U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 1-13984
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3832215
-------- ----------
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
533 W. 47th Street
New York, NY 10036
(Address of principal executive offices)
(212) 586-7600
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or 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
stock, as of the latest practicable date: As of November 13, 1996, there were
2,596,500 shares of common stock, par value $.001 per share, outstanding.
<PAGE>
WILLIAM GREENBERG JR. DESSERT AND CAFES, INC.
SECOND QUARTER REPORT ON FORM 10Q-QSB
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) .................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition or Plan of Operation .......... 11
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
BALANCE SHEETS
(Unaudited)
A S S E T S
-----------
September 30, December 31,
1996 1995
------------- ------------
Current assets:
Cash and cash equivalents $ 365,494 $2,169,999
Accounts receivable, net of allowance
for doubtful accounts of $18,500 138,269 222,623
Inventory 157,275 91,631
Prepaid expenses and other current assets 143,122 100,532
---------- ----------
Total current assets 804,160 2,584,785
---------- ----------
Property and equipment, at cost, less
accumulated depreciation and amortization
of $158,727 and $37,702, respectively 1,733,035 1,477,062
---------- ----------
Other assets:
Deferred charges 137,305 -
Covenant not to compete 93,750 112,500
Goodwill 856,350 903,060
Security deposits 113,080 77,772
---------- ----------
Total other assets 1,200,485 1,093,332
---------- ----------
$3,737,680 $5,155,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 672,522 $ 387,630
Accrued expenses and other current liabilities 130,178 64,240
---------- ----------
Total current liabilities 802,700 451,870
---------- ----------
Deferred rent 60,253 23,207
---------- ----------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock - $.001 par value
Authorized - 2,000,000 shares
Issued - none
Common stock - $.001 par value
Authorized - 10,000,000 shares
Issued and outstanding - 2,560,000 shares 2,560 2,560
Additional paid-in capital 6,597,342 6,597,342
Accumulated deficit ( 3,725,175) ( 1,919,800)
---------- ----------
Total stockholders' equity 2,874,727 4,680,102
---------- ----------
$3,737,680 $5,155,179
========== ==========
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
1996 1995 1996 1995
----------------------- -----------------------
<S> <C> <C> <C> <C>
Net sales $2,688,886 $ 595,488 $ 916,320 $ 595,488
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales 1,969,906 358,474 691,454 358,474
Selling and administrative
expenses 2,560,867 502,115 896,528 460,582
---------- ---------- ---------- ----------
Total cost and expenses 4,530,773 860,589 1,587,982 819,056
---------- ---------- ---------- ----------
Loss from operations ( 1,841,887) ( 265,101) ( 671,662) ( 223,568)
Other income (expense):
Interest income (expense) 36,512 ( 65,226) 88 ( 65,226)
---------- ---------- ---------- ----------
Net loss ( 1,805,375) ( 330,327) ( 671,574) ( 288,794)
Accumulated deficit at
beginning of period ( 1,919,800) ( 58,579) ( 3,053,601) ( 100,112)
---------- ---------- ---------- ----------
Accumulated deficit at
end of period ($3,725,175) ($ 388,906) ($3,725,175) ($ 388,906)
========== ========== ========== ==========
Net loss per common share ($.66) ($.21) ($.25) ($.18)
========== ========== ========== ==========
Weighted average number of
common shares outstanding 2,723,404 1,573,404 2,723,404 1,573,404
========== ========== ========== ==========
</TABLE>
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,805,375) ($ 330,327)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 186,485 39,229
Deferred rent 37,046 -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable 84,354 ( 111,192)
Inventory ( 65,644) ( 40,000)
Prepaid expenses and other current assets ( 42,590) ( 78,498)
Security deposits ( 35,308) -
Deferred charges ( 137,305) ( 22,799)
Accounts payable and other current liabilities 350,830 297,904
----------- -----------
Total adjustments 377,868 84,644
----------- -----------
Net cash used in operating activities ( 1,427,507) ( 245,683)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of common stock - 800,000
Capital expenditures ( 376,998) ( 126,443)
Deposit on purchase of Greenberg's
Desserts Associates, L.P. - ( 2,229,200)
----------- -----------
Net cash used in investing activities ( 376,998) ( 1,555,643)
----------- -----------
Cash flows from financing activities:
Payment of deferred offering costs - ( 136,847)
Payment of deferred finance costs - ( 54,200)
Increase in amounts due to officer/stockholder - 54,933
Proceeds from loans payable - 2,000,000
----------- -----------
Net cash provided by financing activities - 1,863,886
----------- -----------
Net increase (decrease) in cash and cash equivalents ( 1,804,505) 62,560
Cash and cash equivalents at beginning of period 2,169,999 -
----------- -----------
Cash and cash equivalents at end of period $ 365,494 $ 62,560
=========== ===========
Supplemental Information:
Cash payments for the period:
Interest expense $ - $ -
=========== ===========
Income taxes $ 10,079 $ -
=========== ===========
</TABLE>
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE 1 - PREPARATION OF UNAUDITED FINANCIAL STATEMENTS.
