consolidated Statements of Operations -
Twelve weeks ended December 22, 1996 and
December 24, 1995 5
Consolidated Statements of Cash Flows -
Twelve weeks ended December 22, 1996 and
December 24, 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Results of Operations 9
PART II. OTHER INFORMATION 12
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
12/22/96 9/29/96
ASSETS ------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents $ 1,513,980 $ 1,199,384
Accounts receivable 33,179 51,604
Inventories 247,964 225,414
Prepaid expenses 151,725 91,078
------------ ------------
Total current assets 1,946,848 1,567,480
------------ ------------
Land, Property and Equipment, net 5,246,813 5,174,747
Goodwill, net of accumulated
amortization of $340,657 at
December 22, 1996 and $334,418
at September 29, 1996 589,216 595,455
Other assets 4,396,700 4,535,739
------------ ------------
$12,179,577 $11,873,421
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of note payable
and other long-term debt $ 363,537 $ 352,023
Due to related parties 111,323 110,152
Accounts payable and accrued
expenses 1,256,560 1,106,110
------------ ------------
Total current liabilities 1,731,420 1,568,285
------------ ------------
Note payable and other long-term debt,
excluding current maturities 968,654 1,065,909
------------ ------------
Total liabilities 2,700,074 2,634,194
------------ ------------
- continued -
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- continued -
12/22/96 9/29/96
------------ ------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value;
authorized 10,000,000 shares, none
issued.
Common stock, $.01 par value;
authorized 30,000,000 shares;
3,765,000 issued and outstanding 37,650 37,650
Paid-in capital 17,852,403 17,852,403
Accumulated (deficit) (8,410,550) (8,650,826)
------------ ------------
Total stockholders' equity 9,479,503 9,239,227
------------ ------------
$12,179,577 $11,873,421
============ ============
See accompanying notes to consolidated financial statements.
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Twelve Weeks Ended
12/22/96 12/24/95
----------- -----------
Total Revenues $ 3,604,045 $ 2,517,943
Cost and expenses variable with revenues 1,843,965 1,315,416
Restaurant operating expenses 1,076,340 748,221
Depreciation and amortization 100,346 60,573
----------- -----------
Total restaurant expenses 3,020,651 2,124,210
Earnings from restaurant operations 583,394 393,733
General and administrative expenses 164,480 131,291
Interest expense 22,234 1,171
Other expense
Loss on retirement of assets 404 4,800
----------- -----------
Income before income taxes 396,276 256,471
Income taxes 156,000 16,400
----------- -----------
Net Income $ 240,276 $ 240,071
=========== ===========
Net Income per equivalent share
Primary $ .06 $ .06
=========== ===========
Fully Diluted $ .06 $ .06
=========== ===========
Weighted average number of common and
common equivalent shares outstanding
Primary 3,765,000 3,747,003
=========== ===========
Fully Diluted 3,765,000 3,752,934
=========== ===========
See accompanying notes to financial statements.
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Twelve Weeks Ended
12/22/96 12/24/95
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 240,276 $ 240,071
Non-cash items:
Depreciation and amortization 127,092 68,112
Loss on retirement of assets 404 4,800
Changes in assets and liabilities:
Increase in indebtedness to
related parties 1,171 1,171
Decrease/(Increase) in accounts receivable 20,209 (28,592)
(Increase) in inventories (22,550) (8,114)
(Increase)/Decrease in prepaid expenses (60,647) 38,480
Decrease in deferred tax assets 119,500 ---
Increase/(Decrease) in accounts
payable and accrued expenses 150,449 (126,181)
----------- -----------
Total adjustments 335,628 (50,324)
----------- -----------
Net cash provided by operating
activities 575,904 189,747
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal received on note receivable from
officer 863 ---
Capital expenditures (173,747) (42,375)
Purchase of other assets (2,684) (21,660)
----------- -----------
Net cash (used in) investing activities (175,568) (64,035)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock --- 31,250
Principal payments of note payable and
other long-term debt (85,740) ---
----------- -----------
- continued -
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Increase (Decrease) in Cash and Cash Equivalents
- continued -
Twelve Weeks Ended
12/22/96 12/24/95
----------- -----------
Net cash (used in)/provided by financing
activities (85,740) 31,250
----------- -----------
Net Increase in Cash and Cash Equivalents 314,596 156,962
Cash and Cash Equivalents, September 29,
1996 and October 1, 1995, respectively 1,199,384 1,476,652
----------- -----------
Cash and Cash Equivalents, December 22,
1996 and December 24, 1995, respectively $1,513,980 $1,633,614
=========== ===========
See accompanying notes to financial statements.
