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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the fiscal year ended Commission File
December 31, 1996 Number 1-13984
William Greenberg Jr. Desserts and Cafes, Inc.
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(Name of Small Business Issuer in Its Charter)
New York 13-3832215
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
222 New Road, Parsippany, NJ 07054
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (201) 808-8248
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, $.001 per share Boston Stock Exchange
Securities registered under Section 12 (g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
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Issuer's revenue for its most recent fiscal year was $4,232,616. As of
March 31, 1997 there were 3,155,500 shares of Company's Common Stock par value
$.001 per share outstanding. The aggregate market value of the voting stock held
by non-affiliates of the issuer on March 31, 1997 was approximately $5,104,830.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of the Form 10-KSB is
incorporated by reference from the registrant's definitive proxy statement or
amendment hereto which will be filed not later than 120 days after the end of
the fiscal year covered by this report.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
RECENT DEVELOPMENTS
JMS ACQUISITION
On January 17, 1997, William Greenberg Jr. Desserts and Cafes, Inc. (the
"Company") entered into a stock purchase agreement (the "Stock Purchase
Agreement") with Philip Grabow ("Grabow"), pursuant to which, on January 23,
1997, the Company consummated the purchase from Grabow of all the outstanding
shares of J.M. Specialties, Inc., a New Jersey corporation (the "JMS
Subsidiary"), in exchange for (i) $900,000 in cash, (ii) 500,000 shares (the
"Shares") of the Common Stock of the Company and (iii) 350,000 warrants (the
"Warrants") exercisable for shares of Common Stock of the Company (the
"Transaction"). Each Warrant entitles Grabow to purchase one share of Company
common stock at the exercise price of $2.50 per share until December 31, 2000.
In connection with the Stock Purchase Agreement, Grabow and the Company
also entered (i) a registration rights agreement, dated as of January 23, 1997,
regarding the terms of the registration of the Shares of Common Stock of the
Company issuable upon exercise of the Warrants, and (ii) an employment agreement
dated as of January 23, 1997. Pursuant to the employment agreement, Grabow will
serve as President and Chief Executive Officer of the Company at an annual
salary level of $250,000 for the first year, and a minimum of $150,000
thereafter. Also in connection with the Transaction, effective January 23, 1997,
Grabow was elected to serve as a director of the Company. As a result of the
Transaction, Grabow beneficially owns 850,000 shares (or 24.5%) of the Common
Stock of the Company.
With the Acquisition of the JMS Subsidiary, the Company now also offers
a line of batter and frozen-finished cakes, brownies and muffins, with muffins
which constitute approximately 90% of the JMS Subsidiary sales. These products
are produced in batches using partially automated equipment at the JMS
Subsidiary facility in Parsippany, New Jersey. The products are sold to
wholesale customers as well as supermarket distribution centers and are marketed
primarily through food distribution companies in New York and New Jersey. The
management of the Company believes that distributors sell approximately 40% of
the product to supermarkets and 60% to food service customers such as hospitals,
colleges and corporate dining rooms.
To develop new accounts, the JMS Subsidiary sales personnel present the
product at food shows, contact possible customers directly to have them order
the product from their distributor and through direct mailings to customers. The
JMS Subsidiary's current food distribution customers include Sysco, Alliant
Foods, Rykoff/Sexton and over 75 other accounts consisting of distributors to
supermarkets, hospitals, colleges, corporate dining facilities and food
distribution companies.
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The JMS Subsidiary sells its products to customers such as Restaurant
Associates (New York City), the United Nations Food Operation, the Museum of
Natural History Restaurant and Food Operations of the World Trade Center as well
as many others. The Company management estimates that the muffin batters of the
JMS Subsidiary currently represents approximately 70% of revenues and baked
products represent 30%.
The JMS Subsidiary started business in October 1984 as a company making
gourmet batter products. The product line was then extended to sugar-free, then
fat-free and finally frozen-finished baked products. According to the Company
management, this change reflects a change in the market place where consumers
wanted more fat-free products and customers wanted frozen-finished products to
minimize customer time to bake and finish batter product. Management of the
Company believes that the reputation of the JMS Subsidiary has grown
considerably as a result of the products' taste, texture and price value. The
product has no preservative, hydrogenated oils or chemicals; rather, it uses
natural ingredients.
In connection with the Transaction, the Company transferred all of the
business assets owned by the Company to a wholly-owned subsidiary in exchange
for all of the issued and outstanding shares of common stock of such entity (the
"WGJ Subsidiary"). As a result, the Company currently acts as holding company
with two wholly-owned subsidiaries, the JMS Subsidiary and the WGJ Subsidiary.
Subject to obtaining consent of the Company's stockholders, the Company intends
to change its name to a name more descriptive of its operations.
The payment of the cash portion of the purchase price for the JMS
Subsidary and such working capital, was funded through the net proceeds received
from the sale by the Company of 1,500,000 common stock purchase warrants (the
"Private Placement Warrants") at a price of $1.10 per Private Placement Warrant
to a limited number of purchasers that qualify as "accredited investors" under
the Securities Act of 1933. The terms of the Private Placement Warrants are
substantially similar to the Warrants.
On March 20, 1997, in a press release, the Company President and Chief
Executive Officer, Mr. Philip Grabow stated that "The Company is also exploring
the possibility of a spin-off of the Greenberg division or a sale of some or all
of the retail stores." Since that time, the Company has retracted that plan.
Instead the Company now intends to hold onto the WGJ Subsidiary and return it to
profitability before contemplating any future spin-off or sale.
CHATTERLEY ELEGANT DESSERTS, INC.
As of March 28, 1997, the Company entered into a letter of intent to
acquire Chatterly Elegant Desserts, Inc. However, no definitive agreements have
been executed, and there can be no assurances that any agreement will be
reached.
TERMINATION OF EMPLOYMENT OF SENIOR MANAGAMENT ON APRIL 1,
1997
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As of April 1, 1997, persuant to settlement discussions, the employment
of Stephen Fass, a director and President of the WGJ Subsidiary, Maria Marfuggi,
a director and President of of the JMS Subsidiary, and Seth Greenberg, President
of the WGJ Subsidiary's baking division, terminated. At the present time, the
respective parties have not yet concluded their settlement discussions.
Management intends to seek an amicable settlement with the named parties as a
result of such terminations; however, each of the named parties have an
employment agreement with the Company.
FINANCIAL CONDITION OF THE COMPANY
As will appear from the financial statements included in this filing,
the Company reported a net loss for the fiscal year ended December 31, 1996 of
$4,978,127, and as of December 31, 1996 had a working capital deficiency in the
amount of $1,133,747. See the accompanying financial statements and the
auditor's report thereto as well as the Management's Discussion and Analysis of
Financial Condition and Plan of Operations.
GENERAL
The WGJ Subsidiary offers a broad line of premium quality pastries,
cakes, pies, cookies and other assorted desserts which are produced by hand at
its bakeries, and marketed through its six retail stores in New York City, four
kiosks in department stores in the New York metropolitan area, its
institutional/wholesale division and its mail order division. Greenberg's
current institutional/wholesale customers include Alliant Food Service (for
distribution to Planet Hollywood Restaurants), Starbucks and over 70 other
accounts at restaurants, hotels and corporate dining facilities.
William Greenberg, Jr. opened his first bakery in 1946 and over the
years his reputation has grown principally as a result of an excellent group of
union bakers responsible for his distinctive style of artistically decorated
theme cakes, word-of-mouth and favorable reviews of his baked goods and
desserts. The WGJ Subsidiary provided theme cakes for Irving Berlin's 85th
birthday party, where its cake was presented on stage at Carnegie Hall, and for
the opening of the I.M. Pei wing at the National Gallery in Washington, D.C. In
addition, one of its theme cakes was on display in the Smithsonian Museum's
American Crafts show "The Confectioner's Art" which toured throughout the United
States. In 1996, U.S. President William Clinton's 50th birthday cake was a WGJ
Subsidiary theme cake. Referred to as "The Bakery of Choice for Native New
Yorkers," the WGJ Subsidiary has received favorable reviews in the New York
Times and the local New York press for its hand-made baked goods, including its
apple pie, pecan pie, cheesecake and black & white cookies. In 1991, the WGJ
Subsidiary won the award for "Best Cookies" in New York City in a retail market
survey conducted by Zagat's Market Survey.
In July 1995, the Company acquired the operating assets and assumed
certain liabilities of Greenberg's-L.P. (the "Greenberg Acquisition"). In
connection with the Greenberg Acquisition, the Company developed and is
currently implementing a business strategy designed
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to increase the retail, institutional/wholesale and mail order operations of its
business.
In October 1995, the Company successfully completed the initial public
offering of its securities for sale to the public. The offering resulted in the
sale of 1,115,000 shares of the Company's common stock at a price of $5.25 per
share with proceeds to the Company, net of offering costs of $1,118,914,
aggregating $4,918,586. The sale resulted in additional paid-in capital of
$4,917,436. The Company and its directors, officers, and shareholders owning
more than 5% of the Common Stock agreed with the representative of the
Underwriter not to directly or indirectly register, issue, offer, sell, offer to
sell, contract to sell, hypothecate, pledge, or otherwise dispose of any shares
of Common Stock, or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a period of 12 months from the
effective date of the Company's initial public offering without the prior
written consent of the Underwriter.
The Company was incorporated in November 1993. The Company's executive
offices are located at 222 New Road, Parsippany, NJ 07054 and its telephone
number is (201) 808-8248.
As used herein the "Company" refers to William Greenberg Jr. Desserts
and Cafes, Inc., a state of New York corpoation, and its two wholly owned
subsidiaries, J.M. Specialties, Inc., a New Jersey corporation (the "JMS
Subsidiary") and WGJ Deserts and Cafes, Inc. (the "WGJ Subsidiary").
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BUSINESS STRATEGY
The Company's growth strategy is comprised of the following:
Retail. The WGJ Subsidiary has six retail stores located in New York
City, including one at Macy's Herald Square. The WGJ Subsidiary also has four
kiosks in department stores in the New York metropolitan area. The WGJ
Subsidiary intends to open additional retail and kiosk facilities in the
Northeastern United States under the name William Greenberg Jr. Desserts and
Cafes. These cafes and kiosks will offer a broad selection of what the Company
believes are premium quality baked goods and desserts, a broad selection of
espresso, cappuccino and specialty coffees and teas. With the Acquisition of the
JMS Subsidiary, the Company intends to add the JMS Subsidiary's products to
those available at the Company stores. The Company's plans to place its cafes
and kiosks in select highly-visible, densely populated urban areas which are
easily accessible to its customers. The Company recently concluded a lease for
an additional WGJ Subsidiary cafe in New York City and expects to open an
additional three WGJ Subsidiary kiosks in 1997.
The design of the WGJ Subsidiary cafe at Macy's Herald Square will be
the format used for its other cafes and kiosks. In order to create an
environment reminiscent of a 1950's New York City bakery, the WGJ Subsidiary
designs incorporate soft wood tones with tin ceilings, brass chandeliers and
sconces.
The WGJ Subsidiary expects to open additional cafes and/or kiosks in
1997. The WGJ Subsidiary is considering locations in office buildings and
regional shopping malls. The WGJ Subsidiary plans to strategically locate its
cafes and kiosks to take advantage of operating and marketing efficiencies.
Management believes that its product assortment and its commitment to
quality and customer service will enable the WGJ Subsidiary to become a premier
retailer of specialty desserts and coffee. Prior to the Acquisition in July
1995, Greenberg's-L.P. focused primarily on its retail operations which
accounted for approximately 68.8%, 68.2% and 66.9% of sales for the years ended
December 1996, 1995 and 1994, respectively.
