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 quarter ended September 30, 1996 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 November 15, 1996, 2,545,800 shares of common stock par value, $0.001 per
share were outstanding.
<PAGE>
CRESCENT CAPITAL, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Period Ended September 30, 1996
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1996 [Unaudited] 1 - 2
Condensed Consolidated Statements of Operations for the
three months and nine months ending September 30, 1996 and
September 30, 1995 [Unaudited] 3
Condensed Consolidated Statement of Stockholders' Equity for
the year ended December 31, 1995 and the nine months ended
September 30, 1996 [Unaudited] 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 [Unaudited] 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
Part II: OTHER INFORMATION 9
SIGNATURES 10
o o o o o o o o o o
<PAGE>
CRESCENT CAPITAL, INC.
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
[Unaudited]
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 607,966 872,363
Cash - Restricted -- 200,000
Trade Accounts Receivable - Net 2,314,491 1,697,548
Franchisee Loans 813,288 696,917
Other Receivables 267,076 565,708
Inventories 459,012 621,408
Prepaid Expenses and Accrued Income 961,382 650,746
Officer Loan Receivable 123,726 168,151
Deferred Offering Costs 100,000
Due from Related Parties [D] 931,436 1,656,635
Deposits 292,669 383,331
----------- -----------
Total Current Assets 6,871,046 7,512,807
----------- -----------
Property and Equipment - Net 3,432,261 2,733,667
----------- -----------
Other Assets:
Master Franchise Agreement - Net 882,000 936,000
Rights to Store Leases - Net 90,680 83,359
Goodwill - Net 10,732 11,570
Start-Up Costs - Net 109,095 146,916
Consulting Agreements - Net [C] -- 827,707
Store Franchise Agreement - Net 59,008 75,273
Store Development Costs - Net 14,139 104,419
----------- -----------
Total Other Assets 1,165,654 2,185,244
----------- -----------
Total Assets $11,468,961 $12,431,718
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
1
<PAGE>
CRESCENT CAPITAL, INC.
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31, 1995
1996 [Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liability:
Trade Accounts Payable 2,592,349 $ 3,109,445
Accrued Expenses 893,994 363,125
Other Payables and Accrued Interest 240,700 259,845
Obligations Under Capital Leases 194,699 188,077
Other Taxes Payable 518,952 303,356
Current Portion of Long Term Debt 299,107 267,693
------------ ------------
Total Current Liabilities 4,739,801 4,491,541
------------ ------------
Long-Term Liabilities 523,686 694,151
------------ ------------
Minority Interest 1,829,009 2,035,798
------------ ------------
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 545 545
$.001 Par Value, Convertible Class B Common Stock -
2,000,000 Shares Authorized, Issued and Outstanding 2,000 2,000
Additional Paid-in-Capital 6,364,037 6,230,593
Retained Earnings 237,487 445,468
Cumulative Foreign Currency Translation Adjustment 48,541 31,622
Note Receivable for Stock (1,500,000) (1,500,000)
Cost of Common Stock Held in Treasury 51,743 shares in 1996 (776,145) --
------------ ------------
Total Stockholders' Equity 4,376,465 5,210,228
------------ ------------
Total Liabilities and Stockholders' Equity $ 11,468,961 $ 12,431,718
