-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DmmPBZpixuOfvnMiM6YFFool7Eir9TW5hIRj/S0rmKYxE9wDQdLzO/ZKnIsg2PPf vF36HwYgtyGmP4UZ7ib8Og== 0000930881-95-000018.txt : 19951120 0000930881-95-000018.hdr.sgml : 19951120 ACCESSION NUMBER: 0000930881-95-000018 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95593052 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 September 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. PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 1995 and January 1, 1995 September 30, January 1, 1995 1995 ASSETS Current assets: Cash and cash equivalents $ 3,568 $ 92,750 Accounts receivable, no allowance for doubtful accounts considered necessary 57,265 44,098 Current portion of notes and lease receivable 427,483 203,005 Prepaid expenses and other 29,664 14,871 Total current assets 517,980 354,724 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 (1,191,591) (1,481,435) Property and equipment-net 148,273 521,893 Long term portion of notes and lease receivable 1,841,530 1,836,679 Liquor licenses-net of accumulated amortization of $66,491 and $53,191 respectively 162,124 243,138 Other assets 48,913 74,144 Total assets $ 2,718,820 $ 3,030,578 PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 1995 and January 1, 1995 September 30, January 1, 1995 1995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 147,714 $ 126,684 Accounts payable 101,151 154,309 Accrued liabilities 112,899 110,466 Total current liabilities 361,764 391,459 Long-term debt 1,135,776 1,238,187 Other long-term liabilities 335,403 523,436 Deferred income 313,224 348,782 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 (3,883,804) (3,927,743) Total shareholders' equity 572,653 528,714 Total liabilities and and shareholders' equity $2,718,820 $3,030,578 PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended September 30, 1995 and September 30, 1994 September 30, September 30, 1995 1994 Franchise revenue $ 50,750 $ 21,272 Capital lease income 16,437 Joint venture revenues - equipment lease income 39,608 135,792 106,795 157,064 Costs and expenses: Restaurant operations - net 40,671 General and administrative 118,770 71,558 Depreciation and amortization 20,307 65,573 Franchise expense 179,748 137,131 Income (loss) from operations (72,953) 19,933 Interest expense (25,295) (33,928) Interest income 38,838 33,412 Gain on sale of assets 7,412 348,782 Miscellaneous income 5,780 Gain (loss) on store closure 86,766 (8,045) Loss from impairment of assets Amortization of deferred income 3,326 Net income before provision for income taxes and extraordinary item 40,548 363,480 Provision for income taxes Net income before extraordinary item 40,548 363,480 Extraordinary item - Gain from extinguishment of debt Net income 40,548 363,480 Net income attributable to common shares 40,548 363,480 Net income common share $ .0041 $ .06 PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the nine months ended September 30, 1995 and September 30, 1994 September 30, September 30, 1995 1994 Franchise revenue $ 198,891 $ 58,398 Capital lease income 51,183 Joint venture revenues - and equipment lease income 155,960 408,560 406,034 466,958 Costs and expenses: Restaurant operations - net 86,517 1,510 General and administrative 367,561 303,662 Depreciation and amortization 66,821 272,237 Franchise expense 5,000 520,899 582,409 Loss from operations (114,865) (115,451) Interest expense (78,220) (170,952) Interest income 125,677 103,075 Gain on sale of assets 13,684 371,282 Miscellaneous income 10,899 Gain (loss) on store closure 86,766 (9,441) Loss from impairment of assets (576,827) Amortization of deferred income 3,326 Net income (loss) before provision for income taxes and extraordinary item 43,941 (394,988) Provision for income taxes Net income (loss) before extraordinary item 43,941 (394,988) Extraordinary item - Gain from extinguishment of debt 1,747,233 Net income 43,941 1,352,245 Net income attributable to common shares 43,941 1,352,245 Net income common share $ .0044 $ .22 PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOW For the nine months ended September 30, 1995 and September 30, 1994 September 30, September 30, 1995 1994 Cash flows from operating activities: Net income $ 43,941 $ 1,352,245 Adjustment to reconcile income to net cash flows from operating activities: Depreciation and amortization 66,821 272,237 Amortization of deferred income (51,907) (3,326) Gain on sale of assets (13,684) (371,282) Loss from impairment of assets 576,827 Gain from extinguishment of debt (1,747,233) Non-cash income and expense (132,400) Net cash provided by (used for) changes in assets and liabilities: Accounts receivable (24,569) 222,606 Prepaid expenses and other (16,356) 55,556 Accounts payable (9,214) (522,455) Accrued and other liabilities 2,055 31,635 Net cash flows from operating activities (135,313) (133,190) Cash flows from investing activities: Proceeds from sale of assets 12,182 25,595 Note receivable principal payments 84,358 180,030 Payments on lease receivables 80,377 Other assets 7,787 8,843 Additions to notes receivable (1,000,000) Net cash flows from investing activities 184,704 (785,532) Net cash flows from financing activities: Repayment of long term debt (80,801) (384,970) Proceeds from notes payable 25,000 120,000 Repayment of long term liabilities (82,772) Net cash flows from financing activities: (138,573) (264,970) PAGE HUDSON'S GRILL OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D) For the nine months ended September 30, 1995 and September 30, 1994 September 30, September 30, 1995 1994 Net decrease in cash (89,182) (1,183,692) Cash at beginning of period 92,750 1,294,602 Cash at end of period $ 3,568 $ 110,910 Supplemental cash flow information: Interest paid $ 78,656 $ 81,899 Income taxes paid $ $ 800 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 September 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 September 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 nine months ended September 30, 1995 were: Three months Nine months Gross revenue $170,521 $320,670 Cost of sales and operating expense (211,192) (407,187) Restaurant operations - net $(40,671) $(86,517) 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 nine months ended September 30, 1995 and 6,056,986 for the nine months ended September 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: Nine months Nine months ended ended September 30, September 30, 1995 1994 Initial franchise revenues $ 49,374 $ Continuing franchise revenues 149,517 58,398 Total franchise revenues $ 198,891 $ 58,398 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 September 30, 1995 was $316,667 and $256,667 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 September 