UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 26, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-26125
RUBIO'S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0100303
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1902 WRIGHT PLACE, SUITE 300, CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive Offices)
(760) 929-8226
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X No
----- -----
(2) Yes X No
----- -----
As of November 2, 1999, there were 8,867,119 shares of the Registrant's common
stock, par value $0.001 per share, outstanding.
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1
RUBIO'S RESTAURANTS, INC.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 26, 1999 and December 27, 1998 3
Consolidated Statements of Operations for the thirteen
weeks ended September 26, 1999 and September 27,
1998 and thirty-nine weeks ended September 26, 1999
and September 27, 1998 4
Consolidated Statements of Cash Flows for the
thirty-nine weeks ended September 26, 1999
and September 27, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 26, December 27,
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,933 $ 787
Short-term investments 6,506 2,722
Other receivables 535 170
Income taxes receivable 99 99
Inventory 516 360
Prepaid expenses 512 295
Deferred income taxes 42 53
------- -------
Total current assets 12,143 4,486
INVESTMENTS 11,804 3,391
PROPERTY- net 25,162 17,133
OTHER ASSETS 444 347
DEFERRED INCOME TAXES 394 394
------- -------
TOTAL $49,947 $25,751
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,221 $ 2,943
Accrued expenses and other liabilities 2,292 2,150
Current portion of long-term debt - 743
Income taxes payable 634 105
------- -------
Total current liabilities 6,147 5,941
DEFERRED RENT 1,028 805
LONG-TERM DEBT - 1,114
------- -------
Total liabilities 7,175 7,860
COMMITMENTS AND CONTINGENCIES (NOTE 3)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series B redeemable ($4.04 per share liquidation preference), $.001 par
value, 1,092,007 shares authorized, issued
and outstanding in 1998 - 3,409
Series C redeemable ($6.27 per share liquidation preference),
$.001 par value, 793,640 shares authorized, issued
and outstanding in 1998 - 4,254
Series D redeemable ($7.77 per share liquidation preference),
$.001 par value, 1,524,595 shares authorized, 1,452,491
issued and outstanding in 1998 - 10,032
------- -------
Total redeemable convertible preferred stock - 17,695
STOCKHOLDERS' EQUITY:
Convertible preferred stock Series A ($2.00 per share liquidation
preference), $.001 par value, 1,973,395 shares authorized,
1,924,747 issued and outstanding in 1998 - 2
Preferred Stock, $.001 par value, 5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.001 par value, 75,000,000 shares authorized,
1,048,600 issued and outstanding in 1998 and 8,867,119 issued
and outstanding in 1999 9 1
Paid-in capital 41,114 -
Deferred compensation 71 23
Accumulated other comprehensive income 61 44
Retained earnings 1,517 126
------- -------
Total stockholders' equity 42,772 196
------- -------
TOTAL $49,947 $25,751
------- -------
------- -------
See notes to unaudited consolidated financial statements.
3
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the 13 Weeks Ended For the 39 Weeks Ended
--------------------------- ---------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------ ------------- ------------- -------------
SALES $ 19,729 $ 12,935 $ 50,434 $ 33,059
COSTS AND EXPENSES:
Cost of sales 5,866 3,832 14,829 9,683
Restaurant labor, occupancy and other 9,353 6,217 24,719 16,545
General and administrative expenses 1,860 1,674 5,944 4,590
Depreciation and amortization 800 495 2,155 1,403
Pre-opening expenses 276 80 538 173
-------- -------- -------- --------
OPERATING INCOME 1,574 637 2,249 665
OTHER INCOME (EXPENSE):
Interest and investment income 268 115 433 376
Interest expense (28) (61) (131) (192)
Miscellaneous expense - (1) - (8)
Gain (loss) on disposal/sale of property 3 (2) (2) 2
-------- -------- -------- --------
Other income - net 243 51 300 178
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,817 688 2,549 843
INCOME TAX (EXPENSE) BENEFIT (727) 54 (1,020) 66
-------- -------- -------- --------
NET INCOME $ 1,090 $ 742 $ 1,529 $ 909
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Basic $ 1,090 $ 655 $ 1,391 $ 649
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 1,090 $ 742 $ 1,529 $ 909
-------- -------- -------- --------
-------- -------- -------- --------
HISTORIC NET INCOME PER SHARE:
Basic $ 0.12 $ 0.63 $ 0.30 $ 0.63
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 0.12 $ 0.12 $ 0.20 $ 0.14
-------- -------- -------- --------
-------- -------- -------- --------
HISTORIC SHARES USED IN CALCULATING
HISTORIC NET INCOME PER SHARE:
Basic 8,866 1,044 4,699 1,028
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 9,125 6,427 7,761 6,405
--------- --------- --------- ---------
--------- --------- --------- ---------
See notes to unaudited consolidated financial statements.