William Greenberg Jr. Desserts and Cafes, Inc. (the "Company")
was incorporated in the State of New York on November 12, 1993 as CIP,
Inc. On August 23, 1994, its name was changed to Desserts and Cafes,
Inc. and in August 1995, its name was changed to William Greenberg Jr.
Desserts and Cafes, Inc. From November 1993 through July 1995, the
Company was a development stage company and did not generate any
revenues and did not carry on any significant operations. Management's
efforts were directed toward the development and implementation of a
plan to generate sufficient revenues in the bakery industry to cover
all of its present and future costs and expenses. On July 10, 1995,
the Company acquired the net operating assets of Greenberg Dessert
Associates Limited Partnership ("Greenberg's-L.P.") at which time the
Company commenced operations and ceased being a development stage
enterprise. The deficit accumulated by the Company during the
development stage aggregated $100,112.
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 1996 and the results of
operations for the nine and three month periods ended September 30,
1996 and 1995 and the cash flows for the nine months ended September
30, 1996 and 1995. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results of
operations of the Company which may be expected for any other interim
period or for the full year.
These financial statements should be read in conjunction with the
Company's financial statements and notes thereto for the year ended
December 31, 1995 appearing in its Annual Report on Form 10-KSB for
the year then ended.
6 of 19
<PAGE>
NOTE 2 - ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
On June 2, 1995, the Company entered into an agreement to
purchase the operating assets (net of $155,700 in assumed
liabilities), properties and rights of Greenberg's-L.P. for
$2,000,000, consisting of $1,967,300 in cash and a promissory note in
the amount of $32,700 ("the Acquisition"). The Acquisition, which was
consummated on July 10, 1995, was accounted for as a purchase. The
excess of the purchase price over the value of the net assets acquired
was recorded as goodwill. In addition, the Company incurred legal fees
of $26,000, which related to the Acquisition. Assuming the operating
assets of Greenberg's-L.P. been acquired at January 1, 1995, the
results of operations on a proforma basis for the nine months ended
September 30, 1995 would have been as follows:
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
1996 1995
------------- -------------
Net sales $2,080,312 $653,488
---------- --------
Cost of sales 1,291,552 395,474
Selling, general and
administrative expenses 1,089,991 455,575
Depreciation and
amortization expenses 65,174 39,007
---------- --------
2,446,717 890,056
---------- --------
Loss from operations ( 366,405) ( 236,568)
Interest expense ( 73,365) ( 65,226)
---------- --------
Net loss ($ 439,770) ($301,794)
========== ========
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment at September 30, 1996 consist of:
Furniture and fixtures $ 105,550
Equipment 615,581
Leasehold improvements 1,109,703
Construction in progress 60,928
----------
1,891,762
Less: Accumulated depreciation
and amortization 158,727
----------
$1,733,035
==========
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<PAGE>
NOTE 4 - SEGMENT INFORMATION.