Institutional/Wholesale. With the acquisition of the JMS Subsidiary, the
Company plans to increase its penetration in the institutional/wholesale food
market by expanding its marketing efforts to restaurants, hotels and corporate
dining facilities and by offering its products to supermarkets on a national
basis. The WGJ Subsidiary institutional/wholesale division accounted for
approximately 31.2%, 31.8% and 33.1% of total sales for the years ended December
31, 1996, 1995 and 1994, respectively. The Company plans to expand both its
product lines and geographic lines and geographic distributions through the
following strategies:
Expand geographic distribution by acquiring new food distributors in the
Connecticut and Philadelphia areas as well as key distributor areas
throughout the United States. To do this, the Company intends to appoint
food brokers in
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various states to handle sales on a commission-only basis;
Continue to expand the fat-free product line for the penetration of its
existing customers as well as new customers; and
Enter into co-packing arrangements whereby the Company would introduce
private label products of other bakery operations.
Mail Order. The WGJ Subsidiary is offering its products through other
specialty food retailers and through its mail order catalogue business.
Mailorder sales accounted for approximately 1%, 1% and 1% of total sales of
the WGJ Subsidiary for the year ended December 31, 1996, 1995 and 1994,
respectively.
Kosher Foods. The Company also is seeking to benefit from the growth of
the kosher food industry. According to Prepared Foods, the kosher food industry
generated approximately $33 billion in sales in 1994 and has been growing at a
rate of approximately 15% per annum. The WGJ Subsidiary and the JMS Subsidiary
each have a kosher certification and the Company believes that it can benefit
from the projected growth of this market.
BUSINESS PHILOSOPHY
High-Quality Ingredients. The Company believes that developing and
maintaining premium quality products is the key to its future success. The
Company uses fresh ingredients in its products including, AA creamy butter,
fresh eggs, premium fruits, nuts, and chocolates blended for the Company's
unique recipes. The Company seeks to maintain rigorous standards for freshness,
quality, and consistency.
Customer Service. The Company's goal is to provide its customers with
warm, courteous and efficient service. The Company depends on and enjoys a high
rate of repeat business. The Company believes that the quality of the
relationship between its employees and its customers is critical to its success.
The Company strives to hire and train well-qualified, highly motivated employees
committed to providing superior levels of customer service.
PRODUCTS
Baked Goods
The WGJ Subsidiary markets a full line of premium quality, hand-made
baked products under the name "William Greenberg Jr. Desserts." Additionally,
with the acquisition of the JMS Subsidiary, the Company has now expanded its
offerings to include a line of frozen batter and baked products. In addition to
the products listed below, the Company continues to develop new products and
welcomes customer requests. All the WGJ Subsidiary's products are offered on a
wholesale and retail basis and approximately 20 select items are currently
available through
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its mail order division.
The JMS Subsidiary offers a variety of Gourmet Frozen Muffin Batter
products, No Sugar Added Batters, as well as a selection of Fully Baked Thaw &
Sell
KOSHER FOODS
Kosher foods generally are consumed by persons of the Jewish faith as
well as Muslims, Seven Day Adventists and others who perceive kosher
certification as a seal of purity. Kosher is a biblical term originally used to
denote that which is "fit" and "proper."
The Company's subsidiaries have kosher certifications and the Company
believes that it can capitalize on the projected growth of this market. The
Company believes that its kosher certifications will enable it to better
penetrate certain market areas such as the Upper West Side of Manhattan, the
"Five Towns" area in Long Island, New York, sections of Rockland County, New
York and sections of New Jersey and Florida. The Company's products are not
kosher for Passover.
CUSTOMERS
RETAIL
The WGJ Subsidiary sells its products directly to individual consumers
at its six retail store locations in New York City, including its cafe and
cellar bakery at Macy's Herald Square as well as its four kiosks located at
department stores in the New York metropolitan area. The Company strives to
satisfy its customers every time they purchase a WGJ Subsidiary product. The WGJ
Subsidiary depends on and enjoys a high rate of repeat business. The WGJ
Subsidiary also sells its specialty desserts to customers for parties, weddings,
bar mitzvahs and other special occasions. As stated in the Zagat's Market
Survey, "a special occasion does not exist without a Greenberg's cake."
INSTITUTIONAL/WHOLESALE
The WGJ Subsidiary, through its institutional/wholesale division,
distributes pastries, cakes, pies, frozen batter baked goods, and other
desserts, to hotels, country clubs, restaurants, gourmet markets, food shops and
corporate dining facilities. Sales of this division were approximately $976,073
(33.1%) of total sales for the year ended December 31, 1994, approximately
$1,007,000 (31.8%) of sales for the year ended December 31, 1995 and
approximately $1,319,886 (31.2%) of sales for the year ended December 31, 1996.
The WGJ Subsidiary's largest institutional/wholesale customers are
Alliant which currently purchases one product for its Planet Hollywood
Restaurants and Starbucks, which purchases 8 items for its stores in the New
York City Metropolitan area.
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MAIL ORDER
The WGJ Subsidiary sells its products through mail order. Select
products are shipped via overnight delivery and second day delivery throughout
the United States and internationally. The Company has a toll-free number (800)
564-2470 for its mail order operations.
INGREDIENTS AND PRINCIPAL SUPPLIERS
The Company seeks to use only the highest quality ingredients available.
The Company has a policy of inspecting all raw ingredients before their intended
use.
The ingredients used by the Company consist primarily of flour, eggs,
sugar, butter and chocolate. The WGJ Subsidiary obtains its principal
ingredients from three suppliers in each of their respective industries. All
ingredients used by the Company are subject to substantial price fluctuations.
The Company historically has been able to pass any significant price increases
in its ingredients through to its customers. However, no assurance can be given
that the Company will be able to continue this practice in the future. Any
substantial increase in the prices of ingredients used by the Company could, if
not offset by a corresponding increase in product prices, have a material
adverse effect on its business, financial condition or results of operations.
The Company does not believe the loss of any of its suppliers would have a
material adverse effect on its business and believes that other suppliers in the
New York City metropolitan area could readily provide such products if
necessary.
DISTRIBUTION AND MARKETING
The WGJ Subsidiary currently bakes almost all of its products at its
5,000 square foot baking facility in New York City. Some of the baking of the
WGJ Subsidiary's products will be moved to the JMS Subsidiary's 32,000 square
foot facility in New Jersey. Although the utilization of the WGJ Subsidiary
baking facility varies from time to time based on seasonal fluctuations, the
facility is operating at approximately 30% of capacity on the average. The
Company believes the WGJ Subsidiary facility should have the capacity to meet
its requirements, including those arising out of its growth strategy, for the
next 2 to 3 years. The WGJ Subsidiary delivers primarily all of its products by
truck to its retail stores and its institutional/wholesale customers in the New
York City metropolitan area. Some of the WGJ Subsidiary's retail and
institutional/wholesale customers pick up their orders directly at its bakery
and utilize their own distribution networks. The WGJ Subsidiary also ships
products throughout the United States and internationally via overnight or
second day delivery service.
The JMS Subsidiary bakes all of its products at its 32,000 square foot
facility in Parsippany, New Jersey. Although utilization of the facility varies
based on seasonal fluctuation, the facility is operated on the basis of two
shifts, five days a week. Since the JMS Subsidiary uses only about half of its
facility, the Company management believes that the JMS Subsidiary has the
capacity to meet future requirements, including those arising out of the
consolidation with the Company. The JMS Subsidiary delivers 90% of its products
by truck to its
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institutional/wholesale customers. About 10% of its customers pick up their
orders directly at the bakery and utilize their own distribution networks.
Historically, the WGJ Subsidiary has relied upon word-of-mouth and
customer satisfaction to market its products to new customers and to make
existing customers aware of new products. The WGJ Subsidiary has increased its
advertising and promotional activities by emphasizing consumer awareness of its
name and the quality of its products, including placing advertisements in local
newspapers and magazines.
COMPETITION
The baking industry is a highly competitive and highly fragmented
industry. The Company competes with national, regional and local bakeries as
well as supermarket chains that have in-store bakeries. Many of these
competitors are larger, more established and have greater financial and other
resources than the Company. Competition in both the retail and
institutional/wholesale baking industry is based on product quality, brand name
loyalty, price and customer service.
The WGJ Subsidiary cafes and kiosks compete with all restaurants and
beverage outlets that serve bakery items and/or coffee, including a growing
number of specialty coffee stores in the New York City metropolitan area,
although its main business continues to be as a full service bakery servicing
wholesale and retail clientele. The specialty coffee/cafe business has become
increasingly competitive and relatively few barriers exist to entry. Some of the
WGJ Subsidiary's major competitors include Au Bon Pain, Brothers Gourmet
Coffees, Edlair, New World Coffee, Starbucks and Timothy's Coffee of the World.
With the exception of Au Bon Pain and Eclair, the Company believes that none of
these competitors bake their own products. Some of the JMS Subsidiary's major
competitors include Karps, Bake-N-Joy, Pillsbury, and Quaker Oats. Competitors
with significant economic resources in the baking industry or existing
non-specialty and specialty coffee/cafe businesses could, at any time, enter the
institutional/wholesale or retail bakery/cafe business.
TRADEMARKS
The WGJ Subsidiary has trademarks registered with the United States
Patent and Trademark office for the trademarks Wm. Greenberg Jr.'tm', William
Greenberg Jr.'tm', William Greenberg Jr. Dessert'tm' and William Greenberg Jr.
Desserts and Cafes'tm'. The JMS Subsidiary has a trademark and design registered
with the United States Patent and Trademark office for The Healthy Bakery'tm'
(US Registration No. 1,644,559). While the Company believes that the trademarks
are valid and enforceable, there can be no assurance as to the degree of
protection its registered trademarks will afford the Company.
GOVERNMENT REGULATION
The Company is subject to numerous state regulations relating to the
preparation and sale
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of food. It is also subject to federal and state laws governing the Company's
relationship with employees, including minimum wage requirements, overtime,
working and safety conditions, and citizenship requirements. The failure to
obtain or retain required food licenses or to be in compliance with applicable
governmental regulations, or any increase in the minimum wage rate, employee
benefits costs (including costs associated with mandated health insurance
coverage) or other costs associated with employees, could adversely affect the
business, results of operations or financial condition of the Company.
EMPLOYEES
As of April 1, 1997, the WGJ Subsidiary had approximately 42 full-time
employees and 23 part-time employees, of whom 14 are employed as bakers, 28 are
employed in retail, and 7 are in excutive positions and/or general
administrative positions. Some of these employees have worked for the Company
and its predecessors for over 20 years.
Most of the WGJ Subsidiary employees are represented by unions.
Unionized workers are generally members of either the United Food and Commercial
Workers Union Local 1500 or the Bakery, Confectionery and Tobacco Workers
International Union AFL-CIO Local 3. Greenberg's believes it has good relations
with all of its union and non-union employees.
As of April 1, 1997, the JMS Subsidiary had approximately 29 full-time
employees, of whom 21 are employed in the product, 5 are employed in sales, 2
are in administration, and 1 is in an executive position. The JMS Subsidiary
does not have a union, but the Company management believes it has good relations
with all the employees of the JMS Subsidiary.
