0000930881-95-000008.txt : 19950816
0000930881-95-000008.hdr.sgml : 19950816
ACCESSION NUMBER: 0000930881-95-000008
CONFORMED SUBMISSION TYPE: 10QSB
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950815
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HUDSONS GRILL OF AMERICA INC
CENTRAL INDEX KEY: 0000729545
STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812]
IRS NUMBER: 953477313
STATE OF INCORPORATION: CA
FISCAL YEAR END: 1229
FILING VALUES:
FORM TYPE: 10QSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-13642
FILM NUMBER: 95564018
BUSINESS ADDRESS:
STREET 1: 16970 DALLAS NORTH PKWY STE 402
CITY: DALLAS
STATE: TX
ZIP: 75248
BUSINESS PHONE: 2149319743
MAIL ADDRESS:
STREET 1: 16970 DALLAS PARKWAY
STREET 2: SUITE 402
CITY: DALLAS
STATE: TX
ZIP: 75248
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN RESTAURANTS CORP
DATE OF NAME CHANGE: 19910825
10QSB
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-13642
HUDSON'S GRILL OF AMERICA, INC.
(Name of small business issuer in its charter)
California
(State or other jurisdiction of incorporation)
95-3477313
(IRS Employer Identification Number)
16970 Dallas Parkway, Suite 402, Dallas, Texas 75248
(Address of Principal Executive Offices)
Issuer's telephone number, including area code:
(214) 931-9743
PAGE
Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of
the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date. 6,056,986
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 1995 and January 1, 1995
June 30, January 1,
1995 1995
ASSETS
Current assets:
Cash and cash equivalents $ 25,564 $ 92,750
Accounts receivable, no allowance
for doubtful accounts considered
necessary 78,967 44,098
Current portion of notes and lease
receivable 390,755 203,005
Prepaid expenses and other 31,112 14,871
Total current assets 526,398 354,724
Property and equipment, at cost:
Leasehold improvements 662,879 933,250
Restaurant equipment 480,933 772,812
Furniture and fixtures 196,052 297,266
Total property and equipment 1,339,864 2,003,328
Less accumulated depreciation
and amortization (1,176,889) (1,481,435)
Property and equipment-net 162,975 521,893
Long term portion of notes
and lease receivable 1,913,682 1,836,679
Liquor licenses-net of
accumulated amortization
of $55,902 and $60,785
respectively 167,713 243,138
Other assets 38,929 74,144
Total assets $ 2,809,697 $ 3,030,578
PAGE
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 1995 and January 1, 1995
June 30, January 1,
1995 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 125,138 $ 126,684
Accounts payable 83,205 154,309
Accrued liabilities 94,375 110,466
Total current liabilities 302,718 391,459
Long-term debt 1,170,596 1,238,187
Other long-term liabilities 483,643 523,436
Deferred income 320,635 348,782
Commitments and contingencies
(Note 4)
Shareholders' equity:
Preferred stock, 1,000,000
shares authorized, none
issued or outstanding
Common stock, no par value
10,000,000 shares authorized
6,056,986 shares issued and
outstanding 4,456,457 4,456,457
Accumulated deficit (3,924,352) (3,927,743)
Total shareholders' equity 532,105 528,714
Total liabilities and
and shareholders' equity $2,809,697 $3,030,578
PAGE
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
June 30, 1995 and June 30, 1994
June 30, June 30,
1995 1994
Franchise revenue $ 59,264 $ 14,179
Capital lease income 13,421
Joint venture revenues - and
equipment lease income 59,033 174,019
131,718 188,198
Costs and expenses:
Restaurant operations - net 21,752
General and administrative 164,176 117,243
Depreciation and amortization 20,292 99,544
206,220 216,787
Loss from operations (74,502) (28,589)
Interest expense (24,942) (63,695)
Dividend and interest income 38,817 44,552
Gain on sale of assets 17,624 22,500
Miscellaneous income 5,119
Loss on store closure (1,396)
Loss from impairment of assets (576,827)
Net loss before provision
for income taxes and
extraordinary item (37,884) (603,455)
