PROSPECTUS
WOODROAST SYSTEMS, INC.
232,286 SHARES OF
COMMON STOCK
This Prospectus relates to the offering of up to 232,286 shares (the
"Warrant Shares") of Common Stock, $.005 par value, of Woodroast Systems, Inc.
(the "Company") which may be offered from time to time by the shareholders named
herein (the "Selling Shareholders") following the exercise by them of
outstanding warrants (the "Warrants"). The Company will receive proceeds upon
the exercise of the Warrants, but will not receive any of the proceeds from the
sale of the Warrant Shares by the Selling Shareholders. See "Use of Proceeds."
The Company will bear all expenses of the offering hereunder other than
underwriting discounts and commissions incurred in connection with the sale of
the Warrant Shares by the Selling Shareholders. The Company's Common Stock is
traded on the Nasdaq SmallCap Market under the symbol "WRSI." The closing bid
and asked prices of the Company's Common Stock on May 23, 1996 were $4.125 and
$4.50, respectively, as reported by Nasdaq.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE " RISK FACTORS"
BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The Selling Shareholders have advised the Company that they intend to
sell the Warrant Shares from time to time in transactions on the Nasdaq SmallCap
Market at prices prevailing at the time of the sale or otherwise as set forth
below. The Selling Shareholders have also advised the Company that, as of the
date hereof, they have made no arrangement with any brokerage firm for the sale
of the Warrant Shares. The Selling Shareholders may be deemed to be
"underwriters" within the meaning of the Act, in which case any commissions
received by a broker or dealer may be deemed to be underwriting commissions or
discounts under the Act. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS ISSUER SHAREHOLDERS
<S> <C> <C> <C>
Per Share $4.50(1) (2) None $4.50(1)
- ------------------------------- ------------------- --------------------------- ----------------- --------------------------
Total $1,045,287(1) (2) None $1,045,287(1)
=============================== =================== =========================== ================= ==========================
</TABLE>
(1) Estimated based on a per share price of $4.50 as of May 23, 1996 and
assumes the sale of all Warrant Shares by the Selling Shareholders,
with no adjustment for commissions, discounts, brokerage and other fees
that may be paid by the Selling Shareholders, or expenses of the
offering to be paid by the Company.
(2) Commissions, discounts and brokerage fees will be payable by the
Selling Shareholders in such amounts as the Selling Shareholders may
agree to from time to time.
------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS MAY 24, 1996
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy and information
statements and other information can be inspected and copied at the public
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C., and the Commission's regional offices located at 7 World Trade
Center, 14th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549.
The Company has filed with the Commission a registration statement
under the Securities Act of 1933 with respect to the shares offered hereby. This
Prospectus does not contain all information set forth in such registration
statement. For further information with respect to the Company and the shares
offered hereby, reference is made to such registration statement, including the
exhibits and financial schedules filed as part thereof. Such information may be
inspected at the Chicago regional office of the Commission at Northwestern
Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and at the
public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies thereof may be obtained from the Commission at prescribed prices.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by reference in this Prospectus: (i) the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995; (ii)
the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996; (iii) the Company's Proxy Statement dated April 29, 1996 for the 1996
Annual Meeting of Shareholders; and (iv) the description of the Company's Common
Stock contained in the Company's Form SB-2 Registration Statement dated March
25, 1994, Registration No. 33-75152C. All documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15 of the 1934 Act after the date of
this Prospectus and prior to the termination of the offering of securities
contemplated hereby shall also be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded hereby to the extent that a
statement contained herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any or all of the documents which are incorporated by
reference into this Prospectus, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents.)
Requests for such copies should be directed to Sheldon F. Jacobs, Woodroast
Systems, Inc., 10250 Valley View Road, Suite 145, Eden Prairie, Minnesota 55344,
telephone number (612) 940-5113.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus and
in documents incorporated herein by reference. All references in this Prospectus
to numbers of shares of the Company's Common Stock give effect to the
three-for-one split of outstanding shares of Common Stock that was effected by a
distribution on January 18, 1996 of two shares for every one share held of
record as of January 4, 1996.