The Company's operations are classified into two segments, retail
and wholesale. The following is a summary of segmented information as
of September 30, 1996 and for the nine and three month periods then
ended (actual) and 1995 (proforma basis which reflects the purchase of
the business of Greenberg's-L.P. as if it had occurred on January 1,
1994):
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
----------------------- -------------------
1996 1995 1996 1995
---------- ---------- -------- --------
(Actual) (Proforma) (Actual) (Proforma)
Operating data:
Net sales:
Retail $1,855,000 $1,433,000 $636,000 $426,000
Wholesale 834,000 647,000 280,000 227,000
---------- ---------- -------- --------
Total operating data 2,689,000 2,080,000 916,000 653,000
---------- ---------- -------- --------
Loss from operations:
Retail ( 1,156,000) ( 509,000) ( 453,000) ( 163,000)
Wholesale ( 686,000) ( 154,000) ( 219,000) ( 74,000)
---------- ---------- -------- --------
Total loss from operations ( 1,842,000) ( 663,000) ( 672,000) ( 237,000)
---------- ---------- -------- --------
Less: General corporate
income (expense) 37,000 ( 250,000) - ( 105,000)
---------- ---------- -------- --------
Net loss ($1,805,000) ($ 913,000) ($672,000) ($342,000)
========== ========== ======== ========
Balance sheet data:
As of
September 30,
1996
-------------
Identifiable assets:
Retail $1,101,000
Wholesale 1,177,000
----------
2,278,000
General corporate assets 1,460,000
----------
Total assets $3,738,000
==========
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<PAGE>
NOTE 5 - STOCKHOLDERS' EQUITY.
(a) Per Share Data:
Net loss per share for the nine and three months ended September
30, 1996 was computed by the weighted average number of shares
outstanding during the period and the assumed conversion of a warrant
issued in connection with the financing for the Acquisition into
163,404 shares of common stock.
Net loss per share for the nine and three months ended September
30, 1995 was computed by the weighted average number of shares
outstanding during the period.
(b) Stock Options:
(i) On January 13, 1996, stock options to purchase up to 20,000
shares of the Company's common stock were issued to a consultant and
are exercisable at $5.50 per share for a two year period as follows:
(a) Options to purchase 5,000 shares of the Company's common
stock are immediately exercisable.
(b) Options to purchase the additional 15,000 shares of the
Company's common stock are exercisable in increments of
5,000 shares at such time as the closing price of the
Company's common stock as reported by Nasdaq is $7.50, $9.00
and $10.50 per share, respectively.
(ii) In July 1996, the Company issued a option to a consultant to
purchase 50,000 shares of its common stock in exchange for, among
other things, services rendered by the consultant. The exercise price
of the option ($2.00 per share) was in excess of the fair market value
of the common stock at the date of grant. The option expires on
January 5, 1998; and, as of September 30, 1996, the consultant is
entitled to exercise the option with respect to 25,000 shares.
(c) Common Stock:
(i) In March 1996, the Company's former Chairman Willa Rose
Abramson pledged 400,000 common shares of the Company (representing
15.6% of the Company's then issued and outstanding common shares) to a
third party as collateral for a loan made to her spouse. The loan
matures in March 1997. Effective April 15, 1996, Ms. Abramson resigned
as a member of the Board of Directors and from the offices of Chairman
of the Board, Chief Financial Officer and Secretary and pursuant to
the terms of an agreement between the Company and Ms. Abramson, the
Company has agreed to continue to pay Ms. Abramson her salary and
benefits at their current levels for a period of up to 16 months.
(ii) Subsequent to September 30, 1996, the Company issued an
aggregate of 71,500 shares of its common stock to five entities in
satisfaction of indebtedness owed to them for consulting, legal and
employment services rendered.
9 of 19
<PAGE>
NOTE 6 - CONSULTING AGREEMENT.
The Company entered into a consulting agreements with unrelated
parties to provide accounting, financial and public relations
services. One agreement is for a period of two years at a monthly fee
of $2,500 and, subject to stockholder approval, an option to purchase
20,000 shares of the Company's common stock (see Note 5). The
agreement may be terminated by either party thereto upon thirty days
notice prior to the expiration of the first six months of the
agreement.
The other agreement is for financial services rendered in
connection with, among other things, the proposed acquisition of a
bakery (see Note 8). The consultant's compensation is an option to
acquire 50,000 shares of the Company's common stock at $2.00 per
share.
