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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO Section 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] 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
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1610 Arden Way, Suite 145
Sacramento, California 95815
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(Address of principal executive office) (Zip Code)
Issuer's telephone number: (916) 568-2310
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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
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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of August 12, 1996,
10,778,003 shares of Common Stock (no par value) were outstanding.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1996 March 31, 1996
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(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $400,682 $1,182,078
Notes receivable - current 951,873 485,751
Accounts receivable, net 619,998 405,574
Inventories 361,687 417,780
Notes receivable-officer 232,619 235,201
Prepaid expenses and other 650,460 595,285
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Total current assets 3,217,319 3,321,669
NOTES RECEIVABLE 800,337 1,298,574
PROPERTY AND EQUIPMENT, NET 5,221,426 5,737,980
INTANGIBLE ASSETS 5,439,204 5,526,203
DEFERRED CHARGES AND OTHER 664,470 670,658
INVESTMENT IN JOINT VENTURE 176,983 176,983
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$15,519,739 $16,732,067
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,571,880 $1,807,136
Accrued liabilities 514,127 726,244
Due to related parties 64,129 22,637
Short term and current maturities of
long-term debt 1,642,074 746,785
Current capital lease obligations 72,379 96,267
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Total current liabilities 3,864,589 3,399,069
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
LIABILITIES AND STOCKHOLDERS' EQUITY
(Continued)
June 30, 1996 March 31, 1996
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(Unaudited)
DEFERRED REVENUES 1,068,500 1,003,500
LONG-TERM DEBT 265,565 1,171,161
CAPITAL LEASES 2,240,000 3,500,000
CONVERTIBLE DEBT 202,228 129,054
OTHER LIABILITIES 190,600 148,376
STOCKHOLDERS' EQUITY:
Series B Redeemable Preferred Stock, $.01
per share per annum cumulative,
convertible, no par 25,000,000 shares
authorized -- --
Common stock, no par, 25,000,000 shares
authorized, issued and outstanding
shares; 10,082,980 at June 30, 1996, and
8,533,587 at March 31, 1996 16,564,137 15,493,137
Accumulated deficit (8,875,880) (8,112,230)
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7,688,257 7,380,907
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$15,519,739 $16,732,067
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The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
June 30,
1996 1995
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Revenue:
Company cafe sales $4,014,604 $1,006,423
Franchise operations 80,000 5,500
Royalties 297,276 56,867
Sales of equipment and supplies 97,947 27,092
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Total revenue 4,489,827 1,095,882
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Cost of company sales:
Food and beverage 1,421,894 326,711
Labor 1,486,062 316,605
Direct and occupancy 862,855 215,432
Cost of equipment and supplies 101,445 12,388
Depreciation 159,132 9,486
Other 48,763 13,568
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Total cost of company sales 4,080,151 894,190
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General and administrative expenses 1,103,190 844,716
Depreciation and amortization 159,465 69,465
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Operating loss (852,979) (712,489)
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Other income (expense):
Interest expense (87,941) (13,997)
Interest income 22,262 37,889
Gain on sale of assets 66,398 -
Other income 88,610 23,655
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Net loss $ (763,650) $ (664,942)
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Net loss per weighted average equivalent
common share outstanding $(.08) $(0.13)
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Equivalent common shares outstanding 8,994,033 5,317,052
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The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
June 30,
1996 1995
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Increase (decrease) in cash:
Net cash flows from operating activities: $ (573,450) $ (417,650)
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Cash flows from investing activities:
Purchase of furniture and equipment (184,544) (27,772)
Proceeds from the sale of assets 325,100 -
Increase (decrease) in other 48,412 -
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Net cash provided (used) in investing
activities 188,968 (27,772)
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Cash flows from financing activities:
Payment of notes payable (461,369) (5,800)
Proceeds from capital lease obligations 64,455 -
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Net cash used by financing activities (396,914) (5,800)
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Net (decrease) in cash (781,396) (451,222)
Cash and cash equivalents, beginning of
period 1,182,078 3,764,278
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Cash and cash equivalents, end of period $ 400,682 $3,313,056
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Cash paid for:
Income tax $- $-
Interest $ 114,224 $ 2,250
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
NON-CASH TRANSACTIONS:
During the quarters ended June 30, 1996, and 1995, the Company increased its
deferred revenue through accounts and notes receivable totaling $20,000 and
$155,000 respectively.
During the quarter ended June 30, 1995, the Company completed the initial phase
of a joint venture for the development of the Florida market and issued 83,594
shares of common stock in exchange for 18.3% of the joint venture's outstanding
shares.
During the quarter ended June 30, 1996, holders of the convertible debt
converted $1,260,000 of the notes into 1,549,393 common shares pursuant to the
terms of the note.
