<PAGE>
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 September 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
--------------------- ------------------------------
(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
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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
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 8, 1996,
12,902,243 shares of Common Stock (no par value) were outstanding.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, March 31,
1996 1996
(Unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $1,497,920 $1,182,078
Notes receivable - current 898,732 485,751
Accounts receivable, net 590,630 405,574
Inventories 381,905 417,780
Notes receivable - officer 229,983 235,201
Prepaid expenses and other 763,316 595,285
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Total current assets 4,362,486 3,321,669
NOTES RECEIVABLE 887,687 1,298,574
PROPERTY AND EQUIPMENT, NET 4,725,341 5,737,980
INTANGIBLE ASSETS 5,352,204 5,526,203
DEFERRED CHARGES AND OTHER 677,059 670,658
INVESTMENT IN JOINT VENTURE 176,983 176,983
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$16,181,760 $16,732,067
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----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,880,293 $1,807,136
Current maturities of long-term debt 1,121,000 711,745
Short term debt 761,253 35,040
Current capital lease obligations 57,250 96,267
Accrued liabilities 689,003 726,244
Due to related parties 89,451 22,637
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Total current liabilities 4,598,250 3,399,069
DEFERRED REVENUES 833,500 1,003,500
LONG-TERM DEBT 339,990 1,171,161
CONVERTIBLE DEBT 1,749,546 3,500,000
CAPITAL LEASES 137,124 129,054
OTHER lIABILITIES 129,740 148,376
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
(Unaudited)
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<S> <C> <C>
STOCKHOLDERS' EQUITY
Series B Redeemable Preferred Stock, $.01 Per share
per annum cumulative, convertible, no par
25,000,000 shares authorized - none outstanding -- --
Common Stock, no par, 25,000,000 shares authorized,
issued and outstanding shares; 12,902,243 at
September 30,1996, and 8,533,587 at March 31, 1996 18,017,091 15,493,137
Accumulative deficit (9,623,481) (8,112,230)
------------- ------------
8,393,610 7,380,907
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$16,181,76 0 $16,732,067
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------------ -----------
</TABLE>
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JAVA CENTRALE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
<S> <C> <C> <C> <C>
------------ ----------- ----------- ------------
1996 1995 1996 1995
------------ ----------- ----------- ------------
Revenue:
Company cafe sales $3,541,892 $1,192,669 $7,556,496 $2,199,092
Franchise operations 123,000 79,500 203,000 85,000
Royalties 316,699 73,352 613,975 130,219
Sales of equipment and supplies 9,895 103,881 107,842 130,973
---------- ---------- ---------- ----------
Total revenue 3,991,486 1,449,402 8,481,313 2,545,284
---------- ---------- ---------- ----------
Cost of company sales:
Food and beverage 1,230,338 386,269 2,652,232 712,980
Labor 1,258,534 451,312 2,744,596 767,917
Direct and occupancy 701,433 287,046 1,564,288 502,478
Cost of equipment and supplies 804 91,992 102,249 104,380
Depreciation 161,793 26,352 320,925 35,838
Other 41,470 38,925 90,233 52,493
---------- ---------- ---------- ----------
Total cost of company sales 3,394,372 1,281,896 7,474,523 2,176,086
---------- ---------- ---------- ----------
General and administrative expenses 1,009,170 1,339,592 2,112,360 2,184,308
Depreciation and amortization 159,465 69,965 318,930 139,430
Loss associated with cafe closures 128,580 96,498 128,580 96,498
---------- ---------- ---------- ----------
Operating loss (700,101) (1,338,549) (1,553,080) (2,051,038)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense (90,262) (15,752) (178,203) (29,749)
Interest income 25,292 22,987 47,554 60,876
Gain (Loss) on sale of assets (30,414) - 35,984 -
Other income 47,884 - 136,494 23,655
---------- ---------- ---------- ----------
Net loss $(747,601) $(1,331,314) $(1,511,251) $(1,996,256)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per weighted average equivalent
common share outstanding $ (.07) $ (.23) $ (.15) $ (0.36)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Equivalent common shares outstanding 10,946,633 5,761,582 9,985,470 5,539,698
</TABLE>
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)
Six months ended
September 30,
1996 1995
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Increase (decrease) in cash
Net cash flows from operating activities: $(1,158,823) $(1,406,878)
Cash flows from investing activities:
Purchase of furniture and equipment (199,812) (410,859)
Proceeds from the sale of assets 351,100 -
Acquisition of cafes - (45,000)
Increase (decrease) in other 20,997 (80,445)
Net cash used in investing activities 172,285 (536,304)
Cash flows from financing activities:
Proceeds from the issuance of common stock 962,500 3,561,837
Proceeds from capital lease obligations 64,455 -
Proceeds from short term borrowing 750,000 -
Payment of notes payable and capital leases (474,575) (9,628)
Net cash provided by financing activities 1,302,380 3,552,209
Net increase (decrease) in cash 315,842 1,609,027
Cash and cash equivalents, beginning of period 1,182,078 3,764,278
Cash and cash equivalents, end of period $1,497,920 $5,373,305
--------- ---------
--------- ---------
Cash paid for:
Income tax $ - $ -
Interest $ 205,086 $ 15,769
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 six months ended September 30, 1996, and 1995, the Company
increased its notes receivable derived from deferred revenue by $290,000 and
$196,500 respectively.