4
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the 39 Weeks Ended
--------------------------------
September 26, 1999 September 27, 1998
------------------ ------------------
OPERATING ACTIVITIES:
Net income $ 1,529 $ 909
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,155 1,403
Deferred compensation 48 23
(Gain) loss on disposal/sale of property 2 (2)
Changes in assets and liabilities:
Other receivables (365) (29)
Income taxes receivable - (218)
Inventory (156) (71)
Prepaid expenses (217) (125)
Other assets (98) (142)
Deferred income taxes 28 -
Accounts payable 278 462
Accrued expenses and other liabilities 142 816
Income taxes payable 529 -
Deferred rent 222 127
-------- --------
Cash provided by operating activities 4,097 3,153
INVESTING ACTIVITIES:
Proceeds from sale of property 26 7
Purchase of property (10,211) (4,176)
Purchases of investments (85,522) (13,953)
Sales and maturities of investments 73,326 15,547
-------- --------
Cash used for investing activities (22,381) (2,575)
FINANCING ACTIVITIES:
Proceeds from initial public offering 26,111 -
Proceeds from line of credit borrowing 1,000 -
Stock offering costs (2,872) (4)
Principal payments on long-term debt (1,856) (520)
Payments under line credit (1,000) -
Proceeds from exercise of stock options 47 52
-------- --------
Cash provided by (used for) financing activities 21,430 (472)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 3,146 106
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 787 866
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,933 $ 972
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 162 $ 153
-------- --------
-------- --------
Cash paid for income taxes $ 491 $ 152
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Holding gains on available-for-sale investments, before tax $ 28 $ -
-------- --------
-------- --------
See notes to unaudited consolidated financial statements.
5
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared
by Rubio's Restaurants, Inc. and its wholly-owned subsidiary (collectively, the
"Company") without audit, in accordance with the instructions to Form 10-Q and
therefore does not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations as
of and for such periods indicated. These consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 27, 1998 included in
the Company's Form S-1. Results for the interim periods presented herein are not
necessarily indicative of results which may be reported for any other interim
period or for the entire fiscal year.
2. BALANCE SHEET DETAILS AS OF SEPTEMBER 26, 1999 AND DECEMBER 27, 1998
(in thousands):
1999 1998
-------- --------
PROPERTY - at cost:
Building and leasehold improvements $ 14,123 $ 11,209
Equipment and furniture 14,056 10,319
Construction in process and related costs 4,044 1,060
-------- --------
32,223 22,588
Less: accumulated depreciation and amortization (7,061) (5,455)
-------- --------
Total $ 25,162 $ 17,133
-------- --------
-------- --------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation $ 755 $ 1,069
Sales taxes 584 334
Vacation pay 292 248
Unearned usage allowance 232 206
Other 429 293
-------- --------
Total $ 2,292 $ 2,150
-------- --------
-------- --------
3. LONG-TERM DEBT AND CREDIT FACILITIES
REVOLVING LINE OF CREDIT - As of September 26, 1999, there were no borrowings
against the Credit Line.
4. INITIAL PUBLIC OFFERING
The Company completed its initial public offering on May 21, 1999 (the
"Offering"). The Offering resulted in the issuance of 2,486,748 shares of common
stock at $10.50 per share, resulting in net proceeds to the Company of
approximately $23 million. Upon consummation of the Offering, 3,338,138 shares
of redeemable convertible preferred stock were automatically converted into
3,338,138 shares of common stock, and 39,555 shares of common stock were issued
upon the exercise of certain outstanding warrants. In addition, 1,924,747 shares
of Series A convertible preferred stock were converted into 1,924,747 shares of
common stock. Upon conversion of the preferred stock, all preferred stock
dividends and other rights previously assigned ceased.
6
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
is as follows (in thousands, except per share amounts):
13 Weeks Ended 39 Weeks Ended
------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------- -------------- ------------- -------------
Numerator
Basic:
Net Income $ 1,090 $ 742 $ 1,529 $ 909
Accretion on redeemable convertible preferred stock - (87) (138) (260)
------- ------- ------- -------
Net income attributable to common
stockholders 1,090 655 1,391 649
Diluted:
Reversal of accretion on redeemable convertible
preferred stock - 87 138 260
------- ------- ------- -------
Net income attributable to common
stockholders $ 1,090 $ 742 $ 1,529 $ 909
------- ------- ------- -------
------- ------- ------- -------
Denominator
Basic:
Weighted average common shares outstanding 8,866 1,044 4,699 1,028
Diluted:
Effect of dilutive securities:
Common stock options 259 120 245 114
Conversion of convertible preferred stock - 5,263 2,817 5,263
------- ------- ------- -------
Total weighted average common and potential
common shares
------- ------- ------- -------
Outstanding 9,125 6,427 7,761 6,405
------- ------- ------- -------
------- ------- ------- -------
Earnings per share
Basic $ 0.12 $ 0.63 $ 0.30 $ 0.63
------- ------- ------- -------
------- ------- ------- -------
Diluted $ 0.12 $ 0.12 $ 0.20 $ 0.14
------- ------- ------- -------
------- ------- ------- -------
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion may contain forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risks and
Uncertainties" below. We undertake no obligation to release publicly the results
of any revisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.
RECENT DEVELOPMENTS
In May 1999, we completed our initial public offering of 2,486,748 shares
of common stock, providing us with proceeds, net of underwriting fees and
offering expenses, of $23,238,748.
OVERVIEW
We opened our first high-quality, quick-service Mexican restaurant in
1983, and grew steadily through 1994, at which time we operated 17 units. We
accelerated the number of restaurant openings in recent years, going from six
new restaurants opened in 1995 to 16 in 1998. We continue to accelerate the
number of restaurant openings, with 31 additional units planned to be opened in
1999 and 36 new units planned in 2000. We have opened 23 new restaurants in 1999
through September 26, 1999.
As a result of our rapid expansion, period to period comparisons of our
financial results may not be meaningful. When a new unit opens, it will
typically incur higher than normal levels of food and labor costs until new
personnel gain experience. Hourly labor schedules are gradually adjusted
downward during the first three months of a restaurant opening, in order to
reach operating efficiencies similar to those at established units. In
calculating comparable restaurant sales, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar months.
Sales represents gross sales less sales taxes, coupons and other discounts.
