U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1996.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 0-25926
WOODROAST SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1563961
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10250 Valley View Road, Suite 145, Eden Prairie, Minnesota 55344
(Address of Principal Executive Offices)
612-944-5113
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At May 13, 1996 there were 2,874,967
shares of common stock, $0.005 par value outstanding.
WOODROAST SYSTEMS, INC.
Form 10-QSB Index
March 31, 1996
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1996 and December 31, 1995...................... 3
Consolidated Condensed Statements of Operations for the
thirteen week periods ended March 31, 1996 and
March 26, 1995............................................ 4
Consolidated Condensed Statements of Cash Flows for the
thirteen week periods ended March 31, 1996 and
March 26, 1995............................................ 5
Notes to Consolidated Condensed
Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 8
PART II: OTHER INFORMATION
Item 1: Legal Proceedings.......................................... 10
Item 6: Exhibits and Reports on Form 8-K........................... 10
Signatures .......................................................... 11
WOODROAST SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 452,762 $ 27,843
Available-for-sale securities ........................ 689 12,634
Inventories .......................................... 194,027 125,386
Due from stockholder ................................. 24,433 --
Prepaid expenses and other ........................... 101,263 95,810
----------- -----------
Total current assets .............................. 773,174 261,673
PROPERTY AND EQUIPMENT, NET ............................ 4,342,533 4,378,285
DEPOSITS ............................................... 42,863 51,085
PATENT AND TRADEMARKS, NET ............................. 9,785 10,009
----------- -----------
$ 5,168,355 $ 4,701,052
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - stockholder ........................... $ 300,000 $ 300,000
Current portion of capital leases .................... 61,812 58,234
Accounts payable ..................................... 311,806 877,438
Accrued expenses ..................................... 361,167 174,210
----------- -----------
Total current liabilities ......................... 1,034,785 1,409,882
LONG-TERM DEBT ......................................... 1,000,000 1,000,000
LESS: UNAMORTIZED DISCOUNT ............................. (319,413) (346,914)
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 185,993 115,925
----------- -----------
Total liabilities ................................. 1,901,365 2,178,893
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.005 par value, 100,000,000 shares
authorized, 2,704,967 and 2,249,967 shares
issued and outstanding .............................. 13,525 11,250
Additional paid-in capital ........................... 4,964,764 3,962,406
Accumulated deficit .................................. (1,711,299) (1,451,497)
----------- -----------
Total stockholders' equity ........................ 3,266,990 2,522,159
----------- -----------
$ 5,168,355 $ 4,701,052
=========== ===========
</TABLE>
WOODROAST SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Thirteen Weeks Ended
March 31, March 26,
1996 1995
----------- -----------
NET SALES ................................ $ 1,831,969 $ 611,712
----------- -----------
COSTS AND EXPENSES:
Food and beverage costs ................ 628,984 190,026
Restaurant operating expenses .......... 1,097,651 348,989
Depreciation and amortization .......... 104,818 32,400
General, administrative and development. 239,223 207,786
----------- -----------
Total costs and expenses ............. 2,070,676 779,201
----------- -----------
Loss from operations ................. (238,707) (167,489)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income ........................ 55 35,058
Interest expense ....................... (82,668) (6,525)
Gain on sale of assets ................. -- 3,900
Other income ........................... 61,518 --
----------- -----------
Total other income (expense) ......... (21,095) 32,433
----------- -----------
LOSS BEFORE INCOME TAXES ................. (259,802) (135,056)
Income taxes ......................... -- --
----------- -----------
NET LOSS ................................. $ (259,802) $ (135,056)
=========== ===========
NET LOSS PER COMMON SHARE ................ $ (0.11) $ (0.06)
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING ............... 2,264,472 2,250,000
=========== ===========
WOODROAST SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Thirteen Weeks Ended
March 31, March 26,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................. $ (259,802) $ (135,056)
Adjustments to reconcile net loss to
cash flows from operating activities -
Depreciation and amortization ............. 104,818 42,020
Amortization of long-term debt discount ... 27,501 --
Changes in operating assets and liabilities (387,202) (111,017)
----------- -----------
Cash flows from operating activities ... (514,685) (204,053)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of available-for-sale securities . 11,945 746,184
Purchases of property and equipment ....... (20,438) (117,636)
Construction in progress .................. -- (58,510)
Deposits used (advanced) .................. 8,222 (6,967)
----------- -----------
Cash flows from investing activities ... (271) 563,071
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on obligations under capital lease (16,353) (5,404)
Repayment of note payable - bank .......... -- (373,414)
Proceeds from stock sale net .............. 956,228 --
----------- -----------
Cash flows from financing activities ... 939,875 (378,818)
----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ....................... 424,919 (19,800)
CASH AND CASH EQUIVALENTS, BEGINNING ........ 27,843 1,280,673
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING ........... $ 452,762 $ 1,260,873
=========== ===========
WOODROAST SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated condensed financial statements be read in conjunction with
the Company's most recent audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented have been made. Operating results for the periods
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 29, 1996.
