<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO Section 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[__] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NO. 0-23936 (CA)
----------------------------
JAVA CENTRALE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0268780
- ---------------------------------- --------------------
(STATE OF OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CALIFORNIA 95815
- --------------------------------------- --------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (916) 568-2310
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES 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. ___.
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE. AS OF NOVEMBER 14, 1997,
23,005,044 SHARES OF COMMON STOCK (NO PAR VALUE) WERE OUTSTANDING.
1
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
1997 1997
------------ -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 414,000 $ 351,000
Notes receivable - current 274,000 448,000
Accounts receivable, net 515,000 592,000
Inventories 291,000 314,000
Prepaid expenses and other 164,000 397,000
------------ -----------
Total current assets 1,658,000 2,102,000
PROPERTY AND EQUIPMENT, NET 2,514,000 2,781,000
NOTES RECEIVABLE 265,000 990,000
NOTES RECEIVABLE-OFFICER 225,000 241,000
DEFERRED CHARGES AND OTHER 357,000 317,000
INVESTMENT 547,000 547,000
INTANGIBLE ASSETS 3,891,000 4,041,000
------------ -----------
$ 9,457,000 $11,019,000
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,274,000 $ 1,124,000
Accrued liabilities 727,000 619,000
Due to related parties 165,000 44,000
Current maturities of long-term debt 3,082,000 1,946,000
Convertible debt - 1,197,000
Current capital lease obligations 28,000 28,000
------------ -----------
Total current liabilities 5,276,000 4,958,000
DEFERRED REVENUES 515,000 576,000
CONVERTIBLE DEBT - 249,000
CAPITAL LEASES 84,000 96,000
OTHER LIABILITIES 97,000 70,000
STOCKHOLDERS' EQUITY:
Common stock, no par, 25,000,000 shares
authorized, issued and outstanding shares;
22,005,044 at September 30, 1997, and
13,743,804 at March 31, 1997
19,317,000 18,508,000
Accumulated deficit (15,832,000) (13,438,000)
------------ -----------
3,485,000 5,070,000
------------ -----------
$ 9,457,000 $ 11,019,000
------------ -----------
------------ -----------
The accompanying notes are an integral part of these statements.
2
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Company cafe sales $ 2,259,000 $ 3,542,000 $ 4,444,000 $ 7,556,000
Franchise operations 54,000 123,000 104,000 203,000
Royalties 318,000 317,000 616,000 614,000
Sales of equipment and supplies 18,000 10,000 33,000 108,000
------------ ----------- ------------ ------------
Total revenue 2,649,000 3,992,000 5,197,000 8,481,000
Cost of company sales:
Food and beverage 776,000 1,230,000 1,520,000 2,652,000
Labor 791,000 1,259,000 1,556,000 2,745,000
Direct and occupancy 514,000 701,000 1,011,000 1,564,000
Cost of equipment and supplies 6,000 1,000 24,000 102,000
Depreciation 120,000 162,000 240,000 321,000
Other 42,000 41,000 42,000 90,000
------------ ----------- ------------ ------------
Total cost of company sales 2,249,000 3,394,000 4,393,000 7,474,000
Selling, general and administrative 1,122,000 1,009,000 2,061,000 2,112,000
Depreciation and amortization 103,000 160,000 207,000 319,000
Loss associated with cart and cafe closure 475,000 130,000 475,000 129,000
Bad debt expense 50,000 - 123,000 -
Settlement expense 31,000 - 55,000 -
Loss (gain) on sale of cafes - 30,000 - (36,000)
------------ ----------- ------------ ------------
Total operating loss (1,381,000) (731,000) (2,117,000) (1,517,000)
Other income (expense):
Interest expense (223,000) (90,000) (332,000) (178,000)
Interest income 12,000 25,000 41,000 48,000
Other income 9,000 48,000 14,000 136,000
------------ ----------- ------------ ------------
Net loss $(1,583,000) $ (748,000) $(2,394,000) $ (1,511,000)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Net loss per weighted average equivalent
common share outstanding $ (0.10) $ (0.07) $ (0.16) $ (0. 15)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Equivalent common shares outstanding 16,502,573 10,946,633 15,439,364 9,985,470
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30,
1997 1996
---------- ------------
<S> <C> <C>
Increase (decrease) in cash
Net cash flows from operating activities: $(195,000) $(1,138,000)
---------- ------------
Cash flows from investing activities:
Purchase of property and equipment (30,000) (200,000)
Proceeds from the sale of assets - 351,000
---------- ------------
Net cash provided by (used in) investing activities (30,000) 151,000
---------- ------------
Cash flows from financing activities:
Proceeds from warrant conversions 142,000 -
Proceeds from the issuance of common stock 272,000 963,000
Proceeds from short term borrowings and
capital lease obligations 225,000 815,000
Principal payment on notes payable and
capital lease obligations (351,000) (475,000)
---------- ------------
Net cash provided by (used in) financing activities 288,000 1,303,000
---------- ------------
Net (decrease) in cash 63,000 316,000
---------- ------------
Cash and cash equivalents, beginning of period $ 351,000 $ 1,182,000
---------- ------------
Cash and cash equivalents, end of period $ 414,000 $ 1,498,000
---------- ------------
---------- ------------
Cash paid for:
Interest $ 149,000 $ 205,000
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NON-CASH TRANSACTIONS:
During the six months ended September 30, 1997, the Company decreased
deferred revenues through accounts and notes receivable totaling $70,000, and
during the six months ended September 30, 1996, the Company increased deferred
revenues through accounts and notes receivable totaling $290,000.
During the six months ended September 30, 1996, the Company terminated
eight franchise agreements, refunded $28,000, and canceled $45,000 in notes
associated with franchise fees.
During the six months ended September 30, 1997, the holders of the
convertible debt converted $446,000 of the notes into 2,386,226 common shares of
stock pursuant to the terms of the notes. During the six months ended September
30, 1996, the holders of the convertible debt converted $1,750,000 of the notes
into 2,580,194 shares of common stock pursuant to the terms of the notes.
During the fiscal year ended March 31, 1997 the Company issued 200,000
shares of common stock valued at $50,000 pursuant to a consulting agreement.
During the six months ended September 30, 1997, the Company recognized
consulting expense of $42,000 as a result of issuance of these shares.
During the fiscal year ended March 31, 1997, the Company issued warrants
valued at $240,000 pursuant to consulting agreements. During the six months
ended September 30, 1997, the Company recognized consulting expenses of $102,000
as a result of issuance of these warrants.
During the six months ended September 30, 1997 and September 30, 1996 the
Company expensed $447,000 and $640,000, respectively, for depreciation and
amortization.
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Sale of certain assets of Java Centrale, Inc., and subsidiary for the six
months ended September 30, 1996.