Provision for income taxes -0- -0-
Net loss before extraordinary item (37,884) (603,455)
Extraordinary item - Gain from
extinguishment of debt 1,747,233
PAGE
Net income (loss) (37,884) 1,143,778
Net income (loss) attributable to
common shares (37,844) 1,143,778
Net income (loss) common share $ (.0038) $ .19
PAGE
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six months ended
June 30, 1995 and June 30, 1994
June 30, June 30,
1995 1994
Franchise revenue $ 148,141 $ 37,126
Capital lease income 34,746
Joint venture revenues - and
equipment lease income 116,352 272,768
299,239 309,894
Costs and expenses:
Restaurant operations - net 45,846 1,510
General and administrative 248,791 232,104
Depreciation and amortization 46,514 206,664
Franchise expense 5,000
341,151 445,278
Loss from operations (41,912) (135,384)
Interest expense (52,925) (137,024)
Dividend and interest income 86,839 69,663
Gain on sale of assets 6,272 22,500
Miscellaneous income 5,119
Loss on store closure (1,396)
Loss from impairment of assets (576,827)
Net income (loss) before provision
for income taxes and
extraordinary item 3,393 (758,468)
Provision for income taxes -0- -0-
Net income (loss) before
extraordinary item 3,393 (758,468)
Extraordinary item - Gain from
extinguishment of debt 1,747,233
PAGE
Net income 3,393 988,765
Net income attributable to
common shares 3,393 988,765
Net income common share $ .0003 $ .16
PAGE
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the six months ended
June 30, 1995 and June 30, 1994
June 30, June 30,
1995 1994
Cash flows from operating
activities:
Net income $ 3,393 $ 988,765
Adjustment to reconcile income
to net cash flows from operating
activities:
Depreciation and amortization 46,513 206,664
Amortization of deferred income (35,470)
Gain on sale of assets (6,272) (22,500)
Loss from impairment of assets 576,827
Gain from extinguishment of debt (1,747,233)
Non-cash income and expense (48,682)
Net cash provided by (used for)
changes in assets and liabilities:
Accounts receivable (22,375) 224,127
Inventories 86,052
Prepaid expenses and other (17,457) 39,796
Accounts payable (27,159) (522,455)
Accrued and other liabilities (1,469) (61,486)
Net cash flows from operating activities (108,978) (231,443)
Cash flows from investing activities:
Proceeds from sale of assets 12,182 22,500
Note receivable principal payments 36,602 151,907
Payments on lease receivables 55,077
Refund of other assets 17,787
Additions to notes receivable (1,000,000)
Net cash flows from investing
activities 121,648 (825,593)
Net cash flows from financing
activities:
Repayment of long term debt (67,084) (287,697)
Proceeds from notes payable 120,000
Repayment of long term liabilities (12,772)
PAGE
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
For the six months ended
June 30, 1995 and June 30, 1994
June 30, June 30,
1995 1994
Net cash flows from financing
activities: (79,856) (167,697)
Net decrease in cash (67,186) (1,224,733)
Cash at beginning of period 92,750 1,294,602
Cash at end of period $ 25,564 $ 69,869
Supplemental cash flow
information:
Interest paid $ 53,303 $ 51,259
Income taxes paid $ $
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hudson's Grill of America, Inc. (the "Company") franchises
and previously owned and operated full-service restaurants,
primarily in Southern California and Texas. As of June 30, 1995,
the Company has franchised fourteen restaurants. Additionally,
they own four restaurants, all of which are held for sale. (See
Notes 2 and 8).
The consolidated financial statements include the Company
and its wholly-owned subsidiaries, Equipco, Inc. and Hudson's
Grill of Whittier, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
Management is in the process of attempting to sell and
franchise the Company's restaurants and believes that these and
other cost cutting actions will assist the Company in meeting its
cash flow requirements over the next twelve months.