(2) LONG-TERM DEBT
In November 1995, the Company completed a private placement of $1,000,000 in
principal amount of Secured Promissory Notes (the Notes) (including $700,000 to
Company stockholders) and received net proceeds of $943,252. The Notes are
secured by substantially all Company assets and bear interest at an annual rate
of 15%, payable monthly. In addition, the holders of the Notes received warrants
to purchase an aggregate of 200,016 shares of the Company's common stock at $.01
per share. The warrants are exercisable through May 31, 2000. On the date of
issuance, the Warrants had a total value of $299,333 based on the then market
price of the Company's common stock. The discount created by the issuance costs
and warrants is being amortized over the life of the Notes using the interest
method. The approximate effective annual interest rate of the Notes is 26%. The
Notes generally require repayment of principal over a four year period beginning
January 1997, although certain reductions or accelerations of the repayment
schedule are possible if the annual gross sales of the Rockville unit are less
than $4,000,000 or greater than $7,000,000. Current maturities of the Notes,
assuming the four year amortization beginning January 1997 are $197,162 in
fiscal year 1997, $228,857 in fiscal year 1998, $265,647 in fiscal year 1999,
and $308,334 in fiscal year 2000.
(3) PRIVATE PLACEMENT OF COMMON STOCK
In March and April 1996, the Company sold 625,000 shares of its common stock in
a private placement for $2.25 per share, and received net proceeds of
approximately $1,300,000. The Company plans to use the net proceeds from this
private placement of common stock to pay debt and trade payables and to provide
working capital for general corporate purposes.
(4) LOSS PER COMMON SHARE
Primary and fully diluted loss per common share are determined by dividing net
loss by the weighted average number of common shares outstanding during each
period. Primary and fully diluted loss per share are the same.
(5) INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", under which deferred income tax assets and
liabilities are recognized for the differences between financial and income tax
reporting basis of assets and liabilities based on currently enacted rates and
laws. The Company has incurred cumulative net operating losses for both
financial reporting and income tax purposes. As of December 31, 1995, the
Company had net operating loss carryforwards of approximately $1,430,000, which,
if not used, will begin to expire in 2010. Future changes in the ownership of
the Company may place limitations on the use of these net operating loss
carryforwards. The Company has recorded a full valuation allowance against the
net deferred tax asset due to the uncertainty of realizing the related benefits.
(6) COMMITMENTS AND CONTINGENCIES
LITIGATION - The Company is involved in legal actions in the ordinary course of
its business. While no reasonable estimates of potential liability can be
determined, management believes such legal actions will be resolved without a
material effect on the Company's financial position or results of operations.
WOODROAST SYSTEMS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was organized in 1987 to develop Shelly's Original Woodroast
Restaurants. The Company has operated a restaurant in St. Louis Park, Minnesota,
since 1989, and a restaurant in Rockville, Maryland, since November 1995. The
successful operation of the Rockville restaurant and future expansion by the
Company will depend on various factors, including market acceptance of the
Shelly's Woodroast concept and general economic conditions. 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. The Company had losses of $259,802 for the thirteen week
period ended March 31, 1996, and expects losses to continue for the near future.
The Company uses a 52/53 week fiscal year ending on the last Sunday of December.
Fiscal year 1996 will be a 52 week year, while fiscal year 1995 was a 53 week
year.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED MARCH 31, 1996 AND MARCH 26,
1995
The restaurant located in St. Louis Park, Minnesota, had net sales for the
thirteen weeks ended March 31, 1996 of $651,477 or a 7.5% increase of $45,765
from $605,712 for the thirteen weeks ended March 26, 1995. The restaurant
located in Rockville, Maryland, that opened for business on November 20, 1995,
had net sales for the thirteen weeks ended March 31, 1996 of $1,180,492.
The food, beverage and other direct costs related to the operation of the St.
Louis Park, Minnesota, restaurant for the thirteen weeks ended March 31, 1996
were $596,308 or a 4.3% increase of $24,893 from $571,415 for the thirteen weeks
ended March 26, 1995. The food, beverage and other direct costs related to the
operation of the Rockville, Maryland, restaurant for the thirteen weeks ended
March 31, 1996 were $1,235,145. Due to costs associated with opening the
Rockville restaurant, a loss from operations occurred. In addition to expected
costs, including staff training and promotion, additional unanticipated costs
were incurred for expansion of the restaurant's kitchen and training of
additional management to meet unforeseen peak demand. These and other cost
control issues have been addressed by management and a program to increase sales
has been undertaken. However, no assurance can be given that these efforts will
achieve desired results by year end.
Other expenses were $21,095, net, for the thirteen weeks ended March 31, 1996,
compared to other income of $32,433 for the thirteen weeks ended March 26, 1995.
These increased expenses are attributable primarily to increased interest costs.
LIQUIDITY AND CAPITAL RESOURCES
During the past two fiscal years, the Company's capital requirements have been
met principally through the public and private sale of debt and equity
securities. In June 1994, the Company completed an Initial Public Offering of
750,000 units consisting of 750,000 shares of Common Stock, and 750,000
Redeemable Class A Warrants at an offering price of $5.50 per unit and received
net proceeds of approximately $3,360,000 after approximately $765,000 in
offering costs and underwriting discounts. Such net proceeds had been fully
utilized by December 31, 1995, for the development and opening of the Rockville
restaurant, and for the reduction of debt and trade payables.