NOTE 7 - CERTAIN TRANSACTIONS.
In August 1996, the Company's Chairman and President, along with
three employees and consultants of the Company, each agreed to defer
receipt of up to 50% of their compensation due to them pursuant to
their respective employment on consulting agreements through December
31, 1996. Commencing in January 1997, these individuals will receive
the compensation due to them pursuant to such agreements and the
deferred compensation will be fully paid to them during 1997. One of
these consultants in November 1996 was issued 10,000 shares of the
Company's common stock as payment for the amount of compensation which
she had agreed to defer.
NOTE 8 - SUBSEQUENT EVENTS.
(a) In October and November 1996, the Company filed two registration
statements with the Securities and Exchange Commission to register the
shares issued to certain consultants and employees in satisfaction of
liabilities owed to them.
(b) On October 24, 1996, the Company entered into a letter of intent
with Mr. Philip Grabow in connection with the acquisition of all of
the outstanding stock of J.M. Specialties, Inc. ("JMS"), for an
aggregate purchase price of approximately $3.0 million, which is
expected to consist of $1,000,000 in cash, 450,000 shares of the
Company's common stock and 300,000 common stock purchase warrants with
an exercise price of $2.75 per share. JMS, doing business under the
name of Batter Bake, is engaged in the business of manufacturing,
selling and distributing a line of batter and frozen finished cakes,
brownies and muffins from its Parsippany, New Jersey facility. The
letter of intent will terminate if definitive agreements evidencing
the proposed transaction have not been executed and delivered by the
parties on or before November 30, 1996.
(c) The Company is currently in discussions with third parties to
finance the construction of three free-standing stores as well as ten
in-store locations at Macy's department stores. The proposed
construction and ensuing operations are expected to cost a total of
approximately $1,240,000 with one half of this amount expected to be
directed towards the free standing stores and the other half expected
to be spent on the completion of the Macy's in-store locations. The
Company has hired Goodfellow Financial Group, Inc. to serve as
financial consultant (the "Consultant") in obtaining the proposed
financing. In addition to a retainer of $7,500, the Consultant will
receive an amount equal to 5% of all funds secured on behalf of the
Company, and will be entitled to receive 50,000 common stock purchase
warrants with an exercise price of $2.50 per share upon raising a
minimum amount of $620,000.
10 of 19
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION
(a) General:
The Company was incorporated in November 1993 and was in the
development stage through July 1995. From April 1994 through June
1995, the Company assembled its core management, raised approximately
$600,000 from equity financing, and negotiated a definitive agreement
to purchase the operating assets and business of Greenberg's-L.P. In
July 1995, the Company completed the Acquisition for a purchase price
of $1,967,300 in cash and a promissory note for $32,700. In connection
with the Acquisition, the Company obtained a $2,000,000 term loan and
applied a portion of the net proceeds from its initial public
offering, consummated in October 1995, the pay in full the principal
and accrued interest under the term loan. The Acquisition was
accounted for as a purchase and the excess of the purchase price over
the value of the net assets acquired was recorded as goodwill.
Additionally, to the extent the Company may have taxable income
in future periods, there is available a net operating loss for federal
income tax purposes of approximately $3,000,000 which can be used to
reduce the tax on income up to that amount through the year 2010.
(b) Results of Operations:
Historical:
The Company from its inception on November 12, 1993 through July
10, 1995 was in the development stage and did not carry on any
significant operations nor generate any revenues. Management's efforts
were directed toward the development and implementation of a plan to
generate sufficient revenues in the baking industry to cover all of
its costs and expenses. During the nine and three months ended
September 30, 1995, the Company incurred costs and expenses of $22,000
in implementing its plan. $17,500 of these costs were paid to a
consultant who became the Company's president in 1995. The Company did
not generate any revenues until July 10, 1995 when it acquired
operating assets of Greenberg's-L.P. The Company's revenues aggregated
$2,689,000 for the nine months ended September 30, 1996. The cost of
goods sold were $1,970,000 for the period and selling, general and
administrative expenses were $2,561,000.
