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 January 14, 2001.
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 February 9, 2001.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
Part I--Financial Information
ITEM I. FINANCIAL STATEMENTS
CUCOS INC.
BALANCE SHEET
|
Jan. 14, 2001 |
|
|
UNAUDITED |
|
|
Assets |
|
|
Current Assets |
|
|
Cash |
$ 288,812 |
|
Receivables less allowance for doubtful accounts of $56,344 |
28,461 |
|
Inventories |
146,386 |
|
Prepaid Expenses |
247,934 |
|
Other Current Assets |
3,926 |
|
TOTAL CURRENT ASSETS |
715,519 |
|
Property, Equipment and Other |
|
|
Equipment |
2,116,326 |
|
Leasehold Improvements |
3,075,493 |
|
5,191,819 |
|
|
Less Accumulated Depreciation and Amortization and Impairment Reserves |
3,246,780 |
|
1,945,039 |
|
|
|
|
|
Deferred Costs Less Accumulated Amortization of $113,066 |
209,108 |
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Other Assets |
277,918 |
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TOTAL ASSETS |
$3,147,584 |
|
Liabilities and Net Capital Deficiency |
|
|
Current Liabilities |
|
|
Trade Accounts Payable |
1,389,086 |
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Accrued Interest |
410,367 |
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Accrued Expenses |
573,836 |
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Current Portion of Long-Term Debt |
183,963 |
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Debt in Default |
3,105,031 |
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TOTAL CURRENT LIABILITIES |
5,662,283 |
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Long-Term Debt, Less Current Portion |
417,663 |
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Deferred Revenue |
251,619 |
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Net Capital Deficiency |
|
|
Convertible Preferred Stock, No Par Value - 1,000,000 |
|
|
Common Stock, No Par Value - 20,000,000 Shares Authorized, 2,663,605 Shares Issued and Outstanding |
5,264,649 |
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Additional Paid-in Capital |
110,788 |
|
Retained Earnings (Deficit) |
(8,959,418) |
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NET CAPITAL DEFICIENCY |
(3,183,981) |
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TOTAL LIABILITIES AND NET CAPITAL DEFICIENCY |
$3,147,584 |
See Notes to Financial Statements
Part I--Financial Information
CUCOS INC.
STATEMENTS OF OPERATIONS
UNAUDITED
|
12 Weeks |
12 Weeks |
28 Weeks |
28 Weeks |
|
|
Ended |
Ended |
Ended |
Ended |
|
|
Jan. 14, 2001 |
Jan. 9, 2000 |
Jan. 14, 2001 |
Jan. 9, 2000 |
|
|
Restaurant Operations |
||||
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Sales of Food and Beverages |
$3,176,305 |
$3,416,986 |
$7,735,104 |
$8,816,316 |
|
Restaurant Expenses: |
||||
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Cost of Sales |
796,066 |
929,205 |
1,976,083 |
2,434,356 |
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Restaurant Labor and Benefits |
1,216,196 |
1,286,954 |
2,887,655 |
3,289,612 |
|
Other Operating Expenses |
484,672 |
499,304 |
1,390,400 |
1,445,928 |
|
Occupancy Costs |
359,423 |
371,924 |
866,280 |
919,684 |
|
Preopening Costs |
0 |
0 |
0 |
0 |
|
Total Restaurant Expenses |
2,856,357 |
3,087,387 |
7,120,418 |
8,089,580 |
|
Income from Restaurant Operations |
319,948 |
329,599 |
614,686 |
726,736 |
|
Royalties and Franchise Revenues, Net of Expenses of $321 and $767 |
23,647 |
22,851 |
57,840 |
72,234 |
|
Commissary and Other Income |
5,940 |
16,370 |
12,655 |
48,943 |
|
349,535 |
368,820 |
685,181 |
847,913 |
|
|
Operations Supervision Expenses |
120,198 |
155,924 |
289,673 |
353,817 |
|
Corporate Expenses |
243,440 |
318,655 |
508,736 |
668,869 |
|
Charges Related to Settlement with Former Management |
0 |
364,251 |
0 |
364,251 |
|
Charges Related to Closed Units and Asset Impairment |
0 |
1,350 |
0 |
(71,618) |
|
Operating Income (Loss) |
(14,103) |
(471,360) |
(113,228) |
(467,406) |
|
Interest Expense |
167,866 |
139,661 |
379,402 |
290,997 |
|
Loss Before Income Taxes and Extraordinary Item |
(181,969) |
(611,021) |
(492,630) |
(758,403) |
|
Income Taxes |
0 |
0 |
0 |
0 |
|
Net Loss |
$(181,969) |
$(611,021) |
$(492,630) |
$(758,403) |
|
Weighted Average Shares of Common Stock -- Basic and Diluted |
2,663,605 |
2,651,730 |
2,663,605 |
2,651,730 |
| Net Loss Per Share - Basic and Diluted |
(0.07) |
(0.23) |
(0.18) |
(0.29) |
See Notes to Financial Statements
Reclassifications have been made to conform to current classifications.