Cash received $ 351,000
Note receivable 604,000
Liabilities assumed 69,000
Net book value of assets sold (988,000)
---------
Gain on sale of assets $ 36,000
---------
---------
5
<PAGE>
JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared without audit and do not
include certain notes and certain financial presentations normally required
under generally accepted accounting principles and, therefore, should be read in
conjunction with the Company's financial statements included with the Annual
Report, on Form 10-K filed with the Security and Exchange Commission for the
fiscal year ended March 31, 1997. It should be understood that accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operation for the six months ended September
30, 1997 are not necessarily indicative of results that can be expected for the
full fiscal year.
The September 30, 1997 financial statements included herein are unaudited.
They contain, however, all adjustments which in opinion of management, are
necessary to present fairly the financial position of the Company as of
September 30, 1997 and March 31, 1997; and the results of its operations and its
cash flows for the six months ended September 30, 1997 and 1996 respectively.
Certain reclassifications have been made to the 1996 financial statement to
conform to the 1997 presentation.
NOTE 2 - STOCKHOLDERS' EQUITY
A. CONVERSION OF CONVERTIBLE DEBT.
The Company issued, through private placements, convertible notes in the
amount of $3,500,000.
The first note, in the amount of $2,000,000, was due on December 15, 1997,
with interest payable quarterly beginning on March 15, 1996, at the rate of 8%
per year. The note was convertible into common stock of the Company after
February 26, 1996, under certain terms and conditions. As of September 30,
1997, $1,000,000 had been converted into 1,846,394 shares of common stock. The
remaining principal balance of $1,000,000 was restructured to remove the
conversion feature in July 1997. The restructured note is due no later than
January 1, 1998. Paradise Bakery, Inc. common shares have been pledged as
collateral and $250,000 has been added to the principal balance of the note as
consideration for the elimination of the conversion feature of the note.
The second series of notes, in the amount of $1,500,000, was due January 29,
1998, with interest payable quarterly beginning on March 15, 1996, at the rate
of 8% per year. These notes were convertible into common stock of the Company
after April 12, 1996, under certain terms and conditions. As of September 30,
1997, the entire $1,500,000 had been converted into 3,851,029 common shares.
B. WARRANTS EXERCISED
In May 1997 warrants were exercised for 575,000 common shares of stock for
proceeds of $142,000.
In September 1996 warrants were exercised for 250,000 shares of common
stock for proceeds of $63,000.
6
<PAGE>
C. ISSUANCE OF ADDITIONAL COMMON SHARES
In August 1997 the Company entered into an agreement to raise equity
capital through a private placement. From September through October 1997, 25
units, representing 6,250,000 common shares, were sold providing net proceeds of
$544,000 to the Company.
During the six months ended September 30, 1996, the Company completed
certain private placements of restricted common shares resulting in the issuance
of 1,538,462 common shares for net proceeds of $900,000.
D. SALE OF ASSETS
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and a $750,000 convertible note receivable due in 1999. On March 31,
1997, the Company agreed with GFF to exchange $250,000 of the convertible note
receivable for the assumption of certain liabilities of the Company, exchange
233,333 preferred shares for 233,333 shares of common stock, accelerate a
payment of $145,000 due under the note receivable to May 1997 and convert the
remaining $355,000 balance of the note into 40,000 shares of GFF common stock.
The common shares of GFF as of September 30, 1997 have been valued at $2.00 per
share based on the estimated fair value of such shares at the time they were
acquired.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company began operations on March 5, 1992, and operated as a
development stage enterprise through the end of its fiscal year ended March 31,
1993. As a development stage enterprise, the Company focused its efforts on
financial planning, raising capital, research and development, establishing
sources of supply, developing markets, organizing the corporation, acquiring
assets, and developing its business plan. During this time, the Company
completed the filing of its Uniform Franchise Offering Circulars.
The Company has never earned a profit in any fiscal year. Since its
incorporation in 1992, the Company's operations have required (rather than
provided) cash every year. In order to meet these cash requirements, the
Company has from time to time sold common stock, borrowed short-term money, sold
company assets and issued convertible debt. The Company recorded a loss in the
development stage during its first fiscal year of operation and since principal
operations commenced, has recorded losses for the fiscal years ended March 31,
1993, 1994, 1995, 1996 and 1997. The net loss for fiscal 1997 was $5,326,000.
For the six months ended September 30, 1997, a loss of $2,394,000 was recorded.
There can be no assurance that losses will not continue, or that the Company, as
currently structured, will become profitable in the future. The Company has an
accumulated deficit of $13,438,000 and $15,832,000 as of March 31, 1997 and
September 30, 1997, respectively. In the fiscal year ended March 31, 1997, the
Company sold assets, raised debt and sold equity, and reduced expenses to meet
its ongoing liquidity needs. During the six months ended September 30, 1997,
the Company had warrants exercised, borrowed short-term funds and sold equity to
meet ongoing liquidity needs. Currently the Company has a material working
capital shortfall.
During fiscal 1997 and to date, the Company has been operating at a loss
primarily due to the under performance of the cafes in its Java Centrale system
and to its administrative overhead. Commencing in April 1996, the Company
instituted a plan to reduce its administrative expenses, but this plan has not
been successful enough to cause the Company to become profitable. Further, the
Company's Java Centrale system has, in general, not grown as fast or proved to
be as profitable as expected, and the Company has experienced higher than
anticipated expenses in pursuing the development of these cafes, the closing of
certain outlets in this system, and settling disputes with franchisees.
Currently the Paradise Bakery system accounts for 95% of the revenues received
by the Company. The Company's continuing operating losses have left it in a
materially weak cash-flow position, one effect of which has been that the
Company has been unable to develop its more profitable Paradise Bakery system as
rapidly and extensively as it has planned to do.
Since April of 1996, the Company has relied on a series of short-term loans
from Alta Petroleum, Inc. in the aggregate amount of $775,000, sale of assets
totaling $1,321,000, the raising of $1,525,000 in equity, and the exercising of
warrants totaling $205,000 to finance its continuing cash flow shortfalls. There
can be no assurance that any similar financing, asset sales or equity placements
will continue to be available to the Company in the future. Consequently, under
current circumstances the Company does not anticipate that it will be able to
continue existing operations in the future unless it can obtain new short-term
or long-term financing, raise new equity or execute a significant sale of
assets. The Company's Board of Directors is currently evaluating a number of
options for the resolution of its immediate and long-term financial needs,
including among other potential alternatives the sale of its Java Centrale
and/or Paradise Bakery systems, obtaining a long-term loan secured by its
Paradise Bakery assets, a private and/or public sale of Company stock and/or
other securities, and a strategic merger. Some of the alternatives currently
being studied by the Company's Board of Directors might result in a change in
the management and/or control of the Company. However to date, there has been
no final resolution of these issues.
Over the last year, the Company's financing plan to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
In August of 1997, the Company retained E.C. Capital Ltd. ("ECC"), a New York
based investment-banking firm, to raise equity capital in a two-stage private
offering (the "ECC Offering").