------------ ------------
</TABLE>
2
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
<PAGE>
CRESCENT CAPITAL, INC
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
July 1, 1996 to July 1 1995 January 1, 1996 January 1,
September 30, to September to September 1995 to
1996 30, 1995 30, 1996 September 30,
1995
<S> <C> <C> <C> <C>
Revenue:
Sales by Company Owned Stores $ 1,578,453 $ 754,747 $ 4,051,699 1,992,068
Commissary Sales 3,039,451 2,546,101 8,520,528 7,127,537
Franchise Fees 151,934 38,789 332,273 139,762
Rental Income 341,987 298,501 965,345 907,266
Royalty Sales 749,824 687,002 2,076,167 1,727,322
Other Operating Income 156,618 251,322 589,397 448,616
------------ ------------ ------------ ------------
Total Revenue 6,018,267 4,576,462 16,535,409 12,342,571
------------ ------------ ------------ ------------
Cost of Sales
Company Owned Stores 1,007,948 463,608 2,652,620 1,341,254
Food and Packaging 2,730,664 2,390,428 7,643,351 6,466,452
Other Operating Expenses 613,451 553,582 1,855,890 1,376,368
------------ ------------ ------------ ------------
Total Cost of Sales 4,352,063 3,407,618 12,151,861 9,184,074
------------ ------------ ------------ ------------
Gross Margin 1,666,204 1,168,844 4,383,548 3,158,497
------------ ------------ ------------ ------------
Administrative Expenses 1,477,306 1,128,216 4,361,152 2,966,288
Operating & Closing Costs of Pizzazz Restaurant 41,245 -- 442,231 --
------------ ------------ ------------ ------------
Operating (Loss)/Income 147,653 40,628 (419,835) 192,209
Interest Income 79,406 52,694 213,235 183,146
Interest Expense (24,868) (15,490) (74,726) (46,862)
Minority Interest in Net Income of Subsidiary (59,301) (27,738) 73,345 (74,086)
------------ ------------ ------------ ------------
(Loss)/Income Before Income Taxes 142,890 50,094 (207,981) 254,407
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net (Loss)/Income $ 142,890 $ 50,094 $ (207,981) $ 254,407
------------ ------------ ------------ ------------
(Loss)/Income Earnings Per Share $ 0.06 $ 0.02 $ (0.08) $ 0.10
------------ ------------ ------------ ------------
Weighted Average Number of Shares Outstanding
2,545,800 2,431,939 2,545,800 2,424,023
------------ ------------ ------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
CRESCENT CAPITAL, INC.
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency Note Total
Number of Paid-in Retained Translation Treasury Receivable Stockholders'
Shares Amount Capital Earnings Adjustments Stock For Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 2,545,200 2,545 6,230,593 445,468 31,622 -- (1,500,000) 5,210,228
Additional Costs from
Issuance of Stock of
Subsidiary -- -- (21,379) -- -- -- -- (21,379)
Issuance February 27, 1996 600 -- -- -- -- -- -- --
Foreign Currency
Translation Adjustment -- -- -- -- 16,919 -- -- 16,919
Treasury Shares -- -- 154,823 -- -- (776,145) -- (621,322)
Net Income for the nine
months ended September 30,
1996 -- -- -- (207,981) -- -- -- (207,981)
----------- --------- ----------- --------- --------- ---------- ----------- -----------
Balance - September 30, 1996 2,545,800 $ 2,545 $ 6,364,037 $ 237,487 $ 48,541 (776,145) $(1,500,000) $ 4,376,465
----------- --------- ----------- --------- --------- ---------- ----------- -----------
</TABLE>
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
4
<PAGE>
CRESCENT CAPITAL, INC.
