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.
<PAGE>
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
<PAGE>
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
<PAGE>
CRESCENT CAPITAL, INC.
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31,
1997.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
[Unaudited]
<S> <C> <C>
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
------------ ------------
</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
January 1, 1998 January 1,
to March 31, 1997 to March
1998 31, 1997
Revenue:
<S> <C> <C>
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
----------- -----------
</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>
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
<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
========= ======= ========== ========== ======== ========= =========== ==========
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
========= ======= ========== ========== ========== ========= =========== ==========
</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, 1998 to January 1, 1997 to
March 31, 1998 March 31, 1997
<S> <C> <C>
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
</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, 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
<PAGE>
(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
<PAGE>
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
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
For the Three Month Period Ended
Income Statement Data March 31, 1997 March 31, 1997
Revenues: (%) (%)
<S> <C> <C>
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)
</TABLE>
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
<PAGE>
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
<PAGE>
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
<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
May 20, 1998 Change in Auditors
14
<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 20, 1998 By: /s/ Colin Halpern
------------------------------
Colin Halpern, President
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874017
<NAME> CRESCENT CAPITAL, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,399,089
<SECURITIES> 0
<RECEIVABLES> 2,003,817
<ALLOWANCES> 0
<INVENTORY> 947,609
<CURRENT-ASSETS> 8,936,984
<PP&E> 6,138,303
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,567,294
<CURRENT-LIABILITIES> 6,522,297
<BONDS> 0
<COMMON> 546
0
0
<OTHER-SE> 2,000
<TOTAL-LIABILITY-AND-EQUITY> 16,567,294
<SALES> 7,719,397
<TOTAL-REVENUES> 7,719,397
<CGS> 5,565,878
<TOTAL-COSTS> 5,565,878
<OTHER-EXPENSES> 1,804,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 231,368
<INCOME-TAX> 124,715
<INCOME-CONTINUING> 56,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,197
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