30, 1995 and January 1, 1995, is composed of the following: September 30, January 1, 1995 1995 Future lease payments due in fiscal year ending: December 31, 1995 $ 12,923 $ 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 429,231 464,308 Less amount representing unearned interest (212,660) (241,775) $ 216,571 $ 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 nine months ended September 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 September 30, 1995 is composed of the following: September 30, 1995 Future lease payments due fiscal year ending: December 31, 1995 $ 24,000 December 29, 1996 96,000 January 4, 1998 96,000 January 3, 1999 72,000 Total 288,000 Less amount representing unearned interest (77,360) $ 210,640 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 September 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 September 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 $66,934 and $71,021 for the nine months ended September 30, 1995, and September 30, 1994, respectively. 5. LONG-TERM DEBT Long-term debt at September 30, 1995 and January 1, 1995, which is collateralized by substantially all of the assets of the Company, is summarized as follows: September 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 PAGE HUDSON'S GRILL OF AMERICA, INC. Notes to Consolidated Financial Statements (Cont'd) 5. LONG-TERM DEBT (CONT'D): September 30, January 31, 1995 1995 Note payable to Corona Market Partnership, due in monthly installments of $5,327, including interest of 8% through June, 1997. 104,070 144,414 Note payable, interest at 12%. Principal and interest due December 26, 1995. 25,000 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 Note payable, due in monthly installments of $6,793, including interest at 7%, through March 1995. 20,281 Total 1,283,490 1,364,871 Less current portion (147,714) (126,684) Long-term debt $1,135,776 $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 September 30, 1995 and January 1, 1995 as follows: September 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 September 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 is 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. The directors also voted to grant to Mr. Sacco options to purchase 400,000 shares of the Company's stock. One hundred thousand shares will vest each year on May 1st, starting in 1995 and ending in 1998. The exercise price will be set at the time of vesting at the average between the closing bid and asked on the day of vesting (or the next business day if May 1 is not a PAGE HUDSON'S GRILL OF AMERICA, INC. Notes to Consolidated Financial Statements (Cont'd) 7. SHAREHOLDERS' EQUITY (CONT'D) business day). The 1995 options are already vested with an option exercise price of 10.9 cents. All of the options vest in the event a tender offer is made for all of the Company's stock. 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. 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 were recorded in the year ended January 1, 1995. On September 5, 1995, the Company negotiated a settlement of the lease obligations for $85,000 payable $50,000 at closing, $20,000 on October 4, 1995 and $15,000 on November 6, 1995. This settlement was less than the accrued liability and resulted in a gain of $86,766. 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 nine months ended September 30, 1995 and nine months ended September 30, 1994 were $155,960 and $408,560, 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 nine months ended September 30, 1995 and September 30, 1994 was $51,183 and $-0-, respectively. Based on the option price provided in these agreements, management does not anticipate recording a loss on sale of these restaurants. PAGE HUDSON'S GRILL OF AMERICA, INC. Notes to Consolidated Financial Statements (Cont'd) 8. RESTAURANT SALES AND CLOSURES (CONT'D) 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 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). Currently all major litigation involving the registrant has been settled, and registrant is not aware of any material litigation in process. Item 5. Other Information. The registrant has been in discussions with Gregory Georgas and William Georgas, who through four corporations own four of the registrant's franchises, concerning expansion opportunities in California and New Jersey. Tentative agreements have been made for the construction over the next 15 years of 24 Hudson's Grills to be opened in the middle western part of California and in certain northern counties in New Jersey. At the same time tentative agreements have been made with the Georgas' concerning the prepayment of franchise fees in exchange for a reduction in their franchise fee rates and certain other modifications to their current franchise agreements covering their four franchises. The registrant hopes to conclude formally these agreements shortly. The registrant has also tentatively sold its Whittier, California Hudson' Grill restaurant, currently operated by a subsidiary, to its current manager. The Hudson's Grill will be sold after California regulatory authorities permit the transfer of various assets and after a new corporation has been properly formed to operate in California as the new owner of the operations of the restaurant. The registrant was recently informed of the sale by its Texas franchise developer of four of the its Hudson's Grills. Two restaurants are located in the Dallas, Texas area, and two are located in the Austin, Texas area. By October 1, 1995, three of the restaurants will have begun paying the registrant an increased franchise fee of 4%, which is to continue for the remainder of the twenty year term of their franchise agreements. Beginning on November 1, 1996, the Carrollton, Texas Hudson's Grill will begin paying a 4% franchise fee for the rest of its franchise term; until November 1, 1996, it will pay a 2% franchise fee. 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 September 30, 1995: 1. September 15, 1995. The registrant reported that it had settled the "Torres v. Hudson's Grill of America" case involving its Whittier, California Hudson's Grill. Terms of the settlement were confidential, and the settlement was paid by the registrant's insurer. 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: November 14, 1995 elink\filing\10QSB1.953 EX-27 2 ART 5 FIN DATA SCHEDULE FOR 3RD QTR 1995 10-QSB
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S QUARTERLY FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 SEP-30-1995 3,568 0 484,748 0 0 517,980 1,339,864 1,191,591 2,718,820 361,764 0 4,456,457 0 0 0 2,718,820 0 406,034 0 520,899 0 0 78,220 43,941 0 0 0 0 0 43,941 0.004 0.004
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