Cost of sales is composed of food, beverage and paper supply expenses.
Components of restaurant labor, occupancy and other expenses include direct
hourly and management wages, bonuses, fringe benefit costs, rent and other
occupancy costs, advertising and promotion, operating supplies, utilities,
maintenance and repairs and other operating expenses.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide
infrastructure to facilitate our future growth. Components of this category
include management, supervisory and staff salaries and employee benefits,
travel, information systems, training, corporate rent and professional and
consulting fees.
Pre-opening costs, which are expensed as incurred, consist of the costs of
hiring and training the initial workforce, travel, the cost of food used in
training, the cost of the initial stocking of operating supplies and other
direct costs related to the opening.
We have leased all of our facilities, except for one building, in order
to minimize the cash investment associated with each unit. The majority of our
leases are for 10-year terms and include options to extend the terms. The
majority of our leases also include both fixed rate and percentage-of-sales rent
provisions.
8
We use a 52- or 53-week fiscal year ending on the Sunday nearest
December 31. The nine-month periods ended September 27, 1998 and September 26,
1999 each consisted of 39 weeks. The three-month periods ended September 27,
1998 and September 26, 1999 each consisted of 13 weeks.
RESULTS OF OPERATIONS
13 WEEKS ENDED SEPTEMBER 26, 1999 COMPARED TO THE 13 WEEKS ENDED SEPTEMBER 27,
1998
Our operating results for the 13 weeks, expressed as a percentage of
sales, were as follows:
For 13 Weeks Ended
------------------------------
September 26, September 27,
1999 1998
------------- -------------
Sales (in thousands) $ 19,729 $ 12,935
Costs and expenses:
Cost of sales 29.7% 29.6%
Restaurant labor, occupancy and other 47.4 48.1
Depreciation and amortization 4.1 3.8
General and administrative expenses 9.4 12.9
Pre-opening costs 1.4 0.6
--------- ---------
Operating income 8.0 5.0
Interest income, net 1.2 0.4
Miscellaneous income - -
Gain (loss) on disposal/sale of property - -
--------- ---------
Income before income taxes 9.2 5.4
Income tax (expense) benefit (3.7) 0.3
--------- ---------
Net income 5.5% 5.7%
--------- ---------
--------- ---------
Results of operations reflect a full 13 weeks of operations for 71
restaurants and 49 restaurants for the periods ended September 26, 1999 and
September 27, 1998, respectively. Results of operations also reflect a partial
period of operations for 11 restaurants and 3 restaurants for the 13 weeks ended
September 26, 1999 and September 27, 1998, respectively.
SALES. Sales increased $6.8 million, or 52.7%, to $19.7 million for the 13 weeks
ended September 26, 1999 from $12.9 million for the 13 weeks ended September 27,
1998. This increase was principally due to the $2.1 million in sales generated
by a full quarter of operations from the 10 units opened in 1998, which have
been opened for less than 15 months, combined with the $4.4 million from the 23
units opened during 1999. In addition, comparable unit sales increased $290,000,
or 2.4%. The comparable unit sales increase primarily was driven by the
continued success of our Lobster Burrito promotion and a four week $0.99 Fish
Taco promotion. We also introduced a price increase of approximately 1.5% at the
beginning of 1999.
COST OF SALES. Cost of sales as a percentage of sales increased slightly to
29.7% in the 13 weeks ended September 26, 1999 from 29.6% in the 13 weeks ended
September 27,1998.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
decreased as a percentage of sales to 47.4% for the 13 weeks ended September 26,
1999 from 48.1% in the 13 weeks ended September 27, 1998. The decrease as a
percentage of sales is primarily a function of leveraging our fixed costs as our
average unit volume increases. The improvements in our fixed costs were slightly
offset by an increase in labor. This labor increase was due primarily to
expected inefficiencies in the new stores.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$800,000 in the 13 weeks ended September 26, 1999 from $495,000 in the 13 weeks
ended September 27, 1998. The $305,000 increase was primarily due to the
9
additional depreciation on the 16 new units opened during 1998 and the 23 new
units opened during 1999. As a percentage of sales, depreciation and
amortization increased to 4.1% in the 13 weeks ended September 27, 1999 from
3.8% in the 13 weeks ended September 27, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.9 million for the 13 weeks ended September 26, 1999 from $1.7
million for the 13 weeks ended September 27, 1998. The increase was primarily
due to increases in salaries and benefits related to the hiring of additional
corporate employees and field management personnel as well as other corporate
level expenses required to support and manage unit expansion. General and
administrative expenses decreased as a percentage of sales to 9.4% in 1999 from
12.9% in 1998 primarily due to our expanding revenue base.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $276,000 for the 13
weeks ended September 26, 1999 from $80,000 for the 13 weeks ended September 27,
1998 primarily due to the increase in unit openings to 11 in 1999 compared to
three in 1998. In addition, we opened a restaurant in a new market. The first
store in a new market will typically have higher opening costs than a new store
in an existing market.
OTHER INCOME - NET. Other income - net increased to $243,000 for the 13 weeks
ended September 26, 1999 from $51,000 in other income - net in the 13 weeks
ended September 27, 1998. The increase is primarily due to an increase in the
cash available for investing after our initial public offering. Interest and
investment income increased to $268,000 for the 13 weeks ended September 26,
1999 from $115,000 in the 13 weeks ended September 27, 1998. Interest expense
declined to $28,000 for the 13 weeks ended September 26, 1999 from $61,000 in
the 13 weeks ended September 27, 1998. This decrease is due to the repayment of
all long-term debt with the proceeds from our initial public offering.