For the nine and three months ended September 30, 1996, the
Company had interest income of $37,000 and $-0-, respectively, which
arose from investing a portion of the net proceeds it received upon
the consummation of the initial public offering in highly liquid cash
equivalents. Interest expenses for the nine months ended September 30,
1995 was paid on the $2,000,000 term loan which was repaid in October
1996.
As a result, the net loss for the nine months ended September 30,
1996 was $1,805,000.
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<PAGE>
(b) Results of Operations: (Continued)
Historical: (Continued)
Insofar as the Company had no revenues prior to the Acquisition
in July 1995, management is of the opinion that a discussion of the
results of operations of the Company (and Greenberg's-L.P.) on a
pro-forma basis would be more informative than a comparative
discussion of the Company on a historical basis. Therefore,
management's discussion of the Company's results of operations for the
nine months ended September 30, 1996 as compared with the same period
in 1995 are based on the pro-forma segmental information found below
and reflects the purchase of Greenberg's-L.P. as if it had occurred as
of the beginning of the periods presented.
(c) Proforma:
Retail Segment:
The retail segment presently consists of five retail stores
located in Manhattan, New York including its cafe located in Macy's
Herald Square. The Company's fifth retail store opened in Manhattan in
May 1996. All baking is done at the Company's bakery which is located
on West 47th Street, New York, New York. From this location, baked
goods are supplied to retail stores as well as to wholesale customers.
The results of the retail segment is presented a proforma basis
and reflects the Acquisition as if it has occurred as of the beginning
of the periods presented.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, Percentage
-------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,855,000 100.0% $1,433,000 100.0% $422,000 - %
Cost of sales 1,206,000 65.0 807,000 56.3 399,000 8.7
---------- ----- ---------- ----- -------- ----
Gross profit 649,000 35.0 626,000 43.7 23,000 ( 8.7)
Selling, general and
administrative 1,674,000 90.2 790,000 55.1 884,000 35.1
Depreciation and
amortization 131,000 7.1 48,000 3.3 83,000 ( 3.8)
---------- ----- ---------- ----- -------- ----
Loss from operations ($1,156,000)( 62.3%)($ 212,000)( 14.7%)($944,000) (47.6%)
========== ====== ========== ====== ======== =====
</TABLE>
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<PAGE>
(c) Proforma: (Continued)
Retail Segment: (Continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, Percentage
-------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $636,000 100.0% $426,000 100.0% $210,000 - %
Cost of sales 405,000 63.7 206,000 48.3 199,000 15.4
-------- ----- -------- ----- -------- -----
Gross profit 231,000 36.3 220,000 51.7 11,000 ( 15.4)
Selling, general and
administrative 615,000 96.7 107,000 25.1 508,000 71.6
Depreciation and
amortization 69,000 10.8 ( 12,000) ( 2.8) 81,000 13.6
-------- ----- -------- ----- -------- -----
Loss from operations ($453,000) ( 71.2%) $125,000 29.4% $(578,000) 100.6%
======== ====== ======== ====== ========== ======
</TABLE>
The 29.4% and 49.3% increases in net sales during the nine and
three months ended September 30, 1996, respectively, as compared to
the same periods in 1995 were primarily due to the opening of two
cafes; one in Macy's Herald Square in November 1995 and another in
lower Manhattan in May 1996, and a general increase in same store
sales.
The increase in cost of sales as a percentage of sales for the
nine and three months ended September 30, 1996 as compared to the same
periods in 1995 is attributable to (i) an increase in baking personnel
and labor rates, (ii) increased costs in the development of new baked
products, and (iii) increases in the cost of ingredients and packaging
materials. The Company was unable to pass most of these increased
costs on to its customers.
The retail and wholesale divisions sell similar products which
are baked at the Company's centralized baking facility. Costs are
allocated to each division based upon the standard costs of the items
sold. Such costs consist of ingredients, direct labor and overhead.
Prior to the Acquisition, the wholesale division was considered an
outgrowth of the retail business and was therefore not considered a
separate business segment. Subsequent to the Acquisition, management
has concentrated their efforts on running the wholesale segment as a
separate and distinct business.