THE COMPANY
Woodroast Systems, Inc. (the "Company") owns and operates Shelly's
Woodroast restaurants in St. Louis Park, Minnesota, a suburb of Minneapolis (the
"St. Louis Park Restaurant") and in Rockville, Maryland, a suburb of Washington
D.C. (the "Rockville Restaurant," and together with the St. Louis Park
Restaurant, the "Restaurants"). The Shelly's Woodroast restaurant concept is an
integrated concept, involving a distinctive cooking style, menu offerings,
beverage selections and facility design. The inspiration of the concept is the
fresh, relaxed atmosphere of the northwoods, from the great fieldstone and
timber lodges to the aroma of meat, fish and fowl roasting over a hardwood fire.
The Company was incorporated in 1987 under the laws of the State of
Minnesota. Its principal executive offices are located at 10250 Valley View
Road, Suite 145, Eden Prairie, Minnesota 55344 and its telephone number is (612)
944-5113.
THE OFFERING
The 232,286 shares (the "Warrant Shares") of Common Stock being offered
by the Selling Shareholders are issuable upon the exercise of Warrants issued by
the Company. The Warrants are in two groups: (i) Warrants to purchase 200,016
shares of Common Stock for an exercise price of $.01 per share, expiring May 31,
2000, which were issued in November 1995 in connection with a private placement
of $1,000,000 of 15% Secured Promissory Notes, and (ii) a Warrant to purchase
32,270 shares of Common stock for an exercise price of $3.75 per share, expiring
January 25, 1998, that was issued on January 25, 1996 in connection with
services provided to the Company. See "Selling Shareholders." The closing high
and low bid prices of the Company's Common Stock on the Nasdaq SmallCap Market
for the quarter in which the Warrants were issued was, for the Warrants referred
to in (i) above, $5.71 to $.92 per share, and for the Warrants referred to in
(ii) above, $6.50 to $3.13 per share. The closing bid price of the Company's
Common Stock on November 7, 1995, the date that the Warrants referred to in (i)
above were issued, was $1.58 per share, and on January 25, 1996, the date the
Warrant referred to in (ii) above was issued, was $5.25 per share. The reason
that resales of Warrant Shares are being registered is to permit the Warrant
Shares to be resold by the Selling Shareholders in the public market.
Common Stock offered by Selling Shareholders........... 232,286
Common Stock outstanding after offering (1)............ 3,107,253
NASDAQ Symbol.......................................... WRSI
(1) Assumes the exercise of the Warrants. Excludes up to (i) 750,000 shares of
Common Stock issuable upon exercise of outstanding warrants issued in June 1994
in the Company's initial public offering and (ii) 225,000 shares of Common Stock
issuable under the Company's 1994 Stock Plan, of which options covering 9,000
shares were outstanding as of January 18, 1996, and (iii) 20,000 shares of
Common Stock issuable upon exercise of outstanding Director's Stock Options.
USE OF PROCEEDS
Any proceeds received by the Company upon exercise of the Warrants will
be applied to the expenses of the offering. The Company will not receive any
proceeds from sales of the Warrant Shares by the Selling Shareholders. See "USE
OF PROCEEDS."
RISK FACTORS
This offering involves substantial investment risk and the Warrant
Shares should be purchased only by persons who can afford the loss of their
entire investment. See "RISK FACTORS."
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE
AND INVOLVES A HIGH DEGREE OF RISK. INVESTORS COULD LOSE THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS, ALONG WITH THE OTHER INFORMATION SET FORTH OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, IN EVALUATING THE COMPANY, ITS BUSINESS AND PROSPECTS BEFORE
PURCHASING THE SECURITIES OFFERED HEREBY.
LACK OF PROFITABILITY; DEPENDENCE ON TWO RESTAURANTS.
The Company has been operating Shelly's Woodroast restaurants since
1987. The St. Louis Park Restaurant opened in autumn of 1989 and the Rockville
Restaurant opened in November 1995. The Company had net losses of ($415,916)and
($1,167,433) for the fiscal years ended December 25, 1994 and December 31, 1995,
respectively, and a working capital deficit of ($1,148,209) at December 31,
1995. The Company expects losses to continue for the near future.
Future revenues and profits will depend upon various factors,
including market acceptance of the Shelly's Woodroast concept and general
economic conditions. There can be no assurance of the Company's ability to
attain profitability. The Company's present sole sources of revenue are the two
Restaurants, one of which has recently opened. The Company also faces all of the
risks, expenses and difficulties frequently encountered in connection with the
operation and development of a new and expanding business. Furthermore, to the
extent that the Company's expansion strategy is successful, the Company must
manage the transition to multiple site operations, higher volume operations, the
control of overhead expenses and the addition of necessary personnel.
