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, 1997
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:
(972) 931-9237
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
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
September 30, December 29,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 102,547 $ 78,680
Accounts receivable, net of allowance
for doubtful accounts of $36,000
and $22,907 respectively 36,740 66,165
Current portion of notes and leases
receivable 100,652 121,055
Prepaid expenses and other 35,477 16,492
Total current assets 275,416 282,392
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 558,211 614,706
Restaurant equipment 358,699 518,674
Furniture and fixtures 120,149 188,507
Total property and equipment 1,037,059 1,321,887
Less accumulated depreciation
and amortization (845,135) (1,080,338)
Property and equipment, net 191,924 241,549
LONG TERM PORTION OF NOTES
AND LEASES RECEIVABLE 838,608 748,222
LIQUOR LICENSES-net of
accumulated amortization
of $28,500 at September 30, 1997
and $30,000 at December 29, 1996 31,500 45,186
OTHER ASSETS 23,905 34,711
Total assets $ 1,361,353 $ 1,352,060
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 29,
1997 1996
CURRENT LIABILITIES:
Current portion of long-term debt $ $ 35,542
Accounts payable 29,822 46,922
Accrued liabilities 23,877 82,500
Total current liabilities 53,699 164,964
LONG-TERM DEBT
OTHER LONG-TERM LIABILITIES 243,046 293,908
DEFERRED INCOME 777,181 612,360
COMMITMENTS AND CONTINGENCIES
(Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock, 5,000,000
shares authorized, none
issued or outstanding
Common stock, no par value
100,000,000 shares authorized
6,056,986 shares issued and
outstanding 4,456,457 4,456,457
Accumulated deficit (4,169,030) (4,175,629)
Total shareholders' equity 287,427 280,828
Total liabilities and
and shareholders' equity $1,361,353 $1,352,060
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the nine months ended
September 30, September 30,
1997 1996
REVENUES:
Net sales $ 103,890 $ 109,806
Joint venture revenues 30,019
Franchising fees from restaurants
under sales contracts 15,573 84,386
Franchise revenues 252,463 221,010
Equipment lease income 56,139 49,030
Gain on sales of restaurants 53,165 27,775
Other income 51,440 422
Total revenues 532,670 522,448
COSTS AND EXPENSES:
Cost of sales 116,938 157,803
General and administrative 445,584 477,992
Depreciation and amortization 24,371 32,501
Total costs and expenses 586,893 668,296
Income (loss) from operations (54,223) (145,848)
OTHER INCOME (EXPENSE):
Interest expense (672) (73,075)
Interest income 61,494 131,105
Total other income (expense) 60,822 58,030
INCOME (LOSS) BEFORE INCOME TAXES 6,599 (87,818)
Provision for income taxes
NET INCOME (LOSS) $ 6,599 $ (87,818)
INCOME (LOSS) PER SHARE
Net income (loss) per share $ .0007 $ (.0145)
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
September 30, September 30,
1997 1996
REVENUES:
Net sales $ 103,890 $
Joint venture revenues 3,080
Franchising fees from restaurants
under sales contracts 3,316 34,504
Franchise revenues 69,604 73,274
Equipment lease income 18,097 13,691
Gain on sales of restaurants 17,021 13,140
Other income 17,177 422
Total revenues 229,105 138,111
COSTS AND EXPENSES:
Cost of sales 116 938 3,246
General and administrative 168,158 129,544
Depreciation and amortization 8,068 8,808
Total costs and expenses 293,164 141,598
Income (loss) from operations (64,059) (3,487)
OTHER INCOME (EXPENSE):
Interest expense (24,059)
Interest income 20,315 47,212
Total other income (expense) 20,315 23,153
INCOME (LOSS) BEFORE INCOME TAXES (43,744) 19,666
Provision for income taxes
NET INCOME (LOSS) $ (43,744) $ 19,666
INCOME (LOSS) PER SHARE
Net income (loss) per share $ (.007) $ .002
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
For the nine months ended
September 30, September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,599 $ (87,818)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 24,371 32,502
(Gain) loss on sales and closures
of restaurants (53,165) (27,775)
Changes in assets and liabilities:
Accounts receivable 3,944 (15,726)
Prepaid expenses and other (8,315) 4,264
Accounts payable (17,100) (23,356)
Accrued liabilities and other (118,848) (68,108)
Net cash used by operating
activities (162,514) (186,017)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of assets 4,634 7,913
Notes receivable principal payments 170,125 155,861
Leases receivable principal payments 51,692 157,114
Fixed assets and other (4,528) 4,799
Net cash provided (used) by
investing activities 221,923 325,687
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (35,542) (65,173)
Net cash provided (used) by
financing activities (35,542) (65,173)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 23,867 74,497
CASH AND CASH EQUIVALENTS, beginning
of period 78,680 48,295
CASH AND CASH EQUIVALENTS, end
of period $ 102,547 $ 122,792
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 902 $ 70,894
Income taxes paid $ $ 4,800
HUDSON'S GRILL OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Period ended September 30, 1997
In connection with the sale of a restaurant and equipment, the Company
received a note receivable of $114,200 and a lease receivable of $240,000.