During the six months ended September 30, 1996, the Company terminated 8
franchise agreements and refunded $27,500 and canceled $45,000 in notes
associated with franchise fees.
During the six months ended September 30, 1996, holders of the convertible
debt converted $1,750,454 of the notes into 2,580,194 shares of common stock
pursuant to the terms of their notes.
During the six months ended September 30, 1995 the Company completed the
initial phase of a joint venture for the development of the Florida market and
issued 89,428 shares of common stock in exchange for 18.3% of the joint
venture's outstanding shares.
During the six months ended September 30, 1995 the Company issued 203,000
common shares valued at $452,944 pursuant to a consulting agreement to develop
strategic acquisitions, identify Java Centrale franchise development
opportunities and consult regarding investor relations matters for the Company.
The Company recognized a one-time non recurring expense of $452,944 as a result
of issuance of these shares.
During the six months ended September 30, 1995 the Company acquired four
Java franchise cafes. In connection with these purchases, the Company issued
239,567 shares of restricted common stock valued at $436,169, assumed $133,968
in long term debt and canceled franchisee receivables of $106,303.
During the six months ended September 30, 1996 and September 30, 1995 the
Company expensed $639,855 and $191,923 respectively for deprecation 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 $351,100
Note receivable 603,656
Liabilities assumed 69,433
Net book value of assets sold (988,205)
--------
Gain (Loss) on sale of assets $ 35,984
--------
--------
The accompanying notes are an integral part of these statements.
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JAVA CENTRALE, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED 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 and six months
ended September 30, 1996 are not necessarily indicative of results that can be
expected for the full year.
The September 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 September
30, 1996 and September 30, 1995, and March 31, 1996; and the results of its
operations for the three months and six months ended September 30, 1996 and
1995, and its cash flows for the six months ended September 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 six months ended September 30, 1995 the Company completed the
initial phase of the joint venture agreement for the development of the Florida
market and issued 89,428 shares of common stock in exchange for 18.3% of the
joint venture's outstanding shares.
b. ISSUANCE OF ADDITIONAL COMMON SHARES
During the six months ended September 30, 1995 the Company completed
certain private placements of restricted common shares resulting in the issuance
876,000 common shares for net proceeds of $3,561,837.
c. CONSULTING AND DEVELOPMENT AGREEMENT
During the six months ended September 30, 1995 the Company issued 203,000
common shares valued at $452,944 or ($.08) per share pursuant to a consulting
agreement to develop strategic acquisitions, identify Java Centrale franchise
opportunities and consult regarding investor relation matters for the Company.
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<PAGE>
NOTE 2 - STOCKHOLDERS' EQUITY - CONTINUED
d. ACQUISITIONS OF JAVA CENTRALE FRANCHISES
During the six ended September 30, 1995 the Company completed the
acquisition of four Java Centrale franchised cafes. The Company acquired all of
the operating assets (excluding cash) held at the various locations. In
connection with these purchases, the company issued 239,567 shares of restricted
common stock valued at $436,169, assumed $133,968 in long term debt and canceled
franchisee receivables of $106,303. The tangible assets acquired consist of
tenant improvements, equipment and loans payable.
e. CONVERSION OF NOTES PAYABLE
On September 28, 1995 the Company exercised its right to convert a note
payable of $932,342, related to the acquisition of substantially all the assets
of Oh La La, Inc., into common shares at a price of $4.00 per share.