DEVELOPMENT OF COMPANY-OWNED RESTAURANTS; NEED FOR FINANCING.
Although the Company is in the process of exploring new locations and
has signed a letter of intent to lease a restaurant expansion site at Tyson's
Corner, Virginia, there are presently no definitive agreements to develop new
restaurants. The Company will consider opening additional Shelly's Woodroast
restaurants depending upon several factors, including the success of the
Rockville Restaurant, the costs of developing and opening new facilities and the
Company's ability to obtain additional financing if necessary. The Company
estimates that the costs of developing additional facilities will range from
$1,000,000 to $3,500,000 depending upon construction costs and the level of
landlord contributions. There can be no assurance, however, that additional
restaurants will be developed at such costs or that additional restaurants, if
developed, would be profitable.
The cost of developing, constructing and opening the Rockville
Restaurant was approximately $3,200,000, not including approximately $300,000
for pre-opening costs. Management believes that each new location should be of a
form and size suitable to the particular location. Accordingly, the Company has
not developed a standardized restaurant layout, nor obtained actual current cost
estimates for development of new restaurants.
The success of such development will also be dependent upon customer
acceptance of the Shelly's Woodroast concept in new markets. Until November
1995, the Company's operating experience has been limited to the Minneapolis-St.
Paul metropolitan area. Although the Company believes that the Shelly's
Woodroast restaurant concept has been accepted by the public in the
Minneapolis-St. Paul metropolitan market, and preliminary indications in
Rockville, Maryland suggest acceptance there, no assurance can be given that
such acceptance will be received in new markets. Successful expansion of the
Company's operations will be largely dependent upon a variety of factors, some
of which are currently unknown or beyond the Company's control, including:
customer acceptance of the Shelly's Woodroast concept; the ability of the
Company's management to identify suitable sites and to negotiate leases or
purchases of such sites; timely and economic development and construction of
restaurants; the hiring of skilled management and other personnel; the ability
of the Company's management to apply standardized policies and procedures to a
larger number of restaurants; the availability of adequate financing; the
general ability to successfully manage growth (including monitoring restaurants,
controlling costs and maintaining effective quality controls); and the general
state of the economy. There can be no assurance that the Company will be able to
open new restaurants.
The opening of Shelly's Woodroast restaurants outside of the
Minneapolis-St. Paul metropolitan market gives rise to additional expenses
associated with managing restaurants located in multiple markets. Such expenses
include: advertising in more than one market; lease rates and construction costs
which may be higher in the new markets; travel costs; and other similar
expenses. Moreover, the Company's results of operations may be adversely
affected by economic conditions in those regions and other geographic areas in
which the Company may expand. Achieving consumer awareness and market acceptance
will require substantial efforts and expenditures by the Company. An
extraordinary amount of management's time may be drawn to such matters and
result in a dilution of potential earnings.
COMPETITION; CERTAIN FACTORS AFFECTING THE RESTAURANT INDUSTRY.
The restaurant industry is highly competitive with respect to price,
service, food quality (including taste, freshness, healthfulness and nutritional
value) and location, and, as a result, has a high failure rate. There are
numerous well-established competitors, including national, regional and local
restaurant chains, possessing substantially greater financial, marketing,
personnel and other resources than the Company. There can be no assurance that
the Company will be able to respond to various competitive factors affecting the
restaurant industry. The restaurant industry is also generally affected by:
changes in consumer preferences; national, regional and local economic
conditions; and demographic trends. The performance of individual restaurants
may also be affected by factors such as traffic patterns, demographic
considerations, and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and employee benefit
costs, and the availability of experienced management and hourly employees may
also adversely affect the restaurant industry in general and the Company's
restaurants in particular. Restaurant operating costs are further affected by
increases in the minimum hourly wage, unemployment tax rates and similar matters
over which the Company has no control.
LONG-TERM, NON-CANCELABLE LEASES.