13 of 19
<PAGE>
(c) Proforma: (Continued)
Retail Segment: (Continued)
Selling, general and administrative expenses of the retail
segment consist of (i) expenses incurred in each of the five retail
stores and (ii) expenses allocated from the Company's centralized
operating facility which are based primarily on sales volume. The
increase in selling, general and administrative expenses during the
nine and three months ended September 30, 1996 as compared to the same
period in 1995 was primarily the result of (i) salaries paid to sales
personnel in its Cafe in Macy's Herald Square and its new retail store
in lower Manhattan, (ii) the allocation to the retail segment of
salaries of additional management and administrative personnel, and
(iii) increased compensation paid to prior management personnel
pursuant to consulting agreements entered into by the Company upon
consummation of the Acquisition in July 1995.
The increases in depreciation and amortization for the nine and
three months ended September 30, 1996 as compared with the same
periods in 1995 were attributable to depreciation on the Macy's Herald
Square Cafe and the new retail store in lower Manhattan as well as on
the write-up of assets purchased from Greenberg's-L.P. to appraised
values and amortization of goodwill which started on the date of
Acquisition.
The increase in the net loss for the nine and three months of
1996 as compared with the same periods in 1995 is primarily attributed
to increases in the cost of products sold and additional compensation
paid to officers and managerial personnel under their respective
employment and consulting agreements, which were entered into in the
first six months of 1995.
(d) Wholesale Segment:
The results of the wholesale segment is presented on a pro-forma
basis and reflects the Acquisition as if it had occurred at the
beginning of the periods presented:
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, Percentage
-------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $834,000 100.0% $648,000 100.0% $186,000 - %
Cost of sales 710,000 85.1 485,000 74.8 225,000 10.3
-------- ----- -------- ----- -------- ----
Gross profit 124,000 14.9 163,000 25.2 ( 39,000) ( 10.3)
Selling, general and
administrative 754,000 90.4 300,000 46.2 463,000 44.2
Depreciation and
amortization 56,000 6.7 17,000 2.7 39,000 ( 4.0)
-------- ----- -------- ----- -------- ----
Loss from operations ($686,000) ( 82.2%) ($154,000) ( 23.7%) $463,000 (58.5%)
======== ====== ======== ====== ======== =====
</TABLE>
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<PAGE>
(c) Proforma: (Continued)
Wholesale Segment: (Continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, Percentage
-------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $280,000 100.0% $228,000 100.0% $ 53,000 - %
Cost of sales 258,000 92.2 189,000 82.9 70,000 9.3
-------- ----- -------- ----- -------- ----
Gross profit 22,000 7.8 39,000 17.1 ( 17,000) ( 9.3)
Selling, general and
administrative 211,000 75.1 120,000 52.6 91,000 22.5
Depreciation and
amortization 30,000 10.6 ( 8,000) ( 3.5) 38,000 14.1
-------- ----- -------- ----- -------- ----
Loss from operations ($219,000) ( 77.9%) ($ 73,000) ( 32.0%) ($146,000) (45.9%)
======== ====== ======== ====== ======== =====
</TABLE>
The Company, through its institutional/wholesale segment,
distributes pastries, cakes, pies and other desserts to its customers
which include hotels, country clubs, gourmet markets, restaurants,
food shops and its customers which include corporate dining
facilities. All products are baked at the Company's baking facility
located in N.Y.C.
The 28.7% and 23.2% increases in the wholesale segment's net
sales for the nine and three months ended September 30, 1996 as
compared to the same periods in 1995 are attributable to the increase
in shipments to two nationwide restaurant chains.
Cost of sales as a percentage of sales increased by 10.3% and
9.3% for the nine and three months ended September 30, 1996,
respectively, as compared to the same periods in 1995. Such increases
were attributable to increases in both baking personnel and wage
rates, an increase in the cost of developing new baked products, and
increases in the cost of ingredients and packaging materials. Most of
these cost increases could not be passed on to the Company's
customers.
Selling, general and administrative expenses of the wholesale
segment for the nine and three months ended September 30, 1996
increased by $463,000 and $91,000, respectively, over the same periods
in 1995. Such increases were primarily the result of allocations to
the wholesale segment of the salaries of additional management and
administrative personnel, as well as increased compensation paid to
prior management personnel. The additional management personnel and
the additional compensation paid to prior personnel was the result of
the various employment and consulting agreements entered into by the
Company upon or subsequent to the consummation of the Acquisition in
1995.