Period ended September 30, 1996
In connection with the sale of the Oxnard, CA restaurant, the Company
received a note receivable of $282,086 and a lease receivable of $450,000.
The note and lease receivable were foreclosed on during 1996 and the fixtures
and equipment repossessed.
A note and lease receivable in the total amount of $195,000 relating to the
Westlake, CA restaurant were foreclosed upon by the Company and the location
repossessed.
In connection with the sale of the Hornblowers restaurant, the Company
received a note receivable in the amount of $294,000.
HUDSON'S GRILL OF AMERICA, INC.
Notes to Consolidated Financial Statements
A. Basis of Presentation
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although management believes the disclosures are
adequate to make the information presented not misleading. These
interim financial statements should be read in conjunction with the
Company's annual report and most recent audited financial statements
included in the report on Form 10-KSB for the year ended December 29,
1996, filed with the Securities and Exchange Commission.
The interim financial information included hereto is unaudited;
however, such information reflects all the adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results of operations and
cash flows for the interim periods. The results of operations for the
three and nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
Item 2. Management Discussion and Analysis.
Material changes in the financial condition of the issuer and in
the results of its operations since the end of its last fiscal year and
its results from the comparable period in its last fiscal year include
the following.
The issuer's accounts receivable at September 30, 1997 ("Q3") were
$36,740 as compared to $66,165 at December 29, 1996 ("FYE"). The
current portion of issuer's notes and leases receivable at Q3 was
$100,652 as compared to $121,055 at FYE. Leasehold improvements at Q3
were $558,211, while at FYE they were $614,706. At the same time,
restaurant equipment decreased from $518,674 at FYE to $358,699 at Q3.
The decreases in these last two asset accounts were due mostly from
the sale of a restaurant in the first quarter. For that same reason,
the long term portion of notes receivable increased in the first nine
months from $748,222 to $838,608.
Current liabilities decreased at Q3 to $53,699 from $164,964 at
FYE. The current portion of long term debt, accounts payable, and
accrued liabilities all decreased in Q3, as debts were being paid.
Deferred income increased at Q3 to $777,181 from $612,360 at FYE. This
reflects the sale of a restaurant in the first quarter.
Material changes in the results of operations of Q3 compared to the
third quarter of 1996 ("Q96") include the following. Net Sales
increased to $103,890 in Q3 from $0 in Q96, and cost of sales also
increased to $116,938 in Q3 from $3,246 in Q96. These are a result of
the repossession of a restaurant during the third quarter of 1997; it is
currently operated by a subsidiary of the Company. Franchising fees
from restaurants under contract decreased from $34,504 in Q96 to $3,316
in Q3 because there are currently no restaurants operating while under a
sales contract.
General and administrative expenses increased in Q3 to $168,158
from $129,544 in Q96. This was due to expenses incurred in opening the
registrant's first international franchise in Guatemala. Interest
expense decreased to $0 in Q3 from $24,059 in Q96 as various notes have
been paid off during the past year.
The issuer incurred a loss of $43,744 (($.007) per share) in Q3 as
compared to a profit of $19,666 ($.002 per share) in Q96.
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 15,
1997. Currently all major litigation involving the registrant has been
settled, and the registrant is not aware of any material litigation in
process.
Item 2. Changes in Securities.
There were no changes in securities or in the rights of the holders
of the registrant's securities during Q3.
Item 3. Defaults Upon Senior Securities.
The registrant does not currently have any senior securities
outstanding. Consequently, there are no defaults on senior securities.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
Q3.
Item 5. Other Information.
The registrant has been in "off and on" discussions with various
potential franchisees to develop restaurants. No new agreements have
been signed since the signing of the registrant's first franchise in
Michigan, which was announced in April 1997. The registrant has
contracted with a regional investment broker with the hope of raising
capital for the registrant. The registrant is not currently aware of any
genuine prospects for new capital or credit as a result of its agreement
with the regional investment broker.
A lease has been signed by the registrant as part of a plan to open
a company owned restaurant for the purpose of using the new restaurant
as a model and training site. The registrant plans to have the
restaurant open for business in February or March 1998. Negotiations to
purchase two restaurants from a franchisee that is affiliated with the
registrant's`president, Mr. Osborn, have ceased without any agreement.
Future negotiations are currently not anticipated.
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 <FN1>
(12) No Exhibit Required. n/a
(15) Letter on Unaudited Interim
Financial Information n/a <FN2>
(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
<FN1> 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 and
the notes to the financial statements.
<FN2> No reports on unaudited interim financial information
have 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, 1997:
1. July 21, 1997. The Company announced that it filled a vacancy
on its board of directors; that two area representation and franchise
development agreements were terminated; and that it had reduced its
consulting agreement with its inside consultant, Dalm's, Inc.
2. September 16, 1997. The Company announced that its Guatemala
franchisee opened the first international Hudson's Grill restaurant;
that it had signed a lease for a build to suit restaurant in Dallas; and
that a franchisee had closed a restaurant.
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 15, 1997
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