-----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, B4yrqDNNgr99CW6JgCD96tVBafGVa8VJL34Odr8QbxiObTFTJKsU2gO7GS0Hr9Qi JuAieltbisjlS8Qm1e3g4w== 0000950159-98-000153.txt : 19980525 0000950159-98-000153.hdr.sgml : 19980525 ACCESSION NUMBER: 0000950159-98-000153 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980522 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESCENT CAPITAL INC / DE CENTRAL INDEX KEY: 0000874017 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 133645694 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-39759 FILM NUMBER: 98630886 BUSINESS ADDRESS: STREET 1: 6701 DEMOCRACY BLVD STE 300 STREET 2: PENDERGRAST KIMBERLY CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3018974870 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 1998 Commission File Number 33-39759 -------------- -------- CRESCENT CAPITAL, INC. (Exact name of registrant as specified in its charter) Delaware 13-3645694 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6701 Democracy Boulevard Suite 300 Bethesda, Maryland 20817 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (301) 530-1708 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities and 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. Yes __X__ No _____ As of April 30, 1998, 2,545,800 shares of common stock par value, $0.001 per share were outstanding. CRESCENT CAPITAL, INC. FORM 10-QSB QUARTERLY REPORT For the Period Ended March 31, 1998 INDEX Part I: FINANCIAL INFORMATION Item 1 : Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 [Unaudited] 3 - 4 Condensed Consolidated Statements of Operations for the three months ending March 31, 1998 and March 31, 1997 [Unaudited] 5 Condensed Consolidated Statement of Stockholders' Equity for the year ended December 30, 1997 and the three months ended March 31, 1998 [Unaudited] 6 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998 [Unaudited] 7 Notes to Condensed Consolidated Financial Statements 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 13 Part II: OTHER INFORMATION 14 SIGNATURES 15 o o o o o o o o o o 2 CRESCENT CAPITAL, INC. - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND DECEMBER 31, 1997 - -------------------------------------------------------------------------------- March 31, 1998 December 31, 1997 [Unaudited] ASSETS: Current Assets: Cash $ 1,399,089 $ 2,575,876 Trade Accounts Receivable - Net 2,003,817 2,050,094 Franchisee Loans 611,570 707,009 Other Receivables 1,295,965 611,690 Inventories 947,609 1,015,651 Prepaid Expenses and Accrued Income 326,114 306,716 Officer Loan Receivable 163,573 148,573 Due from Related Parties [D] 2,189,247 1,687,762 ----------- ----------- Total Current Assets 8,936,984 9,103,371 ----------- ----------- Property and Equipment - Net 6,138,303 5,435,818 ----------- ----------- Other Assets: Deposits 328,461 308,318 Deferred Opening Corst 100,000 100,000 Intangible Assets - Net 1,063,546 1,079,741 Net Assets of Discontinued Operations -- -- ----------- ----------- Total Other Assets 1,492,007 1,488,059 ----------- ----------- Total Assets $16,567,294 $16,027,248 ----------- ----------- The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements. 3 CRESCENT CAPITAL, INC. - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997. - --------------------------------------------------------------------------------
March 31, 1998 December 31, 1997 [Unaudited] Liabilities and Stockholders' Equity: Current Liability: Trade Accounts Payable 3,558,575 $ 2,691,247 Accrued Expenses and Other Payables 1,665,759 1,920,684 Taxes Payable 1,004,954 1,042,354 Obligations Under Capital Leases 111,604 111,604 Current Portion of Long Term Debt 181,405 200,629 ------------ ------------ Total Current Liabilities 6,522,297 5,966,518 ------------ ------------ Long-Term Liabilities 1,421,091 1,515,252 ------------ ------------ Minority Interest 3,466,429 3,415,973 ------------ ------------ Stockholders' Equity: $.01 Par Value, Preferred Stock, 1,000,000 Shares Authorized, No Shares Issued and Outstanding -- -- $.001 Par Value, Class A Common Stock, 5,000,000 Shares Authorized and 545,800 Shares Issued and Outstanding 546 546 $.001 Par Value, Convertible Class B Common Stock - 2,000,000 Shares Authorized, Issued and Outstanding 2,000 2,000 Additional Paid-in-Capital 6,209,214 6,209,214 Retained Earnings 1,434,168 1,177,971 Cumulative Foreign Currency 289,969 288,194 Translation Adjustment Note Receivable for Stock Including Accrued Interest (2,002,275) (1,972,275) Treasury Stock (776,145) (776,145) ------------ ------------ Total Stockholders' Equity 5,157,477 5,129,505 ------------ ------------ Total Liabilities and Stockholders' Equity $ 16,567,294 $ 16,027,268 ------------ ------------