Restaurants Held for Sale
As of June 30, 1995, restaurants held for sale are operated
under formal and informal joint venture agreements with
prospective purchasers except for its Whittier location. The
Company has ceased recording operating revenues and expenses on
these joint ventured locations, but records joint venture and
equipment rental fees (see Note 8). The Company has recorded the
net operating expense of the Whittier location. Gross revenues
and expenses for the three months and six months ended June 30,
1995 were:
Three months Six months
Gross revenue $150,149 $270,897
Cost of sales and
operating expense (171,901) (316,743)
Restaurant operations - net $(21,752) $(45,846)
Management has evaluated the remaining net assets and
believes the carrying values do not exceed the net realizable
values of those assets.
Cash and Cash Equivalents
Cash and cash equivalents for purposes of the statement of
cash flows consist of cash and short-term investments purchased
with an original maturity of three months or less.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)
Non-current Assets
Depreciation of property and equipment is recognized using
the straight-line method over the estimated lives of the assets
(generally five to seven years).
Amortization of leaseholds is recognized using the straight-
line method over the shorter of the initial term of the
respective lease or the service life of the leased asset.
Goodwill was recorded as the difference between the purchase
price and the fair value of net assets acquired upon purchase of
the initial restaurants, and was amortized on the straight-line
method over forty years. The Company charged against income a
total of approximately $3,500,000 of the remaining goodwill
balances during the years ended January 1, 1995 and January 2,
1994 in connection with the sales and closures of the related
restaurants and the restructuring of the related acquisition
debt. All goodwill had been eliminated as of January 1, 1995.
Liquor licenses are recorded at cost and are amortized over
ten years.
Income Taxes
In the fiscal year beginning January 4, 1993, the Company
adopted Statement of Financial Accounting Standard (SFAS) No.
109, "Accounting for Income Taxes". Adoption of the new
statement did not have a material effect on the Company's
financial statements.
Pursuant to SFAS No. 109, income taxes are provided for the
tax effects of transactions reported in the financial statements
and consist of taxes currently due plus deferred taxes related
primarily to differences between the financial and income tax
reporting bases of assets and liabilities. The deferred tax
assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or
settled.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)
Income (loss) per share
Income per common share is computed based upon the weighted
average number of common and common equivalent shares (unless the
effect of the common equivalent shares is antidilutive)
outstanding during the year. Common stock equivalents consist of
outstanding stock options and warrants. Common stock equivalents
are assumed to be exercised with the related proceeds used to
repurchase outstanding shares except when the effect would be
antidilutive.
The weighted average number of shares outstanding used in
the income (loss) per share computation was 10,056,986 for the
six months ended June 30, 1995 and 6,056,986 for the six months
ended June 30, 1994.
2. FRANCHISE ACTIVITIES
In 1991, the Company commenced franchising its Hudson's
Grill concept. Under the terms of the standard franchise
agreement, the franchisees are obligated to pay the Company an
initial franchise fee of $25,000, and a weekly continuing royalty
fee of 4% of gross restaurant revenues, and must spend 3% of
gross sales on approved advertising, including a weekly 1%
marketing fee contributed to the Company's marketing fund. The
Company is obligated to provide initial training, continuing
management assistance, administration of advertising and sales
promotion programs and establishment and monitoring of a
marketing fund. Franchising revenues consisted of:
Six months Six months
ended ended
June 30, June 30,
1995 1994
Initial franchise revenues $ 49,374 $
Continuing franchise
revenues 98,767 37,126
Total franchise revenues $ 148,141 $ 37,126
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
3. NOTES AND LEASES RECEIVABLE
At January 1, 1995 the Company has a $1,199,114 note
receivable from its Texas franchisee. A principal shareholder of
the Company owns an interest in this entity and Travis L. Bryant
(see Note 5) owned an interest in this entity until 1994.