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Sale of certain assets of Java Centrale, Inc., and Subsidiary for the quarter
ended June 30, 1996.
Cash received $ 325,100
Note receivable 296,934
Net book value of assets sold (555,636)
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Gain on sale of assets $ 66,398
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The accompanying notes are an integral part of these statements.
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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 Securities and Exchange Commission for the
fiscal year ended March 31, 1996. It should be understood that accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the three months ended June 30,
1996 are not necessarily indicative of results that can be expected for the full
year.
The June 30, 1996 financial statements included herein are unaudited. They
contain, however, all adjustments which, in the opinion of management are
necessary to present fairly the financial position of the Company at June 30,
1996 and March 31, 1996; and the results of its operations and its cash flows
for the three months ended June 30, 1996 and 1995, respectively.
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 presentation.
NOTE 2 - STOCKHOLDERS' EQUITY
a. JOINT VENTURE FORMATION AGREEMENT
During the quarter ended June 30, 1995 the Company completed the initial
phase of the Joint Venture Formation Agreement for the development of the
Florida market and issued 83,594 shares of common stock in exchange for 18.3% of
the joint venture's outstanding shares.
b. CONVERSION OF CONVERTIBLE DEBT
During the quarter ended June 30, 1996, holders of the convertible debt
converted $1,260,000 of the notes into 1,549,393 common shares pursuant to the
terms of the note.
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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
also completed its training facility in Folsom, California, which is now being
used to provide training to franchisees and their key employees in the
operations of franchisee-owned Java Centrale cafes.
As of June 30, 1996, the Company had operating 36 Company-owned locations
and 65 franchisee-owned locations, as compared to 17 Company-owned locations and
22 franchisee-owned locations as of June 30, 1995.
The Company entered into agreements with franchisees to open three cafes
during the quarter ended June 30, 1996, as compared to entering into agreements
with franchisees to open two cafes during the quarter ended June 30, 1995.
The Company actually opened one franchisee-owned cafes during the quarter
ended June 30, 1996, as compared to opening zero franchisee-owned cafes during
the quarter ended June 30, 1995. The Company closed one Company-owned cafe,
sold three Company-owned cafes to franchisees, and sold three Company-owned
carts to a licensee during the quarter ended June 30, 1996, as compared to none
in 1995.
On November 14, 1994 the Company entered into a Joint Venture Formation
Agreement with Banyan Capital, Limited Partnership for the development of fifty
cafes in the State of Florida over a five-year period, and for rights to other
markets on the Eastern Seaboard. The Joint Venture Formation Agreement and
related transactions was completed in July, 1995 and as of June 30, 1996, there
were three cafes operating under this agreement.
On March 30, 1995, with bankruptcy court approval, the Company acquired
substantially all the operating assets of Oh-La-La!, Inc. held at the locations
being purchased and certain other operating assets. The tangible assets and
liabilities acquired consist mainly of tenant improvements, equipment, and loans
payable. The purchased locations represented a significant portion of the
Company's revenues and operations during the quarter ended June 30, 1995.
On December 31, 1995, the Company acquired 100% of the outstanding stock of
Paradise Bakery, Inc. At the time of the acquisition, Paradise Bakery had seven
Company-owned and 44 franchisee-owned bakery/cafes operating in nine states. On
January 1, 1996, the Company acquired through a merger with Founders Venture,
Inc., seven franchisee-owned bakery/cafes operating in Texas. On January 1,
1996, the Company acquired through an asset purchase agreement three
franchisee-owned bakery/cafes operating in Northern California. Immediately
following these three acquisitions, the Company was operating 17 Company-owned
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and 34 franchisee-owned bakery/cafes. The Company opened one Company-owned
bakery/cafe in the year ended March 31, 1996. These acquisitions of Paradise
bakery/cafe locations will represent a significant portion of the Company's
revenues and operations.
RESULTS OF OPERATIONS
The Company's revenues are currently derived primarily 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 $25,000 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.
QUARTER 1996 AS COMPARED TO QUARTER 1995
Total Company revenues for the quarter ended June 30, 1996 totaled
$4,490,000, as compared to $1,096,000 for the quarter ended June 30, 1995, an
increase of $3,394,000, or 310%. The principal component was increased revenues
amounting to $2,795,000 from the acquisition of the Paradise Bakery operations
as of December 31, 1995.
The Company's revenues from Company-owned retail operations increased by
$3,009,000, to $4,015,000 for the quarter ended June 30, 1996, from $1,006,000
for the quarter ended June 30, 1995. This increase resulted primarily from
$2,555,000 in revenues recognized from the operations of the Paradise Bakery
Company-owned locations. Additionally an increase of $454,000, or 45%, in
revenues at the Company-owned Java Centrale and Oh La La! Locations primarily
from the addition of five Company-owned cafes during the 1996 fiscal year as
compared to 1995.