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ITEM 2. DESCRIPTION OF PROPERTY
As of February 28, 1997, the Company leases the WGJ Subsidiary's six
retail stores (including its cafe at Macy's) and the Company's two baking
facilities, all of which are located in New York City, or Parsippany, New
Jersey. The Company currently leases approximately 3,600 square feet of retail
space and 37,000 square feet, for its baking facilities. The Company believes
that its existing leases will be renewed as they expire or that alternative
properties can be leased on acceptable terms. The Company believes that its
present facilities are well maintained, in good condition and are suitable for
the Company to continue to operate and meet its production needs in the
foreseeable future, including the needs generated by its growth strategy. The
following table summarizes certain information with respect to the Company's
leases:
<TABLE>
<CAPTION>
Approximate Expiration
Location Square Feet Description Date
-------- ----------- ----------- ----
<S> <C> <C> <C>
1100 Madison Avenue, NYC 560 Retail February 1999
2187 Broadway, NYC 450 Retail July 1999
518 Third Avenue, NYC 540 Retail March 2001
533 West 47th Street, NYC 5,000 Baking July 2006
222 New Road, Parsippany, NJ 32,000 Baking April 31, 1998
Macy's Herald Square 500 Retail Upon 90 days notice
60 East 8th Street, NYC 650 Retail May 2003
434 Sixth Avenue, NYC 900 Retail June 2006
</TABLE>
MACY'S LICENSE AGREEMENT
The Company entered into a departmental license agreement (the
"License"), dated as of February 1995, with Macy's East, Inc. ("Macy's"). The
License grants the Company the right to operate, subject to certain terms and
conditions, a William Greenberg Jr. Desserts and Cafe as a department of Macy's
until July 31, 1996, with an automatic renewal provision for successive one year
periods, if the Company is not in default under the License. This location has
been operating since November 1995. Under the terms of the License, during the
initial term, Macy's has the unilateral right to terminate the License upon 90
days prior notice. Additionally, during each renewal term either party has the
right to terminate the License upon 90 days notice prior to the expiration of
the renewal term. Any such termination will have an adverse effect on the
Company's results of operations. Pursuant to the terms of the License, the
Company has agreed to pay Macy's an annual license fee of 10% of net sales
generated from this cafe. The Company has also agreed that all employees, except
for management personnel, at this location will be employees of Macy's. The
Company has agreed to reimburse Macy's for the wages, salaries, employee
benefits and business expenses of its employees at this cafe. In addition,
pursuant to the terms of the License the Company is required to spend an amount
equal to 3% of its net sales from this cafe on advertising.
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The Company has also concluded a lease for an additional WGJ Subsidiary
cafe in Manhattan for 900 square feet and plans to open this cafe in 1997. In
connection with the opening of this cafe, the Company entered into a 10-year
lease for 900 square feet of retail space, expiring in June of 2006.
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ITEM 3. LEGAL PROCEEDINGS
The Company is currently subject to the following legal proceedings:
1. A summary non-payment proceeding seeking approximately $23,000 in
damages, commenced by Harran Holding Corp., the Company's landlord at
434 Avenue of the Americas. This proceeding was commenced on February
20th, 1997. As of April 1, 1997 this ligation has been settled, and
construction is proceeding at this store.
2. A summary non-payment proceeding seeking approximately $17,000 in
damages, commenced by Stanley Stahl, the Company's landlord at 2187
Broadway. This proceeding was commenced on March 10th, 1997. As of April
1, 1997 this litigation has been settled.
3. A summary non-payment proceeding seeking approximately $7,000 in
damages, commenced by Rugby Managed Asset Fund, the Company's landlord
at 166 East 35th Street a/k/a 518 Third Avenue. This proceeding was
commenced on March 4, 1997. As of April 1, 1997 this ligation has been
settled.
4. A civil court action seeking approximately $7,000 for advertising fees,
commenced by Kratz & Company, Inc. This proceeding was commenced on
March 11, 1997.
5. A mechanics' lien seeking approximately $6,000 in damages, commenced by
KLM Construction Management Inc. This proceeding was commenced on
January 7, 1997. The Company has been attempting to settle this matter
without further litigation, but as of yet there has been no final
settlement.
6. As of April 1, 1997, pursuant to settlement discussions, the employment
of Stephen Fass, a director and President of the WGJ Subsidiary, Maria
Marfuggi, a director and President of the JMS Subsidiary and Seth
Greenberg, president of the WGJ Subsidiary's baking division,
terminated. At the present time, the respective parties have not yet
concluded their settlement discussions. The Company intends to seek an
amicable settlement, including the employment agreements, with the named
parties as a result of such termination. However, on April 11, 1997 an
action was commenced by William Greenberg Jr. and Seth Greenberg against
the Company, seeking summary judgement in lieu of a complaint, based on
their Consulting Agreements with the Company for payment of $14,615.40
to William Greenberg Jr. and $15,769.24 to Seth Greenberg. The parties
believe that an amicable solution can be reached.
7. Andersen Rogan Ross Temporary Personnel Inc. v. William Greenberg Jr.
Desserts and Cafes Inc.: By letter dated March 18, 1997, counsel for
Andersen Rogan Ross Temporary Personnel Inc. ("Temp Personnel") advised
the company that it had been retained to commence an action against the
Company for temporary labor provided to the Company in the amount of
$19,678.46, plus interest from December 9, 1996. While a
15
<PAGE>
<PAGE>
copy of the summons and complaint accompanied the March 18th letter,
such summons and complaint have not yet been served on the Company. As
provided in the March 18th letter, counsel for Temp Personnel was
notified that the validity of the debt is disputed, and according to the
March 18th letter, having disputed the debt, the Company will not be
provided with verification of the debt.
16
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
17
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Small Cap Market
under the symbol "BAKE" and the Boston Exchange under the Trading symbol "BYK".
The following table sets forth the range of quarterly high and low bid prices,
as reported on the NASDAQ SmallCap Market, during the period from October 13,
1995 (the date the Company's Common Stock began trading) through Febuary 28,
1997.
<TABLE>
<CAPTION>
Period High Low
- ----------------------------------------------------------
<S> <C> <C>
FISCAL YEAR 1995:
October 13, 1995-December 1995 $5 13/16 5 1/4
FISCAL YEAR 1996:
First Quarter 5 3/4 4 1/2
Second Quarter 5 3/4 2 1/8
Third Quarter 3 3/4 1 5/8
Fourth Quarter 3 1/2 1 1/2
FISCAL YEAR 1997:
First Quarter (through February 28, 2 2/16 1 1/2
1997)
</TABLE>
The number of shareholders of record of the Common Stock on February 28,
1997 was 22, excluding 1,146,240 shares of Common Stock held by Cede & Co. The
Company believes that it has in excess of 500 shareholders.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. The payment of future
cash demands by the Company on its Common Stock will be at the discretion of the
Board of Directors and will depend upon the Company's earnings (if any), general
financial condition, cash flows, capital requirements and other considerations
deemed relevant by the Board of Directors.
18
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND 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 to 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.
At December 31, 1996 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 $4,600,000 which can be
used to reduce the tax on income up to that amount through the year
2011.
(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. The Company did not generate any revenues until July
10, 1995 when it acquired the operating assets of Greenberg's-L.P.
The Company's revenues aggregated $4,233,000 and $1,741,000 for
the years ended December 31, 1996 and 1995, respectively. The cost of
goods sold was $3,110,000 in 1996 and $1,281,000 in 1995. Selling,
general and administrative expenses were $3,836,000 in 1996 and
$1,340,000 in 1995. As a result, the loss from operations for 1996 was
$2,713,000 as compared to a loss from operations of $911,000 for 1995.
During the fourth quarter of 1996, the Company recorded a
$450,000 charge for management's estimate of the costs for actions aimed
at restructuring the Company in order to reduce operating costs and
enhance the Company's focus and efficiency. The restructuring charge was
predominately comprised of costs associated with renegotiating executive
employment contracts, severance costs associated with the elimination of
certain positions and provision for lease obligations on certain retail
stores.
19
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<PAGE>
In connection with the restructuring plan, the Company determined
the carrying value of its baking equipment, furniture and fixtures and
leasehold improvements exceeded their fair market value. Therefore, a
provision for impairment losses aggregating $797,559 was charged and
included as part of other expenses in the accompanying statement of
operations. Such impairment loss represents the excess of the carrying
value of $1,647,559 over management's estimate of the fair market value
of the assets of $850,000.
In addition, management has determined that unamortized goodwill
at December 31, 1996 of $840,780 which was recorded upon the acquisition
of the net operating assets of Greenberg's-L.P., has no continuing value
and, accordingly, was charged to operations in 1996.
For the year ended December 31, 1996, the Company earned interest
income of $42,000 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 expense for 1996
was paid on the $2,000,000 term loan which was repaid in October 1996.
The 1996 and 1995 statements of operations reflect a charge in
the amount of $11,775 and $856,871, respectively, which represents the
fair market value of a warrant to acquire 3,925 and 163,404 shares,
respectively, of common stock issued to a lender in order to obtain
financing for the purchase of the operating assets of Greenberg's- L.P.,
valued at $3.00 per share in 1996 and $5.25 per share in 1995 and in
connection with other warrants issued in 1996.
The resulting net loss aggregated $4,969,000 for 1996 ($1.82 per
share) and $1,861,000 for 1995 ($1.02 per share).
The 143% increase in net sales during 1996, as compared to 1995
were primarily due to the fact that 1995 includes six months of
operations. The opening of three cafes; one in Macy's Herald Square in
November 1995, another in lower Manhattan in May 1996, and a third in
Macy's Herald Square in July 1996 also had the effect of increasing net
sales in 1996. The Company also experienced a general increase in same
store sales.
The increase in cost of sales as a percentage of sales for 1996
as compared to 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 Greenberg's-L.P. 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.
20
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<PAGE>
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 as a percentage
of sales during 1996 as compared to 1995 was primarily the result of (i)
salaries and rent paid in its two Cafes 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, (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, and (iv) costs of
advertising Catalogues incurred during 1996.
The increases in depreciation and amortization for 1996 as
compared to 1995 is attributable to depreciation on the two Macy's
Herald Square Cafe and the new retail store in lower Manhattan.
The increase in the loss from operations during 1996 as compared
with in 1995 is primarily attributed to the increases in the cost of
products sold and additional compensation paid to officers and
managerial personnel under their respective employment and consulting
agreements and start-up costs incurred in the retail division three new
cafes.
(C) PROFORMA:
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
proforma 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 year ended December 31, 1996
as compared with 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 January 1, 1995.
RETAIL SEGMENT:
The retail segment presently consists of six (6) retail stores
located in Manhattan, New York, including its two (2) cafes located in
Macy's Herald Square. The Company's fifth retail store opened in
Manhattan in May 1996 and its 2nd Macy Cafe opened in July 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 of Greenberg's-L.P. as if it has occurred
as of January 1, 1995.
21
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<PAGE>
<TABLE>
<CAPTION>
For the Years Ended
December 31, Percentage
--------------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,913,000 100.00% $2,161,000 100.00% $752,000 0.00%
Cost of sales 1,983,000 68.07 1,370,000 63.40 613,000 4.67
---------- ------ ---------- ------ -------- -----
Gross profit 930,000 31.93 791,000 36.60 139,000 ( 4.67)
Selling, general and
administrative
expenses 2,334,000 80.12 1,397,000 64.65 937,000 15.47
Depreciation and
amortization 192,000 6.59 73,000 3.38 119,000 ( 3.21)
---------- ------ ---------- ------ -------- -----
Loss from operations ($1,596,000)( 54.78%) ($ 679,000)( 31.43%) ($917,000) (23.35%)
========== ======= ========== ======= ======== ======
</TABLE>
The 35% increase in net sales during 1996 as compared to
1995 was 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
1996 as compared to 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.