The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements. 4 CRESCENT CAPITAL, INC - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS. [UNAUDITED] - --------------------------------------------------------------------------------
For the Three Months January 1, 1998 January 1, to March 31, 1997 to March 1998 31, 1997 Revenue: Sales by Company Owned Stores $ 981,027 $ 908,725 Commissary Sales 4,696,409 3,919,040 Franchise Fees 122,655 133,277 Rental Income 569,011 491,351 Royalty Sales 1,060,352 886,774 Computer Sales 206,338 278,523 Other Operating Income 83,603 76,709 ----------- ----------- Total Revenue $ 7,719,397 6,694,399 ----------- ----------- Cost of Sales Company Owned Stores 370,614 562,357 Food and Packaging 4,211,932 3,389,404 Other Operating Expenses 983,332 1,010,931 ----------- ----------- Total Cost of Sales $ 5,565,878 4,962,692 ----------- ----------- Gross Margin $ 2,153,519 1,731,707 ----------- ----------- Administrative Expenses 1,804,532 1,403,011 Depreciation and Amortization 219,402 185,621 ----------- ----------- Operating (Loss)/Income 129,585 143,075 Interest Income 101,783 85,002 Interest Expense -- (30,073) ----------- ----------- (Loss)/Income Before Income Taxes and Minority Interest 231,368 198,004 Income Taxes 124,715 48,156 Minority Interest in Net Income of Subsidiary 50,456 24,448 Income from Continuing Operations 56,197 125,400 (Loss) From Discontinued Operations -- (68,355) ----------- ----------- Net (Loss)/Income 56,197 57,045 Earnings Per Share: From Continuing Operations $ 0.02 $ 0.05 From Discontinued Operations -- (0.03) ----------- ----------- $ 0.02 $ 0.02 ----------- ----------- Weighted Average Number of Shares Outstanding 2,545,800 2,545,800 ----------- -----------
The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements. 5 CRESCENT CAPITAL, INC. - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY [UNAUDITED] - --------------------------------------------------------------------------------
Stock of the Common Stock Additional Currency Parent Note Total Number of Paid-in Retained Translation Held by Receivable Stockholders' Shares Amount Capital Earnings Adjustments a Subsidiary For Stock Equity Balance - December 31, 1996 2,545,800 $ 2,546 $6,209,214 $ 322,246 $250,400 $(776,145) $(1,852,275) $4,155,986 ========= ======= ========== ========== ======== ========= =========== ========== Minority Interest Adjustment -- -- -- (577,057) -- -- -- (577,057) Net Profit for the Year Ended December 31, 1997 -- -- -- 1,632,782 -- -- -- 1,632,782 Accrued Interest on Note -- -- -- -- -- -- (120,000) (120,000) Foreign Currency Translation Adjustment -- -- -- -- 37,794 -- -- 37,794 --------- ------- ---------- ---------- -------- --------- ----------- ---------- Balance - December 31, 1997 2,545,800 $ 2,546 $6,209,214 $1,377,971 $288,194 $(776,145) $(1,972,275) $5,129,505 ========= ======= ========== ========== ======== ========= =========== ========== Net Profit for Quarter Ended March 31, 1998 -- -- -- 56,197 -- -- -- 56,197 Accrued Interest on Note -- -- -- -- -- -- (30,000) (30,000) Foreign Currency Translation Adjustment -- -- -- -- 1,775 -- -- 1,775 ========= ======= ========== ========== ======== ========= =========== ========== Balance - March 31, 1998 2,545,800 $ 2,546 $6,209,214 $1,434,168 $289,969 $(776,145) $(2,002,275) $5,157,477 ========= ======= ========== ========== ========== ========= =========== ==========
Foreign Currency Translation The functional currency for the Company's foreign operations is the British pound sterling. The translation from the British pound sterling into U.S. dollars is performed for balance sheet accounts using the current exchange rate in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses resulting from such translations are included in stockholders' equity. Equity transactions are denominated in British Pound sterling have been translated into U.S. dollars using the effective rate of exchange at date of issuance. The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements 6 CRESCENT CAPITAL, INC. - -------------------------------------------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - --------------------------------------------------------------------------------