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-QSB and do
not include all of the information and disclosures required by
generally accepted accounting principles. These statements should be
read in conjunction with the Company's Form 10-KSB financial
statements and notes thereto for the year ended September 29, 1996.
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 December 22, 1996 and the results of operations for
the twelve weeks ended December 22, 1996 and December 24, 1995. The
results of operations for the period ended December 22, 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, The
Samurai, Inc. ("The Samurai") and Maxwell's International Inc.
("Maxwell's") owns and operates Japanese-style steak and seafood
restaurants. The Company also owns Rudy's Sirloin Steakburgers, Inc.,
a non-operating subsidiary.
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.
INCOME TAXES. Income taxes are accounted for using the asset and
liability method. Under such method, deferred taxes are adjusted for
tax rate changes as they occur and deferred income tax assets and
liabilities are computed for differences between the financial
reporting and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are
expected to affect taxable income. An allowance is provided when
necessary to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
The Company reduced its valuation allowance in fiscal 1996 and
recorded income tax benefits of $3,807,000 as a reduction in fiscal
1996 income tax expense. Fiscal 1997 income tax expense includes
adjustments to deferred tax assets to reflect the realization of
income tax benefits in fiscal 1997.
NEW ACCOUNTING PRONOUNCEMENTS. In 1995, the Financial Accounting
Standards board issued Statement No. 121 ("SFAS 121"), Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed of. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121
is effective for fiscal year 1997. Although management has not yet
completed the process of evaluation of the impact of adoption of this
statement on the Company's financial statements, the Company believes
that the adoption of this statement will not have a significant
effect on the Company's financial position and results of operations.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of
Operations
RESULTS OF OPERATIONS -
First Quarter 1997 Compared to First Quarter 1996
BUSINESS OVERVIEW. Pre-tax income increased $140,000, or 54.5%, to
$396,000, or $.11 per share in the first quarter 1997 as compared to
$256,000, or $.07 per share in 1996. The improvement in pre-tax
earnings is attributable to the addition of three Kyoto restaurants
acquired in the second quarter fiscal 1996. Same-restaurant earnings
declined $24,000 due to the closing of one of the Company's Samurai
restaurants for major renovations and modernization during a
substantial portion of the first quarter fiscal 1997.
As a result of a change in computation of current income tax expense,
net income in the first quarter 1997 did not change when compared to
1996. The Company recognized the tax benefits of its NOL
carryforwards and recorded a deferred tax asset of $3,807,000 in
fiscal 1996. As a result, fiscal 1997 earnings include income tax
expense computed at statutory rates before considering the tax
benefits of available NOL carryforwards whereas fiscal 1996 earnings
include income tax expense after giving effect to the tax benefits of
NOL carryforwards.
Expected income taxes after considering available NOL carryforwards
for the first quarter 1997 are $36,500. The difference between
expected income taxes of $36,500 and income tax expense of $156,000,
or $119,500, is a reduction in deferred tax assets.
Certain information related to the Kyoto operations and the effect of
the Samurai restaurant closed for renovations is discussed separately
in the following analysis to facilitate understanding of the
Company's operations.
REVENUES. Revenues increased $1,086,000, 43.1% in the first quarter
fiscal 1997 as compared to 1996. The increase in revenues is due
primarily to the addition of the Kyoto restaurants. Same-restaurant
revenues, excluding the effect of the Samurai restaurant closed for
renovations, increased $43,500, 2.1% of same-restaurant revenues. The
increase in same-restaurant revenues includes a .9% increase in
covers and a 1.2% increase in average check.
The increase in customer covers was experienced primarily at one
location and was the result of nearby expansion of shopping
facilities which brought more customers into the area. The 1.2%
increase in average check is the result of both a reduction in the
availability of special (reduced) pricing offers and a change in
customer eating habits to higher priced menu items. The Company plans
to introduce a new menu with slightly higher prices in the second
quarter 1997 and therefore anticipates that the higher average check
will continue throughout fiscal 1997. The increase in menu prices was
necessary to combat higher meat and seafood costs and the effect of
the increase in Federal minimum wage discussed below.
COSTS AND EXPENSES APPLICABLE TO REVENUES.
Percent of Revenues
COSTS AND EXPENSES: 1997 QTR 1996 QTR Change
--------------------------- -------- -------- ------
Food, beverage and supplies 27.6% 27.3% .3%
Labor and related costs 23.6% 24.9% (1.3%)
-------- -------- ------
51.2% 52.2% (1.0%)
======== ======== ======
The cost of seafood, meat and chicken are the primary components of
the Company's food costs. These costs, together with substantially
all other food costs, vary with market conditions, supply and demand.