f. WARRANTS EXERCISED
On September 9, 1996 warrants were exercised for 250,000 shares of common
stock for proceeds of $62,500. The warrants were initially granted to Growth
Science Ventures.
g. ISSUANCE OF ADDITIONAL COMMON SHARES
On September 20, 1996 the Company completed certain private placements of
restricted common shares resulting in the issuance 1,538,462 common shares for
net proceeds of $900,000.
h. CONVERSION OF CONVERTIBLE DEBT
During the six months ended September 30, 1996, holders of the convertible
debt converted $1,750,454 of the notes into 2,580,194 common shares pursuant to
the terms of the notes.
-8-
<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
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 September 30, 1996, the Company had operating 31 Company-owned
locations and 70 franchisee-owned locations, as compared to 23 Company-owned
locations and 16 franchisee-owned locations as of September 30, 1995.
The Company entered into agreements with franchisees to open five cafes
during the quarter ended September 30, 1996, as compared to entering into
agreements with franchisees to open ten cafes during the quarter ended September
30, 1995. During the six months ended September 30, 1996, the Company entered
into agreements with franchisees to open ten cafes (of which nine were operating
as of September 30, 1996), as compared to entering into agreements with
franchisees to open 12 cafes during the six months ended September 30, 1995. The
Company canceled agreements for eight locations (prior to the opening of such
locations) during the quarter ended September 30, 1996 as a result of the
Company and the franchisees inability to select an acceptable location, as
compared to 53 of which 45 were with one franchisee during the quarter ended
September 30, 1995. For the six months ended September 30, 1996 the Company
canceled agreements for eight locations as compared to 54 during the six months
ended September 30, 1995.
The Company opened two franchisee-owned cafes during the quarter ended
September 30, 1996, as compared to opening one franchisee-owned cafe during the
quarter ended September 30, 1995. During the quarter ended September 30, 1996
the Company sold two Company-owned cafes to a franchisee, opened one Company-
owned cart, acquired no franchisee-owned cafes, and closed one Company-owned
cafe, as compared to not selling any Company-owned cafes, acquiring four
franchisee-owned cafes and closing no Company-owned cafes during the quarter
ended September 30, 1995. The Company opened three franchisee-owned cafes and
closed one franchisee-owned cafe during the six months ended September 30, 1996,
as compared to opening one franchisee-owned cafe during the six months ended
September 30, 1995. The Company closed two Company-owned cafes, sold five
Company-owned cafes to franchisees, and sold three Company-owned carts to a
licensee during the six months ended September 30, 1996, as compared to
acquiring four franchisee-owned cafes during the six months ended September 30,
1995.
(The figures given in the two foregoing paragraphs, for agreements to open
franchised cafes and for actual cafe openings, cannot be reconciled because they
refer to different stages of the contracts. The first of the two foregoing
paragraphs refers to agreements with franchisees for
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<PAGE>
the allocation of market areas and the opening of cafes in the future, while the
immediately preceding paragraph refers to cafe locations actually open and
operating.)
On November 14, 1994 the Company entered into a ten-year Joint Venture
Formation Agreement with Banyan Capital, Limited Partnership for the development
of 50 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 September 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 September 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 and 34
franchisee-owned bakery/cafes. The Company opened one Company-owned bakery/cafe
in the year ended March 31, 1996. These acquisitions of 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 September 30, 1996 totaled
$3,991,000, as compared to $1,449,000 for the quarter ended September 30, 1995,
an increase of $2,542,000, or 175%. This increase resulted primarily from the
revenues amounting to $2,547,000 from the acquisition of the Paradise Bakery
operations as of December 31, 1995.
The Company's revenues from Company-owned retail operations increased by
$2,349,000, to $3,542,000 for the quarter ended September 30, 1996, from
$1,193,000 for the quarter
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ended September 30, 1995. This increase resulted primarily from $2,323,000 in
revenues recognized from the acquired operations of the Paradise Bakery Company-
owned locations.
Revenues from the Company's franchising operations increased to $123,000
for the quarter ended September 30, 1996, from $79,500 for the quarter ended
September 30, 1995. This increase resulted from franchise fees of $15,000
recognized from opening one franchisee-owned Paradise Bakery and the recognition
of $108,000 in fees associated with the opening of one Java Centrale franchisee-
owned cafe and the sale of two Company-owned Java Centrale cafes to a franchisee
and forfeited franchise fees of $53,000 as compared to one Java Centrale
franchisee-owned cafe opening and forfeited franchise fees of $14,000 during the
quarter ended September 30, 1995.