For the Three Months January 1, 1998 to January 1, 1997 to March 31, 1998 March 31, 1997 Net Cash - Operating Activities $ 350,674 $ 67,662 ----------- ----------- Investing Activities: Purchase of Property, Equipment and Capitalized Costs (1,091,485) (344,927) Proceeds on Disposal of Property and Equipment 178,526 44,585 Repayment of Loan to Officer -- -- Loan to Related Party (501,486) 128,099 ----------- ----------- Net Cash - Investing Activities (1,414,445 (172,243) ----------- ----------- Financing Activities: Capital Repayments Made 54,617 (40,594) Payment of Debt (168,002) (79,049) Proceeds from Sale of Common Stock -- ----------- ----------- Net Cash - Financing Activities (113,385) (119,643) ----------- ----------- Effect of Exchange Rate Changes on Cash 369 (18,307) Net [Decrease] in Cash and Cash Equivalents (1,176,787) (242,531) Cash and Cash Equivalents - Beginning of Periods 2,575,876 657,880 ----------- ----------- Cash and Cash Equivalents - End of Periods 1,399,089 415,349 ----------- ----------- Supplemental Disclosures of Cash Flow Information: Cash paid during the periods for: Interest Paid -- (23,905) Taxes Paid -- -- Supplemental Disclosures of Non-Cash Financing and Investing Activities: Exchange of Treasury Stock and Assignment of Consulting Agreements -- -- Fixed Assets acquired under Capital Leases -- 29,889
The Accompanying Notes are an Integral Part of these Condensed Consolidated Financial Statements. 7 CRESCENT CAPITAL, INC. - -------------------------------------------------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] - -------------------------------------------------------------------------------- (A) Significant Accounting Policies Significant accounting policies of Crescent Capital, Inc. are set forth in the Company's Form 10-KSB for the year ended December 31, 1997, as filed with the Securities and Exchange Commission. Crescent Capital's strategic objective is to invest in business ventures which will maximize the return to the shareholders. Currently, Crescent Capital, Inc.'s only operations are the 67% ownership of International Franchise Systems, Inc. Crescent Capital, Inc. and International Franchise Systems, Inc. [including its wholly owned subsidiaries] are collectively referred to as "the Company." (B) Basis of Reporting The balance sheets as of March 31, 1998, the statements of operations for the period January 1, 1998 to March 31, 1998, and for the period January 1, 1997 to March 31, 1997, the statement of stockholders' equity for the period January 1, 1998 to March 31, 1998 and the statements of cash flows for the period January 1, 1998 to March 31, 1998 and for the period January 1, 1997 to March 31, 1997 have been prepared by the Company without audit. The accompanying interim condensed unaudited financial have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions of Form 10-QSB and Regulation SB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of the Company, such statements include all adjustments [consisting only of normal recurring items] which are considered necessary for a fair presentation of the financial position of the Company at March 31, 1998, and the results of its operations and cash flows for the three months then ended. It is suggested that these unaudited financial statements be read in conjunction with the financial statements and notes contained in the Company's Form 10-KSB for the year ended December 31, 1997. Certain reclassifications may have been made to the 1997 financial statements to conform to classification used in 1998. (C) Assignment Of Consulting Agreements The three consulting agreements entered into by International Franchise Systems, Inc. ("IFS") were assigned to Woodland Limited Partnership at their net book value on April 1, 1996. IFS received shares of Crescent Capital, Inc. in return for consideration. The shares are reflected as "Treasury Stock" in the shareholders equity section of the Company's balance sheet. (D) Due From Related Parties Woodland Limited Partnership is a partnership controlled by members of the Colin Halpern family. At March 31, 1998, $2,189,247 was due from Woodland for funds advanced by the Company and its subsidiaries. These funds are to be repaid on a short term basis and are interest bearing. 