8
<PAGE>
In both stages, the Company would issue to investors units consisting of
250,000 shares of common stock, 250,000 "A" and "B" Warrants. The "A"
Warrants have a term of two years from the date of issuance and may be
exercised to purchase shares of common stock at a per share exercise price of
$0.16. The "B" Warrants have a three-year term and may be exercised to
purchase shares of common stock at a price per share of $0.20. The offering
price for each full unit in the first stage of the ECC Offering is $25,000.
ECC has undertaken to place 25 units in the first stage of the ECC Offering
and 35 units in the second and final stage. The issuance of the "A" and "B"
Warrants is subject to approval by the Company's Board of Directors and
shareholders of (i) an amendment to the Company's Articles of Incorporation
increasing its authorized number of shares of common stock from 25,000,000 to
50,000,000, (ii) effecting a one for ten reverse stock split of the
outstanding shares of common stock, and (iii) moving the Company's state of
incorporation from California to Delaware. In the event that such approval
is not obtained, then no "A" or "B" Warrants will be issued to or exercisable
by purchasers of the units, nor will there be any reduction in the purchase
price per unit. The Company has agreed to pay ECC a 10% commission on all
sales of units and a 3% non-accountable expense reimbursement. Additionally
the Company must issue to ECC 250,000 "A" and "B" Warrants, on a post-Reverse
Stock Split basis, as a partial compensation for its efforts in completing
the first stage of the ECC Offering and a equal number of Warrants in
connection with the second stage, for a total of 1,000,000, post-Reverse
Stock Split, warrants in all. The Company has also agreed to retain ECC as
an advisor for the next three years at a fee of $3,000 per month and to pay
ECC a 5% warrant solicitation fee for any of the investor warrants which are
exercised. The Company has also agreed not to raise debt or equity financing
during this three-year period other than with consent of ECC and to allow a
ECC designee to observe all meetings of the Company's Board of Directors.
Further, all of the Company's officers and directors have executed lock-up
agreements with ECC whereby they have agreed not to transfer, assign, sell or
otherwise dispose of any of their Company shares, except with the consent of
ECC, until at least one year after the effective date of the registration
statement. As of November 14, 1997 there have been 25 units placed totaling
6,250,000 common shares and net proceeds of $544,000.
As of September 30, 1997, the Company operates under two brands, Java
Centrale and Paradise Bakery and Cafe as compared to September 30, 1996, which
the Company was operating under three brands, Java Centrale, Oh La La! and
Paradise Bakery and Cafe. The following table represents the Company's
operations at September 30, 1997, and September 30, 1996:
Operating Units as of September 30, 1997
- --------------------------------------------------------------------------------
Cafe Carts/ Kiosks
-------------------------- ------------------------
Company Franchised Company Franchised
------- ---------- ------- ----------
Java Centrale 1 23 - 8
Oh La La! - - - -
Paradise Bakery 16 32 - -
------- ---------- ------- ----------
Total 17 55 - 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operating Units as of September 30, 1996
Cafe Carts/ Kiosks
-------------------------- ------------------------
Company Franchised Company Franchised
------- ---------- ------- ----------
Java Centrale 2 20 - 8
Oh La La! 10 - 1 -
Paradise Bakery 16 35 - -
------- ---------- ------- ----------
Total 28 55 1 8
- --------------------------------------------------------------------------------
9
<PAGE>
The Company entered into agreements with franchisees to open three cafes
during the quarter ended September 30, 1997, as compared to entering into
agreements with franchisees to open five cafes during the quarter ended
September 30, 1996. The Company entered into agreements with franchisees to
open three cafes during the six months ended September 30, 1997, as compared to
entering into agreements to open 10 cafes during the six months ended September
30, 1996.
The Company opened one franchisee-owned cafe during the quarter ended
September 30, 1997, as compared to opening two franchisee-owned cafes during the
quarter ended September 30, 1996. The Company opened three franchisee-owned
cafes during both the six months ended September 30, 1997, and September 30,
1996.
The Company closed no Company-owned cafes in the quarter ended September
30, 1997, as compared to closing one Company-owned cafe in the quarter ended
September 30, 1996. The Company closed one Company-owned cafe, which was
operated under a management agreement, and two franchisee-owned cafes in the
six months ended September 30, 1997, as compared to closing two Company-owned
cafes and one franchisee-owned cafe during the six months ended September 30,
1996. These cafes closed primarily due to poor financial performance.
The Company sold no Company-owned locations to franchisees during the
quarter ended September 30, 1997, as compared to selling two Company-owned
locations during the quarter ended September 30, 1996. During the six months
ended September 30, 1997, the Company sold no Company-owned locations as
compared to selling five Company-owned cafes to franchisee and three
Company-owned carts to a licensee for the six months ended September 30, 1996.
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. for $1,250,000 in cash, 233,333 shares of preferred stock
and a $750,000 convertible note receivable due in 1999. The assets included ten
operating locations and a cart licensee. On March 31, 1997, the Company agreed
with GFF to exchange $250,000 of the convertible note receivable for the
assumption of certain liabilities of the Company, exchange 233,333 preferred
shares for 233,333 shares of common stock, accelerate a payment of $145,000 due
under the note receivable to May 1997 and convert the remaining $355,000 balance
of the note into 40,000 shares of GFF common stock. The common shares of GFF at
September 30, 1997 have been valued at $2.00 per share based on the estimated
fair value of such shares at the time they were acquired. As of September 30,
1997, the Company owned approximately 30% of the outstanding common shares of
GFF. The Company did not recognize any earnings from GFF under the equity
method of accounting due to immateriality.
In August 1997, Directors Lyle Edwards and Kevin Baker resigned from the
Board of Directors of Java Centrale, Inc. The board has appointed Bradley B.
Landin, the Senior Vice President of Operations for the Company, as a
director to fill a vacancy. Additionally, Richard D. Shannon, Chairman of
the Board, has announced that he will not be running for re-election this
year. At the annual stockholder's meeting, which will be held on November
25, 1997, there will be an election to fill the vacancies on the Board
including a new Chairperson.
RESULTS OF OPERATIONS
The Company's revenues are currently derived from Company-owned locations,
initial franchise fees, resulting from cafe openings, franchise royalties,
equipment sales, and product overrides on sales to its franchisees. Franchise
fees range from $15,000 to $35,000 per cafe. The Company is entitled to 4%-6%
of the gross receipts from each franchised cafe and 2%-10% of the gross receipts
from each franchised cart. Product overrides range from 3% to 10% of the total
purchase of coffee from the Company's contract roaster. The Company operates
under two brands, Java Centrale and Paradise Bakery and Cafe. Currently 95% of
the Company's revenues are results from the Paradise Bakery & Cafe brand.