15 of 19
<PAGE>
(d) Wholesale Segment: (Continued)
The increases in depreciation and amortization for the nine and
three months ended September 30, 1996 as compared with the same period
in 1995 were attributable to depreciation on newly acquired property
asset additions and the write-up of assets purchased from
Greenberg's-L.P. to appraised values and amortization of goodwill in
connection with the Acquisition.
The increases in the net loss for the nine and three months ended
September 30, 1996 as compared with the same periods in 1995 were
primarily attributed to lower margins caused by increases in the cost
of certain ingredients, baking salaries and new products coupled with
additional compensation paid to officers and managerial personnel
under their respective employment and consulting agreements entered
into by the Company in connection with the Acquisition of the business
of Greenberg's-L.P. and the Company's initial public offering.
(e) Plan of Operation:
In connection with the Acquisition, the Company in July 1995
implemented a business strategy designed to increase the retail,
institutional/wholesale and mail order operations of its business. The
Company's growth strategy is comprised of the following:
(1) Retail:
The Company intends to open additional retail facilities in the
North and Southeastern United States. These cafes and kiosks will
offer a broad selection of what the Company believes are premium
quality baked goods and desserts as well as sandwiches, soups and
salads, espresso, cappuccino and specialty coffees and teas.
Since July 1995, the Company opened its first cafe at Macy's
Herald Square in November 1995 and a second cafe on Broadway and
8th Street in New York City in May 1996. A third cafe which is
expected to open in late 1996 will start to go under construction
shortly. The Company opened in Macy's Cellar a second store in
Macy's Herald Square location on October 6, 1996. In addition,
the Company's completed the manufacture of its first four kiosks
and it opened the first cart on October 8, 1996 in Macy's
Huntington, Long Island store. The Company has a agreement to
open a cart or kiosk in six of Macy's stores located in shopping
malls in New Jersey.
(2) Institutional/Wholesale:
The Company plans to increase its penetration in the
institutional/wholesale food market by, among other things,
increasing its marketing efforts to restaurants, hotels and
corporate dining facilities and by offering its products to
supermarkets in New Jersey, New York, Florida and other states
and through specialty food retailers and mail order catalogue
businesses. The Company made its first appearance on the Home
Shopping Network in November 1996. The Company is to make
additional appearances on HSN in November and December of 1996.
(3) Mail Order:
The Company is expanding its current mail order business by,
among other things, offering additional catalogues and scheduling
special mailings to existing and prospective customers for
specific occasions.
16 of 19
<PAGE>
(e) Plan of Operation: (Continued)
(4) Kosher Foods:
The Company is also seeking to capitalize on the growth of the
kosher food industry. The Company has a kosher certification and
believes it can capitalize on the projected growth of this market.
The Company estimates that new construction start-up costs for
its cafes will range from approximately $150,000 to $175,000 for a
small cafe (600-800 square feet) and approximately $200,000 to
$350,000 for a full size cafe (800-1,200 square feet) and estimates
that the cost of converting existing restaurant space into a cafe will
be approximately $75,000. In addition, the Company estimates the
start-up costs for a kiosk to be between approximately $50,000 and
$65,000.
The Company believes that the cost of funding new cafes and
kiosks has and will continue to increase the Company's operating costs
and expenses primarily due to increased personnel and other corporate
operating costs required to operate the new cafes and kiosks. Each
cafe and/or kiosk will incur pre-operating expenses, such as
advertising and promotional costs, in order to encourage new and
repetitive consumer traffic. Until consumer traffic at each location
is sufficient to generate revenues to cover each location's costs and
a portion of the Company's overall corporate overhead, the Company
believes that the initial opening of each new location will have a
positive effect on net revenues but an adverse effect on earnings. For
the nine months ended September 30, 1996, the Company incurred an
aggregate of approximately $381,000 in capital expenditures of which
$128,000 relates to its cafe at Eighth Street and Broadway which
opened on May 1, 1996 and its cafe at 6th Avenue and 10th Street which
is about to go under construction, $54,000 was used on its four kiosks
which were completed during April 1996 and $65,000 was used for
computer hardware and software.