INCOME TAXES. The provision for income taxes in the 13 weeks ended September 26,
1999 and September 27, 1998, respectively, is based on the approximate annual
effective tax rate applied to the respective quarter's pretax book income. The
40% tax rate applied in 1999 comprises the federal and state statutory rates
based on the estimated annual effective rate for 1999. The 7.8% tax benefit
applied in 1998 is primarily a result of the recognition of 1997 net deferred
tax assets previously valued, due to the 1998 net income and the future
realizability of such net deferred tax assets.
39 WEEKS ENDED SEPTEMBER 26, 1999 COMPARED TO THE 39 WEEKS ENDED
SEPTEMBER 27, 1998
Our operating results for the 39 weeks, expressed as a percentage of sales, were
as follows:
For 39 Weeks Ended
---------------------------------
September 26, 1999 September 27, 1998
------------------ ------------------
Sales (in thousands) $ 50,434 $ 33,059
Costs and expenses:
Cost of sales 29.4% 29.3%
Restaurant labor, occupancy and other 49.0 50.0
Depreciation and amortization 4.3 4.3
General and administrative expenses 11.8 13.9
Pre-opening costs 1.1 0.5
--------- ---------
Operating income 4.4 2.0
Interest income, net 0.6 0.5
Miscellaneous income - -
Gain (loss) on disposal/sale of property - -
--------- ---------
Income before income taxes 5.0 2.5
Income tax (expense) benefit (2.0) 0.2
--------- ---------
Net income 3.0% 2.7%
--------- ---------
--------- ---------
10
Results of operations reflect a full 39 weeks of operations for 59
restaurants and 43 restaurants for the 39 weeks ended September 26, 1999 and
September 27, 1998, respectively. Results of operations also reflect 23
restaurant openings during the 39 weeks ended September 27, 1999 and nine
restaurant openings during the 39 weeks ended September 27, 1998.
SALES. Sales increased $17.3 million, or 52.6%, to $50.4 million for the 39
weeks ended September 26, 1999 from $33.1 million for the 39 weeks ended
September 27, 1998. This increase was principally due to the $8.1 million in
sales generated by a full 39 weeks of operations in 1999 from the 10 units
opened in 1998, which have been open for less than 15 months, combined with the
$7.2 million from the 23 units opened during 1999. In addition, comparable unit
sales increased $2.0 million or 6.8%. The comparable unit sales increase was
driven by the success of our $0.99 Fish Taco, Tequila Shrimp Burrito, and
Lobster Burrito promotions, combined with slightly weaker sales in the early
part of 1998 as a result of poor weather related to El Nino. We also introduced
a price increase of approximately 1.5% at the beginning of 1999.
COST OF SALES. Cost of sales as a percentage of sales increased slightly to
29.4% in the 39 weeks ended September 26, 1999 from 29.3% in the 39 weeks ended
September 27, 1998. Higher food costs were partially offset by lower beverage
and paper supply costs.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
declined as a percentage of sales to 49.0% in the 39 weeks ended September 26,
1999 from 50.0% in the 39 weeks ended September 27, 1998. The decrease is
primarily a function of leveraging our fixed costs as our average unit volume
increases.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$2,155,000 in the 39 weeks ended September 26, 1999 from $1,403,000 in the 39
weeks ended September 27, 1998. The $752,000 increase was primarily due to
additional depreciation on the 16 new units opened during 1998 and the 23 new
units opened during the first 39 weeks of 1999. As a percentage of sales,
depreciation and amortization remained constant at 4.3% of sales in 1999 and
1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $5.9 million in 1999 from $4.6 million in 1998. The increase is
primarily due to increases in salaries and benefits related to the hiring of
additional corporate employees and field management personnel as well as other
corporate level expenses required to support and manage unit expansion. General
and administrative expenses decreased as a percentage of sales to 11.8% in 1999
from 13.9% in 1998 primarily due to our expanding revenue base.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $538,000 in the 39 weeks
ended September 26, 1999 from $173,000 in the 39 weeks ended September 27, 1998
primarily due to the increase in unit openings to 23 in the first 39 weeks of
1999 compared to nine in the first 39 weeks of 1998. In addition, we opened
restaurants in four new markets. The first few stores in a new market will
typically have higher opening costs than a new store in an existing market.
OTHER INCOME - NET. Other income - net increased to $300,000 in the 39 weeks
ended September 26, 1999 from $178,000 in other income - net in the 39 weeks
ended September 27, 1998. This decrease is primarily due to an increase in
interest and investment income to $433,000 in 1999 from $376,000 in 1998 due to
an increase in cash available for investing after our initial public offering.
Interest expense declined to $131,000 in 1999 from $192,000 in 1998 as a result
of the repayment of all long-term debt with the proceeds from our initial public
offering.
INCOME TAXES. The provision for income taxes in the 39 weeks ended September 26,
1999 and September 27, 1998, respectively, is based on the approximate annual
effective tax rate applied to the respective period's pretax book income. The
40% tax rate applied in 1999 comprises the federal and state
11
statutory rates based on the estimated annual effective rate for 1999. The 7.8%
tax benefit applied in 1998 is primarily a result of the recognition of 1997 net
deferred tax assets previously valued, due to the 1998 net income and the future
realizability of such net deferred tax assets.
INFLATION
Components of our operations subject to inflation include food, beverage,
lease and labor costs. Our leases require us to pay taxes, maintenance,
repairs, insurance and utilities, all of which are subject to inflationary
increases. We believe inflation has not had a material impact on our results
of operations in recent years.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years through cash
flow from operations, private placements of preferred stock, bank debt, and the
public sale of equity securities.