QUARTER 1997 AS COMPARED TO QUARTER 1996
10
<PAGE>
Total Company revenues for the quarter ended September 30, 1997 totaled
$2,649,000, as compared to $3,992,000 for the quarter ended September 30, 1996,
a decrease of $1,343,000, or 34%. The principal components of this decrease
were:
The Company's revenues from Company-owned retail operations decreased by
$1,283,000 or 36%, to $2,259,000 for the quarter ended September 30, 1997, from
$3,542,000 for the quarter ended September 30, 1996. This decrease resulted
primarily from a decrease of $987,000 associated with revenues from the Oh La
La! Division, which was sold in December 1996, a decrease of $232,000 associated
with the revenues from the operations of Company-owned cafes which were closed
or sold, during fiscal year 1997, and a decrease in revenues from the
Company-owned Paradise Bakery locations of approximately $64,000.
Revenues from the Company's franchising operations decreased $69,000, or
56% to $54,000 for the quarter ended September 30, 1997, from $123,000 for the
quarter ended September 30, 1996. This decrease is a result of recognized
franchise fees of $25,000 associated with the transfer of one Java Centrale
franchisee-owned cafe and $29,000 associated with the opening of one Paradise
Bakery franchisee-owned cafe for the quarter ended September 30, 1997, as
compared to the recognition $108,000 in franchise fees associated with both the
opening of one Java Centrale franchise-owned cafe and the sale of two Java
Centrale Company-owned cafes to a franchisee in addition to $15,000 associated
with the opening of one franchisee-owned Paradise Bakery cafe during the quarter
ended September 30, 1996.
Revenues from the Company's royalties of $318,000 for the quarter ended
September 30, 1997 and $317,000 for the quarter ended September 30, 1996,
remained virtually the same. Royalties associated with Java Centrale decreased
$6,000 to $102,000 for the quarter ended September 30, 1997, as compared to
$108,000 for the quarter ended September 30, 1996, due to the closure of
franchisee-owned cafes. Additionally, royalties associated with Paradise Bakery
increased $7,000 to $216,000 for the quarter ended September 30, 1997, as
compared to $209,000 for the quarter ended September 30, 1996, due to increased
revenues from franchisee-owed cafes.
Revenues from the Company's equipment sales increased $8,000 to $18,000 for
the quarter ended September 30, 1997 from $10,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.
Total expenses for the quarter ended September 30, 1997, were $4,030,000 a
decrease of $691,000, or 15%, over expenses of $4,721,000 for the quarter ended
September 30, 1996. The principal components of the decrease in expenses
resulted from:
The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $1,109,000 for the quarter ended September 30, 1997,
to $2,081,000 as compared to $3,190,000 for the quarter ended September 30,
1996. This decrease results primarily from a decrease of $813,000 in expenses
associated with the operating Oh La La! Division, which was sold in December
1996, a decrease in expenses of $306,000 associated with the operations of
Company-owned cafes, which was sold or closed during the fiscal year ended March
31, 1997, and approximately $10,000 associated with increased operating costs
associated with the operation of the Paradise Bakery Company-owned locations.
The Company's cost of equipment increased by $5,000 in the quarter ended
September 30, 1997, to $6,000 as compared to $1,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.
Selling, general, and administrative expenses increased $113,000 or 11%,
during the quarter ended September 30, 1997, to $1,122,000 from $1,009,000
during the quarter ended September 30, 1996. This increase results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $42,000, decreased personnel cost of
$52,000, decreased marketing costs of $14,000, decreased travel expense of
$20,000, increased legal and accounting fees of $120,000 and
11
<PAGE>
increased investor relations of $30,000. Additionally, there were increased
consulting fees of $95,000, of which $29,000 was associated with the
Companies capital raising efforts.
For the quarter ended September 30, 1997, the Company had an operating loss
of $1,381,000, a net loss of $1,583,000, and a loss per share of $0.10, as
compared to an operating loss of $731,000, a net loss of $748,000, and a loss
per share of $0.07 for the quarter ended September 30, 1996.
The operating loss increased $650,000 to $1,381,000 during the quarter
ended September 30, 1997 as compared to $731,000 during the quarter ended
September 30, 1996. The increase is a result of decreased revenues and cost of
company sales totaling $198,000, higher selling, general and administrative
expenses totaling $113,000, decreased depreciation and amortization of $57,000
from the sale of the Oh La La! Division, increased losses associated with a cafe
closure of $345,000, increased settlement expense of $31,000, bad debt expense
of $50,000 associated with certain franchisees related notes and royalties, and
no gain from the sale of assets during the quarter ended September 30, 1997, as
compared to a loss from the sale of assets of $30,000 during the quarter ended
September 30, 1996.
The net loss increased $835,000 to $1,583,000 during the quarter ended
September 30, 1997, as compared to $748,000 during the quarter ended September
30, 1996. The increased net loss of is primarily a result of the above
increased operating loss of $650,000, and an increase in interest expense and
fees associated with the Company's financing of $133,000, and associated with
both the sale of the Oh La La! Division and the sale and closure of cafes,
interest income decreased $13,000 and other income decreased $39,000.
SIX MONTHS ENDED 1997 AS COMPARED TO SIX MONTHS ENDED 1996
Total Company revenues for the six months ended September 30, 1997, totaled
$5,197,000, as compared to $8,481,000 for the six months ended September 30,
1996, a decrease of $3,284,000, or 39%. The principal components of this
decrease were:
The Company's revenues from Company-owned retail operations decreased by
$3,112,000 or 41%, to $4,444,000 for the six months ended September 30, 1997,
from $7,556,000 for the six months ended September 30, 1996. This decrease
resulted primarily from a decrease of $1,939,000 associated with revenues from
the Oh La La! Division, which was sold in December 1996, a decrease of $931,000
associated with the revenues from the operations of Company-owned cafes which
were closed or sold, during the fiscal year 1997 and a decrease in revenues from
the Company-owned Paradise Bakery locations of approximately $242,000.
Revenues from the Company's franchising operations decreased $99,000, or
49% to $104,000 for the six months ended September 30, 1997, from $203,000 for
the six months ended September 30, 1996. This decrease is a result of
recognized franchise fees totaling $75,000 associated with the opening of two
Java Centrale franchisee-owned cafes and the transfer of one Java Centrale
franchisee-owned cafe in addition to $29,000 associated with the opening of one
Paradise Bakery franchisee-owned cafe for the six months ended September 30,
1997, as compared to the recognition $148,000 in franchise fees associated with
the opening of one Java Centrale franchise-owned cafe, the sale of two Java
Centrale Company-owned cafes to a franchisee and forfeited franchise fees, in
addition to $55,000 associated with the sale of two Paradise Bakery
Company-owned cafes to a single franchisee and the opening of one Paradise
Bakery franchisee-owned cafe during the six months ended September 30, 1996.
