<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
___________.
Commission File Number 0-24828
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UNITED RESTAURANTS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4428370
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1990 Westwood Boulevard, Los Angeles, California 90025
------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(310) 475-5600
--------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
----------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) 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 at least 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.
Outstanding
Class at July 8, 1996
----- ---------------
Common Stock, par value 6,262,500 shares
$.01 per share
Transitional Small Business Disclosure Format (check one):
YES NO X
---- ---
Page 1 of 12 Pages
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UNITED RESTAURANTS, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and September 30, 1995 3
Consolidated Statements of Operations
For the Three Months and Nine Months Ended
June 30, 1995 and 1996 5
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 1995
and 1996 6
Notes to Consolidated Financial Statements
June 30, 1996 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Page 2 of 12 Pages
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------------------- -------------------
(Derived from
Audited
Financial
Statements)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,357,973 $ 2,281,973
Accounts receivable, less allowance for
doubtful accounts of $16,538 at June 30,
1996 and $17,500 at September 30, 1995 160,932 151,701
Inventories 203,643 177,112
Prepaid expenses and other current assets 194,659 177,179
---------------- ----------------
TOTAL CURRENT ASSETS $ 1,917,207 $ 2,787,965
PROPERTY AND EQUIPMENT, NET 2,336,574 2,493,046
OTHER ASSETS
Deposits and other 162,768 195,058
Equipment lease receivable, less current portion 326,262 350,000
Goodwill, net 437,400 478,406
---------------- ----------------
TOTAL OTHER ASSETS $ 926,430 $ 1,023,464
---------------- ----------------
TOTAL ASSETS $ 5,180,211 $ 6,304,475
================ ================
</TABLE>
Page 3 of 12 Pages
<PAGE>
UNITED RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------------------- ------------------
(Derived from
Audited
Financial
Statements)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 397,079 $ 682,338
Accrued liabilities 204,346 173,075
Current portion of long-term debt 109,241 106,847
Deferred development fee 200,000
---------------- ----------------
TOTAL CURRENT LIABILITIES $ 710,666 $ 1,162,266
LONG-TERM DEBT, LESS CURRENT PORTION 146,402 255,198
---------------- ----------------
TOTAL LIABILITIES $ 857,068 $ 1,417,458
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
Authorized-3,000,000 shares
Issued and outstanding - none
Common Stock, $.01 par value:
Authorized-22,000,000 shares
Issued and outstanding - 6,262,500 shares
at June 30, 1996 and September 30, 1995 62,625 62,625
Additional paid-in capital 7,771,042 7,771,042
Accumulated deficit (3,510,524) (2,946,650)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $ 4,323,143 $ 4,887,017
---------------- ----------------
$ 5,180,211 $ 6,304,475
================ ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 4 of 12 Pages
<PAGE>
UNITED RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months
For the Three Months Ended Ended
June 30, June 30,
------------------------------- -----------------------------
1995 1996 1995 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Food and beverage sales $ 1,412,976 $ 1,617,451 $ 2,932,979 $ 4,845,168
Franchise royalties 63,509 46,558 197,822 139,881
Sublease income 116,768 65,437 364,388 225,941
Merchandise sales 3,828 74,628 8,264 272,838
Membership fees 135,450 496,992
Other 46,413 281,213
------------- ------------- ------------- -------------
TOTAL REVENUES $ 1,597,081 $ 1,985,937 $ 3,503,453 $ 6,262,033
COST AND EXPENSES
Food and beverage 428,211 516,721 897,965 1,536,058
Sublease 103,733 58,973 312,914 200,503
Merchandise 2,384 58,116 6,149 201,474
Operating expenses
Direct labor and benefits 682,654 721,803 1,339,516 2,095,490
Occupancy & other 398,571 555,296 1,066,455 1,532,862
Pre-opening expense 349,799 380,286
General and administrative 294,520 287,897 1,033,451 1,104,923
Depreciation & amortization 67,010 98,123 156,744 291,713
------------- ------------- ------------- -------------
TOTAL COSTS/EXPENSES 2,326,882 2,296,929 5,193,480 6,963,023
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (729,801) (310,992) (1,690,027) (700,990)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest income 46,418 25,776 159,466 88,850
Interest expense (8,583) (6,689) (27,968) (18,964)
Loss from disposition of
restaurant assets (6,250)
Other income, net 16,538 17,797 58,608 67,230
------------- ------------- ------------- -------------
54,373 36,884 183,856 137,116
------------- ------------- ------------- -------------
NET LOSS $ (675,428) $ (274,108) $ (1,506,171) $ (563,874)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 6,262,500 6,262,500 6,262,500 6,262,500
============= ============= ============= =============
NET LOSS PER SHARE COMMON (.11) (.04) (.24) (.09)
============= ============= ============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5 of 12 Pages
<PAGE>
UNITED RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended June 30,
1995 1996
-----------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (1,506,171) $ (563,874)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 156,744 291,713
Pre-opening expensed 81,130
Loss on lease buyout 6,250
Changes in assets/liabilities:
Receivables 151,523 14,507
Inventories (76,066) (26,531)
Prepaid expenses (45,148) (17,480)
Deposits and other 2,503 32,290
Payables 134,844 (253,988)
Deferred Income 93,225 (200,000)
---------------- -------------------
Net Cash - Operating (1,001,166) (723,363)
---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Liquor license (15,184)
Capital assets (1,696,443) (94,236)
---------------- -------------------
Net Cash - Investing (1,711,627) (94,236)
---------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable (101,381) (106,401)
---------------- -------------------
Net Cash - Financing (101,381) (106,401)
---------------- -------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,814,174) (924,000)
CASH AND CASH EQUIVALENTS BALANCE,
Beginning of Period 5,524,966 2,281,973
---------------- -------------------
CASH AND CASH EQUIVALENTS BALANCE,
End of Period $ 2,710,792 $ 1,357,973
================ ===================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 6 of 12 Pages
<PAGE>
UNITED RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The results of interim periods are not necessarily indicative of
results to be expected for the year. In the opinion of the
Company, the accompanying consolidated financial statements
reflect all adjustments (which are normal recurring adjustments)
necessary for a fair presentation of the results for the interim
period and the comparable period presented. These condensed
financial statements do not purport to be full presentations and
do not include all requirements in accordance with generally
accepted accounting principles, but include all information
required by the instructions to Form 10-QSB.
Note 2. United Restaurants, Inc. (the "Company") was incorporated under
the laws of the State of Delaware on April 13, 1993, to acquire
all the capital stock of Love's Enterprises, Inc., a California
corporation ("Love's"), with the intention to revitalize and
expand its operations, and to develop one or more new restaurant
concepts with new capital to be raised. On May 27, 1993, the
Company purchased all of the issued and outstanding capital stock
of Love's. On June 20, 1994, the Company acquired 85% of the
capital stock of Il Forno, Inc.
Page 7 of 12 Pages
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
United Restaurants, Inc. (the "Company") is a holding company organized
in April of 1993, which initially engaged in various capital raising activities
and the preparation for its initial public offering in April, 1994. On May 27,
1993, the Company acquired Love's Enterprises, Inc. ("Love's"). The Company
acquired 85% of the stock of Il Forno, Inc. in June of 1994, and added a second
company operated Love's store in July of 1994. On April 10, 1995, the Company
opened On Canon, an Italian ristorante and coffee bar in Beverly Hills,
California. In June of 1994, the Company opened the Grand Havana Room, a cigar
smoking club in Beverly Hills. A third company-operated Love's store was added
on September 25, 1995, in San Bernardino, California.
Because of the rapid growth, almost all numbers representing the
results of company store operations are much larger in the current fiscal year
than last year. In the quarter and the nine months ended June 30, 1996, the
Company was operating six stores, compared to four in the same periods the prior
year.
Results of Operations - Three Months Ended June 30, 1996, compared to Three
Months Ended June 30, 1995.
The Company derives revenues from five principal sources: food and
beverage sales, franchise royalties, sublease income, merchandise sales, and
membership fees. The percentage contributions of the Company's principal sources
of revenue have been changing, due to rapid growth in company operated units
from four in the quarter ended June 30, 1995, to six in the quarter ended June
30, 1996, as described above. At the same time, the number of Love's franchises
(sixteen last year, four closed, one now company operated, eleven this year) and
subleases (eleven last year, three closed, one now company operated, two expired
leases now leased direct to franchisees, five subleases active now) have been
decreasing. Also this year, the Company is operating the Grand Havana Room cigar
smoking establishment in Beverly Hills, which has contributed new sources of
revenue, including $496,992 in membership fees, and significantly increased
merchandise sales, from $3,828 during the quarter ended June 30, 1995 to $74,628
in the same quarter this year.
The Company experienced a loss of $675,428 in the quarter ended June
30, 1995, compared to $274,108 in the quarter ended June 30, 1996. In both
years, a significant portion of the negative operating results were due to the
high corporate overhead incurred as a prerequisite to further expansion. See
Company Operations below.
Page 8 of 12 Pages
<PAGE>
During the three months ended June 30, 1996, the Company recorded
revenues of $1,985,937 compared to $1,597,081 in the quarter ended June 30,
1995. Because of the increase in company operated stores, food and beverage
sales were up, at $1,617,451, compared to $1,412,976 the prior year (+14%).
Sales at the four stores operated by the Company both years were down in
aggregate (-18%), due to promotions not repeated and the opening sales of the
new restaurant in Beverly Hills in 1995. For the same periods, franchise
royalties decreased from $63,509 to $46,558 (-27%) and sublease income declined
from $116,768 to $65,437 (-44%), due to the decreased numbers of franchises and
subleases as discussed above. New sources of revenue, including membership fees,
merchandise sales, and rentals for private parties, contributed $256,491 in the
1996 quarter compared to $3,328 last year.