Selling, general and administrative expenses of the retail
segment consist of (i) expenses incurred in each of the six 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 1996
as compared to 1995 was primarily the result of (i) salaries paid to
sales personnel in its two cafes 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.
22
<PAGE>
<PAGE>
The increase in depreciation and amortization for the 1996
as compared to 1995 is attributable to depreciation on the Macy's
Herald Square Cafes 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 1996 as compared to 1995
is primarily attributed to the increases in the cost of products
sold and additional compensation paid to officers and managerial
personnel under their respective employment and consulting
agreements.
WHOLESALE SEGMENT:
<TABLE>
<CAPTION>
For the Years Ended
December 31, Percentage
-------------------------------------------- Change (as
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,319,000 100.00% $1,007,000 100.00% $312,000 0.00%
Cost of sales 1,126,000 85.37 781,000 77.56 345,000 7.81
---------- ------ ---------- ------ -------- -----
Gross profit 193,000 14.63 226,000 22.44 ( 33,000) ( 7.81)
Selling, general and
administrative
expenses 1,204,000 91.28 511,000 64.65 693,000 40.54
Depreciation and
amortization 106,000 8.04 25,000 2.48 81,000 ( 5.56)
---------- ------ ---------- ------ -------- -----
Loss from operations ($1,117,000)( 84.69%) ($ 310,000)( 30.78%) ($807,000) (53.91%)
========== ======= ========== ======= ======== ======
</TABLE>
Selling, general and administrative expenses of the
wholesale segment for 1996 increased by $676,000 over 1995. Such
increases were primarily the result of an allocation 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 of Greenberg's-L.P. catalogue costs incurred
during 1996 also contributed to the increase in selling, general and
administrative cost during 1996.
The increase in depreciation and amortization for 1996 as
compared to 1995 is attributable to depreciation on newly acquired
property asset additions.
The increases in the net loss for 1996 as compared to 1995
is 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.
23
<PAGE>
<PAGE>
(D) PLAN OF OPERATION:
(I) REORGANIZATION OF NEW YORK CITY BAKING OPERATIONS:
During the first 3-1/2 months of 1997 management has taken
numerous steps to restructure its New York City baking operation in
a concentrated effort to reduce operating costs. Their plans,
already in progress, involve a restructuring of the entire
management team. Duties have been divided between manufacturing,
wholesale and retail operations. The commissary at 47th Street, New
York City has been redesigned with resulting savings in labor and
overhead. Purchasing has been centralized which has also resulted in
savings. Leases have been renegotiated, employment contracts which
have seriously impacted the Company's cash flows have been either
renegotiated or terminated.
In connection with the restructuring plan, management has
written down its baking equipment leasehold improvements and
fixtures as at December 31, 1996 by approximately $800,000 due to
impairment in their value. In addition, management has determined
unamortized goodwill of approximately $840,000 has no continuing
value and accordingly it was written off during 1996. Finally, the
Company has charged 1996 with a $450,000 provision for actions aimed
at restructuring the Company. This restructuring charge is
predominately comprised of costs associated with the elimination of
certain positions and provision for lease obligations on certain
retail stores. By taking the above mentioned actions future periods
will not be burdened with the amortization or depreciation of these
costs.
(II) ACQUISITION OF J.M. SPECIALTIES, INC.:
On January 17, 1997, the Company entered into a stock
purchase agreement (the "Stock Purchase Agreement") with Phillip
Grabow ("Grabow"), pursuant to which, on January 23, 1997, the
Company consummated the purchase from Grabow of all the outstanding
shares of J.M. Specialties, Inc., a New Jersey corporation ("JMS
Subsidiary"), in exchange for (i) $900,000 in cash, (ii) 500,000
shares (the "Shares") of the Common Stock of the Company and (iii)
400,000 warrants (the "Warrants") exercisable for shares of Common
Stock of the Company (the "Transaction"). Each warrant entitles
Grabow to purchase one share of Company common stock at the exercise
price of $2.50 per share until December 31, 2000. In connection with
the Stock Purchase Agreement, Grabow and the Company also entered
(i) a registration rights agreement, dated as of January 23, 1997,
regarding the terms of the registration of the Shares of Common
Stock of the Company issuable upon exercise of the Warrants, and
(ii) an employment agreement dated as of January 23, 1997. Pursuant
to the employment agreement, Grabow will serve as President and
Chief Executive Officer of the Company at an annual salary level of
$250,000 for the first year, and a minimum of $150,000 thereafter.
Also in connection with the Transaction, effective January 23, 1997,
Grabow was elected to serve as a director of the Company. As a
result of the Transaction, Grabow beneficially owns 850,000 shares
(or 24.5%) of the Common Stock of the Company.
24
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<PAGE>
With the acquisition of the JMS Subsidary, the Company now
also offers a line of batter and frozen-finished cakes, brownies and
muffins which constitute approximately 90% of the JMS Subsidiary's
sales. These products are produced in batches using partially
automated equipment at the JMS Subsidiary's facility in Parsippany,
New Jersey. The products are sold to wholesale customers as well as
supermarket distribution centers and are marketed primarily through
food distribution companies in New York and New Jersey. The
management of the Company believes that distributors sell
approximately 40% of the product to supermarkets and 60% to food
service customers such as hospitals, colleges and corporate dining
rooms.
To develop new accounts, the JMS Subsidiary sales personnel
present the product at food shows, contact possible customers
directly to have them order the product from their distributor and
through direct mailings to customers. The JMS Subsidiary's current
food distribution customers include Sysco, Alliant Foods,
Rykoff/Sexton and over 75 other accounts consisting of supermarkets,
hospitals, colleges, corporate dining facilities and food
distribution companies.
The JMS Subsidiary sells its products to Restaurant
Associates (New York City), the United Nations Food Operation, the
Museum of Natural History Restaurant and Food Operations of the
World Trade Center as well as many others. The Company management
estimates that muffin batters of the JMS Subsidiary currently
represents 70% of revenue and baked products represents 30%.
The JMS Subsidiary started business in October 1984 as a
company making gourmet batter products. The product line was then
extended to sugar-free, then fat-free and finally frozen-finished
baked products. According to the Company management, this change
reflects a change in the market place where consumers wanted more
fat-free products and customers wanted frozen-finished products to
minimize customer time to bake and finish batter product. Management
of the JMS Subsidiary believes that the reputation of the JMS
Subsidiary has grown considerably as a result of the products'
taste, texture and price value. The product has no preservative,
hydrogenated oils or chemicals; rather, it uses natural ingredients.
In connection with the Transaction, the Company transferred
all of the business assets owned by the Company to a wholly-owned
subsidiary in exchange for all of the issued and outstanding shares
of common stock of such entity (the "Subsidiary"). As a result, the
Company currently acts as holding company with two wholly-owned
subsidiaries, the JMS Subsidiary and the WGJ Subsidiary. Subject to
obtaining consent of the Company's stockholders, the Company intends
to change its name to a name more descriptive of its operations.
As part of the Transaction, the Company agreed to provide
$600,000 to the JMS Subsidiary for working capital purposes. The
payment of the cash portion of the purchase price for the JMS
Subsidiary and such working capital, aggregating $1,500,000, was
funded through the net proceeds received from the sale by the
Company of 1,500,000 common stock purchase warrants (the "Private
Placement Warrants") at a price of $1.10 per Private Placement
Warrant to a limited number of purchasers that qualify as
"accredited investors" under the Securities Act of 1933. The terms
of the Private Placement Warrants are substantially similar to the
Warrants.
25
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<PAGE>
(III) OTHER ACQUISITIONS:
On March 20, 1997, the Company entered into an employment
contract with the former owners of a company that produced low-fat
and fat-free cookies. Pursuant to the contract both individuals
received a signing bonus aggregating $59,000 and will each receive a
salary of $25,000 per annum with an opportunity to earn an
additional $50,000 each based on sale performance. In addition both
individuals will be entitled to an aggregate of 50,000 warrants in
the event that sales volume exceeds $750,000 per annum.
(IV) PENDING NEGOTIATIONS:
On March 17, 1997, the Company signed a letter of intent to
acquire the stock of a bakery. The acquisition, if consummated, will
be accounted for as a pooling of interests. Plans also call for an
expansion of the JMS Subsidiary, closing of part of their baking
operations and merging it into the bakery with whom a letter of
intent has been signed. There can be no assurance that a definitive
agreement will be reached or, if reached, that a closing thereunder
will occur.
(E) LIQUIDITY AND CAPITAL RESOURCES:
(I) LIQUIDITY:
Since its inception the Company's only source of working
capital has been the $5,700,000 received from the issuance of its
securities.
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 $4,900,000
from the sale of 1,150,000 shares of its common stock in an initial
public offering. Of the $5,700,000 proceeds from the aforementioned
stock sales: (i) $2,125,000 was used to repay the InterEquity debt
including interest; (ii) $2,615,000 was used in operations; (iii)
$765,00 was used to purchase property, equipment and leaseholds; and
(iv) $195,000 was used for general corporate purposes.
As of December 31, 1996, the Company has negative working
capital of approximately $1,134,000. During the first quarter of
1997 management took actions aimed at restructuring the Company in
order to reduce operating costs and enhance the Company's focus and
efficiency. Pursuant to the restructuring a new management team was
put into place, executive contracts and leases were renegotiated and
certain positions were eliminated. The Company expects that the
aforementioned actions will stop the cash outflows which it has
experienced since inception.
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<PAGE>
(II) CAPITAL RESOURCES:
On January 23, 1997, the Company purchased the JMS
Subsidiary for $900,000 in cash, 500,000 shares of the Company's
common stock valued at $875,000 and $400,000 purchase warrants
valued at $440,000.
In order to finance the acquisition, the Company sold in a
private placement 1,875,500 common stock purchase warrants at a net
price to the Company of $1,747,500.
The pro forma effect of the acquisition and private
placement increased the Company's working capital by $927,000 and
cash by $821,000.
If and when the market price of the Company's stock
increases and exceeds the exercise price of the warrants previously
issued, the Company can expect to recieve additional funds upon the
exercise of its warrants to operate and fund future expansion and
acquisitions. The Company is looking for opportunities to acquire
other companies which would improve its cash flow and capital
positions in both the short and long term. Management believes that
funds for such acquisition can be raised in transactions similar to
the sale of stock purchase warrants which funded the JMS Subsidiary
acquisition.
Although the Company has previously been successful in
obtaining sufficient capital funds through issuances of common stock
and warrants, there can be no assurance that the Company will be
able to do so in the future.
(III) INFLATION AND SEASONALITY:
To date, inflation has not had a significant impact on the
Company's operations. The Company's revenues are affected by
seasonaltity with revenues anticipated to increase during holiday
seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
Passover.
(f) Statements Regarding Forward-Looking Information
This annual report contains certain forward-looking
statements with respect to the financial condition, results of
operations and business of the Company including statements relating
to the cost savings, revenue enhancements and marketing and other
advantages that are expected to be realized from the Company's plans
to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve
certain risks and uncertainties that could cause actual results to
differ materially from those contemplated by such forward-looking
statements. Such risks and uncertainties include, without
limitation: (1) expected cost savings from the restructured or
consolidated operations cannot be fully realized; (2) difficulties
relating to the integration of new businesses that may be acquired;
(3) the impact of competition on revenues and margins; (4) increases
in the costs of ingredients; and (5) other risks and uncertainties
as may be detailed from time to time in the Company's public
announcements and Commission filings.