8 (E) Related Party Transactions On March 11, 1998, the Company received an offer from IFS Acquisition Corporation, an affiliate of Crescent Capital, Inc., the Company's largest shareholder, to participate in a merger which would result in all of the shareholders other than Crescent Capital, Inc. receiving $2.80 per share for each share of the Company's stock. The Board of Directors named a Special Committee of directors, comprised of Bernard Goldman and David Coffer, to consider the offer. The Special Committee hired legal and financial advisors and is considering the offer. On April 17, 1998, the Special Committee announced that an agreement had been reached on the financial terms of the merger and that the public shareholders would receive $3.60 per share if the transaction is completed. The proposed merger is subject to, among other things (i) execution of a definitive merger agreement containing customary representations, warranties, covenants and conditions (including a financial condition), and (ii) compliance with all applicable regulatory and governmental requirements. Accordingly, there can be no assurance that the proposed merger will be consummated. o o o o o o o o o o 9 Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations Overview - Income before taxes and minority interest for the thirteen week period was higher than the same period of the previous year due to more stores open, an increase in average weekly sales, and improved commissary efficiencies ($231,368 in 1998 versus $198,004 in 1997). During the three month period ended March 31, 1998, the Company opened 5 delivery units which brings the total to 159 units operating in the United Kingdom and Ireland. Domino units opened include 153 delivery units, (12 that are Company owned) and 6 units that are "call and collect". In a move to strengthen IFS's investment value and future growth potential, in June 1997, the Company sold a 15% interest in its Domino's subsidiary for $3.125 million. After expenses and taxes, the Company realized a net profit of $2.0 million from the sale. The Company is using the proceeds from the sale to help finance a new commissary and administrative center to support continuing rapid growth of Domino's in the UK. In connection with the sale, the purchaser has an option to acquire an additional 5% interest in the company's Domino's subsidiary. In December 1997, the Company sold the last two Haagen Dazs units. The first quarter 1997 trading loss is shown as discontinued operations in the 1997 first quarter financial statements. The Company opened a sit down restaurant, Pizzazz, in December 1995, to further increase awareness of the Domino's brand. The restaurant was closed in June 1996 after the Company determined that the success of the concept would require too much management attention to be redirected from the Company's primary business. Accordingly, the Company reported the losses from Pizzazz as a loss from discontinued operations in the 1997 first quarter financial statements. The Company subleased the property commencing April 1997. 10 Results of Operations
For the Three Month Period Ended Income Statement Data March 31, 1997 March 31, 1997 Revenues: (%) (%) Sales by Company Owned Stores 12.7 13.6 Commissary Sales 60.8 58.5 Franchise Fees 1.6 2.0 Rental Income 7.4 7.3 Royalty Sales 13.7 13.3 Computer Sales 2.7 4.2 All Other Revenues 1.1 1.1 ------- ------- Total Revenues 100.0 100.0 Cost of Sales: Company Owned Stores and Delivery Expenses(1) 64.7 61.9 Commissary Sales (1) 89.7 86.5 Other Cost of Sales (1) 48.2 54.2 ------- ------- Total Cost of Sales (2) 73.3 74.1 Gross Margin 24.5 25.9 Administrative (2) 19.6 21.0 Amortization/Depreciation (2) 2.8 2.8 Gain On Fixed Assets (2) -- -- ------- ------- Operating Income (2) 2.1 2.1 Other Income (2) 1.1 0.8 ------- ------- Continuing Operations Before Minority Interest and Taxes (2) 3.2 2.9 Discontinued Operations - (Loss) (2) -- (1.0)
Notes: (1) as a percentage of respective revenue (2) as a percentage of total revenue Comparison of the Thirteen Week Periods January 1, 1998 to March 31, 1998 and January 1, 1997 to March 31, 1997. Revenue Total revenue for the three month week period ended March 31, 1998 was $7.7 million, an increase of 15% against the same period of 1997. The main constituents of this increase arose from royalty income which increased by approximately $0.2 million, and commissary sales which increased by $0.8 million. For the period ended March 31, 1998, system wide sales totalled $20.1 million versus $16.1 million in the first quarter of 1997. This represents a 20% improvement from the previous year. This increase in system-wide sales 11 is the primary reason for the increase in royalty income and commissary sales. Sales at Company owned stores increased by approximately $70,000 for the period ended March 31, 1998 as compared to the period ended March 30, 1997. The increase was attributed to more open corporate units (12 versus 11) and better sales performance at its flagship store in Milton Keynes. Cost and Expenses The Company experienced an increase in cost of sales