Part I--Financial Information
CUCOS INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
|
28 Weeks |
28 Weeks |
|
|
Ended |
Ended |
|
|
Jan. 14, 2001 |
Jan. 9, 2000 |
|
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
$ (116,842) |
$ (412,617) |
|
INVESTING ACTIVITIES |
||
|
Proceeds from Sale of Property and Equipment |
- |
27,100 |
|
Purchase of Property and Equipment |
(95,947) |
(59,937) |
|
NET CASH USED IN INVESTING ACTIVITIES |
(95,947) |
(32,837) |
|
FINANCING ACTIVITIES |
||
|
Proceeds from Sale of Preferred Stock |
- |
300,000 |
|
Proceeds from Borrowing |
270,000 |
- |
|
Principal Payments on Borrowings |
(37,111) |
(121,579) |
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
232,889 |
178,421 |
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
20,100 |
(267,033) |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
268,712 |
516,410 |
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ 288,812 |
$ 249,377 |
|
NON CASH FINANCING AND INVESTING ACTIVITIES |
- |
$ 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 January 14, 2001, 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.
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 twenty eight weeks ended January 14, 2001.
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 twelve weeks ended January 14, 2001 (the "Current Quarter") decreased $240,681 (7.0%) to $3,176,305 from $3,416,986 for the twelve weeks ended January 9, 2000 (the "Comparable Quarter"). The decline in sales is due primarily to a 10% decrease in guest counts and a 16.5% decrease in video poker revenues.
Sales of Food and Beverages for the twenty eight weeks ended January 14, 2001 (the "Current First Half") decreased $1,081,212 (12.3%) to $7,735,104 from $8,816,316. The decrease is primarily due to twelve restaurants in operation during the Current
First Half compared to fourteen in operation during the Comparable First Half. Restaurants in operation during both Halves ("Comparable Restaurants") experienced a 9% decrease in guest counts. In addition, video poker revenues for the Current First Half
declined 43.2% versus the Comparable First Half.
Two company-owned restaurants in Birmingham and Montgomery, Alabama, were closed during the Comparable First Quarter. Both restaurants were sold to former employees who operated the locations as franchisees of the Company. The restaurant in Birmingham
was subsequently closed October, 2000.
Restaurant Expenses in the Current Quarter decreased $231,030 (7.5%) to $2,856,357 from $3,087,387 in the Comparable Quarter.
During the Current First Half, restaurant expenses declined $969,162 (12%) to $7,120,418 from $8,089,580 during the Comparable First Half. Expenses for Comparable Restaurants open throughout both halves decreased $611,519 (7.9%) to $7,120,418 during the
Current First Half from $7,731,937 in the Comparable First Half.
A summary of the components of restaurant expenses are:
|
Description |
Current Quarter |
Comparable Quarter |
|
Cost of Sales |
25.06% |
27.19% |
|
Restaurant Labor and Benefits |
38.29 |
37.66 |
|
Other Operating Expenses |
15.26 |
14.61 |
|
Occupancy Costs |
11.32 |
10.88 |
|
Total Restaurant Expenses |
89.93% |
90.35% |
Net Royalties and Franchise Revenues increased $796 (3.5%) to $23,647 in the Current Quarter compared to $22,851 in the Comparable Quarter. Net Royalty and Franchise Revenue decreased $14,394 (20%) for the Current First Half to $57,840 compared to
$72,234 in the Comparable First Half. During the Comparable First Quarter, the franchised restaurant in Des Moines, Iowa, closed and the Development Agreement fee of $17,000 was forfeited.