Monthly payments of $7,994, interest only through August 1995 and
then monthly payments of principal and interest in the amount of
$14,549 are required at a rate of 8% per year for ten years. The
last payment will consist of all remaining principal and accrued
interest due at that time. The note is collateralized by
restaurant equipment and improvements. In addition, an offset
agreement exists in which the Company can offset any past due
amounts on the note against a note payable of $1,154,420 to
Travis L. Bryant. See Note 5.
In connection with the sale of restaurants in the year ended
January 2, 1994, the Company received a note for $490,000 with
annual installments totalling $86,667, over four years with the
balance due in the fifth year, plus interest at prime plus 2%.
The balance of the note at January 1, 1995 and at June 30, 1995
was $316,667 and $291,667 respectively.
In connection with the sale of a restaurant in the year
ended January 1, 1995, the Company received a note for $262,800.
The note bears interest at a rate equal to the greater of prime
plus 2% or 9%, adjusted on a quarterly basis. Payments of
interest only are required for one year, after which ninety-six
monthly payments are required in amounts necessary to amortize
the remaining principal balance of the note. The Company also
leased the restaurant equipment to the purchaser under a ten year
lease that has been classified as a sales-type lease. The net
carrying value of the lease receivable at June 30, 1995 and
January 1, 1995, is composed of the following:
June 30, January 1,
1995 1995
Future lease payments due
in fiscal year ending:
December 31, 1995 $ 24,923 $ 48,000
December 29, 1996 48,000 48,000
January 4, 1998 48,000 48,000
January 3, 1999 48,000 48,000
January 2, 2000 48,000 48,000
Thereafter 224,308 224,308
Total 441,231 464,308
Less amount representing
unearned interest (222,261) (241,775)
$ 218,970 $ 222,533
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
3. NOTES AND LEASE RECEIVABLE (CONT'D)
In connection with the sale of two restaurants to a single
buyer which closed during the six months ended June 30, 1995, the
Company received notes in the amount of $100,000. The notes bear
interest at 7.5% and are amortized over five years starting
September 30, 1993 (the date the purchase agreement was reached).
The Company also leased the restaurants' equipment to the
purchaser under two five year leases (beginning October 1, 1993)
that have been classified as sales-type leases. The net carrying
value of the lease receivables at June 30, 1995 is composed of
the following:
June 30,
1995
Future lease payments due
fiscal year ending:
December 31, 1995 $ 64,000
December 29, 1996 96,000
January 4, 1998 96,000
January 3, 1999 72,000
Total 328,000
Less amount representing
unearned interest (84,195)
$ 243,805
4. COMMITMENTS AND CONTINGENT LIABILITIES
Most of the Company's restaurant buildings and equipment are
operated under noncancelable operating leases. Terms of these
leases extend from 3 to 25 years. Certain leases are guaranteed
by former directors. In addition to amounts included below, the
leases generally provide that the Company pay taxes, maintenance,
insurance and certain other operating expenses applicable to the
leased property, plus a percentage of gross receipts in excess of
certain limits stated in the lease agreements. As explained in
Note 8, most of the Company's remaining restaurants are operated
by third parties under joint venture agreements and the rental
payments are being made by those parties.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
4. COMMITMENTS AND CONTINGENT LIABILITIES (CONT'D)
The following is a summary by years of future minimum lease
payments on the restaurant locations:
Fiscal Year Ending:
December 31, 1995 $ 532,200
December 29, 1996 528,714
January 4, 1998 500,496
January 3, 1999 500,496
January 2, 2000 500,496
Thereafter 6,558,148
Total minimum lease payments $9,120,550
The Company has assigned to the purchasers, the leases on
buildings for seven of the restaurants sold prior to June 30,
1995. Under the terms of the leases, the Company is secondarily
liable for the lease payments on these restaurants should the
purchasers not fulfill their responsibility under the leases.
The future lease payments for these restaurants total
approximately $6,134,312 at January 1, 1995 and June 30, 1995.
In addition, the Company may be secondarily liable under other
leases for restaurants sold in prior years.