27
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Index to Financial Statement.................................................................F-1
Independent Accountants' Report..............................................................F-2
Financial Statements:
Balance Sheets as at December 31, 1996 and 1995..................................F-3
Statement of Operations
For the Years Ended December 31, 1996 and 1995..........................F-4
Statements of Stockholders' Equity (Deficiency)
For the Years Ended December 31, 1996 and 1995..........................F-5
Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995..........................F-6
Notes to Financial Statements........................................................F-7 to F-23
</TABLE>
28
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<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable
29
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS: COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 10. EXECUTIVE COMPENSATION
Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction E(3) of Form 10-KSB, the information
called for by this Item regarding directors is hereby incorporated by reference
from the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
30
<PAGE>
<PAGE>
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements filed as part of the Company's Form 10-KSB are
listed in Item 7. Financial Statements are included in Part IV hereof at page
F-1.
(b) Reports on Form 8-K
On February 7, 1997, the Company filed a Current Report on Form 8-K,
dated January 1, 1997, to report under Item 2 thereof the Company's acquisition
of all the outstanding shares of J.M. Specialties, Inc., and to include under
Items 7(a) and 7(b) thereof, the financial statements and pro forma financial
information relating to such acquisition transaction.
(c) Listing of Exhibits
<TABLE>
<C> <S>
**2.1 Purchase and Sale Agreement, dated June 2, 1995, by and
among the Company, Greenberg Dessert Associates Limited
Partnership, SMG Baking Enterprises, Inc. and its limited
partners.
***2.2 Stock Purchase Agreement, dated as of January 17, 1997, by
and between the Company and Philip Grabow, without
exhibits.
**3.1 Restated Certificate of Incorporation.
**3.2 Amended and Restated By-laws.
**4.1 Form of certificate for shares of Common Stock.
**4.2 Form of Representatives Warrant.
**4.3 Loan Agreement, dated July 10, 1995, by and between
InterEquity Capital Partners, L.P. and the Company.
**10.1 Employment Agreement, dated July 10, 1995, by and between
the Company and Stephen Fass.
**10.2 Employment Agreement, dated as of July 10, 1995, by and
between the Company and Willa Rose Abramson.
**10.3 Employment Agreement, dated as of July 10, 1995, by and
between the Company and Maria Maggio Marfuggi.
</TABLE>
31
<PAGE>
<PAGE>
<TABLE>
<C> <S>
**10.4 Employment Agreement and Consulting Agreement, dated July
10, 1995, by and between the Company and Seth Greenberg.
**10.5 Consulting Agreement, dated July 10, 1995, by and between
the Company and William Greenberg Jr.. and Carol
Greenberg.
**10.6 Departmental License Agreement effective February 1995 by
and between the Company and Macy's East, Inc.
**10.8 Form of Warrant for InterEquity Capital Partners, L.P.
**10.9 1995 William Greenberg Jr. Desserts and Cafes, Inc. Stock
Option Plan
**10.10 Lease Agreement dated July 1995 between the Company and
Murray Greenstein.
**10.11 Lease Agreement dated January 1994 between Schnecken
Baking Realty Corp. and Gerel Corporation.
**10.12 Assignment and Assumption of Lease dated July 1995 between
the company and Schnecken Baking Realty Corp.
**10.13 Lease dated April 1991 between Greenberg's 35th Street
Baking Co., Inc. and Rugby Managed Asset Fund.
**10.14 Assignment and Assumption of Lease dated July 1995 between
the Company and Greenberg's 35th Street Baking Co.
**10.15 Lease dated May 1989 as modified in January 1991 between
Greenberg's Triple S. Baking Co., Inc. and Stahl Real
Estate Co.
**10.16 Assignment and Assumption of Lease dated July 1995 between
the Company and Greenberg's Triple S. Baking Co., Inc.
**10.17 Consulting Agreement, dated July 10, 1995, by and between
the Company and Marilyn Miller.
**10.18 Form of Indemnity Agreement.
**10.19 Sublease dated December 1995 between Timothy's Coffees of
the World, Inc., and the Company.
****10.20 Lease dated March 8, 1995 between Harran Holding Corp.,
c/o A. J. Clarke Management and the Company.
</TABLE>
32
<PAGE>
<PAGE>
<TABLE>
<C> <S>
****10.21 Agreement dated January 13, 1996 by and between the
Company and Barry Kaplan Associates.
*10.22 Employment Agreement, dated January 23, 1997, by and
between the Company and Philip Grabow.
*10.23 Form of Warrant for the Private Placement made in
conjunction with the JMS Subsidiary acquisition.
*21.1 List of Subsidiaries of the Company, the state of
incorporation of each, and the names under which such
subsidiaries do business.
</TABLE>
- ----------------------
* Filed Herewith.
** Incorporated by reference to the Company's Registration Statement on Form
SB-2 Registration Number 33-96094.
*** Incorporated by reference to Schedule 13-D filed by Philip Grabow on SEC
File Number 005-48185.
****Incorporated by reference to the Company's Annual Report for the fiscal year
ended 1995 on Form 10-KSB Commission File Number 1-13984.
33
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on April 17, 1997.
William Greenberg Jr. Desserts & Cafes, Inc.
By:/s/ Philip Grabow
__________________________________________
Philip Grabow
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on April 17, 1997.
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
/s/ Philip Grabow President, Chief Executive Officer, Chief
__________________________________ Financial and Accounting Officer/Director
Philip Grabow
/s/ Richard Fechtor Director
__________________________________
Richard Fechtor
/s/ Raymond J. McKinstry Director
__________________________________
Raymond J. McKinstry
</TABLE>
34
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT .................................................. F-2
FINANCIAL STATEMENTS:
Balance Sheets as at December 31, 1996 and 1995 ............................ F-3
Statements of Operations
For the Years Ended December 31, 1996 and 1995 .......................... F-4
Statements of Stockholders' Equity (Deficiency)
For the Years Ended December 31, 1996 and 1995 .......................... F-5
Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995 .......................... F-6
NOTES TO FINANCIAL STATEMENTS .................................................... F-7 to F-23
</TABLE>
F-1
<PAGE>
<PAGE>
[LETTERHEAD OF WEINICK, SANDERS & CO. LLP]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
William Greenberg Jr. Desserts and Cafes, Inc.
We have audited the accompanying balance sheets of William Greenberg Jr.
Desserts and Cafes, Inc. as at December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of William Greenberg Jr. Desserts
and Cafes, Inc. as at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the accompanying financial
statements, the Company incurred a significant net loss for the year ended
December 31, 1996 and as of December 31, 1996 has a working capital deficiency
in the amount of $1,133,747, which raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. Management's plans in regard to these matters is discussed in the
notes to the financial statements.
/s/ Weinick, Sanders & Co. LLP
New York, N. Y.
March 21, 1997
(Except for Note 11 and 13 for
which the date is April 1, 1997)
F-2
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
December 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 204,136 $ 2,169,999
Accounts receivable - trade net of allowance
for doubtful accounts of $18,500 in 1996
and 1995 (Note 2) 275,060 222,623
Inventory (Note 2) 75,000 91,631
Prepaid insurance 117,941 89,342
Prepaid expenses and other current assets 9,231 11,190
----------- -----------
Total current assets 681,368 2,584,785
----------- -----------
Other assets:
Property and equipment, at recoverable amount
in 1996 and at cost in 1995, less accumulated
depreciation and amortization of $37,702 in
1995 (Notes 2 and 5) 850,000 1,477,062
Covenant not to compete (Notes 2 and 3) 87,500 112,500
Goodwill (Notes 2 and 6) -- 903,060
Security deposits (Note 7) 116,108 77,772
----------- -----------
Total other assets 1,053,608 2,570,394
----------- -----------
$ 1,734,976 $ 5,155,179
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 834,531 $ 387,630
Estimated liability for restructuring (Note 2) 450,000 --
Accrued payroll:
Stockholder/officer (Note 9) 71,634 --
Other 140,751 --
Accrued expenses and other current liabilities 318,199 64,240
----------- -----------
Total current liabilities 1,815,115 451,870
----------- -----------
Deferred rent (Note 8) 68,602 23,207
----------- -----------
Commitments and contingencies (Note 10) -- --
Stockholders' equity (deficiency) (Note 9):
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 - 2,621,500 shares
in 1996 and 2,560,000 shares in 1995 2,622 2,560
Additional paid-in capital 6,746,564 6,597,342
Accumulated deficit (6,897,927) (1,919,800)
----------- -----------
Total stockholders' equity (deficiency) ( 148,741) 4,680,102
----------- -----------
$ 1,734,976 $ 5,155,179
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales $4,232,616 $1,741,014
---------- ----------
Costs and expenses:
Cost of sales 3,109,536 1,280,963
Selling, general and administrative expenses 3,836,193 1,340,774
Consulting fees - related party (Note 10) - 30,000
---------- ----------
Total costs and expenses 6,945,729 2,651,737
---------- ----------
Loss from operations ( 2,713,113) ( 910,723)
---------- ----------
Other income (expenses):
Interest expense ( 5,555) ( 112,735)
Write-off of goodwill ( 840,780) -
Loss on impairment of property and
equipment (Notes 2 and 5) ( 797,559) -
Restructuring loss (Note 2) ( 450,000) -
Interest income 41,767 19,108
Compensatory element of issuance of warrants ( 204,064) ( 856,871)
---------- ----------
Total other income (expenses) ( 2,256,191) ( 950,498)
---------- ----------
Net loss before income taxes ( 4,969,304) ( 1,861,221)
Provision for income taxes 8,823 -
---------- -----------
Net loss ($4,978,127) ($1,861,221)
========== ==========
Net loss per common share ($1.82) ($1.02)
===== =====
Weighted average number of common
shares outstanding (Note 2) 2,731,386 1,828,609
========= =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
------------------ Total
Number Additional Stockholders'
of Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
--------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,170,000 $1,170 $ 22,275 ($ 58,579) ($ 35,134)
Common stock issued for
cash ($3.33 per share) 180,000 180 599,820 - 600,000
Common stock issued for
cash ($3.33 per share) 60,000 60 199,940 - 200,000
Common stock issued for
cash ($5.25 per share) as
a result of a public offer-
ing less expenses of the
offering of $1,118,914 1,150,000 1,150 4,917,436 - 4,918,586
Fair market value of warrant
to acquire 163,404 shares
of common stock issued to
a lender in order to obtain
financing for the purchase
of the operating assets of
Greenberg Desserts Associates
Limited Partnership, valued
at $5.25 per share - - 857,871 - 857,871
Net loss - - - ( 1,861,221) ( 1,861,221)
--------- ------ ---------- ---------- ----------
Balance at December 31, 1995 2,560,000 2,560 6,597,342 ( 1,919,800) 4,680,102
Common stock issued to
employees as compensation 11,000 11 32,989 - 33,000
Common stock issued in
consideration of legal
and consulting services 50,500 51 104,458 - 104,509
Fair market value of warrant
to acquire 3,925 shares
of common stock issued to a
lender in order to obtain
financing for the purchase
of the operating assets of
Greenberg Desserts Associates
Limited Partnership, valued
at $3 per share - - 11,775 - 11,775
Net loss - - - ( 4,978,127) ( 4,978,127)
--------- ------ ---------- ---------- ----------
2,621,500 $2,622 $6,746,564 ($6,897,927) ($ 148,741)
========= ====== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,978,127) ($1,861,221)
---------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 297,273 81,342
Write-off of goodwill 840,780 -
Loss on impairment of bakery
property and equipment 797,559 -
Restructuring loss 450,000 -
Stock issued to employees 33,000 -
Stock issued in consideration of services 104,509 -
Deferred rent 45,394 23,207
Compensatory element of issuance of warrants 204,064 856,871
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable ( 52,437) ( 222,623)
Inventory 16,631 ( 51,631)
Prepaid expenses and other current assets ( 26,640) ( 100,532)
Security deposits ( 38,336) ( 77,772)
Other assets - 2,731
Accounts payable 446,901 387,630
Accrued expenses and other current liabilities 202,421 63,240
---------- ----------
Total adjustments 3,321,119 962,463
---------- ----------
Net cash used in operating activities ( 1,657,008) ( 898,758)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment ( 380,489) ( 371,197)
Purchase of Greenberg Dessert Associates
Limited Partnership, net assets - ( 2,073,500)
---------- ----------
Net cash used in investing activities ( 380,489) ( 2,444,697)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock and warrant - 5,719,586
Proceeds from loan - 2,000,000
Repayment of loan - ( 2,000,000)
Repayment of acquisition liabilities - ( 155,700)
Increase (decrease) in amount due to office/stockholder 71,634 ( 50,432)
---------- ----------
Net cash provided by financing activities 71,634 5,513,454
---------- ----------
Net increase (decrease) in cash and cash equivalents ( 1,965,863) 2,169,999
Cash and cash equivalents at beginning of year 2,169,999 -
---------- ----------
Cash and cash equivalents at end of year $ 204,136 $2,169,999
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash payments for the year:
Interest expense $ 5,555 $ 112,735
========== ==========
Income taxes $ - $ 161
========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - REALIZATION OF ASSETS - GOING CONCERN.