We generated $4.1 million in cash flow from operating activities for the
39 weeks ended September 26, 1999 and $3.2 million for the 39 weeks ended
September 27, 1998. The $4.1 million in 1999 includes a $0.5 million increase in
income taxes payable, of which $1.0 million represents the income tax accrual
offset by $0.5 million in taxes paid.
Net cash used in investing activities was $22.4 million for the 39 weeks
ended September 26, 1999 compared to $2.6 million for the 39 weeks ended
September 27, 1998. Our principal uses of cash in 1999 were the development and
opening of new restaurants and the purchase of investments from the net proceeds
of our initial public offering. We incurred $10.2 million in capital
expenditures during the 39 weeks ended September 26, 1999, of which $8.8 million
was for new unit openings and $0.6 million was for point of sales system
upgrades and a company-wide back office system roll-out. During the 39 weeks
ended September 27, 1998, we incurred $4.2 million in capital expenditures, of
which $3.9 million was for new unit openings.
Net cash provided by financing activities was $21.4 million for the 39
weeks ended September 26, 1999 compared to a net use of $472,000 for the 39
weeks ended September 27, 1998. Financing activities in 1999 primarily consisted
of our initial public offering, which resulted in net proceeds of $23.2 million.
Part of the offering proceeds were used to repay the remaining $1.7 million
balance of our term loan agreement with a financial institution. In addition, we
have a $7.5 million line of credit agreement with a financial institution. As of
September 26, 1999, there were no borrowings against the line of credit.
We believe that the proceeds from the recently completed initial public
offering together with anticipated cash flow from operations and funds
anticipated to be available from a credit facility will be sufficient to satisfy
our working capital requirements for at least the next 12 months. We plan to
incur substantial costs over the near term in connection with our expansion
program. Changes in our operating plans, acceleration of our expansion plans,
lower than anticipated sales, increased expenses, potential acquisitions or
other events may cause us to seek additional financing sooner than anticipated.
Additional financing may not be available on acceptable terms, or at all.
Failure to obtain additional financing as needed could have a material adverse
effect on our business and results of operations.
YEAR 2000 READINESS DISCLOSURE
Historically, most computer databases, as well as embedded microprocessors
in computer systems and industrial equipment, were designed with date data using
only two digits of the year. Most computer programs, computers and embedded
microprocessors controlling equipment were programmed to assume that all two
digit dates were preceded by "19," causing "00" to be interpreted as the year
1900. This formerly common practice now could result in a computer system or
embedded microprocessor which fails to recognize
12
properly a year that begins with "20," rather than "19." This in turn could
result in computer system miscalculations or failures, as well as failures of
equipment controlled by date sensitive microprocessors, and is generally
referred to as the "year 2000" issue.
OUR STATE OF YEAR 2000 READINESS
We have reviewed both our information technology and our non-information
technology systems to determine whether they are year 2000 compliant. We have
not identified any material systems which are not year 2000 compliant. We
have had formal communications with all significant supplier and service
providers to determine the extent to which we are vulnerable to those third
parties' failures to solve their year 2000 problem. We have received written
assurances of year 2000 compliance from substantially all of the third parties
with whom we have relationships, including our point-of-sale, payroll, and
credit card service providers. Testing and replacement of all systems has been
essentially completed. We intend to continue to make efforts to ensure that
third parties with whom we have relationships are year 2000 compliant.
THE COSTS TO ADDRESS OUR YEAR 2000 ISSUES
We estimate that we have incurred costs of less than $35,000 to date in
connection with our year 2000 plan. We currently estimate the total costs of
completing our year 2000 plan, including costs incurred to date, to be less than
$50,000. This estimate is based on currently available information and will be
updated as we continue our assessment of third-party relationships, proceed with
our testing and implementation and design contingency plans.
THE RISKS OF OUR YEAR 2000 ISSUES
If any information technologies or embedded microprocessor technology
systems critical to our operations have been overlooked, there could be a
material adverse effect on our business or results of operations of a magnitude
which we have not yet fully analyzed. If the vendors of most important goods and
services or the suppliers of our necessary energy, telecommunications and
transportation needs, fail to provide us with:
- the materials and services which are necessary to produce, distribute
and sell our products;
- the electrical power and other utilities necessary to sustain our
operations; or
- reliable means of transporting supplies to our restaurants.
Such failure could affect our ability to sell product which could have
a material adverse effect on our business or results of operations.
OUR CONTINGENCY PLAN
We continue to update a business contingency plan that addresses both
avoidable and unavoidable year 2000 risks. This plan includes maintaining
relationships with several suppliers of services and products to mitigate a
"worst case" scenario in which one or more of our suppliers are not year 2000
compliant. We feel the costs of the plan will not be material due to the
diversification of suppliers. As year 2000 approaches, enhancements and
revisions will be continuously evaluated and implemented as appropriate.
RISKS AND UNCERTAINTIES
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this quarterly report, before you decide
to buy our common stock. If any of the following risks actually occur, our
business would likely suffer. In such case, the trading price of our common
13
stock could decline, and you may lose all or part of the money you paid to buy
our common stock.
OUR PLANNED EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF
RISKS WHICH COULD DELAY OR PREVENT THE OPENING OF PLANNED NEW RESTAURANTS.
Almost all of our current restaurants are located in the southwest
region of the United States. Our planned expansion into geographic areas outside
the Southwest involves a number of risks, including:
- uncertainties related to local demographics, tastes and preferences;
- local custom, wages, costs and other legal and economic conditions
particular to new regions;
- the need to develop relationships with local distributors and
suppliers for fresh produce, fresh tortillas and other ingredients;
- potential difficulties related to management of operations located
in a number of broadly dispersed locations; and
- lack of market awareness or acceptance of our restaurant concept in
new geographic areas.