Revenues from the Company's franchising operations increased to $80,000 for
the quarter ended June 30, 1996, from $6,000 for the quarter ended June 30,
1995, resulting from franchise fees of $40,000 recognized from the sale of two
Company-owned Paradise Bakery's to a franchisee and the recognition of $40,000
in fees associated with the opening of one Java Centrale cafe and the sale of
one Company-owned cafe to a franchisee.
Revenues from the Company's royalties increased $240,000, or 421%, to
$297,000 for the quarter ended June 30, 1996, from $57,000 for the quarter ended
June 30, 1995. This increase resulted primarily from the royalties associated
with the acquisition of the Paradise Bakery franchise operations amounting to
$191,000 and the opening of 15 new Java Centrale franchisee-owned locations
during the 1996 fiscal year as compared to 1995.Revenues from the Company's
equipment sales increased $71,000, or 263%, to $98,000 for the quarter ended
June 30, 1996 from $27,000 for the quarter ended June 30, 1995. This increase
resulted primarily from an increase of one franchisee-owned cafe location opened
during the quarter ended June 30, 1996, as compared to zero franchisee-owned
cafe locations opened during the quarter ended June 30, 1995. The Company sold
the equipment required for the cafe to substantially all of its franchisee-owned
locations up until May, 1996, at which time the Company discontinued selling
equipment directly to the franchisees.
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Total expenses for the quarter ended June 30, 1996 were $5,343,000, an
increase of $3,535,000, or 196%, over expenses of $1,808,000 for the quarter
ended June 30, 1995. The principal components of the increase in expenses
resulted from $2,749,000 in expenses associated with operating the acquired
Paradise Bakery locations. Additionally, there was an increase in the cost of
equipment, selling, general and administrative expenses, depreciation and
amortization and other operating costs from the addition of Paradise Bakery and
the addition of five Company-owned cafes during the 1996 fiscal year.
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $3,097,000, for the quarter ended June 30, 1996, to
$3,979,000 as compared to $882,000 for the quarter ended June 30, 1995. The
increase resulted primarily from $2,388,000 in operating costs associated with
the acquisition of the Paradise Bakery locations. Additionally, an increase of
$652,000 in operating costs associated with the addition of five Company-owned
Java Centrale cafes during the 1996 fiscal year.
The Company's cost of equipment increased by $89,000 in the quarter ended
June 30, 1996, to $101,000, as compared to $12,000 for the quarter ended June
30, 1995. This increase resulted primarily from the Company's opening one
additional franchisee-owned locations during the quarter.
Selling, general, and administrative expenses increased $258,000, or 31%,
during the quarter ended June 30, 1996, to $1,103,000 from $845,000 during the
quarter ended June 30, 1995, primarily because of expenses associated with the
administration support to Paradise Bakery.
For the quarter ended June 30, 1996, the Company had an operating loss of
$853,000, a net loss of $764,000, and a loss per share of $.08, as compared to
an operating loss of $712,000, a net loss of $665,000, and a loss per share of
$.13 for the quarter ended June 30, 1995. The increased operating loss and net
loss primarily resulted from higher expenses associated with operating and
developing the Java Centrale Company-owned cafes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial capitalization was obtained through the issuance of
2,500,000 shares of no par common stock for $10,000 on March 5, 1992. In
addition, the Company issued 2,950,000 shares of Series A cumulative preferred
stock, in exchange for 2,950,000 shares of no par cumulative preferred stock,
which were subscribed for on March 5, 1992 for proceeds of $590,000, on
March 12, 1993. On March 30, 1993, the Company sold 5,000,000 shares of no par
value redeemable Series B cumulative preferred stock for $1,000,000. The
proceeds from the issuance of all such stock were used for capital acquisitions
and operating costs of the Company during its development stage. On
May 19, 1994, the Company raised $7,288,000 in net proceeds from an initial
public offering of 1,500,000 shares of common stock. Of the 4,291,820 shares
outstanding after the offering, 855,300 were placed in escrow and are subject to
an Escrow Agreement which provides for the release of such shares on or before
March 31, 1999, with earlier release based upon the financial performance of the
Company.
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The Company used a portion of the proceeds from the initial public offering
to repay long term debt, purchase equipment and furniture, support the operating
losses in developing the Company's operating system, and pay $500,000 as part of
the purchase price to acquire the operating assets of Oh-La-La!, Inc.