William Greenberg Jr. Desserts and Cafes, Inc. (the
"Company") was incorporated in the State of New York on November 12,
1993. Since its inception through July 10, 1995, the Company was a
development stage enterprise 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 during the development
stage aggregated $100,112.
During the year ended December 31, 1996, the Company
incurred a loss from operations in the amount of $2,713,113 and a
net loss of $4,978,127 and as at December 31, 1996 had a working
capital deficiency of $1,133,747. During the fourth quarter of 1996,
the Company recorded a $450,000 charge for management's estimate of
the costs for actions aimed at restructuring the Company in order to
reduce operating costs and enhance the Company's focus and
efficiency. The restructuring charge is predominately comprised of
costs associated with renegotiating executive employment contracts,
severance costs associated with the elimination of certain positions
and provision for lease obligations on certain retail stores.
In connection with the restructuring plan, the Company
determined the carrying value of its baking equipment, furniture and
fixtures and leasehold improvements exceeded their fair market
value. Therefore, in accordance with SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets", a provision for impairment
losses aggregating $797,559 was charged and included as part of
other expenses in the accompanying statement of operations. Such
impairment loss represents the excess of the carrying value of
$1,647,559 over management's estimate of the fair market value of
the assets of $850,000.
In addition, management has determined that unamortized
goodwill at December 31, 1996 of $840,780 which was recorded upon
the acquisition of the net operating assets of Greenberg's L.P., has
no continuing value and, accordingly, was charged to operations in
1996.
F-7
<PAGE>
<PAGE>
NOTE 1 - REALIZATION OF ASSETS - GOING CONCERN. (Continued)
As more fully described elsewhere herein, the Company on
January 17, 1997 purchased all the outstanding capital stock of J.M.
Specialties, Inc. ("JMS") in an acquisition to be accounted for as a
purchase (the "Acquisition"). The total purchase price aggregated
$2,215,000 of which $900,000 was paid in cash and the remaining
$1,315,000 through the issuance of 500,000 shares of the Company's
common stock at fair market value of $1.75 per share and purchase
warrants valued at fair market value of $1.10 per warrant to acquire
400,000 shares of the Company's common stock at fair market value of
$2.50 per share. JMS offers a line of batter and frozen finished
cakes, brownies and muffins.
In order to finance the Acquisition, the Company raised net
proceeds of $1,747,500 from the issuance of 1,875,000 common stock
purchase warrants which are exercisable at a price of $2.50 per
share.
The unaudited pro forma effect to the Company's balance
sheet of the Acquisition and the issuance of the common stock
purchase warrants (as if they had occurred on December 31, 1996)
would be to increase the Company's tangible net worth and decrease
its working capital deficiency to approximately $1,160,000 and
($207,000), respectively.
In connection with the above described subsequent
transactions, the Company transferred all of its business assets to
a newly formed wholly-owned subsidiary in exchange for all of the
issued and outstanding shares of common stock of such entity (the
"Subsidiary"). As a result, the Company will act as a holding
company with two wholly-owned subsidiaries, JMS and the Subsidiary.
Subject to obtaining consent of the Company's stockholders, the
Company intends to change its name to a name more descriptive of its
operations.
Although the Company is currently operating its businesses,
the continuation of such business as going concerns is contingent
upon, among other things, the continued forbearance by the Company's
creditors from exercising their rights in connection with delinquent
accounts payable and payroll obligations. Management has indicated
its plan to meet its obligations is dependent upon (i) the success
of the restructuring of its New York City baking operations and (ii)
cash flows, if any, generated from JMS and the acquisition of
additional businesses. These conditions, among others, raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to
continue as a going concern.
F-8
<PAGE>
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(a) Revenue Recognition:
The Company recognizes revenues in accordance with
generally accepted accounting principles in the period in which its
products are shipped to its wholesale or mail order customers.
Retail store sales are recorded when the consumer purchases the
Company's products at one of its retail stores. Expenses are
recorded in the period in which they are incurred, in accordance
with generally accepted accounting principles.
(b) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
(c) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
(d) Concentrations of Credit Risk:
Financial instruments that potentially subject the Company
to significant concentrations of credit risk consist principally of
cash and trade accounts receivable. The Company places its cash with
high credit quality financial institutions which at times may be in
excess of the FDIC insurance limit. Concentrations of credit risk
with respect to trade accounts receivable are generally limited due
to the large number of customers comprising the Company's customer
base. In addition, the Company performs ongoing credit evaluations
of its customers' financial condition and, as a consequence,
believes that its trade accounts receivable credit risk exposure is
limited.
(e) Inventory:
The inventory, consisting principally of raw materials, is
valued at the lower of cost (first-in, first-out method) or market.
(f) Property and Equipment:
Depreciation is computed on the straight-line method over
the estimated useful lives of the assets which range from ten to
fifteen years. Significant improvements are capitalized; maintenance
and repairs are charged to income. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation
are eliminated from the accounts and the resulting gain or loss, if
any, is reflected in income. As discussed in Note 1 management has
determined that there has been an impairment to the value of its
property and equipment and has accordingly written them down to
their net realized value.
F-9
<PAGE>
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(g) Intangibles:
The covenant not to compete is amortized over the term of
the agreement and goodwill is amortized over its estimated useful
life of five years (See Note 4).
As discussed in Note 1 the Company's management has
determined that the unamortized goodwill as at December 31, 1996 has
no continuing value and accordingly it was charged to operations
during the fourth quarter of 1996.
(h) Income Taxes:
At December 31, 1996, the Company has a deferred tax asset
of $1,564,000 arising primarily from a net operating loss
carry-forward of approximately $4,600,000 available to reduce future
taxable income, of which $1,950,000 expires in 2010 and $2,650,000
expires in 2011. Since management estimates that it is not likely
that the Company will be able to utilize this asset in the future,
it has been fully reserved.
(i) Per Share Data:
Net loss per share was computed by the weighted average
number of shares outstanding during each period. The issuance of all
common shares prior to October 12, 1995 (1,410,000 shares) and the
assumed conversion of a warrant into 167,329 shares of common stock
have been retroactively reflected in the computation as if they had
occurred at inception.
NOTE 3 - 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 Dessert Associates
Limited Partnership (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.
This 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 Greenberg's-L.P. acquisition.
The net assets purchased and the liabilities assumed of
Greenberg's-L.P. are summarized below:
<TABLE>
<S> <C>
Assets purchased:
Furniture, fixtures and leasehold improvements $1,130,000
Inventories 40,000
Covenant not to compete 125,000
----------
1,295,000
Liabilities assumed:
Note payable - bank ( 123,000)
Rent payable ( 32,700)
---------
Net assets acquired 1,139,300
Purchase price, including $73,500 of
acquisition costs 2,073,500
Excess of purchase price over net assets acquired ($ 934,200)
==========
</TABLE>
F-10
<PAGE>
<PAGE>
NOTE 3 - ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
(Continued)
The business acquired from Greenberg's-L.P. was founded in
1946 and is a recognized provider of premium quality baked goods and
desserts. The Company currently owns and operates six (6) retail
bakery stores located in Manhattan, N.Y. All baking is done at its
main commercial bakery which is located on West 47th Street, N.Y.,
N.Y. From this location, it services commercial and catering
customers as well as supplying all baked goods to its six retail
stores.
The Company entered in consulting and/or employment
agreements with a partner and three (3) key members of
Greenberg's-L.P. management (see Note 10).
In order to finance this acquisition, on July 10, 1995 the
Company obtained $2,000,000 from InterEquity Capital Partners, L.P.,
("InterEquity") in the form of (i) an amortizing note in the
aggregate amount of $1,999,000 (the "Amortizing Note") and (ii) a
$1,000 note which was convertible into shares of common stock of the
Company or a warrant to acquire shares of the Company's stock (the
"Convertible Note" and together with the Amortizing Note, the
"Notes"). Interest on the Note was 14.5% per annum. The Company also
paid InterEquity a commitment fee of $50,000. The Notes were
collateralized by a security interest in all of the Company's assets
as well as a collateral assignment of all of the Company's leases
and a pledge of an aggregate of 1,025,000 shares of common stock
owned by the two founding stockholders and the Company's President.
The Amortizing Note was payable on or prior to July 31, 2000, with
interest only for the first 12 months and 48 equal monthly
installments of principal and interest commencing July 31, 1996
through June 30, 2000. The Convertible Note was payable in full on
July 31, 2000 with interest only payable monthly commencing July 31,
1995. This financing agreement allowed InterEquity to convert the
Convertible Note into shares of the Company's capital stock or a
warrant to acquire shares of stock of the Company in a number
sufficient to equal up to 11% of the Company's then outstanding
preferred and/or common shares of stock.
The Notes were repaid in full in October 1995 from the
proceeds of the sale to the public of the Company's common stock
which was consummated in October 1995. InterEquity exercised its
option under the terms of the Convertible Note to purchase a warrant
for $1,000 to acquire shares equal to 6% of the Company's
outstanding preferred and common shares. The warrant expires in
October, 2001 and contains anti-dilutive provisions which entitle
InterEquity to 6% of the Company's capital stock on the date the
warrant is converted into capital stock. The loan agreement also
requires the Company to keep in reserve shares sufficient to satisfy
the required amount to be issued to InterEquity upon conversion. The
holder of any shares issued pursuant to such conversion may demand,
under certain conditions, that the Company purchase such capital
shares for an amount equal to a multiple of earnings as defined or
the fair value of the shares as determined by independent appraisal.
Such put is only available to the holder(s) of such shares from July
10, 2000 through July 31, 2005 and then only if the Company's
classes of capital stock subject to the put are not listed for
trading on a national securities exchange and/or are not quoted on
an automated quotation system.
F-11
<PAGE>
<PAGE>
NOTE 3 - ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
(Continued)
The $856,871 difference between the fair value of the
163,404 shares of the Company's common stock reserved for issuance
under the warrant and the $1,000 proceeds from the warrant was
charged to operations in 1995. Management ascribed a fair value of
$5.25 per common share which approximated the market value of the
Company's common stock at the date InterEquity purchased the
warrant. As a result of the Company's issuance of 61,500 common
shares during 1996, InterEquity is entitled to 3,925 additional
shares of the Company's common stock based upon the anti-dilutive
provision of its warrant. Accordingly, $11,775 was charged to
operations in 1996 which represented the market value of the stock
on the date the shares were issued.