Revenues from the Company's royalties of $616,000 for the six months ended
September 30, 1997, and $614,000 for the fiscal year ended September 30, 1997,
remained virtually the same. Royalties associated with Java Centrale decreased
$33,000 to $181,000 for the six months ended September 30, 1997, as compared to
$214,000 for the six months ended September 30, 1996, due to the closure of
franchisee-owned cafes. Additionally royalties associated with Paradise Bakery
increased $35,000 to $435,000 for the six months ended September 30, 1997, as
compared to $400,000 for the six months ended September 30, 1996 due to the
increases in revenues from franchisee-owed cafes.
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Revenues from the Company's equipment sales decreased $75,000, or 69%, to
$33,000 for the six months ended September 30, 1997 from $108,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.
Total expenses for the six months ended September 30, 1997, were
$7,314,000, an decrease of $2,684,000, or 27%, over expenses of $9,998,000 for
the six months ended September 30, 1996. The principal components of the
decrease in expenses resulted from:
The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $2,874,000, or 41% for the six months ended
September 30, 1997, to $4,087,000 as compared to $6,961,000 for the six months
ended September 30, 1996. This decrease results primarily from a decrease of
$1,672,000 in expenses associated with operating the Oh La La! Division, which
was sold in December 1996, a decrease in expenses of $964,000 associated with
the operations of Company-owned cafes, which were sold or closed during the
fiscal year ended March 31, 1997, and approximately $238,000 associated with
decreased operating costs associated with the operation of the Paradise Bakery
Company-owned locations.
The Company's cost of equipment decreased by $78,000, or 76%, for the six
months ended September 30, 1997, to $24,000, as compared to $102,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.
Selling, general, and administrative expenses decreased $51,000 or 2%,
during the six months ended September 30, 1997, to $2,061,000 from $2,112,000
during the six months ended September 30, 1996. This decrease results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $99,000, decreased personnel cost of
$209,000, decreased travel expense of $52,000, decreased marketing costs of
$27,000, increased investor relations of $26,000 and increased legal and
accounting fees of $109,000. Additionally, there were increased consulting
fees of $201,000, of which $93,000 was associated with the Companies capital
raising efforts.
For the six months ended September 30, 1997, the Company had an operating
loss of $2,117,000, a net loss of $2,394,000, and a loss per share of $0.16, as
compared to an operating loss of $1,517,000, a net loss of $1,511,000, and a
loss per share of $0.15 for the six months ended September 30, 1996.
The operating loss increased $600,000 to $2,117,000 during the six months
ended September 30, 1997, as compared to $1,517,000 during the six months ended
September 30, 1996. The increase is a result of lower revenues and cost of
company sales of $203,000, and lower selling, general and administrative
expenses totaling $51,000, decreased depreciation and amortization of $112,000
from the sale of the Oh La La! Division, increased losses associated from cafe
closures of $346,000, bad debt expense and settlement expense of $178,000
associated with certain franchisees related notes and royalties, and no gain
from the sale of assets during the six months ended September 30, 1997, as
compared to a gain from the sale of assets of $36,000 during the six months
ended September 30, 1996.
The net loss increased $883,000 to $2,394,000 during the six months ended
September 30, 1997, as compared to $1,511,000 during the six months ended
September 30, 1996. The increased net loss is a result of the above
increased operating loss of $600,000, and an increase in interest expense and
fees of $154,000, associated with the Company's financing, and decreased
other and interest income of $129,000, associated with the with both the sale
of the Oh La La! Division and the sale and closure of cafes.
LIQUIDITY AND CAPITAL RESOURCES
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The Company has never earned a profit in any fiscal year. Since its
incorporation in 1992, the Company's operations have required (rather than
provided) cash every year. In order to meet these cash requirements, the
Company has from time to time sold common stock, borrowed short-term money, sold
company assets and issued convertible debt. The Company recorded a loss in the
development stage during its first fiscal year of operation and since principal
operations commenced, has recorded losses for the fiscal years ended March 31,
1993, 1994, 1995, 1996 and 1997. The net loss for fiscal 1997 was $5,326,000.
For the six months ended September 30, 1997 a loss of $2,394,000 was recorded.
There can be no assurance that losses will not continue, or that the Company as
currently structured will become profitable in the future. The Company has an
accumulated deficit of $13,438,000 and $15,832,000 as of March 31, 1997 and
September 30, 1997, respectively. In the fiscal year ended March 31, 1997, the
Company sold assets, raised debt and equity, and reduced expenses to meet its
ongoing liquidity needs. During the six months ended September 30, 1997, the
Company had warrants exercised, borrowed short-term funds and sold equity to
meet ongoing liquidity needs. Currently the Company has a material working
capital shortfall.
In the 1996 fiscal year, the Company issued 1,604,692 common shares for
$3,540,722 in proceeds in a series of private placements. The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000. As of March 31, 1997, $2,054,250 had been converted into 3,311,183
common shares. During the quarter ended September 30, 1997, an additional
$248,682 of convertible debt had been converted into 1,335,197 shares of the
Company's common stock. As of September 30, 1997, $2,302,932 of convertible
debt had been converted into 4,646,394 shares of the Company's common stock.
From July 1, 1997, to August 8, 1997, an additional $197,068 of
convertible debt was converted into 2,386,226 shares. Additionally, in July
1997, the Company agreed to restructure the remaining portion of the unconverted
note, totaling $1,000,000, into a note due no later than January 1, 1998,
pledging shares of Paradise Bakery, Inc. as collateral and adding $250,000 to
the balance of the note to eliminate the conversion feature of the note. The
Company will recognize the $250,000 as additional interest expense over the
remaining life of the note.
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and a $750,000 convertible note receivable due in 1999. On March 31,
1997, the Company agreed with GFF to exchange $250,000 of the convertible note
receivable for the assumption of certain liabilities of the Company, exchange
233,333 preferred shares for 233,333 shares of common stock, accelerate a
payment of $145,000 due under the note receivable to May 1997 and convert the
remaining $355,000 balance of the note into 40,000 shares of GFF common stock.
The common shares of GFF at September 30, 1997, have been valued at $2.00 per
share based on the estimated fair value of such shares at the time of the
acquisition. As of September 30, 1997, following the related conversions, the
Company owned approximately 30% of the outstanding common shares of GFF. The
Company did not recognize any earnings from GFF under the equity method of
accounting due to immateriality.
In July 1996, the Company borrowed $350,000 under a note due in
April 1997. This note was paid with the proceeds of the long-term debt in
November 1996, when the Company completed a financing of $779,000 in long-term
debt, pledging the assets of Paradise Bakery. Although the Company is currently
in default of certain financial covenants under this note, it is current with
the required monthly payments
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under the note. The Company also used proceeds of the $779,000 to pay a note
due Chart House Enterprises in the amount of $330,000.
In May 1996, the Company completed the sale of two Company-owned
Paradise Bakery cafes to a franchisee for proceeds of $280,000, which were
applied to the note due Sanwa Bank from the merger of Founders Venture, Inc.