The Company had a working capital deficit of $265,612 at March 31, 1996,
compared to a working capital deficit of $1,148,209 at December 31, 1995. Cash,
cash equivalents and available-for-sale securities were $452,762 at March 31,
1996, representing an increase of $424,919 from $27,843 at December 31, 1995.
These increases are attributable to proceeds from the private placement of
common stock in March 1996.
In November 1995, the Company completed a private placement of Units consisting
of $1,000,000 in principal amount of 15% Secured Promissory Notes (the Notes)
and warrants (the Warrants) to purchase an aggregate 200,016 share of Common
Stock. The Notes are secured by a senior interest in substantially all assets
owned by the Company and its subsidiary. Property leased by the Company and its
subsidiary, including real estate and certain equipment, is not included in the
security interest. The Warrants have an exercise price of $.01 per share and are
exercisable at any time throughout May 31, 2000. Holders of Warrants or Warrant
shares have certain piggyback registration rights through May 31, 2002.
The Notes bear interest at 15%, payable monthly following the opening of the
Rockville restaurant. The effective annual interest rate, after considering the
value of the Warrants, is approximately 26%. The repayment schedule of the Notes
is dependent on the gross revenues of the Rockville restaurant during its first
year of operations: (A) If the gross revenues of the Rockville restaurant during
the first operating year are $4 million or greater, equal monthly installments
of principal and interest, amortized over a four year period, are payable
beginning in the second month following the end of the first operating year and
ending 47 months thereafter, when any unpaid principal and interest is payable
in full. (B) If the gross revenues of the Rockville restaurant during the first
operating year are less than $4 million, then only interest is payable through
July 1, 1998; thereafter, equal monthly installments of principal and interest,
amortized over an eight year period, are payable beginning August 1, 1998 and
continuing thereafter until July 1, 2006, when any unpaid principal and interest
is payable in full. (C) In addition, if the gross revenues of the Rockville
restaurant exceed $7 million for any operating year, the Company is obligated to
make a prepayment on the Notes of $25,000 for every $100,000 of the original
principal amount of the Note (but not to exceed the then-outstanding principal
balance), payable within two months after the end of such operating year. The
private placement of Units resulted in net proceeds of approximately $940,000
which were used to fund construction expenses and other costs related to the
opening of the Rockville restaurant.
The proceeds from the private placement included $200,000 in cash received in
October 1995 pursuant to a bridge loan financing by Lyle Berman, pursuant to
which the Company and its subsidiary granted to Mr. Berman a security interest
in the assets of the Company's restaurant in St. Louis Park, Minnesota. This
bridge financing was included in the private placement of Notes and Warrants in
November 1995 described above, and the bridge loan agreements were canceled at
that time. In December 1995, Mr. Berman made an additional $300,000 loan to the
Company, which was due and paid in April 1996. The Note carried interest at 15%.
In March and April 1996, the Company sold 625,000 shares of its Common Stock in
a private placement for $2.25 per share, and received net proceeds of
approximately $1,300,000. Holders of such shares have certain piggyback
registration rights. The net proceeds from the private placement of Common Stock
have been and will be used to pay debt and trade payables and to provide working
capital for the general corporate purposes.
The Company will require additional financing to implement its expansion plans.
There is no assurance that additional financing will be available, or if
available, will be on terms acceptable to the Company. The Company believes that
it can repay its existing indebtedness from cash flow from operations or will be
able to obtain new financing when such indebtedness is due. However, there can
be no assurance that cash flow from operations will be sufficient or that new
financing will be available.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in legal proceedings arising in the
ordinary course of its business. The Company does not believe any such
legal proceedings will have a material adverse impact on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period
ended March 31, 1996.
Exhibit 27 - Financial Data Schedule - which is only submitted
electronically to the Securities and Exchange Commission for
EDGAR information purposes.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Woodroast Systems, Inc.
/s/ SHELDON F. JACOBS
(Registrant) by Sheldon F. Jacobs
Chairman of Board,
Chief Executive Officer and
Chief Financial Officer
(Principal Financial and Accounting
Officer, Principal Executive Officer)
Date: May 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 452,762
<SECURITIES> 689
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 194,027
<CURRENT-ASSETS> 773,174
<PP&E> 5,213,344
<DEPRECIATION> 870,811
<TOTAL-ASSETS> 5,168,355
<CURRENT-LIABILITIES> 1,034,785
<BONDS> 866,580
0
0
<COMMON> 13,525
<OTHER-SE> 3,253,465
<TOTAL-LIABILITY-AND-EQUITY> 5,168,355
<SALES> 1,831,969
<TOTAL-REVENUES> 1,893,542
<CGS> 628,984
<TOTAL-COSTS> 2,070,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,668
<INCOME-PRETAX> (259,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (259,802)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