Food, beverage and supplies costs increased .3% to 27.6% of revenues
in the first quarter 1997 as compared to 27.3% in 1996 primarily due
to increased market prices for seafood, meat and chicken. Market
prices, particularly meat prices, are expected to remain high
throughout the first half of fiscal 1997.
Labor costs declined 1.3% of revenues, to 23.6%, in 1997 as compared
to 24.9% in 1996. Although this improvement is primarily the result
of Kyoto's lower labor costs, same-restaurant labor costs did improve
.4%, primarily as a result of a reduction in labor benefits costs
such as workers compensation. Management expects that the increase in
Federal minimum wage will have some impact on labor costs throughout
1997; however, this impact should be minimized by the increase in
menu prices discussed above.
COSTS AND EXPENSES OF RESTAURANT OPERATIONS: GENERAL. General
operations include restaurant management and supervision, occupancy
costs, repairs and maintenance, utilities, advertising and property
and liability insurance. These expenses increased on an absolute
basis due to the addition of the Kyoto restaurants and increased
slightly (.1%) as a percentage of revenues due to higher occupancy
costs at the Kyoto restaurants.
CORPORATE OVERHEAD. General and administrative expenses increased
$33,000 in the first quarter 1997 as compared to the first quarter
1996. This increase is primarily the result of expenses associated
with administration of the Kyoto restaurants, including expenses of a
consulting and non-compete agreement entered into at the time of the
acquisition of the Kyoto restaurants and professional fees.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Due primarily to additional cash flow provided by the Kyoto
operations, net cash provided by operating activities increased
$386,000 to $576,000 in the first quarter fiscal 1997 as compared to
$190,000 in the first quarter fiscal 1996. At December 22, 1996 the
Company's current assets exceed its current liabilities by
approximately $215,000.
CAPITAL EXPENDITURES. Management anticipates that capital
expenditures to be funded out of cash flow from operating activities
will approximate $800,000 in fiscal 1997, of which $174,000 was paid
in the first quarter 1997.
Excluding the Miami restaurant and certain of the Kyoto restaurants,
the Company's restaurant facilities were built prior to the enactment
of Federal regulations regarding equal opportunity for individuals
with disabilities, the Americans with Disabilities Act, the "ADA".
The ADA includes certain requirements to alter public facilities,
including restaurants, as necessary to make facilities accessible to
and useable by individuals with disabilities.
As discussed above, the Company began its plan to comply with these
regulations late in fiscal 1996 by closing one restaurant for these
renovations. The restaurant reopened during the first quarter fiscal
1997. The Company intends to proceed with required alterations and
modernization of certain of its locations throughout 1997 and
anticipates that the required improvements may necessitate certain
brief restaurant closings from time to time. The Company intends to
plan the improvements so as to minimize their effect on the Company's
operations.
OTHER. The Company presently pays a significant portion of its
employees in excess of the Federal minimum wage. In addition, a large
number of the Company's employees are tipped employees whose wages
are subject to the Federal tip credit. Therefore, although increased
state and federal minimum wage rates have some impact on the
Company's results of operations, such impact has not historically
been significant.
Labor shortages and the related impact on wage rates could have a
significant impact on the Company's results of operations.
The Company is subject to various claims and/or litigation related to
personnel matters such as claims of harassment and discrimination.
Part II. OTHER INFORMATION
None
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: February 10, 1997 /s/ Douglas M. Rudolph
------------------------------
Douglas M. Rudolph, President
Dated: February 10, 1997 /s/ Marie G. Peterson
------------------------------
Marie G. Peterson, Treasurer,
Chief Financial and Operating
Officer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheets, consoldiated 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> 3-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-END> DEC-22-1996
<CASH> 1,513,980
<SECURITIES> 0
<RECEIVABLES> 33,179
<ALLOWANCES> 0
<INVENTORY> 247,964
<CURRENT-ASSETS> 1,946,848
<PP&E> 5,246,813
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,179,577
<CURRENT-LIABILITIES> 1,731,420
<BONDS> 0
0
0
<COMMON> 37,650
<OTHER-SE> 9,441,853
<TOTAL-LIABILITY-AND-EQUITY> 9,479,503
<SALES> 3,604,045
<TOTAL-REVENUES> 3,604,045
<CGS> 1,843,965
<TOTAL-COSTS> 3,020,651
<OTHER-EXPENSES> 164,480
<LOSS-PROVISION> 404
<INTEREST-EXPENSE> 22,234
<INCOME-PRETAX> 396,276
<INCOME-TAX> 156,000
<INCOME-CONTINUING> 240,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,276
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
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