In April 1996, the Company completed a financing for $400,000,
which pledged the assets of Oh La La!. This note was paid from the proceeds of
the cash portion on the sale of Oh La La! in December 1996.
In July of 1996, Baycor, Gary C. Nelson, the Company's President and
Chief Executive Officer, and Steven J. Orlando, its then-Chief Financial
Officer, agreed to loan the Company an aggregate of $175,000 from time to
time on an as-needed basis until April of 1997, when this line of credit
would be terminated and the sums then borrowed and outstanding would become
due and payable. The interest rate on the funds so advanced was prime plus
2%. The line of credit was terminated as of March 31, 1997. In replacement,
in April 1997 Mr. Nelson advanced the Company $50,000 in exchange for a note
secured by the Company's assets, Mr. Orlando advanced the Company $31,000 in
the form of deferred salary for the period from December 1996 through March
1997, and Baycor deferred receipt of salary and expenses accrued during the
1997 fiscal year amounting to $145,000, without interest. In September 1997
the amount owed to Mr. Nelson was reduced to $35,000 and the amount owed to
Mr. Orlando was reduced to $15,000, additionally each is owed accrued
interest at the rate of prime plus 2%. The amount owed to Baycor as of the
date of September 30, 1997 is $165,000.
The Company currently has no available credit lines. During the six months
ended September 30, 1997 the Company borrowed an additional $275,000 thereby
increasing the balance on the note to Alta Petroleum, Inc. to $575,000. Alta
Petroleum has extended the due date of the note to September 30, 1997. As of
September 30, 1997 there have been no further extensions.
The Company's continuing operating losses have left it in a materially weak
cash-flow position, one effect of which has been that the Company has been
unable to develop its more profitable Paradise Bakery system as rapidly and
extensively as it has planned to do.
Since April of 1996, the Company has relied on a series of short-term loans
from Alta Petroleum, Inc. in the aggregate amount of $775,000, sale of assets
totaling $1,321,000, the raising of $1,525,000 in equity, and the exercising of
warrants totaling $142,000 to finance its continuing cash flow shortfalls. There
can be no assurance that any similar financing, asset sales or equity placements
will continue to be available to the Company in the future. Consequently, under
current circumstances the Company does not anticipate that it will be able to
continue existing operations in the future unless it can obtain new short-term
or long-term financing, raise new equity or execute a significant sale of
assets. The Company's Board of Directors is currently evaluating a number of
options for the resolution of its immediate and long-term financial needs,
including among other potential alternatives the sale of its Java Centrale
and/or Paradise Bakery systems, obtaining a long-term loan secured by its
Paradise Bakery assets, a private and/or public sale of Company stock and/or
other securities, and a strategic merger. Some of the alternatives currently
being studied by the Company's Board of Directors might result in a change in
the management and/or control of the Company. However to date, there has
no final resolution of these issues.
Over the last year, the Company's financing plan to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
In August of 1997, the Company retained E.C. Capital Ltd. ("ECC"), a New York
based investment-banking firm, to raise equity capital in a two-stage private
offering (the "ECC Offering"). In both stages, the Company would issue to
investors units consisting of 250,000 shares of common stock, 250,000 "A"
Warrants and 250,000 "B" Warrants. The "A" Warrants have a term of two years
from the date of issuance and may be exercised to purchase shares of common
stock at a per share exercise price of
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<PAGE>
$0.16. The "B" Warrants have a three-year term and may be exercised to
purchase shares of common stock at a price per share of $0.20. The offering
price for each full unit in the first stage of the ECC Offering is $25,000.
ECC has undertaken to place 25 units in the first stage of the ECC Offering
and 35 Units in the second and final stage. The issuance of the "A" and "B"
Warrants described above is subject to approval by the Company's Board of
Directors and shareholders of (i) an amendment to the Company's Articles of
Incorporation increasing its authorized number of shares of common stock from
25,000,000 to 50,000,000, (ii) effecting a one for ten reverse stock split of
the outstanding shares of common stock, and (iii) moving the Company's state
of incorporation from California to Delaware. In the event that such
approval is not obtained, then no "A" or "B" Warrants will be issued to or
exercisable by purchasers of the units, nor will there be any reduction in
the purchase price per unit. The Company has agreed to pay ECC a 10%
commission on all sales of units and a 3% non-accountable expense
reimbursement. Additionally the Company must issue to ECC 250,000 "A" and "B"
Warrants, on a post-Reverse Stock Split basis, as a partial compensation for
its efforts in completing the first stage of the ECC Offering and a equal
number of Warrants in connection with the second stage, for a total of
1,000,000, post-Reverse Stock Split, warrants in all. The Company has also
agreed to retain ECC as an advisor for the next three years at a fee of
$3,000 per month and to pay ECC a 5% warrant solicitation fee for any of the
investor warrants which are exercised. The Company has also agreed not to
raise debt or equity financing during this three-year period other than with
consent of ECC and to allow a ECC designee to observe all meetings of the
Company's Board of Directors. Further, all of the Company's officers and
directors have executed lock-up agreements with ECC whereby they have agreed
not to transfer, assign, sell or otherwise dispose of any of their Company
shares, except with the consent of ECC, until at least one year after the
effective date of the registration statement. As of November 14, 1997 there
have been 25 units placed totaling 6,250,000 common shares and net proceeds
of $544,000.
During the six months ended September 30, 1997 the Company incurred a net
used of $2,394,000 and loss net cash of $195,000 from operations, which would
have been increased by $303,035 if the Company did not receive balloon note
payments from two franchisees during the six months ended September 30, 1997.
To fund its operations, the Company requires either additional financing,
significant sales of additional franchises, or a substantial increase in its
network of Company-owned cafes.
The Company has developed a specific operating plan to meet the ongoing
liquidity needs of the Company's operations. During the fiscal year ended
March 31, 1997, the Company reduced administrative salaries, certain employee
benefit costs, and marketing expenses. The Company also sold 20 of its
existing Company-owned cafes and carts for proceeds of $1,321,000 in cash and
is actively pursuing the sale of additional assets. Despite the sale (and
possible future sales) of these assets, the Company does intend to operate
Company-owned locations. The Company also completed a number of debt
financing transactions totaling $1,729,000 and the sale of equity for
$1,525,000 to meet its ongoing liquidity needs in the fiscal year ended March
31, 1997. Additionally
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during the six months ended September 30, 1997 the Company borrowed $275,000
in short-term loans and had warrants exercised in the amount of $205,000 to
meet its ongoing liquidity needs.
Based on the Company's current cost structure and other expense
calculations, and the Company's current and anticipated revenue streams,
including sales of new Java Centrale franchises and the operating income
expected to be produced by the Company's Paradise Bakery system, the Company
cannot estimate that it will break even on cash flow in the current fiscal year.