We may not be successful in addressing these risks. We also may not be
able to open our planned new operations on a timely basis, or at all in these
new areas. Delays in opening or failure to open planned new restaurants outside
the Southwest could have a material adverse effect on our business and results
of operations. We currently anticipate that our new restaurants will take
several months to reach planned operating levels due to inefficiencies typically
associated with expanding into new regions, such as lack of market awareness,
acceptance of our restaurant concept and inability to hire sufficient staff.
IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR RAPID EXPANSION STRATEGY,
OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.
We intend to continue to pursue a rapid expansion strategy. Since 1996,
and as of September 26, 1999 we have opened 51 restaurants, 21 of which were
opened outside of Southern California. We intend to open 31 restaurants in 1999,
23 of which have been opened to date. Fourteen of the 1999 openings are outside
Southern California. We intend to open an additional 36 restaurants in 2000. Our
ability to successfully achieve our expansion strategy will depend on a variety
of factors, many of which are beyond our control. These factors include:
- our ability to locate suitable restaurant sites or negotiate
acceptable lease terms;
- our ability to obtain required local, state and federal governmental
approvals and permits related to construction of the sites, food and
alcoholic beverages;
- our dependence on contractors to construct new restaurants in a
timely manner;
- our ability to attract, train and retain qualified and experienced
restaurant personnel and management;
- our ability to operate our restaurants profitably;
- our need for additional capital and our ability to obtain such
capital on favorable terms or at all;
- our ability to respond effectively to the intense competition in the
quick-service restaurant industry; and
- general economic conditions.
If we are not able to successfully address these factors, we may not be
able to expand at a rate currently contemplated by our strategy, and our
business and results of operations may be adversely impacted.
14
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY AND
OTHER FACTORS, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON
STOCK.
Our business is subject to seasonal fluctuations. Historically, sales in
most of our restaurants have been higher during the second and third quarters of
each fiscal year. As a result, we expect our highest earnings to occur in the
second and third quarters of each fiscal year.
In addition to seasonality, our quarterly and annual operating results
and comparable unit sales may fluctuate significantly as a result of a variety
of factors, including:
- labor costs for our hourly and management personnel, including
increases in federal or state minimum wage requirements;
- fluctuations in food costs, particularly the cost of chicken, beef,
fish, cheese and produce;
- the timing of new restaurant openings and related expenses;
- the amount of sales contributed by new and existing restaurants;
- our ability to achieve and sustain profitability on a quarterly or
annual basis;
- consumer confidence;
- changes in consumer preferences;
- the level of competition from existing or new competitors in the
quick-service restaurant industry;
- factors associated with closing a unit, including payment of the
base rent for the balance of the lease term;
- impact of weather on revenues and costs of food; and
- general economic conditions.
Accordingly, results for any one quarter are not necessarily indicative
of results to be expected for any other quarter or for any year. Comparable unit
sales for any particular future period may decrease.
THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE THE
RESOURCES TO COMPETE ADEQUATELY.
The restaurant industry is intensely competitive. There are many
different segments within the restaurant industry that are distinguished by
types of service, food types and price/value relationships. We position our
restaurants in the high-quality, quick-service Mexican food segment of the
industry. In this segment, our direct competitors include Baja Fresh, La Salsa
and Chipotle. We also compete indirectly with full-service Mexican restaurants
including Chevy's, Chi Chi's and El Torito, and fast food restaurants,
particularly those focused on Mexican food such as Taco Bell and Del Taco.
Competition in our industry segment is based primarily upon food quality, price,
restaurant ambiance, service and location. Although we believe we compete
favorably with respect to each of these factors, many of our direct and indirect
competitors are well-established national, regional or local chains and have
substantially greater financial, marketing, personnel and other resources than
we do. We also compete with many other retail establishments for site locations.
The performance of individual units may also be affected by factors
such as traffic patterns, demographic considerations and the type, number and
proximity of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs and the availability of
experienced management and hourly employees may also adversely affect the
restaurant industry in general and our units in particular.
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO
OPERATE AND MANAGE OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO
SO COULD ADVERSELY AFFECT US.
Our success and the success of our individual restaurants depend upon
our ability to attract and retain highly motivated, well-qualified restaurant
15
operators and management personnel, as well as a sufficient number of qualified
employees, including guest service and kitchen staff, to keep pace with our
expansion schedule. Qualified individuals needed to fill these positions are in
short supply in some geographic areas. Our ability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in
higher employee turnover in existing restaurants, which could have a material
adverse effect on our business or results of operations. We also face
significant competition in the recruitment of qualified employees. In addition,
we are heavily dependent upon the services of our officers and key management
involved in restaurant operations, marketing, finance, purchasing, expansion,
human resources and administration. The loss of any of these individuals could
have a material adverse effect on our business and results of operations. We
currently do not have employment agreements with any of our employees.
OUR RESOURCES MAY BE STRAINED IN IMPLEMENTING OUR BUSINESS STRATEGY.
Our growth strategy will place a strain on our management, financial and
other resources. To manage our growth effectively, we must maintain the level of
quality and service at our existing and future restaurants. We must also
continue to enhance our operational, financial and management systems and
locate, hire, train and retain experienced and dedicated operating personnel,
particularly managers. We may not be able to effectively manage any one or more
of these or other aspects of our expansion. Failure to do so could have a
material adverse effect on our business and results of operations.