NOTE 4 - ACQUISITION OF JMS SPECIALTIES, INC.
On January 23, 1997, the Company purchased 100% of the
outstanding common stock of J.M. Specialties, Inc. ("JMS") in a
transaction to be accounted for as a purchase (the "Acquisition").
The purchase price of $2,215,000 consisted of (i) $900,000 in cash,
(ii) 500,000 shares of the Company's common stock valued at fair
market value of $1.75 per share (aggregating $875,000), and (iii)
400,000 purchase warrants valued at fair market value of $1.10 per
warrant (aggregating $440,000) to acquire 400,000 shares of the
Company's common stock at $2.50 per share. The warrants are in the
same form as those described below.
JMS, which was founded in 1984, offers a line of both
batter and frozen finished cakes, brownies and muffins - with
muffins constituting approximately 90% of sales. These products are
produced in batches using partially automated equipment at its
facility in Parsippany, New Jersey. The product is sold to wholesale
customers as well as supermarket distribution centers and is
marketed primarily through food distribution companies in New Jersey
and New York. In turn, according to JMS's management, the
distributor sells approximately forty percent of the product to
supermarkets and sixty percent to food service customers, such as
hospitals, colleges, restaurants and corporate dining rooms.
In connection with the Acquisition, the Company entered
into an employment agreement with the selling shareholder pursuant
to which he will serve as a director and chief executive officer of
the Company at an annual salary level of $250,000 for the first year
and a minimum of $150,000 thereafter. In addition, the Company
agreed to provide $600,000 to JMS for working capital.
In connection with the Acquisition, the Company transferred
all of its then owned business assets to a newly formed wholly-owned
subsidiary in exchange for all of the issued and outstanding shares
of common stock of such entity (the "Subsidiary"). As a result, the
Company currently acts as a holding company with two wholly-owned
subsidiaries, JMS and the Subsidiary. Subject to obtaining consent
of the Company's stockholders, the Company intends to change its
name to Food Concepts, Inc., a name more descriptive of its
operations.
F-12
<PAGE>
<PAGE>
NOTE 4 - ACQUISITION OF JMS SPECIALTIES, INC. (Continued)
In order to finance the Acquisition, the Company sold in a
private placement 1,875,500 common stock purchase warrants ("the
Placement Warrants") at a net price to the Company (after expenses
of $315,000) of $1,747,500. Each Placement Warrant entitles the
holder thereof to purchase one common share, par value $.001 per
share, of the common stock of the Company at an exercise price per
share of $2.50 for a term which will expire on December 31, 2000.
The Company has the right to redeem the Placement Warrants,
in installments, at a redemption price of $.10 per warrant
commencing six months after the date of issuance if the stock trades
at a designated level for at least five trading days prior to the
month preceding the date on which the redemption right may be
exercised.
The holders of the Placement Warrants have a put option
pursuant to which for a 60 day period prior to their expiration
date, the holder has the right to require the Company to repurchase
the Placement Warrants for a consideration consisting of $.10 per
warrant plus 40% of a share of common stock. In addition, the
Placement Warrants have standard anti-dilution protection.
The assets acquired and the liabilities assumed at December
31, 1996, in connection with the Acquisition, are as follows:
<TABLE>
<S> <C>
Assets:
Cash $ 84,129
Accounts receivable 224,378
Notes receivable 60,000
Inventories 274,803
Prepaid expenses 14,063
Property and equipment 483,608
Other assets 27,999
--------
$1,168,980
Liabilities:
Long-term debt 23,607
Notes payable - bank 75,000
Accounts payable and
accrued expenses 123,938
--------
222,545
----------
Excess of net assets acquired
over liabilities assumed 946,435
Goodwill 1,356,565
----------
$2,303,000
==========
</TABLE>
F-13
<PAGE>
<PAGE>
NOTE 4 - ACQUISITION OF JMS SPECIALTIES, INC. (Continued)
The unaudited consolidated condensed financial statements,
on a pro forma basis, as if JMS had been acquired at the beginning
of 1996 and 1995 are as follows:
Unaudited Proforma Balance Sheets:
<TABLE>
<CAPTION>
A S S E T S
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash $ 1,027,985 $3,304,437
Accounts receivable 499,438 426,548
Notes receivable 60,000 171,000
Inventory 349,803 421,782
Prepaid expense 141,235 140,447
----------- ----------
2,078,461 4,464,214
----------- ----------
Property and equipment 1,297,894 1,992,972
----------- ----------
Other assets:
Covenant not to compete 87,500 250,885
Goodwill 1,266,127 2,188,461
Security deposits 144,107 106,140
----------- ----------
1,497,734 2,545,486
----------- ----------
$ 4,874,089 $9,002,672
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 16,999 $ 63,019
Notes payable bank 75,000 162,925
Accounts payable and accrued expenses 1,677,643 991,396
Estimated loss on restructuring 450,000 -
----------- ----------
2,219,642 1,217,340
----------- ----------
Long-term debt, net of current portion 75,209 145,860
----------- ----------
Stockholders' equity:
Common stock 3,156 3,094
Additional paid-in capital 10,126,444 9,977,222
Accumulated deficit ( 7,440,362) ( 2,340,844)
----------- ----------
2,689,238 7,639,472
----------- ----------
$ 4,984,089 $9,002,672
=========== ==========
</TABLE>
F-14
<PAGE>
<PAGE>
NOTE 4 - ACQUISITION OF JMS SPECIALTIES, INC. (Continued)
Unaudited Proforma Statements of Operations:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales $ 7,442,509 $5,389,124
Costs and expenses 10,169,754 6,105,108
----------- ----------
Loss from operations ( 2,727,245) ( 715,984)
Other expenses (net) ( 2,700,933) ( 1,537,807)
----------- ----------
Loss before extraordinary credit ( 5,428,178) ( 2,253,791)
Extraordinary credit 31,375 -
----------- -----------
($ 5,396,803) ($2,253,791)
=========== ==========
Pro forma per share data:
Net loss per common share ($1.65) ($.95)
===== ====
Weighted average number of
common shares outstanding 3,265,471 2,362,694
========= =========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT.
As mentioned in Note 1(a) the Company's baking equipment,
furniture and fixtures and leasehold improvements were deemed to be
impaired and written down to managements estimate of their fair
value at December 31, 1996. Fair value, was determined by
management's estimation of the net sales value if the property
assets were offered for sale. An impairment loss in the amount of
$797,559 was charged to operations during the fourth quarter of
1996.
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
As at December 31,
-------------------------------------
1996 1995
-------------------------------------- ---------
Historical Impairment Fair Historical
Basis Loss Value Basis
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Baking equipment $ 553,305 $ 264,889 $288,416 $ 522,127
Furniture and fixtures 165,908 115,373 50,535 51,753
Leasehold improvements 1,176,041 664,992 511,049 940,884
---------- ---------- -------- ----------
1,895,254 1,045,254 850,000 1,514,764
Less: Accumulated depreciation
and amortization 247,695 247,695 - 37,702
---------- ---------- -------- ----------
$1,647,559 $ 797,559 $850,000 $1,477,062
========== ========== ======== ==========
</TABLE>
F-15
<PAGE>
<PAGE>
NOTE 6 - INTANGIBLE ASSETS.
The acquisition agreement of Greenberg's-L.P. contained a
provision for a covenant not to compete of $125,000 which management
is amortizing over its five year term. Amortization of the covenant
charged to operations was $25,000 in 1996 and $12,500 in 1995.
The excess of cost over the fair value of the net assets
acquired from Greenberg's L.P. aggregated $934,200. This goodwill
has been amortized over its estimated useful life of fifteen years.
Amortization charged to operations in 1996 and 1995 was $62,280 and
$31,140, respectively.
Continuing operating losses has caused management to
reevaluate the goodwill acquired in the purchase of Greenberg's-L.P.
In the first quarter of 1997, management completed its reevaluation
and determined that the goodwill had no continuing value and the
unamortized portion of $840,780 was charged to operations in the
fourth quarter of 1996.
NOTE 7 - SECURITY DEPOSITS.
Security deposits are comprised of rent deposits relating
to various leaseholds which the Company occupies.
NOTE 8 - DEFERRED RENT.
The accompanying financial statements reflect rent expense
on a straight-line basis over the life of the lease. Rent expense
charged to operations differs with the cash payments required under
the terms of the real property operating leases because of scheduled
rent payment increases throughout the term of the leases. The
deferred rent liability is the result of recognizing rental expense
as required by generally accepted accounting principles.
NOTE 9 - CAPITAL STOCK.
(a) Common Stock:
The Company issued 180,000 shares of its common stock in
June 1995 to unrelated persons for $600,000 ($3.33 per share) which,
in the opinion of the Board of Directors, was the then fair value of
the common shares.
The Company received on August 7, 1995 an aggregate of
$200,000 for the issuance of 60,000 shares of the Company's common
stock ($3.33 per share) which, in the Board of Directors' opinion
was the fair value of the common shares at the time of issuance.
F-16
<PAGE>
<PAGE>
NOTE 9 - CAPITAL STOCK. (Continued)
(a) Common Stock:
In October 1995, the Company successfully completed the
initial public offering of its securities for sale to the public.
The offering resulted in the sale of 1,115,000 shares of the
Company's common stock at a price of $5.25 per share with proceeds
to the Company, net of offering costs of $1,118,914, aggregating
$4,918,586. The sale resulted in additional paid-in capital of
$4,917,436. The Company and its directors, officers, and
shareholders owning more than 5% of the Common Stock agreed with the
representative of the Underwriter not to directly or indirectly
register, issue, offer, sell, offer to sell, contract to sell,
hypothecate, pledge, or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a period of 12 months
from the effective date of the Company's initial public offering
without the prior written consent of the Underwriter.
In November 1996, the Company issued 11,000 shares of its
common stock to two (2) employees valued at $33,000 for services
rendered. In November and December 1996, the Company issued an
aggregate of 26,000 shares of its common stock valued at $54,510 to
two law firms in settlement of amounts owed for legal services.
In November 1996, 25,000 shares of common stock were issued
to a consultant pursuant to an exercise of an option at $2.00 per
share resulting in a charge to operations of $50,000 which
represented the value of his services.
(b) Warrants:
(i) Warrants Issued in 1995:
In order to obtain financing for the acquisition of
Greenberg's-L.P. (see Note 2), the Company sold to the lender for
$1,000, a Convertible Note which in accordance with the terms of the
conversion agreement, was converted by the lender into a warrant to
acquire shares of stock of the Company in a number sufficient to
equal 6% of the Company's then outstanding preferred and common
stock (163,404 shares of common stock). The warrant expires on July
31, 2001. The warrant contains anti-dilutive provisions throughout
its six (6) year life which entitles the holder to its applicable
percentages of the Company's capital stock on the date the warrant
is exercised. Based upon the issuance 61,500 shares of common stock
during 1996, the lender is entitled to an additional 3,925 shares of
common stock. Accordingly, the financial statements include a charge
to operations of $11,775 which represents the market value of the
stock at the time the 61,500 common shares were issued by the
Company.
In connection with the Company's successful initial public
offering of its securities, the Company issued warrants for nominal
consideration to the underwriter to acquire 100,000 shares of the
Company's common stock at $6.30 per share.