The Company does not expect to achieve profitability until after March 31, 1998
and then only if the Company's growth projections can be met and its cost
structure remains stable. There can be no assurance that enough new franchises
will be sold to provide the necessary liquidity, or that the Company's liquidity
goals will be reached in the immediate future, if ever. The Company has certain
debt obligations that are in default for non-compliance with financial covenants
and non-payment to the scheduled required payments. These obligations have
been classified as currently due in the financial statements and the Company
cannot make any assurances as to the ultimate disposition of these debt
obligations which total approximately $3,256,000 as of November 1997. The
Company's plan of operation to provide ongoing liquidity continues to include
the sale of certain operating assets, the active pursuit of debt and equity and
the restructure of debt. The Company can not make any assurance that this plan
will be achieved.
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PART II
ITEM 1. LEGAL PROCEEDINGS
On September 27, 1997 Mr. Peter Merganthaler, an individual resident of the
State of Florida, filed suit against the Company in the 15th Judicial Circuit
Court in Palm Beach County, Florida alleging breach of two 1995 financial
consulting agreements. The relief sought by Mr. Merganthaler includes payment
of approximately $30,000 in consulting fees, $20,000 in out of pocket expenses
and $500,000 in commissions on private placements of the Company's Common Stock.
The Company believes that the Company has substantial defenses to all of the
claims asserted by Mr. Merganthaler, and it intends to deny the allegation made
in his complaint. On that basis, the Company believes that the ultimate
disposition of this lawsuit will not have a material adverse effect on the
Company's financial condition or operating results.
On March 30, 1995, the Company issued to Oh La La!, Inc, Debtor-in
Possession, a promissory note in principal amount of $932,342 (the "Note"). The
Note was convertible into shares of the Company's common stock, at its option
and under certain circumstances. In September of 1995 the Company notified
representatives of PSSS, Inc., successor in interest to Oh La La!, Inc., that
the required circumstances had been met and that it intended to convert the note
into shares of its common stock, and a number of shares sufficient to convert
the outstanding principal balance of the Note was delivered to representatives
of PSSS, Inc. In November of 1996, PSSS, Inc. notified the Company that it
rejected the September 1995 conversion because the shares delivered to it were
not sufficient to convert the then-outstanding interest due on the Note, and on
May 28, 1997, PSSS, Inc. sent Java a formal demand letter for the immediate
payment of the principal amount of the Note plus $122,602.97 in accrued interest
to date of such letter. In August, 1997 PSSS, Inc. filed suit against the
Company in the United States Bankruptcy Court, Northern District of California,
asserting the tender of the above stock was not in compliance with the note
agreement. The Company's management believes that the Company has substantial
defenses to this suit and that the September 1995 conversion was within the
provisions of the note and, on that basis believes that the ultimate disposition
of the suit by PSSS, Inc. in this matter will not have a material adverse effect
on the Company's financial condition or operating results.
ITEM 2. CHANGES IN SECURITIES
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
A. Default on notes and loans payable
The Company is in default on the payment of interest due on a note
payable in the aggregate principal amount of $417,000. Principal of $298,000
and interest of $36,000 was due and payable on September 30, 1997. The Company
has not received a demand for acceleration of payment. The principal holder of
this note is Chart House Enterprises, Inc. A note receivable that is held by
Paradise Bakery from a franchisee secures this note payable.
The Company's subsidiary Paradise Bakery, Inc. is in default of certain
financial covenants on a loan payable in the amount of $639,000. The Company
has not received a demand for acceleration of
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payment. Monthly scheduled payments are current. The principal holder of
this loan is Imperial Business Credit and is secured by substantially all
Paradise Bakery assets.
The Company is in default on payment of principal and interest due on a
note payable in the aggregate principal amount of $575,000. Principal of
$575,000 and interest of $47,000. The Company has not received a demand for
acceleration of payment. The principal holder of this note is Alta Petroleum,
Inc. and the note is secured by substantially all Paradise Bakery assets.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS; REPORTS OF FORM 8-K
A. EXHIBITS
The Company is filing herewith the Exhibits listed on Schedule I attached
hereto.
B. REPORTS ON FORM 8-K
On March 11, 1997, the Company filed a Form 8-K/A in regards to the sale of
the Oh La La! Division to Good Foods Fast Companies, Inc.
On September 30, 1997, the Company filed a Form 8-K in regards to the
private offering of common stock and the appointment of a new Chief Financial
Officer.
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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.
JAVA CENTRALE, INC.
(Registrant)
Date: November 14, 1997 By: /S/
-------------------------------------
Gary C. Nelson
President and Chief Executive Officer
By: /S/
-------------------------------------
Jeffrey W. Dudley, M.S., CPA
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Exhibits marked with an asterisk (*) represent management contracts or
compensatory plans or arrangements.
EXHIBIT NUMBER DESCRIPTION
4.56 Letter of Intent - E.C. Capital Ltd.
11 Statement re: Computation of Per share Earnings (Loss)
27 Financial Data Schedule
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E.C. CAPITAL, LTD.
The following sets forth the general restated terms and conditions by which Java
Centrale, Inc. engages E.C. Capital, Ltd. As its Placement Agent:
COMPANY: Java Centrale, Inc.
PART I:
AMOUNT: $250,000 Minimum/$825,000 Maximum, best efforts basis
OFFERING: 10 Units Minimum/30 Units Maximum. Each Unit consisting of:
(1) 250,000 shares of common stock, no par value; and
(2) 250,000 common stock purchase warrants (A Warrants) exercisable
at $.16 per share for two years, non-callable, subject to
adjustment for dilution, corporate events, etc., the issuance of
said Warrants is conditioned upon shareholder approval pursuant
to an undertaking by the Company to call a special meeting of
shareholders seeking approval for an amendment to the Certificate
of incorporation increasing the authorized number of shares to
50,000,000 a one for ten reverse stock split and a
reincorporation of the Company to Delaware or Nevada.
(3) 250,000 common stock purchase warrants (B Warrants) exercisable
at $.20 per share for three years, non callable, subject to
adjustment for dilution, corporate events, etc., the issuance of
said Warrants is conditioned upon shareholder approval pursuant
to an undertaking by the Company to call a special meeting of
shareholders seeking approval for an amendment to the Certificate
of incorporation increasing the authorized number of shares to
50,000,000 a one for ten reverse stock split and a
reincorporation of the Company to Delaware or Nevada.
(4) All of the above securities shall have registration rights as set
forth below but will be subject to a re-restriction agreement
between the holder and E.C. Capital, Ltd. Wherein the holder
agrees not to publicly sell any securities for a period of one
year from the date of issuance without the prior written consent
of E.C. Capital, Ltd.
PRICE: $25,000 per Unit
PART II:
A second offering will commence upon the closing of the $625,000
maximum offering as set forth above. The terms will be $825,000
maximum best efforts offering, $25,000 dollar price per unit and the
Units will be identical to the Units in Part I above. The commencement
of the Part II, however, is expressly conditioned upon shareholder
approval of the amendment to the Certificate of Incorporation
increasing the authorized number of shares to 50,000,000, a one for
ten reverse stock split and a reincorporation of the company to
Delaware or Nevada.