Commissary and Other Income decreased $10,430 (63.7%) to $5,940 in the Current Quarter versus $16,370 during the Comparable Quarter. Commissary and Other income declined $36,288 (74.1%) to $12,655 in the Current First Half versus $48,943 during the
Comparable First Half.
During the Comparable First Half, the Company's contract to manage a franchised restaurant was cancelled. The cancellation resulted in decreased management fee and other income associated with this location of $35,647 during the Current First Half
versus the Comparable First Half.
Operations Supervision Expenses declined $35,726 (22.9%) to $120,198 in the Current Quarter compared to $155,924 in the Comparable Quarter. The decrease is primarily a reduction in the allowance for bad debt associated with franchised restaurants'
receivables offset by an increase in management training expenses.
Operations Supervision Expenses declined $64,144 (18.1%) to $289,673 in the Current First Half compared to $353,817 in the Comparable First Half. The decrease is primarily a reduction in the labor and benefit costs of supervisory personnel, a decrease in the allowance for bad debts, offset by an increase in management training expenses.
Corporate Expenses declined $75,215 (23.6%) to $243,440 in the Current Quarter compared to $318,655 in the Comparable Quarter. The decrease is attributed to a reduction in severance pay and legal costs associated with the management change that occurred
during the Comparable Quarter.
Corporate Expenses declined $160,133 (23.9%) to $508,736 in the Current First Half compared to $668,869 in the Comparable First Half. The reduction is primarily attributed to negotiated reductions of various vendor payables resulting in savings to the
Company. Furthermore, personnel reductions in the administrative and marketing departments, and the severance package discussed above, resulted in additional savings during the Current First Half.
The Company recorded a one-time expense of $364,251 in the Comparable Quarter in connection with the settlement with the former Board and its Chairman and CEO. This expense includes amounts attributable to the transfer of the Company's interest in a
franchised restaurant to Mr. Vincent J. Liuzza, Jr. and the Company's forgiveness of debts owed to the Company by Mr. Liuzza and his affiliates. The Company believes that the settlement was in the best interest of the Company and its shareholders
because, among other things, the settlement would eliminate substantial operating costs that were historically paid to Mr. Liuzza and associates.
Charges Related to Closed Units during the Comparable Quarter were $1,350; there were no charges during the Current Quarter. The Company recorded income during the Comparable First Half of $71,618 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 First Half.
Interest Expenses increased $28,205 (20.2%) to $167,866 in the Current Quarter compared to $139,661 in the Comparable Quarter. Interest Expense increased $88,405 (30.4%) to $379,402 in the Current First Half compared to $290,997 in the Comparable First
Half. 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 First Half, the Company's operating activities used $116,842 in cash, compared to the Comparable First Half, when operating activities used $412,617 in cash.
Net cash used by investing activities was $95,947 in the Current First Half versus $32,837 in the Comparable First Half. During the Comparable First Half, 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 $232,889 in the Current First Half compared to cash provided of $178,421 in the Comparable First Half. During the Current First Half, the Company signed a line of credit agreement with Jacksonville
Restaurant Acquisition Corp. (JRAC) for a maximum of five million dollars. $270,000 was drawn from the line during the Current First Half. During the Comparable First Half, the Company received $300,000 from the sale of preferred stock. Payments during
the Current and Comparable First Halves included principal payments on capital leases.
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.
The Company has failed to make a payment required under a forbearance agreement
in which its commercial lender agreed to not exercise its rights to the
collateral until February 28, 2001. The Company is attempting to obtain financing through JRAC to repay the debt in default, negotiate a
further 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 Line of Credit Agreement (the "Credit Agreement") with JRAC, the Company's majority shareholder. 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. The commercial lender agreed, pursuant a forbearance agreement, to not exercise its rights to the collateral until February 28, 2001, but the Company is not currently in compliance with that agreement. The Company is attempting to obtain financing through JRAC to repay the debt in default, negotiate a further 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.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
None
b. Reports on Form 8-K.
None.
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.
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CUCOS INC. |
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|
(Registrant) |
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Date: February 23, 2001 |
By: /s/ James W. Osborn |
|
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James W. Osborn, President and Chief |
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Executive Officer |