Total rental expenses for operating leases was $44,246 and
$44,953 for the six months ended June 30, 1995, and June 30,
1994, respectively.
The Company is the defendant in a lawsuit filed by two
former employees. The Company believes the lawsuit is without
merit, but is presently unable to predict whether it will result
in a material loss to the Company.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
5. LONG-TERM DEBT
Long-term debt at June 30, 1995 and January 1, 1995, which
is collateralized by substantially all of the assets of the
Company, is summarized as follows:
June 30, January 31,
1995 1995
Note payable to Travis L.
Bryant, a former director
of the Company and a former
part owner of the Company's
Texas franchisee, monthly
interest payments of $7,696
through November, 1995 and
monthly installments of
$14,006 including interest
at 8% through November, 2005.
(See below and Note 3.) $1,154,420 $1,154,420
Note payable to Corona Market
Partnership, due in monthly
installments of $5,327,
including interest of 8%
through June, 1997. 117,787 144,414
Note payable in monthly
principal installments of
$5,555, plus interest at prime
rate plus 2% (total of 10.5%
at January 1, 1995), due April
1995. 22,229
Note payable, due in monthly
installments of $1,435,
including interest at 12%,
through May 1996. 23,527 23,527
Note payable, due in monthly
installments of $6,793,
including interest at 7%,
through March 1995. 20,281
Total 1,295,734 1,364,871
Less current portion (125,138) (126,684)
Long-term debt $1,170,596 $1,238,187
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
5. LONG-TERM DEBT (CONT'D)
Principal payments due in the fiscal years subsequent to
January 1, 1995 are as follows:
Fiscal Year Ending:
December 31, 1995 $ 126,684
December 29, 1996 147,932
January 4, 1998 116,879
January 3, 1999 82,758
January 2, 2000 100,456
Thereafter 790,162
Total $1,364,871
No covenants of the debt agreements at January 1, 1995 are
considered to be materially restrictive.
In the year ended January 1, 1995, Travis L. Bryant formally
agreed to reduce a $3,360,000 note payable to him into a
$1,300,000 note due in monthly installments as described above.
In addition, Bryant agreed to forgive certain other amounts due
him by the Company, which totalled approximately $720,000. In
connection with the restructuring transaction, Bryant also
received a warrant to purchase 4,000,000 shares of the Company's
common stock at $.0625 per share anytime over the next ten years.
Consummation of the agreement was contingent on the Company's
performance of certain conditions, including the loan of an
additional amount to the Texas franchisee to increase that note
receivable from $300,000 to $1,300,000 (see Note 3) and the
compromise and satisfaction of certain liabilities due lessors of
certain closed restaurant locations (See Note 4). These
conditions were satisfied in the year ended January 1, 1995 and
the debt restructure was consummated. The total debt forgiveness
of $1,747,233, net of approximately $1,033,000 of the write-off
of associated goodwill, has been recorded as an extraordinary
item.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
6. INCOME TAXES
Deferred income taxes are provided for temporary differences
between income tax and financial reporting as of June 30, 1995
and January 1, 1995 as follows:
June 30, January 1,
1995 1995
Deferred tax asset:
Depreciation $ 230,000 $ 230,000
Net operating loss 167,000 167,000
Accrued settlement 60,000 60,000
Valuation allowance (457,000) (457,000)
$ $
At January 1, 1995, and at June 30, 1995 the Company had net
operating loss and investment tax credit carryforwards for
Federal income tax purposes of $900,000 and $200,000,
respectively. Use of these carryforwards may be limited
following issuance of the warrant described in Note 5.
7. SHAREHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of
preferred stock with rights and preferences as designated by the
Board of Directors.
In connection with a transaction with another company in
1991, the Company issued a warrant to acquire 100,000 shares of
the Company's common stock at $1.00 per share, which expires
January 1, 1996.
