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 30, 1997 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, 1997, 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 March 30, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1997
[Unaudited] 3-4
Condensed Consolidated Statements of Operations for the three
months ending March 30, 1997 and March 31, 1996 [Unaudited] 5
Condensed Consolidated Statement of Stockholders' Equity for
the three months ended March 30, 1997 [Unaudited] 6
Condensed Consolidated Statements of Cash Flows for the three
months ended March 30, 1997 [Unaudited] 7
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Part II: OTHER INFORMATION 12
SIGNATURES 13
o o o o o o o o o o
<PAGE>
CRESCENT CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 30, 1997
March 30, December 31,
1997 1996
[Unaudited]
ASSETS:
Current Assets:
Cash $415,349 $657,880
Trade Accounts Receivable - Net 2,220,180 2,278,638
Franchisee Loans 1,035,803 1,008,990
Other Receivables 332,349 51,475
Inventories 860,508 865,131
Prepaid Expenses and Accrued Income 633,958 778,834
Officer Loan Receivable 124,701 125,016
Due from Related Parties [D] 1,349,577 1,471,997
Deposits 303,375 637,562
----------- -----------
Total Current Assets 7,275,800 7,875,523
----------- -----------
Property and Equipment - Net 2,853,692 2,757,386
----------- -----------
Other Assets:
Master Franchise Agreement - Net 846,000 864,000
Rights to Store Leases - Net 109,612 112,519
Goodwill - Net 10,611 11,260
Deferred Offering Cost 100,000 100,000
Consulting Agreements - Net [C] -- --
Store Franchise Agreement - Net 56,073 45,830
Store Development Costs - Net 66,825 74,344
Net Assets of Discontinued Operations 629,446 666,156
----------- -----------
Total Other Assets 1,818,567 1,874,109
----------- -----------
Total Assets 11,948,059 $12,507,018
----------- -----------
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
3
<PAGE>
CRESCENT CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 30, 1997.
<TABLE>
<CAPTION>
March 30, December 31,
1997 1996
[Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liability:
Trade Accounts Payable $3,274,042 $3,704,523
Accrued Expenses 841,610 1,186,168
Other Payables and Accrued Interest 260,839 29,785
Obligations Under Capital Leases 204,409 217,691
Other Taxes Payable 502,007 415,771
Current Portion of Long Term Debt 247,201 321,621
------------ ------------
Total Current Liabilities 5,330,108 5,875,559
------------ ------------
Long-Term Liabilities 433,594 460,240
------------ ------------
Minority Interest 2,052,515 2,015,233
------------ ------------
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
545,200 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 414,614 322,246
Cumulative Foreign Currency
Translation Adjustment 163,888 250,400
Note Receivable for Stock (1,882,275) (1,852,275)
Cost of Common Stock Held in Treasury
51,743 shares in 1996 (776,145) (776,145)
------------ ------------
Total Stockholders' Equity 4,131,842 4,155,986
------------ ------------
Total Liabilities and Stockholders' Equity $11,948,059 $12,507,018
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
4
<PAGE>
CRESCENT CAPITAL, INC.
CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
<TABLE>
<CAPTION>
For the Three Months
December 30, 1996 to January 1, 1996
March 30, 1997 to March 31, 1996
<S> <C> <C>
Revenue:
Sales by Company Owned Stores $908,725 $1,063,214
Commissary Sales 3,919,040 2,423,766
Franchise Fees 133,277 42,848
Rental Income 491,351 328,119
Royalty Sales 886,774 635,186
Computer Sales 278,523 157,800
Other Operating Income 76,709 166,528
----------- -----------
Total Revenue $6,694,399 $4,817,461
----------- -----------
Cost of Sales
Company Owned Stores 562,357 762,856
Food, Packaging & Distribution 3,389,404 2,272,872
Other Cost of Sales 1,010,931 624,271
----------- -----------
Total Cost of Sales 4,962,692 3,659,999
----------- -----------
Gross Margin 1,731,707 1,157,462
----------- -----------
Administrative Expenses 1,403,011 1,316,550
Amortization and Depreciation 185,621 244,908
Gain on the Sale of Fixed Assets -- 275,933
----------- -----------
Operating Income (Loss) 143,075 (128,063)
Other Income (Expense)
Interest Income 85,002 20,370
Interest Expense (30,073) (25,696)
----------- -----------
Total Other Income 54,929 (5,326)
Minority Interest in Net Income (Loss) (57,788) 37,494
----------- -----------
Income (Loss) from Continuing
Operations 140,216 (95,895)
Loss From Discontinued Operations
after Minority Interest (47,848) (288,710)
----------- -----------
Net Income (Loss) $92,368 ($384,605)
----------- -----------
Earnings (Loss) Per Share $0.04 ($0.15)
----------- -----------
Income From Continuing Operations $0.06 ($0.04)
Loss From Discontinued Operations (0.02) (0.11)
Net Income (Loss) Per Share 0.04 (0.15)
----------- -----------
Weighted Average Number of Shares Outstanding 2,545,800 2,545,200
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
5