(f) Liquidity and Capital Resources:
At September 30, 1996, the Company had no working capital as
compared to working capital of $2,133,000 at December 31, 1995. Since
its inception, the Company's primary source of working capital has
been the proceeds received from the issuance of its common stock and
notes.
In June 1995, the Company issued 180,000 shares of common stock
to unrelated parties for $600,000 and in August 1995, the Company
issued 60,000 shares of its common stock to unrelated parties for
$200,000. In connection with the Acquisition of Greenberg's-L.P., the
Company received $2,000,000 from the sale of two notes to InterEquity
Capital Partners, L.P. ("InterEquity"). During October 1995, the
Company received net proceeds of $4,919,586 from the sale of 1,150,000
shares of its common stock in an initial public offering. Of the net
proceeds received from the initial public offering, $2,125,000 was
used to repay the InterEquity debt including interest. In addition to
the repayment of the InterEquity debt, the Company intended to use the
net proceeds to fund its planned expansion strategy and for general
corporate purposes, including working capital.
17 of 19
<PAGE>
(f) Liquidity and Capital Resources: (Continued)
In October 1995, InterEquity converted its $1,000 convertible
note issued in connection with the Acquisition into a six-year warrant
to purchase 6% of the Company's issued and outstanding capital stock
on a fully diluted basis at the time of exercise. Pursuant to the
warrant, the Company granted InterEquity an option to put those shares
acquired by InterEquity upon exercise of the warrant to the Company at
any time during the period from July 10, 2000 through July 31, 2005 if
the shares of common stock have not been listed or admitted to trade
on a national securities exchange and/or are not quoted on an
automated quotation system at the time at a price equal to a multiple
of earnings as defined in the agreement between the parties or a price
established by independent appraisal. Pursuant to the terms of the
loan agreement, the Company has granted InterEquity unlimited
"piggyback" registration rights upon exercise of the warrant.
During the nine months ended September 30, 1996, working capital
was used by the Company for the Acquisition of $381,000 in property
assets and to fund the operating loss incurred during the first nine
months of 1996.
The Company's management believes that the proceeds from its
initial public offering together with the projected cash flows from
operations, if any, will be sufficient to fund operations, including
its planned expansion, for at least the next four months. The Company
anticipates that it will need additional financing in the first half
of 1997. There can be no assurance, however, that the Company will
raise additional capital at that time or at any time prior to such
date if required. Although the Company has previously been successful
in obtaining sufficient cash and capital funds through issuances of
common stock and promissory notes, there can be not assurance that the
Company will be able to do so in the future.
(g) Inflation and Seasonality:
To date, inflation has not had a significant impact on the
Company's operations. The Company's revenues are affected by
seasonality with revenues anticipated to increase during holiday
seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
Passover.
18 of 19
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934 the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
Date: November 19, 1996 /s/ Maria Marfuggi
---------------------------------------------
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Financial Officer and
Officer duly authorized to sign
on behalf of the Registrant)
19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed balance sheet of William Greenberg Jr. Desserts and Cafes, Inc. as at
September 30, 1996 and the related condensed statement of operations for the
nine months ended September 30, 1996 and 1995 on Form 10-QSB and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 365,494
<SECURITIES> 0
<RECEIVABLES> 156,769
<ALLOWANCES> (18,500)
<INVENTORY> 157,275
<CURRENT-ASSETS> 804,160
<PP&E> 1,891,762
<DEPRECIATION> (158,727)
<TOTAL-ASSETS> 3,737,680
<CURRENT-LIABILITIES> 802,700
<BONDS> 0
0
0
<COMMON> 2,560
<OTHER-SE> 2,872,167
<TOTAL-LIABILITY-AND-EQUITY> 3,737,680
<SALES> 2,688,886
<TOTAL-REVENUES> 2,688,886
<CGS> 1,969,906
<TOTAL-COSTS> 4,530,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,805,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,805,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,805,375)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