Revenues from the Company's royalties increased $244,000, or 334%, to
$317,000 for the quarter ended September 30, 1996, from $73,000 for the quarter
ended September 30, 1995. This increase resulted primarily from the royalties
associated with the acquisition of the Paradise Bakery franchise operations
amounting to $209,000 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 and supplies sales decreased $94,000,
or 90%, to $9,900 for the quarter ended September 30, 1996 from $104,000 for the
quarter ended September 30, 1995. This decrease resulted from discontinuing the
sale of equipment directly to the franchisees in May of 1996.
Total expenses for the quarter ended September 30, 1996 were $4,692,000, an
increase of $1,904,000, or 68%, over expenses of $2,788,000 for the quarter
ended September 30, 1995. The principal components of the increase in expenses
resulted from $2,575,000 in expenses associated with operating the acquired
Paradise Bakery locations. Additionally, there was an increase in depreciation
and amortization expenses, other operating costs from the addition of the
Paradise Bakery operations, the addition of five Company-owned cafes during the
1996 fiscal year and an overall decrease in general and administrative, expenses
totaling $671,000.
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $2,065,000, for the quarter ended September 30,
1996, to $3,190,000 as compared to $1,125,000 for the quarter ended September
30, 1995. The increase resulted from $2,074,000 in operating costs associated
with the acquisition of the Paradise Bakery locations and a decrease in
operating costs associated with the sale of two Company-owned Java Centrale
cafes.
The Company's cost of equipment decreased by $91,200 in the quarter ended
September 30, 1996, to $800, as compared to $92,000 for the quarter ended
September 30, 1995. This decrease results from discontinuing the sale of
equipment directly to the franchisees in May of 1996.
Selling, general, and administrative expenses decreased $331,000, or 25%,
during the quarter ended September 30, 1996, to $1,009,000 from $1,340,000
during the quarter ended September 30, 1995. This decrease primarily is a
result of lower consulting fees amounting to $427,000. Additionally marketing
expenses decreased, investor relations expenses decreased, merger expenses
decreased, legal and accounting expenses increased, personnel
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costs associated with the Java Centrale administration decreased, and the
Paradise Bakery general and administrative expenses increased.
For the quarter ended September 30, 1996, the Company had an operating loss
of $700,000, a net loss of $748,000, and a loss per share of $.07, as compared
to an operating loss of $1,339,000, a net loss of $1,331,000, and a loss per
share of $.23 for the quarter ended September 30, 1995. The decreased operating
and net loss is primarily due to lower consulting fees amounting to $427,000,
and decreased general and administrative expenses associated with the Java
Centrale operations and as a result of those revenues and expenses described
above. Additionally the net loss for the quarter ended September 30, 1996
reflects higher interest expenses associated with the acquisition of Paradise
Bakery.
SIX MONTHS ENDED 1996 AS COMPARED TO SIX MONTHS ENDED 1995
Total Company revenues for the six months ended September 30, 1996 totaled
$8,481,000, as compared to $2,545,000 for the six months ended September 30,
1995, an increase of $5,936,000 or 233%. The principal component was increased
revenues amounting to $5,334,000 from the acquisition of Paradise Bakery
operations as of December 31, 1995. Additionally revenues increased from the
operation of six Company-owned Java Centrale cafes.
The Company's revenues from Company-owned retail operations increased by
$5,358,000, to $7,557,000 for the six months ended September 30, 1996, from
$2,199,000 for the six months ended September 30, 1995. This increase resulted
primarily from $4,838,000 in revenues recognized from the operations of the
Paradise Bakery Company-owned locations and the operation of six Company-owned
Java Centrale cafes.