WE MAY BE UNABLE TO FUND OUR SUBSTANTIAL WORKING CAPITAL REQUIREMENTS
AND MAY NEED ADDITIONAL FUNDING SOONER THAN WE ANTICIPATE.
We believe that the proceeds from the recently completed initial public
offering together with anticipated cash flow from operations and funds
anticipated to be available from a credit facility will be sufficient to satisfy
our working capital requirements for at least the next 12 months. We plan to
incur substantial costs over the near-term in connection with our expansion
plans. We may need to seek additional financing sooner than we anticipate as a
result of the following factors:
- changes in our operating plans;
- acceleration of our expansion plans;
- lower than anticipated sales of our menu offerings;
- increased food and/or labor costs; and
- potential acquisitions.
Additional financing may not be available on acceptable terms, or at all. If we
fail to get additional financing as needed, our business and results of
operations would likely suffer.
UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF OUR
RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW
RESTAURANTS.
We depend on contractors and real estate developers to construct our
restaurants. Many factors may adversely affect the cost and time associated with
the development and construction of our restaurants, including:
- labor disputes;
- shortages of materials and skilled labor;
- adverse weather;
- unforeseen engineering problems;
- environmental problems;
- construction or zoning problems;
- local government regulations;
- modifications in design; and
- other unanticipated increases in costs.
Any of these factors could give rise to delays or cost overruns which
may prevent us from developing additional restaurants within our anticipated
16
budgets or time periods. Any such failure could have a material adverse effect
on our business and results of operations.
OUR RESTAURANTS ARE CONCENTRATED IN THE SOUTHWEST REGION OF THE UNITED
STATES, AND THEREFORE, OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IF ADVERSE
BUSINESS CONDITIONS OCCUR IN THAT REGION.
All but three of our existing restaurants are located in the southwest
region of the United States. Accordingly, we are susceptible to fluctuations in
our business caused by adverse economic or other conditions in this region,
including natural or other disasters. Our significant investment in, and
long-term commitment to, each of our units limits our ability to respond quickly
or effectively to changes in local competitive conditions or other changes that
could affect our operations. In addition, some of our competitors have many more
units than we do. Consequently, adverse economic or other conditions in a
region, a decline in the profitability of several existing units or the
introduction of several unsuccessful new units in a geographic area could have a
more significant effect on our results of operations than would be the case for
a company with a larger number of restaurants or with more geographically
dispersed restaurants.
OUR FAILURE OR INABILITY TO ENFORCE OUR TRADEMARKS AND TRADE NAMES COULD
ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH BRAND EQUITY.
Our ability to successfully expand our concept will depend on our
ability to establish and maintain "brand equity" through the use of our
trademarks, service marks, trade dress and other proprietary intellectual
property, including our name and logos. We currently hold three trademarks and
have seven service marks relating to our brand. Some or all of the rights in our
intellectual property may not be enforceable, even if registered, against any
prior users of similar intellectual property or our competitors who seek to
utilize similar intellectual property in areas where we operate or intend to
conduct operations. If we fail to enforce any of our intellectual property
rights, we may be unable to capitalize on our efforts to establish brand equity.
It is also possible that we will encounter claims from prior users of similar
intellectual property in areas where we operate or intend to conduct operations.
Claims from prior users could limit our operations and possibly cause us to pay
damages or licensing fees to a prior user or registrant of similar intellectual
property.
IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO OUR FOOD AND LABOR COSTS,
OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.
Our restaurant operating costs principally consist of food and labor
costs. Our profitability is dependent on our ability to anticipate and react to
changes in food and labor costs. Various factors beyond our control, including
adverse weather conditions and governmental regulation, may affect our food
costs. We may not be able to anticipate and react to changing food costs,
whether through our purchasing practices, menu composition or menu price
adjustment in the future. In the event that food and labor price increases cause
us to increase our menu prices, we face the risk that our guests will choose to
patronize lower-cost restaurants. Failure to react to changing food costs or to
retain guests if we are forced to raise menu prices could have a material
adverse effect on our business and results of operations.
A substantial number of our employees are subject to various minimum
wage requirements. Many of our employees work in restaurants located in
California and receive salaries equal to or slightly greater than the California
minimum wage. Effective March 1, 1998, the minimum wage in California increased
to $5.75 per hour from $5.15. Similar proposals may come before legislators or
voters in other jurisdictions in which we operate or seek to operate. Such
minimum wage increases could have a material adverse effect on our business and
results of operations.
17
AS A RESTAURANT SERVICE PROVIDER, WE COULD BE SUBJECT TO ADVERSE
PUBLICITY OR CLAIMS FROM OUR GUESTS.
We may be the subject of complaints or litigation from guests alleging
food-related illness, injuries suffered on the premises or other food quality,
health or operational concerns. Adverse publicity resulting from such
allegations may materially affect us and our restaurants, regardless of whether
such allegations are true or whether we are ultimately held liable. We may also
be the subject of complaints or allegations from current, former or prospective
employees from time to time. A lawsuit or claim could result in an adverse
decision against us that could have a material adverse effect on our business
and results of operations.
WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN STATE AND LOCAL PERMITS
NECESSARY TO OPERATE OUR UNITS.