The Company leases the land under its Restaurants pursuant to
long-term, non-cancelable leases. Any additional restaurants developed by the
Company may be subject to similar long-term leases. If an existing or future
restaurant does not perform at a profitable level, and the decision is made to
close the restaurant, the Company will nonetheless be committed to perform its
obligations under the applicable lease.
GOVERNMENT REGULATION.
The restaurant business is subject to various federal, state and local
government regulations, including those relating to the sale of food and
alcoholic beverages. While the Company to date has not experienced an inability
to obtain or maintain any necessary governmental licenses, permits or approvals,
the failure to maintain food and liquor licenses could have a material adverse
effect on the Company's operating results. In addition, restaurant operating
costs are affected by increases in the minimum hourly wage, unemployment tax
rates, sales taxes and similar costs over which the Company has no control.
Since many of the Company's restaurant personnel are paid at rates based on the
federal minimum wage, increases in the minimum wage will result in an increase
in the Company's labor costs. The Company also may be subject in certain states
to "dram shop" statutes which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
served alcoholic beverages to an intoxicated person.
DEPENDENCE ON KEY PERSONNEL; LACK OF AN EXPERIENCED CHIEF FINANCIAL OFFICER;
NEED FOR ADDITIONAL MANAGEMENT.
The Company is highly dependent upon the personal efforts and
abilities of Sheldon F. Jacobs, its President and Chief Executive Officer. Mr.
Jacobs is also the Company's Chief Financial Officer, but has no accounting
background. The loss of the services of Mr. Jacobs could have a substantial
adverse effect on the Company's ability to achieve its objectives, and the
Company has not obtained key-man life insurance on his life. The Company will
need to hire other corporate level and management employees to help implement
and operate its expansion plans. The failure to obtain, or delays in obtaining,
such employees could have a material adverse affect on the Company.
ABSENCE OF DIVIDENDS.
The Company has not paid any dividends on its capital stock since its
incorporation and does not intend to pay any cash dividends in the foreseeable
future.
CONTROL BY EXISTING MANAGEMENT.
Upon the exercise of the Warrants, Mr. Jacobs will own approximately
40% of the issued and outstanding shares of the Common Stock of the Company.
Accordingly, Mr. Jacobs will be able to control the Company's affairs, including
without limitation, the sale of equity or debt securities of the Company, the
appointment of officers, and the determination of officers' salaries.
EXERCISE PRICE OF WARRANTS AND MARKET OVERHANG
The exercise price of Warrants for 200,016 of the 232,286 shares
covered by this Prospectus is the nominal amount of $.01 per share. Thus the
exercise price is not a meaningful disincentive to immediate exercise of those
Warrants. The exercise of the Warrants and resale of a significant portion of
the Warrant Shares could depress the trading price of Common Stock during the
course of the Offering.
UNDESIGNATED STOCK.
The Company's authorized capital consists of 33,333,333 shares of
capital stock. The Board of Directors, without any action by the Company's
stockholders, is authorized to designate and issue shares in such classes or
series (including classes or series of preferred stock) as it deems appropriate
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. The Company currently has
2,874,967 shares of Common Stock outstanding. No other class of common stock, or
preferred stock, is currently designated and there is no current plan to
designate or issue any such securities. The rights of holders of preferred stock
and other classes of common stock that may be issued may be superior to the
rights granted to the holders of the Common Stock. Further, the ability of the
Board of Directors to designate and issue such undesignated shares could impede
or deter an unsolicited tender offer or takeover proposal regarding the Company
and the issuance of additional shares having preferential rights could adversely
affect the voting power and other rights of holders of Common Stock.
MINNESOTA ANTI-TAKEOVER LAW.
The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of the Company, which may hinder or delay a change in control of the Company.
USE OF PROCEEDS
The exercise price of the Warrants covering 200,016 Warrant Shares is
$.01 per share (a total of $2,000.16) and the exercise price of the Warrant
covering the remaining 32,270 Warrant Shares is $3.75 per share (a total of
$121,012.50). Because it is uncertain whether the Warrant with the $3.75 per
share exercise price will ever be exercised, the gross proceeds to the Company
from exercise of the Warrants may be minimal. Because of the expenses associated
with the offering which are being paid by the Company (estimated at
approximately $8,000), the Company may not realize any net proceeds from this
offering.