<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, 1996 2,545,800 2,546 6,209,214 322,246 250,400 (776,145) (1,852,275) 4,155,986
Accrued Interest
on Stock Receivable -- -- -- -- -- (30,000) (30,000)
Foreign Currency
Translation
Adjustment -- -- -- -- (86,512) -- -- (86,512)
Net Income for the
quarter ended
March 30, 1997 -- -- -- 92,368 -- -- -- 92,368
---------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - March
30, 1997 2,545,800 $2,546 $6,209,214 $414,614 $163,888 (776,145) $(1,882,275) $4,131,842
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</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
6
<PAGE>
CRESCENT CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
<TABLE>
<CAPTION>
For the Three Months
January 1, 1997 to January 1, 1996 to
March 30, 1997 March 30, 1996
<S> <C> <C>
Net Cash from Continuing Operations 136,017 (98,571)
Net Cash from Discontinued Operations (68,355) (247,956)
----------- -----------
Net Cash - Operating Activities $67,662 ($346,527)
----------- -----------
Investing Activities:
Purchase of Property, Equipment and Capitalized Costs (344,927) (511,610)
Proceeds on Disposal of Property and Equipment 44,585 259,386
Repayment of Loan to Officer --
Loan to Related Party 128,099 --
----------- -----------
Net Cash - Investing Activities (172,243) (252,224)
----------- -----------
Financing Activities:
Capital Repayments Made (40,594) (52,742)
Payment of Debt (79,049) (71,097)
Proceeds from Sale of Common Stock --
----------- -----------
Net Cash - Financing Activities (119,643) (123,839)
----------- -----------
Effect of Exchange Rate Changes on Cash (18,307) (6,814)
Net [Decrease] in Cash and Cash Equivalents (242,531) (729,404)
Cash and Cash Equivalents - Beginning of Periods 657,880 1,072,363
----------- -----------
Cash and Cash Equivalents - End of Periods $415,349 $342,959
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest Paid ($23,905) $46,862
Taxes Paid --
Supplemental Disclosures of Non-Cash Financing and Investing Activities:
Fixed Assets acquired under Capital Leases $29,889 $248,620
</TABLE>
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
7
<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, 1996, 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 March 30, 1997, the statements of operations
for the period January 1, 1997 to March 30, 1997, and for the period
January 1, 1997 to March 30, 1997, 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 March 30,
1997 and for the period January 1, 1996 to March 30, 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 30, 1997, 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, 1996.
Certain reclassifications may have been made to the 1996 financial
statements to conform to classification used in 1997.
[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. Mr. Colin Halpern is the President of
Crescent. At March 30, 1997, $1,349,577 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 bear interest at 8% per annum
beginning January 1, 1996. Included in Prepaid Expenses and Accrued
Income is accrued interest receivable of $121,030 on this balance.
In connection with the issuance to Woodland of shares of IFS stock, IFS
accepted a note receivable for $1,500,00 from Woodland at 8% per annum.
This note receivable was transferred to Crescent pursuant to a Loan and
Exchange Agreement between Crescent, IFS and Woodland. Accrued interest
on this note receivable at March 30, 1997 was $382,275.
o o o o o o o o o o
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Overview -
Income for the quarter was higher than the same period of the previous year due
to more new store openings which increased by six in the first quarter of 1997
as compared to one in the first quarter of 1996, an increase in same store sales
year of 15%, its corresponding impact on royalties and commissary sales and
higher computer system sales. As of March 30, 1997, the Company has opened a
total of 133 Domino's units. This includes 127 delivery units (11 that are
Company owned) and 6 units that are "call and collect".
In September 1996, 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. The ice cream business is influenced by cold weather and the Company
experienced losses from these 2 units during the first quarter 1997. The Company
expects the margins to improve in the second quarter as the weather improves.
The Company opened a sit down restaurant, Pizzazz, in December 1995, to further
increase awareness of the Domino's brand. The Company did not receive assistance
from Domino's Pizza International, Inc. in the site selection, restaurant layout
and decor, menu design and pricing, or advertising and marketing. The restaurant
was closed in June 1996 after the Company determined that they to discontinue
this line of business as they believed 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 discontinued
operations in the 1996 financial statements. The Company has subleased the
property commencing April 1997 and terminating December 2010.