On July 15, 1994, the Company paid a 25% stock dividend on its Common Stock
to shareholders of records on June 30, 1994. Prior to the issuance of the
dividend, employees and officers of the Company holding securities, including
warrants and options, waived their rights to receive the stock dividend and also
waived the impact such stock dividend would have on any options or warrants held
by the security holders, including, but not limited to, any anti-dilution
provisions relating to such options and warrants.
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 June 30, 1996, $1,260,000 of the convertible debt has been
converted into 1,549,393 shares of the Company's common stock.
The Company used $5,375,000 of the cash raised through the private
transactions to acquire 100% of the common stock in Paradise Bakery, Inc., on
December 31, 1995. Additionally, as part of the acquisition of Paradise Bakery,
Inc., the Company issued notes to the seller in the amount of $1,350,000. The
Company also issued notes in the amount of $46,071 to the sellers and assumed
$97,950 in debt obligation associated with the asset purchase of the three
Paradise Bakery locations. The Company assumed bank debt in the amount of
$1,085,000 and $24,535 in lease obligations associated with the merger of
Founders Venture, Inc., into Paradise Bakery, Inc.
During the quarter ended June 30, 1996, the Company sold three
Company-owned operations to franchisees and three Company-owned carts to a
licensee for $325,000 in cash and $296,934 in notes receivable.
As of June 30, 1996, the Company had received $213,000 in funding of leases
associated with Company-owned cafes and received a $400,000 loan pursuant to a
short-term note payable.
As part of the purchase price for the assets of Oh La La! acquired by the
Company on March 31, 1995, the Company issued to Oh La La!, Inc. a note payable
of $745,874, and assumed liabilities for tenant improvement loans related to the
properties acquired of $113,306. In January of 1996, the Company converted a
note payable of $745,874 into 234,000 shares of common stock pursuant to the
terms of the note associated with the acquisition of Oh La La!.
As of June 30, 1996, the Company had no line of credit available to it.
The Company incurred a net loss of $764,000 and used net cash of $573,000
in operating activities for the quarter ended June 30, 1996. The Company has
developed a specific operating plan to meet the ongoing liquidity needs of the
Company's operations both for the year ended March 31, 1997, and thereafter.
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During the quarter ended June 30, 1996, the Company reduced administrative
salaries, certain employee benefit costs and marketing expenses. The Company
has sold six Company-owned cafes and carts and is actively pursuing the sale of
assets associated with the Company's cafe operations. The Company intends to
operate Company-owned locations. In February of 1996, the Company completed the
expansion and remodeling of key Oh La La! locations which management believes
will increase the operating margins of this division. As of July 11, 1996, the
Company has obtained three separate lines of credit amounting to $925,000, of
which senior management has committed to $175,000. As of August 12, 1996, the
Company has borrowed $350,000 under one line of credit. These lines secure all
the Company's assets. In addition to the operating plan, the Company will
benefit from 12 months of Paradise Bakery operating income during the year ended
March 31, 1997, as compared to three months in the year ended March 31, 1996.
Management believes that this plan, which is currently being implemented,
is sufficient to meet the Company's liquidity needs for the year ended March 31,
1997, and thereafter.
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PART II
Item 1. LEGAL PROCEEDINGS
On December 11, 1995, Coffee Centrale, Inc., a franchisee of the
Company in Dallas, Texas, and its owners Diana and Iosif Etinger (together, the
"plaintiffs") sued the Company in the 44th Judicial District Court of Dallas
County, Texas. The Plaintiffs allege that the Company committed fraud and
violated the Texas Business Opportunity Act by knowingly misrepresenting
material facts concerning the Plaintiff's franchisee and committing other
misleading or deceptive acts, breached its fiduciary duty in connection with the
Plaintiffs' entry into a lease agreement for the premises committed
discriminatory pricing by paying a lower price and/or receiving rebates for
brand name products not available to the Plaintiffs, causing the Plaintiffs to
receive a different price than similarly situated Company franchisees for a like
kind or quality of goods. Relief sought in this suit includes unspecified actual
damages and punitive damages in excess of $2,000,000. The Company, which has
denied the allegations, has filed a related action against Coffee Centrale, Inc.
in the Federal District Court in Sacramento, California, alleging breach of the
franchise agreement. Although the proceedings are still at an early stage, no
depositions have yet been taken in the Texas case, and therefore no prediction
may be made as to its outcome, the Company's management believes that the
Plaintiff's claims are without substantial merit, and on that basis believes
that the ultimate disposition of this litigation will not have a material
adverse effect on the Company's financial condition or operating results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 5, 1997 JAVA CENTRALE, INC.
(Registrant)
By: /S/ GARY C. NELSON
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Gary C. Nelson
President and Chief Executive Officer
By: /S/ STEVEN J. ORLANDO
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Steven J. Orlando
Vice President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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