The Warrant Shares will be offered solely by the Selling Shareholders
and none of the proceeds of sale thereof will be received by the Company.
SELLING SHAREHOLDERS
The 232,286 shares (the "Warrant Shares") of Common Stock being
offered by the Selling Shareholders are issuable upon the exercise of Warrants
issued by the Company. The Warrants are in two groups: (i) Warrants to purchase
200,016 shares of Common Stock for an exercise price of $.01 per share, expiring
May 31, 2000, which were issued in June 1995 in connection with a private
placement of $1,000,000 of 15% Secured Promissory Notes, and (ii) a Warrant to
purchase 32,270 shares of Common stock for an exercise price of $3.75 per share,
expiring January 25, 1998, that was issued on January 25, 1996 in connection
with services provided to the Company. The closing high and low bid prices of
the Company's Common Stock on the Nasdaq SmallCap Market for the quarter in
which the Warrants were issued was, for the Warrants referred to in (i) above,
$5.71 to $.92 per share, and for the Warrants referred to in (ii) above, $6.50
to $3.13 per share. The terms of the Warrants issued in November 1995 require
the Company to register the Warrant Shares for the benefit of the Selling
Shareholders in certain circumstances and the Company is voluntarily including
in this registration the Warrant Shares issuable under the January 1996 Warrant.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by the Selling Shareholders
as of January 1, 1996, and as adjusted to reflect the sale of the Warrant
Shares.
<TABLE>
<CAPTION>
Shares to be
Number of Maximum Beneficially
Shares Beneficially Number of Owned After
Owned Prior Shares to the Offering
Name to Offering be Sold (1) Number Percent
---- ---------------------- ----------- ------ -------
<S> <C> <C> <C> <C>
Lyle Berman............................. 100,005 100,005 -0- -0-
Daniel T. Lindsay....................... 30,003 30,003 -0- -0-
Gail Davis ......................... 20,001 20,001 -0- -0-
Zafer Yildirim.......................... 20,001 20,001 -0- -0-
Sun Tree Limited Partnership............ 15,003 15,003 -0- -0-
John Goodman............................ 100,001 10,002 89,999 3.2
Ron Fingerhut........................... 5,001 5,001 -0- -0-
Lord & Waters Construction, Inc......... 32,270 32,270 -0- -0-
</TABLE>
(1) Consists entirely of shares to be acquired by the Selling
Shareholders upon exercise of the Warrants.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholders may sell the
Warrant Shares from time to time in one or more transactions (which may include
block transactions) on the Nasdaq SmallCap Market at market prices prevailing at
the time of the sale or at prices otherwise negotiated.
The Warrant Shares may, without limitation, be sold by one or more of the
following: (i) a block trade in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (ii) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (iii) ordinary brokerage transactions and
transactions in which the broker solicits purchasers.
The Company has been advised that, as of the date hereof, the Selling
Shareholders have made no arrangement with any broker for the sale of the
Warrant Shares. Underwriters, brokers or dealers may participate in such
transactions as agents and may, in such capacity, receive brokerage commissions
from the Selling Shareholders or purchasers of such securities. Such
underwriters, brokers or dealers may also purchase Warrant Shares and resell
such Warrant Shares for their own account in the manner described above. The
Selling Shareholders and such underwriters, brokers or dealers may be considered
"underwriters" as that term is defined by the Securities Act of 1933, although
the Selling Shareholders disclaim such status. Any commissions, discounts or
profits received by such underwriters, brokers or dealers in connection with the
foregoing transactions may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Lindquist & Vennum P.L.L.P., Minneapolis,
Minnesota.
EXPERTS
The financial statements of the Company incorporated by reference in the
Registration Statement of which this Prospectus is a part have been audited by
Lund Koehler Cox and Company, PLLP, independent public accountants, as indicated
in their report with respect thereto, and are incorporated herein in reliance
upon the authority of said firm as experts in giving said report.
INDEMNIFICATION
The Company's Articles of Incorporation eliminate or limit certain
liabilities of its directors and the Company's Bylaws provide for
indemnification of directors, officers and employees of the Company in certain
instances. Insofar as exculpation of, or indemnification for, liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such exculpation or indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