Revenues from the Company's royalties increased $484,000, or 372%, to
$614,000 for the six months ended September 30, 1996, from $130,000 for the six
months ended September 30, 1995. This increase resulted primarily from the
royalties associated with the acquisition of the Paradise Bakery franchise
operations amounting to $400,000 and $84,000 resulting from the opening of 15
new Java Centrale franchisee-owned locations during the 1996 fiscal year as
compared to 1995
Revenues from the Company's franchising operations increased to $203,000
for the six months ended September 30, 1996, as compared to $85,000 for the six
months ended September 30, 1995, resulting from franchise fees of $55,000
recognized from the sale of two Company-owned Paradise Bakeries to a franchisee
and one fee associated with the opening of a Paradise Bakery franchise cafe, the
sale of two Company-owned Java Centrale cafes to a single franchisee and one fee
associated with the opening of Java Centrale franchise cafe and forfeited
franchise fees of $55,000 as compared to recognizing the sale of one Java
Centrale franchisee-owned cafe and forfeited franchise fees amounting to $60,000
during the six months ended September 30, 1995.
Revenues from the Company's equipment and supplies sales decreased by
$23,000 or 18%, to $108,000 for the six months ended September 30, 1996 as
compared to $131,000 for the six months ended September 30, 1995. This decrease
resulted primarily from the Company discontinuing the sale of equipment to
franchisees in May of 1996.
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Total expenses for the six months ended September 30, 1996 were
$10,035,000, an increase of $5,439,000, or 118%, over expenses of $4,595,000 for
the six months ended September 30, 1995. The principal components of the
increase in expenses resulted from $5,326,000 in expenses associated with
operating the acquired Paradise Bakery locations. Additionally, there was an
increase in 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 and a decrease in general and administrative expenses
totaling $654,000.
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $4,977,000, for the six months ended September 30,
1996, to $6,961,000 as compared to $1,984,000 for the six months ended September
30, 1995. The increase resulted primarily from $4,324,000 in operating costs
associated with the acquisition of the Paradise Bakery locations. Additionally,
there was an increase of $653,000 in operating costs associated with the
addition of five Company-owned Java Centrale cafes during the fiscal year 1996.
The Company's cost of equipment decreased by $2,000 in the six months ended
September 30, 1996, to $102,000, as compared to $104,000 for the six months
ended September 30, 1995. This decrease resulted primarily from discontinuing
the sale of equipment directly to the franchisees in May of 1996.
Selling, general, and administrative expenses decreased $72,000, or 3%,
during the six months ended September 30, 1996, to $2,112,000 from $2,184,000
during the six months ended September 30, 1995. This results from lower
consulting fees of $450,000 and increased general and administrative expenses
associated with the acquisition of Paradise Bakery operations of $582,000.
Additionally, marketing expenses decreased, investor relations expenses
decreased, merger expenses decreased, legal and accounting expenses increased,
and other costs associated with the Java Centrale operations decreased.
For the six months ended September 30, 1996, the Company had an operating
loss of $1,553,000, a net loss of $1,511,000, and a loss per share of $.15, as
compared to an operating loss of $2,051,000, a net loss of $1,996,000, and a
loss per share of $.36 for the six months ended September 30, 1995. The
decreased operating and net loss is primarily due to lowered consulting fees
totaling $450,000, decreased general and administrative expenses associated with
the Java Centrale operations and as a result of those revenues and expenses
described above.
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
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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.
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 record 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 net proceeds in a series of private placements. The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000. As of September 30, 1996, $1,750,454 of the convertible debt has
been converted into 2,580,194 shares of the Company's common stock. The Company
during the six months ended September 30, 1996 issued 1,538,462 common shares
for $900,000 in net proceeds in a private placement and issued 250,000 common
shares for proceeds of $62,500 as a result of certain warrants being exercised.
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.
As of September 30, 1996, the Company had received $213,000 in funding of
leases associated with Company-owned cafes and received $750,000 in short-term
notes 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 September 30, 1996, the Company had $575,000 in credit available
under two separate lines of credit.
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During the six months ended September 30, 1996, the Company sold five cafes
for proceeds of $351,100 in cash, $603,656 in notes receivables and liabilities
of $69,433 assumed by buyer.
The Company incurred a net loss of $1,511,000 and used net cash of
$1,158,823 in operating activities for the six months ended September 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.
During the six months ended September 30, 1996, the Company reduced
administrative salaries, certain employee benefit costs and marketing expenses.
The Company has sold eight Company-owned cafes and carts and is actively
pursuing the sale of additional assets associated with the Company's cafe
operations. Despite such sales, the Company does intend to continue operating
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 November 8, 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.
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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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Quarterly Report on 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
----------------------------------
Gary C. Nelson
President and Chief Executive Officer
By: /S/ STEVEN J. ORLANDO
------------------------------------
Steven J. Orlando
President and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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