The failure to maintain necessary licenses, permits or approvals,
including food and alcoholic beverage licenses, or to comply with other
government regulations could have a material adverse effect on our business and
results of operations. In addition, difficulties or failures in obtaining
required licenses and approvals will result in delays in, or cancellations of,
the opening of new units. Restaurants are subject to licensing and regulations
by state and local health, environmental, labor relations, sanitation, building,
zoning, land use and environmental regulations. There can be no assurance that
we will be able to obtain necessary variances or other approvals on a
cost-effective and timely basis in order to construct and develop units in the
future. Changes in any or all of these laws or regulations, such as
government-imposed paid leaves of absence or mandated health benefits, could
have a material adverse effect on our business and results of operations.
OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE
AGAINST CLAIMS.
There are types of losses we may incur that may be uninsurable or that
we believe are not economically insurable, such as losses due to earthquakes and
other natural disasters. In view of the location of many of our existing and
planned units, our operations are particularly susceptible to damage and
disruption caused by earthquakes. Further, we do not currently maintain any
insurance coverage for employee-related litigation or the effects of adverse
publicity. In addition, punitive damage awards are generally not covered by
insurance. We may also be subject to litigation which, regardless of the
outcome, could result in adverse publicity and damages. Such litigation, adverse
publicity or damages could have a material adverse effect on our business and
results of operations.
WE MAY FAIL TO BE YEAR 2000 COMPLIANT
We have tested almost all components of our systems and feel reasonably
assured that they will function properly in the year 2000. In addition, our
restaurant information systems have been upgraded in an effort to prevent system
failure or miscalculation resulting from the year 2000 issue.
We estimate that we have incurred costs of less than $35,000 to date in
connection with our year 2000 plan. We currently estimate the total costs of
completing our year 2000 plan, including costs incurred to date, to be
less than $50,000. We have received written assurances of year 2000 compliance
from substantially all of the third parties with whom we have relationships,
including our point-of-sale, payroll, and credit card service providers. If our
efforts to address year 2000 crises are not successful, or if suppliers or other
third parties with whom we conduct business do not successfully address such
risks, it could have a material adverse effect on our business and results of
operations.
18
IF WE ADOPT A FRANCHISING STRATEGY, WE MAY BE UNSUCCESSFUL IN EXECUTING
A FRANCHISING PROGRAM.
We may us a franchise strategy in selected markets. If we adopt a
franchising strategy, our failure to successfully execute a franchising program
could adversely affect our business and results of operations. We have not used
franchising to date and may not be successful in implementing a franchise
program in the future. We have not yet established any criteria to evaluate
prospective franchisees. We may be unable to identify and attract franchisees
that have the business abilities or access to financial resources necessary to
open our restaurants or to successfully develop or operate our restaurants in
their franchise areas in a manner consistent with our standards.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR STOCK
PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market or the perception that such sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate.
OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.
We only recently completed our initial public offering. Prior to this
offering, there was no public market for our common stock. We cannot predict
whether an active trading market in our common stock will develop or how liquid
that market might become.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET
VOLATILITY.
The stock market has experienced extreme price and volume fluctuations. The
trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
- - fluctuations in our quarterly or annual results of operations;
- - changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
- - additions or departures of key personnel; and
- - changes in overall stock market conditions, including the stock prices of
other restaurant companies.
In the past, companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
If we were subject to securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR
INTERESTS.
We anticipate that the executive officers, directors and entities
affiliated with them, in the aggregate, beneficially own approximately 55.9% of
our outstanding common stock. These stockholders will be able to exercise
control over all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions in our certificate of incorporation, our
bylaws and Delaware law could make it more difficult for a third party to
acquire us. As a result of these provisions, we could delay, deter or prevent
19
a takeover attempt or third party acquisition that our stockholders consider to
be in their best interest, including a takeover attempt that results in a
premium over the market price for the shares held by our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on
borrowings under our revolving line of credit that bears interest from time to
time at the lending bank's reference rate plus 1.5% to 4.0%. At this time, there
are no outstanding borrowings against this line of credit.
We have no derivative financial instruments or derivative commodity
instruments in our cash, cash equivalents and investments. We invest our cash,
cash equivalents and investments in highly liquid investments, consisting of
money market instruments, high grade commercial papers and short to intermediate
term government and corporate bonds. We have invested the net proceeds from our
initial public offering in a similar manner.
Many of the food products purchased by us are affected by changes in
weather, production, availability, seasonality and other factors outside our
control. In an effort to control some of this risk, we have entered into some
fixed price purchases commitments with terms of less than a year. In addition,
we believe that almost all of food and supplies are available from several
sources, which helps to control food commodity risks.
20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) The Company registered and sold 2,486,748 shares of common stock, par value
$.001, to the public at an aggregate offering price of $26,110,854 or $10.50 a
share, which was declared effective on May 21, 1999.
Through September 26, 1999, we incurred the following expenses in
connection with the offering:
Underwriting discounts and commissions.................. $1,827,760
Other expenses (audit, legal, etc.)..................... 1,044,346
----------
Total expenses....................................... $2,872,106
----------
----------
The net offering proceeds to us after deducting the total expenses above were
$23,238,748.
Our use of the proceeds through September 26, 1999 conformed to the
intended use of proceeds described in the prospectus related to the offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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
3.1 - (1) Amended and Restated Certificate of Incorporation
3.2 - (1) Restated Bylaws
27.1 Financial Data Schedule
-------------------------------------------------------------------
(1) Filed as an exhibit to Registrant's Registration Statement on
Form S-1, and incorporated herein by reference.
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
13 weeks ended September 26, 1999
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto dully authorized.
Dated: November 9, 1999 RUBIO'S RESTAURANTS, INC.
/s/ Joseph N. Stein
---------------------------------------------
Joseph N. Stein
Chief Strategic and Financial Officer
(Principal Financial and Accounting Officer)
22