Results of Operations
Comparison of the three month periods ended March 30, 1997 and March 31, 1996
<TABLE>
<CAPTION>
For the Three Months Ended
INCOME STATEMENT DATA March 30, 1997 March 31, 1996
<S> <C> <C>
Revenues: (%) (%)
Company owned stores 13.6 22.1
Commissary Sales 58.5 50.3
Royalty Sales 13.3 13.2
All Other Revenues 14.6 14.4
----- -----
Total Revenues 100.0 100.0
Cost of Sales
Company Owned Stores (1) 61.9 71.8
Commissary/Distribution (1) 86.5 93.8
All Other Cost of Sales (1) 54.2 46.9
----- -----
Total Cost of Sales 74.1 76.0
Gross Margin 25.9 24.0
Administrative (2) 21.0 27.3
Amoritzation/Depreciation (2) 2.8 5.1
Gain on Sale of Fixed Assets (2) -- 5.7
----- -----
Operating Income 2.1 (2.7)
Other Income (2) 0.8 (0.1)
----- -----
Income/(Loss) on Continuing
Operations after Minority Interest 2.9 (2.0)
Loss on Discontinued Operations after
Minority Interest (0.7) (6.0)
----- -----
Net Income/(Loss) 1.9 (8.0)
</TABLE>
Notes:
(1) as a percentage of respective revenue
(2) as a percentage of total revenue
9
<PAGE>
Revenue
Total revenue for the period ended March 30, 1997 was $6,694,399, an increase of
$1,876,938 (39%) against the same period of 1996. The main constituents of this
increase arose from royalty income which increased by $251,588, commissary sales
which increased by $1,495,274, rental and other income which increased by
$73,413 and computer system sales which increased by $120,974. Sales at Company
owned stores decreased by $ 154,489.
For the period ended March 30, 1997, system wide sales totaled $16,125,000
versus $11,550,000 in the first quarter of 1996. This represents a 39%
improvement from the previous year.
The decrease in comparative sales at Company owned stores resulted primarily
from one less Haagen Dazs unit and the operating of more corporate stores under
the dealer development program than the previous year. The increase in royalty
income and commissary sales resulted almost entirely from the increase in system
wide sales.
Cost and Expenses
The Company experienced an increase in cost of sales against the same period in
1996 from approximately $3.6 million to $5.0 million, an increase of $1,302,693
(36%). The cost of sales as a percentage of commissary sales decreased by 8%
from the same period of the previous year because of better controls to ensure
that Commissary pricing was adjusted for raw material price fluctuations, and
lower distribution cost per delivery. The cost of sales as a percentage of
Company owned stores sales decreased by approximately 10% because of one less
Haagen Dazs unit and the operating of corporate stores under the dealer
development program. The royalty percentage payable to Domino's increased from
the prior year by one tenth of a percent.
Administrative and corporate expenses as a percentage of total revenue decreased
by 6.3% versus the same period of the previous year. The Company improved
efficiencies and controlled expenses as the franchise system grew.
Income
Income from continuing operations (before minority interest) of $198,004 was
achieved in the period against operating loss of $133,389 in the comparable
period in 1996. This increase in profitability resulted from an increase in
sales and lower expenses.
Liquidity and Capital Resources
At March 30, 1997, the Company's working capital of $1.9 million compared to
$2.0 million at December 30, 1996 and $2.0 million for the first quarter of
1996. The Company's trade receivable has increased by $232,173 from the same
period of the prior year, in addition loans to franchisees increased by $338,886
from the prior year. The Company's receivable from related parties decreased by
$102,951 and inventories and other receivable have increased by $329,492. Total
current liabilities have increased by $685,105 from the same period of the
previous year. The Company believes that its working capital will be sufficient
to satisfy its obligations over the next twelve months.
The Company has started to negotiate on the purchase of land and the
construction of a new commissary and headquarters building. The existing
Commissary will adequately service the dough production needs of existing and
projected new franchisees for the next twelve months. The Company has a general
commitment from National Westminster Bank to provide financing for 70% of the
total estimated cost of $4 million. The Company does not believe that projected
cash flow will be able to support the development of new corporate stores and
the Company's portion of the land/construction costs. The Company is exploring
different ways to raise money for this project.
The Company anticipates it will spend $800,000 to open additional corporate
stores and acquire commissary equipment in 1997. The Company is not obligated to
open any additional Company owned stores by December 1997 under the Master
Franchise Agreement. 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.
Exchange Rates
The weighted exchange rate for the three months ended March 30, 1997 ($1.645 per
British pound sterling) was approximately 8% higher than the exchange rate
during the comparable period in 1996 ($1.526 per British pound sterling). This
difference has the effect of improving the Company's results by approximately 8%
when expressed in U.S. dollars.
10
<PAGE>
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.
11
<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.
12
<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: May 13, 1997 By: /s/ Colin Halpern
Colin Halpern, President
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874017
<NAME> CRESCENT CAPITAL, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 415,349
<SECURITIES> 0
<RECEIVABLES> 2,220,180
<ALLOWANCES> 0
<INVENTORY> 332,349
<CURRENT-ASSETS> 7,275,800
<PP&E> 2,853,692
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,948,059
<CURRENT-LIABILITIES> 5,330,108
<BONDS> 0
<COMMON> 546
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,948,059
<SALES> 908,725
<TOTAL-REVENUES> 6,694,399
<CGS> 4,962,692
<TOTAL-COSTS> 4,962,692
<OTHER-EXPENSES> 1,403,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (30,073)
<INCOME-PRETAX> 140,216
<INCOME-TAX> 0
<INCOME-CONTINUING> 140,216
<DISCONTINUED> (47,848)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,368
<EPS-PRIMARY> $0.04
<EPS-DILUTED> $0.04
</TABLE>