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
January 1, 1996 to January 1, 1995 to
September 30, 1996 September 30, 1995
<S> <C> <C>
Net Cash - Operating Activities $ 53,674 $(1,027,602)
----------- -----------
Investing Activities:
Purchase of Property, Equipment and Capitalized Costs (1,488,656) (1,464,412)
Proceeds on Disposal of Property and Equipment 445,338 52,944
Repayment of Loan to Officer -- 945
Loan to Related Party 722,687 (510,280)
----------- -----------
Net Cash - Investing Activities (320,631) (1,920,803)
----------- -----------
Financing Activities:
New Short Term Loan 184,596 373,645
Payment of Debt (380,226) (1,439,231)
Proceeds from Sale of Common Stock -- 445,360
----------- -----------
Net Cash - Financing Activities (195,630) (620,226)
----------- -----------
Effect of Exchange Rate Changes on Cash (1,809) 11,133
Net [Decrease] in Cash and Cash Equivalents (462,588) (3,557,498)
Cash and Cash Equivalents - Beginning of Periods 1,072,363 4,814,473
----------- -----------
Cash and Cash Equivalents - End of Periods $ 607,966 $ 1,256,975
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest Paid $ 133,940 $ 46,862
Taxes Paid -- --
Supplemental Disclosures of Non-Cash Financing and Investing Activities:
Total Offering Costs During the Period January 1, 1995 to September 30, 1995 $ -- $ 96,829
Exchange of Treasury Stock and Assignment of Consulting Agreements $ 776,145 $ --
Fixed Assets acquired under Capital Leases $ 248,295 $ --
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
5
<PAGE>
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, 1995, 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 70% 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 sheet as of September 30, 1996, the statements of operations
for the period January 1, 1996 to September 30, 1996, and for the period
January 1, 1995 to September 30, 1995, the statement of stockholders'
equity for the period January 1, 1996 to September 30, 1996 and the
statements of cash flows for the period January 1, 1996 to September 30,
1996 and for the period January 1, 1995 to September 30, 1995 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
September 30, 1996, and the results of its operations and cash flows for
the nine 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,
1995.
Certain reclassifications may have been made to the 1995 financial
statements to conform to classification used in 1996.
[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 September 30, 1996, $931,436 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.
o o o o o o o o o o
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Result of Operations
Overview -
Income for the three month period was higher than the same period of the
previous year due to the opening of new stores, the increase of existing store
sales year to year of 12%, and the Haagen Dazs ice cream line of business. The
Company opened six new franchise stores in the period. To date, the Company has
opened a net of eleven new stores for the year.
In September, the Company sold one Haagen Dazs parlour back to the Master
Franchisor in the UK. The Company is attempting to divest the two other Haagen
Dazs units before the end of the year. The ice cream business is influenced by
cold weather and the Company anticipates losses from these 2 units in the fourth
quarter.
During the second quarter, the Company closed their sit down restaurant
("Pizzazz"). The Company had an agreement with a third party to lease the
property and the assets. The Company was unsuccessful in obtaining the
landlord's consent to sub-lease the facilities to the third party. As a result,
the Company incurred rental and associated expenses on the unit during the third
quarter of $41,245. This loss has been included in the Company's income results.
The Company has entered into negotiations with another third party that it
believes will be acceptable to the landlord. The Company hopes to have the
transaction finalized by the end of the year although there are no assurances
that the sublease will be finalized or that the landlord will approve the
sublease.. Therefore, the Company expects to incur similar costs in the fourth
quarter on this property.
Results of Operations -
Comparison of the three month period July 1 to September 30, 1996 and July 1 to
September 30, 1995
Revenue
Total revenue for the period was $6,018,267 an increase of $1,441,805 (32%)
against the same period of 1995. The main constituents of this increase arose
from sales at Company owned stores which increased by $823,706, royalty income,
which increased by $175,967 and commissary sales, which increased by $493,350.
Rental income also increased by $43,486 and other income decreased by $94,704.
The increase in comparative sales at International Franchise Systems, Inc. owned
stores resulted primarily from the three Haagen Dazs units which were operated
by the Company for only one month in the same period last year. The increase in
royalty income and commissary sales resulted almost entirely from the increase
in system wide sales.
Cost and Expenses
The Company's cost of sales as a percentage of total revenue decreased by 2.1%
against the same period of the previous year. However, total cost of sales
expenditures increased by $944,445. The cost of sales as a percentage on
commissary sales declined by 4.1% from the same period of the previous year
because of improved pricing and better margins. The cost of sales as a
percentage on IFS owned store sales increased by 2.5% because of higher food
costs and lower margins for the Haagen Dazs units as compared to the
Company-owned Domino's stores. The royalty percentage payable to Domino's
increased from the prior year by 6.7%.