Company costs and expenses were similarly increased by the addition of
the new stores. Food and beverage costs were up by 21%, and direct restaurant
labor was up by 11%, reflecting approximately the same percentage increase as in
restaurant sales. Other store-level operating expense increases were also in
line with the additional sales.
Results of Operations - Nine Months Ended June 30, 1995,
Compared to Nine Months Ended June 30, 1996
The Company experienced net losses for the nine months ended June 30,
1995 and 1996 of $1,506,171 and $563,874 respectively.
During the nine months ended June 30, 1996, the Company recorded
revenues of $6,262,033, compared to $3,503,453 in the nine months ended June 30,
1995. Food and Beverage sales increased from $2,932,979 to $4,845,168 (+65%) due
to the increased number of company-operated stores as discussed above, but
same-store sales decreased (-17%). Franchise royalties decreased from $197,822
to $139,881 (-29%) and Sublease income decreased from $364,388 to $225,941
(-38%), due to the decreased number of franchises and subleases, as discussed
above. New sources of revenue, including membership fees, merchandise sales, and
private party rentals, provided $1,051,043 in the nine months ended June 30,
1996, compared to $8,264 in the nine months ended June 30, 1995.
Most of the costs for store level operations were proportional to the
changes in sales, caused by the changes in the number of units in each category
as discussed above. For example, food and beverage costs increased from $897,965
to $1,536,058 (+71%) and direct store labor costs increased from $1,339,516 to
$2,095,490 (+56%), both of which are approximately proportional to the increase
in food and beverage sales (+65%).
Company Operations
The Company, as a holding company, has no revenues of its own apart
from its subsidiaries. The Company incurred net losses of $573,288 in the nine
months ended June 30, 1995, compared to $651,536 in the nine months ended June
30, 1996. The Company costs were for the operating expenses of the corporate
office, and the development costs of new concepts in the business plan, prior to
contracting for specific locations, at which time pre-opening expenses are
capitalized to be recognized when the store opens.
Page 9 of 12 Pages
<PAGE>
The Company is actively working on development of its new Restaurant
Groups. The Company has three executives engaged in restaurant operations. The
Company believes that this operations team would be sufficient to operate a
significantly larger and more diverse restaurant management company. Thus,
continued rapid growth would be manageable without significant increases in
corporate overhead.
Management of the Company expects that during the period it continues
working on its ongoing development plans, the Company will continue to
experience consolidated losses, until such time as the plans are changed, or
there are enough profitable restaurant units developed to absorb the expenses
and overhead at the Company level.
Liquidity and Capital Resources
The Company intends to continue the growth of its business, through the
revitalization of the Love's Restaurant Group, improving profitability in its
Italian Restaurant Group (Il Forno and On Canon), the "Grand Havana Room" cigar
smoking establishment and additional expansion of the more profitable of its
current concepts.
As a result of its expansion activity, the Company's working capital
has been continually reduced. At June 30, 1996, the actual working capital was
$1,206,541 compared to $2,188,055 at June 30, 1995. It is anticipated that about
$100,000 of this working capital will be needed for operations through the
remainder of 1996. Management estimates that approximately $500,000 will be
needed for two more Grand Havana Rooms.
The Company is currently operating on a negative cash flow basis.
Management believes the Company has sufficient cash reserves to enable it to
operate its business for at least the next twelve months, but additional capital
will be required if all of the Company's expansion plans are to go forward.
There can be no assurance that such financing will be available in the amounts
and at the times needed by the Company, if at all.
Management does not expect that inflation will adversely affect the
Company's existing or planned operations in the future unless it increases
significantly over current levels.
Page 10 of 12 Pages
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during or for the
period covered by this Quarterly Report on Form 10-QSB.
No other Items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-QSB.
Page 11 of 12 Pages
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED RESTAURANTS, INC.
Date: August 13, 1996 By HARRY SHUSTER
------------------------------------
Harry Shuster
Chairman of the Board, President
and Chief Executive Officer
Page 12 of 12 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US CURRENCY
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,357,973
<SECURITIES> 0
<RECEIVABLES> 177,471
<ALLOWANCES> 16,538
<INVENTORY> 203,643
<CURRENT-ASSETS> 1,917,207
<PP&E> 3,152,023
<DEPRECIATION> (815,449)
<TOTAL-ASSETS> 5,180,211
<CURRENT-LIABILITIES> 710,666
<BONDS> 0
0
0
<COMMON> 62,625
<OTHER-SE> 4,260,518
<TOTAL-LIABILITY-AND-EQUITY> 5,180,211
<SALES> 4,845,168
<TOTAL-REVENUES> 6,262,033
<CGS> 1,536,058
<TOTAL-COSTS> 6,963,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,964
<INCOME-PRETAX> (563,874)
<INCOME-TAX> 0
<INCOME-CONTINUING> (563,874)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (563,874)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