<PAGE>
REGISTRATION RIGHTS:
The Company shall file a Registration Statement with the Securities
and Exchange Commission of register for resale the shares of common
stock included in the Units and the shares of common stock usable upon
exercise of the A and B Warrants included in the Units, no later than
30 days after the holding of a special shareholders' meeting as set
forth above. The Company shall use its best efforts to have such
Registration Statement declared effective within 120 days thereof. In
the event such Registration Statements is not declared effective
within such 120 days thereof. In the event such Registration
Statement is not declared effective within such 120 day period, the
Company shall issue to the Holders of the Units a number of whole
shares of common stock equal to 10% of the number of shares of common
stock owned by such Holders in respect of Units purchased for each 30
day period following such 120 day period that such Registration
Statement has not been declared effective. The Company shall maintain
the effectiveness of such Registration Statement at its own expense
for a period of two years after such Registration Statement has been
declared effective.
USE OF PROCEEDS:
Working capital
CONDITIONS:
(1) Board of Directors - one observer as designation by E.C. Capital,
Ltd. For a period of 3 years, with the same compensation and
reimbursement of expenses as with a board member.
(2) Holding of a special shareholders' meeting as outlined above no
later than the termination date of October 31, 1997.
(3) Restriction on the issuance of any of the Company's equity and/or
debt securities for a period of three years following the closing
date of the Offering without the written consent of the Placement
Agent.
(4) Placement agent review of management employment contracts, stock
options and benefit plans, with all reasonable requests for
amendments and give-backs complied with.
(5) Agreement with convertible debt holders and existing warrant
holders on changing conversion prices and/or cancellations.
(6) Execution of a Financial Consulting Agreements whereby E.C.
Capital, Ltd. Shall render financial consulting services to the
Company for a period of three years following the date of the
minimum closing, with a financial consulting fee of $3,000 per
month, the first monthly payment due on the date of the minimum
closing and on like date for the next successive 35 months.
(7) All officers and directors shall agree to a oneyear lock-up
beginning on the date of the effectiveness of the Registration
Statement referred to
<PAGE>
above subject ot release with the prior written consent of
E.C. Capital, Ltd.
(8) Effectuate a name change to Paradise Bakery & Cafe.
(9) Termination Date for Part I: October 31, 1997
PLACEMENT AGENT FEES:
The placement agent will receive the following compensation package
for each of Part I and Part II, payable at closing
10% Commission
3% Non-accountable
5% Warrant solicitation fee
2,500,000 Class A Warrants to E.C. Capital, Ltd.*
2,500,000 Class B Warrants to E.C. Capital, Ltd.*
*The issuance of which is subject to shareholder approval of the
amendment to the certificate of incorporation authorizing an increase
in the authorized shares to 50,000,000.
Effective Date: July 29, 1997 E.C. Captial, Ltd.
By:______________________
Java Centrale, Inc.
By:______________________
<PAGE>
JAVA CENTRALE, INC. AND SUBSIDIARY
COMPUTATION OF NET LOSS PER COMMON SHARE EXHIBIT 11
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
September 30, September 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 16,502,573 10,946,633 15,439,364 9,985,470
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
Net Loss ($1,583,000) ($747,601) ($2,394,000) ($1,511,251)
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
Net loss per weighted average equivalent common
shares outstanding ($0.10) ($0.07) ($0.16) ($0.15)
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
Share Months Outstanding
------------------------------------------------------
1997 1996 1997 1996
----------- ---------- ----------- ------------
Calculation of weighted average shares outstanding
April 1, 1996 - 8,533,587 shares 25,600,761 51,201,522
April 24, 1996 - 83,723 shares 251,169 443,732
May 20, 1996 - 442,142 shares 1,326,426 1,960,163
May 28, 1996 - 124,378 shares 373,134 518,242
May 31, 1996 - 2,105 shares 6,315 8,560
June 5, 1996 - 271,001 shares 813,003 1,056,904
June 7, 1996 - 68,376 shares 205,128 262,108
June 14, 1996 - 67,919 shares 203,757 244,508
June 18, 1996 - 133,200 shares 399,600 461,760
June 19, 1996 - 132,334 shares 397,002 454,347
June 27, 1996 - 224,215 shares 672,645 710,014
August 2, 1996 - 659,335 shares 1,274,714 1,274,714
August 5, 1996 - 213,675 shares 391,738 391,738
August 15, 1996 - 157,791 shares 236,687 236,687
September 9, 1996 - 250,000 shares 175,000 175,000
September 20, 1996 - 1,538,462 shares 512,821 512,821
April 1, 1997 - 13,743,818 shares 41,231,454 82,462,908
April 10, 1997 - 106,667 shares 320,001 604,446
April 22, 1997 - 300,000 shares 900,000 1,580,000
April 29, 1997 - 150,000 shares 450,000 755,000
May 13, 1997 - 75,000 shares 225,000 342,500
May 30, 1997 - 121,951 shares 365,853 487,804
June 9, 1997 - 156,852 shares 470,556 575,124
June 10, 1997 - 156,863 shares 470,589 569,936
June 17, 1997 - 223,077 shares 669,231 758,462
June 24, 1997 - 569,801 shares 1,709,403 1,804,370
July 17, 1997 - 400,000 shares 960,000 960,000
July 22, 1997 - 651,029 shares 1,453,965 1,453,965
August 26, 1997 - 100,000 shares 106,667 106,667
September 30, 1997 - 5,250,000 shares 175,000 175,000
Options outstanding (1) (1) (1) (1)
Warrants outstanding (1) (1) (1) (1)
----------- ---------- ----------- ------------
Total 49,507,719 32,839,899 92,636,182 59,912,819
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
Weighted average number of common shares outstanding 16,502,573 10,946,633 15,439,364 9,985,470
----------- ---------- ----------- ------------
----------- ---------- ----------- ------------
</TABLE>
(1) Not calculated as anti-dilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 414,000
<SECURITIES> 0
<RECEIVABLES> 2,238,000
<ALLOWANCES> 959,000
<INVENTORY> 291,000
<CURRENT-ASSETS> 1,658,000
<PP&E> 3,754,000
<DEPRECIATION> 1,240,000
<TOTAL-ASSETS> 9,457,000
<CURRENT-LIABILITIES> 5,276,000
<BONDS> 181,000
0
0
<COMMON> 19,317,000
<OTHER-SE> (15,832,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,457,000
<SALES> 4,477,000
<TOTAL-REVENUES> 5,197,000
<CGS> 1,544,000
<TOTAL-COSTS> 4,393,000
<OTHER-EXPENSES> 2,921,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 332,000
<INCOME-PRETAX> (2,394,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,394,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,394,000)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