In January 1994, in connection with a debt restructuring
agreement described in Note 5, the Company issued warrants to
Travis L. Bryant. The warrants are exercisable for 4,000,000
shares of common stock at $.0625 per share and expire in ten
years. The exercise price approximated the market value of the
stock at the time of grant.
8. RESTAURANT SALES AND CLOSURES
During the year ended January 1, 1995, the company sold one
restaurant and recorded a deferred gain of $348,782 on the sale,
which has been recorded as a liability as of January 1, 1995.
PAGE
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements (Cont'd)
8. RESTAURANT SALES AND CLOSURES (CONT'D)
The liability will be amortized into income as gain on sale
of assets over the terms of the related note and lease
receivables (see Note 3).
On January 31, 1994, the company closed its Irvine
restaurant. In connection with this closure, a loss of $460,000
was recorded at January 2, 1994 to write off goodwill and
estimate the settlement of lease obligations. An additional
$188,000 of losses related to the closure of the Irvine
restaurant have been recorded in the year ended January 1, 1995.
The Company is endeavoring to sell all remaining restaurants
and has granted purchase options for three of the remaining
restaurants owned. These purchase options also include certain
joint venture provisions, which began in the second half of the
year ended January 2, 1994, whereby, the future purchasers
operate the restaurants and the Company receives a joint
venturer's fee based on sales, net of certain operating expenses.
In addition, certain joint venturer's have agreed to lease in-
store assets over the term of the joint venture agreements, which
expire upon sale of the restaurants. Joint venture fees and the
related lease income for the six months ended June 30, 1995 and
six months ended June 30, 1994 were $116,352 and $272,768,
respectively. After the sale of the restaurants, revenue from
the lease of the store assets to the buyer is reported as capital
lease income. Capital lease income for the six months ended June
30, 1995 and June 30, 1994 was $34,746 and $-0-, respectively.
Based on the option price provided in these agreements,
management does not anticipate recording a loss on sale of these
restaurants.
The Company has written down the carrying value of the one
remaining restaurant held for sale by approximately $587,000
during the year ended January 1, 1995 due to diminished prospects
for the sale of the restaurant.
PAGE
Item 2. Management's Discussion and Analysis.
Net Sales
Franchise Revenue increased from $37,126 for the half year
ended June 30, 1994 to $148,141 for the half year ended June 30,
1995. This change reflects the fact that more restaurants are
now being operated as franchised units. Net joint venture
revenue and equipment lease income was $272,768 in the first half
year of 1994 and decreased to $116,352 in the first half year of
1995. During this past year several of the Company's joint
ventures became franchises, and one became a subsidiary, and thus
franchise revenues increased while joint venture revenues
decreased. For the half year ended June 30, 1995, the Company
had Capital Lease income of $34,746. This last category is new
in 1995.
Expenses
Net restaurant operating expenses were $45,846 for the half
year ended June 30, 1995, compared to $1,510 for the half year
ended June 30, 1994. This change is also attributed to the fact
that the Company quit operating restaurants during the first half
year of 1994; instead its expenses are now attributable to
franchise activities and joint venture operations.
General and administrative expenses for the half year ended
June 30, 1995, were $248,791 compared to $232,104 for the half
year ended June 30, 1994. This increase is partially due to the
Company's recent hiring of a vice president to coordinate new
franchising opportunities and to support existing franchises.
Depreciation declined in the first half year of 1995 to
$46,514 from 1994's amount of $206,664. This is mostly due to
the sales of Company restaurants and writing off of certain
assets related to the Company's Whittier location.
Liquidity and Capital Resources
The Company had a working capital surplus of approximately
$223,680 as of June 30, 1995, as compared to a deficit of $36,735
for January 1, 1995. The increase is due mostly to an increase
in the current portion of notes and lease receivables that have
resulted from recent sales by the Company of its restaurant
locations to franchisees.
PAGE
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The registrant incorporates by reference its response in its
Form 10-KSB filed with the Securities and Exchange Commission on
April 14, 1995 (see Item 3 on page 5 of the Form 10-KSB).