Administrative and corporate expenses as a percentage of total revenue increased
by 1% ($349,090) versus the same period of the previous year. Expenses increased
as a result of Haagen Dazs ($189,075), headcount additions to support the
franchisees, and general costs for franchise development and shareholder
support.
Income
An operating profit of $147,653 was attained in the period against operating
income of $40,628 in the comparable period in 1995. This increase in
profitability resulted from higher gross margins of $497,360 which offset higher
administrative and corporate store costs.
Comparison of the nine month period January 1 to September 30, 1996 and
January 1 to September 30, 1995
Revenue
Total revenue for the period was $16,535,409, an increase of $4,192,838 (34%)
against the same period in 1995. The main constituents of this increase arose
from sales at IFS owned stores, which increased by $2,059,631, royalty income,
which increased by $541,356 and commissary sales, which increased by $1,392,991.
7
<PAGE>
The increase in sales at Company owned stores resulted primarily from the
addition of three Haagen Dazs stores which contributed $1,401,568 and the
increased number of stores in operation during this period against 1995. The
increase in royalty income and commissary sales resulted almost entirely from
the increase in system wide sales.
Cost and Expenses
The Company's cost of sales as a percentage of total revenue decreased by .8%
against the same period of 1995. The cost of sales as a percentage of commissary
sales declined by 1% from the same period of the previous year. The cost of
sales as a percentage of IFS owned store sales decreased by 1.8%. The royalty
percentage payable to Domino's increased from the prior year by 6.7%.
Administrative and corporate store expenses as a percentage of total revenue
increased by 2.3% against the same period of the previous year This increase is
reflective of the growth of the company to support the franchisees the increased
costs of corporate stores including Haagen Dazs ($978,544) and personnel and
shareholder support costs at the Corporate headquarters.
Income
An operating loss of $419,835 was incurred in the period against operating
income of $192,209 in the comparable period in 1995. This decrease in
profitability resulted primarily from the operating losses at and closure of the
Pizzazz Restaurant ($442,231) and higher administrative and corporate store
costs offsetting higher gross margins .
Liquidity and Capital Resources
At September 30, 1996 the Company's working capital of $2,131,245 has been
reduced by $890,021 from the end of the Company's last fiscal year. The
Company's trade receivable have increased by $616,943 from the end of the year
in addition to a increase in computer loans to franchisees for $116,371. The
Company's receivable from related parties has decreased by $722,687 and
inventories and other receivable have decreased by $461,028. The Company's
current liabilities have increased as a result of increased commissary purchases
The Company believes that its working capital will be sufficient to satisfy its
obligations over the next twelve months.
Exchange Rates
The weighted exchange rate for the nine month period ended September 30, 1996
($1.5383 per British pound sterling) was approximately 3% lower than the
exchange rate during the comparable period in 1995 ($1.5882 per British pound
sterling). This difference has the effect of reducing the Company's results by
approximately 3% when expressed in U.S.
dollars.
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.
8
<PAGE>
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
No reports on Form 8-K were filed during the period covered by
this report.
9
<PAGE>
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: November 15, 1996 /s/ Colin Halpern
------------------------------------------
Colin Halpern, President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874017
<NAME> CRESCENT CAPITAL, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 607,966
<SECURITIES> 0
<RECEIVABLES> 2,314,491
<ALLOWANCES> 0
<INVENTORY> 459,012
<CURRENT-ASSETS> 6,871,046
<PP&E> 3,432,261
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,468,961
<CURRENT-LIABILITIES> 4,739,801
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,468,961
<SALES> 1,578,453
<TOTAL-REVENUES> 6,018,267
<CGS> 4,352,063
<TOTAL-COSTS> 4,352,063
<OTHER-EXPENSES> 1,477,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (24,868)
<INCOME-PRETAX> 142,890
<INCOME-TAX> 0
<INCOME-CONTINUING> 142,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142,890
<EPS-PRIMARY> $0.06
<EPS-DILUTED> $0.06
</TABLE>