against the same three month period in 1997 from approximately $4.9 million to $5.6, an increase of 12%. The cost of sales as a percentage of commissary sales was higher to the same period of the previous year (89.7% vs 86.5%) primarily because of higher distribution costs and lower margin on cheese. The cost of sales as a percentage of Company owned store sales increased from 61.9% in the same period in 1997 to 64.7% in 1998. This is the result of new stores and under-performing stores acquired in the first quarter of 1998. Income Operating income of $129,585 was achieved in the period against operating income of $143,075 in the comparable period in 1997. This decrease in profitability resulted from an increase in operating and administrative expense that offset the improved gross margin results. Liquidity and Capital Resources At March 31, 1998, the Company's working capital of $2.4 million compared to $2.0 million at March 31, 1997, and $3.1 million at December 31, 1997. The Company's trade receivable has decreased by $216,000 from the same period of the prior year as the Company improved its credit collection controls. The Company's receivable from related parties increased by $501,485 and inventories and other receivables have increased by $616,233. Total current liabilities have increased by $0.5 million from the same period of the previous year. The principle increase in current liabilities is related almost entirely to the accrual for expenses and taxes related to the income earned in the UK. The Company anticipates it will spend $500,000 to open additional corporate stores and acquire additional commissary equipment in 1998. The Company is not obligated to open any additional Company owned stores through the end of 1998 under the Master Franchise Agreement. To support the Company's continuing growth, the Company is constructing a new administrative office and new commissary. The Company estimates the cost of the new facility to be approximately 3.4 million pound sterling ($5.5 million). The Company has secured financing from National Westminster Bank for approximately 70% of the total cost. The building construction cost will be financed over 15 years at a fixed rate interest rate of 8.75%. The equipment will be financed over a 5 year lease. The Company believes its existing commissary will adequately service the dough production needs of existing and projected new franchisees for the next twelve months. The Company believes it can finance its obligations from existing cash balances and projected cash flows. The new facility is forecasted to open in August 1998. The Company does not anticipate that the loan to Crescent Capital will be repaid before September 1998. If the Company's plans change or its assumptions or estimates prove to be inaccurate, the Company may require additional funds to achieve increased sales. If such funds are unavailable, the Company will have to reduce its operations to a level consistent with its available funding. 12 Exchange Rate The weighted exchange rate for the three month period ended March 31, 1998 ($1.6354 per British pound sterling) was approximately 1% lower than the exchange rate during the comparable period in 1997 ($1.645 per British pound sterling). Inflation The primary inflationary factor affecting the Company's operations is the cost of food. As the cost of food has increased, the Company has historically been able to offset these increases through economies of scale and improved operating procedures, although there is no assurance that such offsets will continue. To date, inflation has not had a material effect on the Company's operations. 13 Part II OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to any litigation or governmental proceedings that management believes would result in judgements or fines that would have a material adverse effect on the Company. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Other Information Not Applicable. Item 5. Exhibits (a) Exhibits None. (b) Reports on Form 8-K May 20, 1998 Change in Auditors 14 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 duly authorized. CRESCENT CAPITAL, INC. Date: May 20, 1998 By: /s/ Colin Halpern ------------------------------ Colin Halpern, President 15 EX-27 2
5 0000874017 CRESCENT CAPITAL, INC. OTHER DEC-31-1998 JAN-01-1998 MAR-31-1998 1,399,089 0 2,003,817 0 947,609 8,936,984 6,138,303 0 16,567,294 6,522,297 0 546 0 0 2,000 16,567,294 7,719,397 7,719,397 5,565,878 5,565,878 1,804,532 0 0 231,368 124,715 56,197 0 0 0 56,197 0.02 0.02
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