Item 5. Other Information.
Pursuant to a letter dated May 26, 1995, Jotar, Inc., a
corporation affiliated with Greg Georgas, who is associated with
four corporate entities that are franchisees of the registrant,
made an offer to purchase the Hudson's Grill trademark and all
rights of the registrant to use the trademark for $250,000. The
directors of the registrant rejected the offer. In another
matter related to the Jotar, Inc., affiliates, the registrant is
in preliminary discussions with the same principals concerning
expansion opportunities in California, New York, New Jersey and
Connecticut.
Recently the registrant learned that some of its litigation
expense on the Torres case may be reimbursed. The registrant is
pursuing this issue. The registrant also learned that the
California Board of Equalization would be seeking to recover
unpaid sales tax remaining from the joint venture in which the
registrant was a non-operating venturer at the Hudson's Grill
located in Whittier, California. The operating venturer incurred
the liability and is unable to pay it, and California is
attempting to collect the liability from the registrant. The
unpaid sales tax, penalties and interest is in excess of $40,000.
Pursuant to an agreement recently signed by the registrant's
former landlord of the Hudson's Grill in Irvine, California, the
registrant is obligated to pay $85,000 to settle its potential
obligation under the lease. The first settlement funds of
$50,000 are to be paid on or before September 5, 1995.
PAGE
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. Following are the exhibits required under
Item 601 of Regulation S-B for Form 10-QSB:
Item 601
Exhibit No. Description Page Number
(2) Plan of Acquisition, Reorgani-
zation, Arrangement, Liquida-
tion, or Succession n/a
(4) Instruments Defining the Rights
of Holders Including Indentures n/a
(6) No Exhibit Required. n/a
(11) Statement Re: Computation of
Per Share Earnings n/a
(12) No Exhibit Required. n/a
(15) Letter on Unaudited Interim
Financial Information n/a
(18) Letter on Change in Accounting
Principles n/a
(19) Previously Unfiled Documents n/a
(20) Reports Furnished to Security
Holders n/a
(23) Published Report Regarding
Matters Submitted to Vote n/a
(24) Consent of Experts and Counsel n/a
(25) Power of Attorney n/a
(27) Financial Data Schedule attached
(28) Additional Exhibits n/a
PAGE
No explanation of the computation of per share earnings
on both the primary and fully diluted basis is necessary because
the computation can be clearly determined from the financial
statements.
No reports on unaudited interim financial information
has been prepared by the Company's independent accountants, and
therefore, no letter is required from the Company's independent
accountants.
(b) Reports on Form 8-K. The following reports on Form 8-K were
filed during the quarter ending June 30, 1995:
1. June 30, 1995. The registrant reported that Mr. Tom
Sacco had been named Senior Vice President of Operations and
Franchise Development and that his consulting company would be
paid $10,000 per month along with various other benefits. Mr.
Sacco was also granted options to purchase the registrant's
stock. The registrant also reported that it entered into a
contract to sell its Hornblower's restaurant for $300,000 to its
current manager. The registrant is currently working with the
buyer to close the sale quickly but does not anticipate closing
until at least later in 1995. The registrant's insurance company
also agreed to assume the defense of the Torres case. The Irvine
lease settlement was also disclosed on June 30, 1995, although
the landlord did not actually complete the execution of the
agreement until August 5, 1995.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
(Registrant) HUDSON'S GRILL OF AMERICA, INC.
By: s/s David L. Osborn
David L. Osborn, President
Date: May 19, 1995
elink\filing\10QSB1.952
EX-27
2
ART 5 FIN DATA SCHEDULE FOR 2ND QTR 1995 10-QSB
5
6-MOS
DEC-31-1995
JUN-30-1995
25,564
0
469,722
0
0
526,398
1,339,864
1,176,889
2,809,697
302,718
0
4,456,457
0
0
0
2,809,697
0
299,239
0
341,151
0
0
52,925
3,393
0
0
0
0
0
3,393
0.000
0.000