F-17
<PAGE>
<PAGE>
NOTE 9 - CAPITAL STOCK. (Continued)
(b) Warrants:
(ii) Warrants Issued in 1997:
As part of the Acquisition, the Company issued on January
17, 1997, 350,000 warrants to JMS's former owner and 50,000 warrants
to certain of it's employees.
Concurrent with the Acquisition on January 17, 1997, the
Company issued 50,000 warrants to each of three (3) of the Company's
directors. Two (2) of which are also officers of the Company.
In order to finance the Acquisition, the Company sold to
accredited investors 1,875,000 Placement Warrants at a purchase
price to the Company of $1,747,500 (after offering costs of
$315,000).
All of the Placement Warrants issued pursuant to the
Acquisition aggregating $2,425,000 entitles the holder thereof to
purchase one common share, par value $.001 per share, of the common
stock of the Company at an exercise price per share of $2.50 for a
term which will expire on December 31, 2000.
The Company has the right to redeem the Placement Warrants,
in installments, at a redemption price of $.10 per warrant
commencing six months after the date of issuance if the stock trades
at a designated level for at least five trading days prior to the
month preceding the date on which the redemption right may be
exercised.
The holders of the Placement Warrants have a put option
pursuant to which for a 60 day period prior to their expiration
date, the holder has the right to require the Company to repurchase
the Placement Warrants for a consideration consisting of $.10 per
warrant plus 40% of a share of common stock. In addition, the
Placement Warrants have standard anti-dilution protection.
(c) Stock Options:
On August 9, 1995, the Company's Board of Directors adopted
the Company's 1995 stock option plan (the "Option Plan") pursuant to
which options to acquire an aggregate of 100,000 shares of common
stock may be granted to employees, officers, directors or
consultants to the Company. The Option Plan provides for the grant
of both incentive stock options, intended to qualify for
preferential tax treatment under Section 422 of the Internal Revenue
Code, and nonstatutory stock options that do not qualify for such
tax treatment. No options can be granted under the Option Plan at
less than 100% of the fair market value of the Company's common
stock on the date of grant. No options have been granted under the
Option Plan.
F-18
<PAGE>
<PAGE>
NOTE 9 - CAPITAL STOCK. (Continued)
(c) Stock Options:
On July 5, 1996, the Company entered into an option
agreement with a consultant pursuant to which he was granted an
option to purchase 50,000 shares of the Company's common stock at an
exercise price of $2 per share. The option is exercisable with
respect to (a) 25,000 shares on August 4, 1996, (b) with respect to
the remaining 25,000 shares after the occurrence of a qualifying
event as described in the consulting agreement.
On November 21, 1996, 25,000 options were exercised which
represented the value of the consultant's services whereupon $50,000
was charged to operations as consulting expense.
NOTE 10 - COMMITMENTS AND CONTINGENCIES.
(a) Leases:
The Company leases four (4) of its six (6) retail stores
and its commercial baking facility under five non-cancelable
operating leases which expire at various dates through May 2006. Its
two (2) cafes which are located in Macy's are occupied pursuant to a
license agreement described in Note 10(c).
During March 1996, the Company entered into a lease for
retail space which will expire on March 31, 2006. Due to lack of
working capital, the store has been vacant since the lease's
inception. However, in March 1997, management made the decision to
open a store at this location. The Company has reserved $138,000 for
losses on the lease which represents six months rent of $88,000 and
a write-off of the costs of obtaining the lease of $50,000.
The minimum future rental payments are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
1997 $ 561,195
1998 581,628
1999 444,108
2000 376,235
2001 338,438
Thereafter 1,933,987
----------
Total minimum future
rental payments $4,235,591
==========
</TABLE>
F-19
<PAGE>
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES. (Continued)
(b) Employment and Consulting Agreements:
On July 10, 1995, the Company entered into an employment
agreement with its then president for a term of five (5) years with
a base salary of $100,000 for the first year, $125,000 for the
second year of the term and $150,000 for each of the third through
fifth years of the term. The Company also entered into employment
agreements, as of July 10, 1995, with its then Chairman and its
Chief Executive Officer for a term of three (3) years with each of
the two receiving a base salary of $75,000 for the first year of the
term, $100,000 for the second year of the term and $125,000 for the
third year. In addition to the base salary, each of these three
employees is entitled to receive an annual performance bonus equal
to 5% of the pre-tax earnings, as defined, of the Company over
$800,000. Each of such employment agreements generally provide that
the executive will be entitled to a severance payment equal to one
year of that executive's compensation in the event the executive is
terminated other than for cause.
In connection with the Greenberg's-L.P. acquisition (see
Note 3), the Company entered into consulting and/or employment
agreements with one of the partners and three (3) key members of
management of Greenberg's-L.P. The agreements run up to 30 months
and aggregate $498,000 for each of the first two years and $46,500
for the third period. On April 15, 1996, the Company's then chairman
and chief executive officer's employment contract was terminated
upon her resignation. As settlement of her employment contract, the
Company agreed to continue paying her monthly salary of $8,333 for a
period of 16 months.
In order to supplement its cash flow, in August 1996, the
Company reduced payments to all employees under contract by 50%. The
unpaid portion at December 31, 1996 aggregating $212,385 has been
accrued and will be paid at such time as the Company has sufficient
funds.
(c) License Agreement:
On May 18, 1995, the Company entered into an agreement with
Macy's East, Inc. (the "Licensor"), pursuant to which it granted the
Company a license consisting of the right to operate a cafe in its
store located on 34th Street, New York, N.Y. The cafe offers for
sale fresh baked pastries and desserts as well as soups, salads,
sandwiches, coffees, teas and other non-alcoholic beverages to the
general public. Under the license agreement, the Company must pay
the Licensor a fee equal to ten percent (10%) of net sales relating
to the cafe. Such license fee charged to operations amounted to
$5,069 in 1995. In addition, the Company must spend for advertising
an amount equal to three percent (3%) of its net sales. The license
commenced in November 1995 and ends on the Saturday nearest to July
31, 1996. The agreement, which has been renewed for the one year, is
automatically renewed for successive periods of one year unless
either party gives notice to the other at least ninety (90) days
prior to the expiration of the initial term or any renewal term that
the agreement shall not be renewed.
F-20
<PAGE>
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES. (Continued)
As an addendum to the above agreement, during 1996 the
Company opened a second cafe in the Macy's 34th Street store and has
placed four (4) kiosks in various Macy's locations outside of New
York City. The additional locations all operate under the provisions
of the original agreement described above. The aggregate license fee
paid in 1996 was $62,549.
NOTE 11 - RELATED PARTY TRANSACTIONS.
At December 31, 1994, the Company was indebted to the
Company's then President, Mr. Fass, in the amount of $50,432. Of
this amount, $35,000 pertained to a verbal consulting agreement
whereby Mr. Fass had agreed to perform consulting services for the
Company at a rate of $5,000 per month effective June 1, 1994 and the
balance of $15,432 is for expenses incurred by the Company which Mr.
Fass personally paid on behalf of the Company. Through June 30,
1995, Mr. Fass earned additional consulting fees of $30,000 and paid
additional costs and expenses incurred on behalf of the Company of
$24,933, which increased the amount owed to Mr. Fass to $105,365
which was repaid in full. On July 10, 1995, the Company entered into
an employment agreement with Mr. Fass for a term of five (5) years
(See Note 10).
On February 8, 1996, the Company made an 6.75% interest
bearing unsecured loan in the amount of $212,500 to the spouse of
Willa Abramson who was the Company's Chairman. On April 5, 1996, the
loan with accrued interest was repaid. In March 1996, Ms Abramson
pledged 400,000 shares of the Company's common stock owned by her as
collateral for a loan which matures in March 1997. Ms Abramson
resigned as the Company's Chairman, Chief Financial Officer and
Secretary on April 15, 1996 at which time the Company's former Chief
Executive Officer, Maria Marfuggi, assumed these duties and
positions.
Upon consummation of the Company's initial public offering,
persons associated with the representative of the several
underwriters, who purchased a $350,000 participation interest in the
InterEquity $2,000,000 term loan obtained in connection with the
acquisition of Greenberg's-L.P., received through the conversion of
the Convertible Note, a 17.5% participation interest in a six-year
warrant to purchase 6% of the then issued and outstanding shares of
the Company on a fully diluted basis. Upon consummation of the
offering, Joel L. Gold, a Director of the Company and a managing
director of the Underwriter, received a 5% participation interest in
a six-year warrant to acquire 6% of the Company's then issued and
outstanding capital shares at the time of exercise. Mr. Gold has
since resigned as a director of the Company and is no longer
associated with the underwriter.
F-21
<PAGE>
<PAGE>
NOTE 12 - PRO FORMA AND SEGMENT DATA.
Since its inception through July 10, 1995, the Company had
not generated any revenues and did not carry on any significant
operations. Upon the acquisition of the operating assets of
Greenberg's-L.P. on July 10, 1995, the Company emerged from the
development stage. Accordingly, the historical statements of
operations included herein include retail and wholesale baking
operations from July 10, 1995. Assuming the operating assets of
Greenberg's-L.P. were acquired at January 1, 1995, the results of
operations for the year ended December 31, 1995 on a pro forma basis
would have been as follows:
<TABLE>
<S> <C>
Net sales $3,167,838
----------
Cost of sales 2,189,025
Selling, general and
administrative expenses 1,968,507
----------
4,157,532
----------
Loss from operations ( 989,694)
Other expenses 958,637
----------
Net loss ($1,948,331)
==========
Loss per common share ($1.07)
=====
Weighted average number of
common shares outstanding 1,828,609
==========
</TABLE>
The Company's operations are classified into two segments,
retail and wholesale. The following is a summary of segmented
information for the year ended December 31, 1996 and 1995. The
information for 1995 is on a pro forma basis which reflects the
purchase of the business of Greenberg's-L.P. as if it had occurred
on January 1, 1994.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1996 1995
---------- ----------
(Actual) (Pro Forma)
<S> <C> <C>
Operating data:
Net sales:
Retail $2,912,730 $2,160,567
Wholesale 1,319,886 1,007,271
---------- ----------
$4,232,616 $3,167,838
========== ==========
Loss from operations:
Retail ( 1,674,589) ( 678,998)
Wholesale ( 994,079) ( 310,696)
---------- ----------
( 2,668,668) ( 989,694)
General corporate expenses ( 2,309,459) ( 958,637)
---------- ----------
Net loss ($4,978,127) ($1,948,331)
========== ==========
<CAPTION>
December 31,
1996
----------
<S> <C>
Balance sheet data:
Identifiable assets - retail $ 861,297
Identifiable assets - wholesale 179,586
----------
1,040,883
General corporate assets 694,093
----------
Total assets $1,734,976
==========
</TABLE>
F-22
<PAGE>
<PAGE>
NOTE 13 - SUBSEQUENT EVENTS.
Reference is made to Note 4 in regard to the Acquisition of
JMS on January 17, 1997 for cash and the Company's securities. The
cash portion of the purchase was obtained through the use of the
proceeds from the sale in January 1997 of the Placement Warrants.
On March 20, 1997, the Company entered into an employment
contracts with the former owners of a Company that produced low-fat
and fat-free cookies. Pursuant to the contracts, both individuals
received a signing bonus aggregating $59,000 and will each receive a
salary of $25,000 per annum with an opportunity to earn an
additional $50,000 each based on sales performance. In addition both
individuals will be entitled to warrants to acquire an aggregate of
50,000 shares of the Company's common stock in the event that sales
volume exceeds $750,000 per annum.
On March 17, 1997, the Company signed a letter of intent to
acquire all of the capital stock of a bakery. The acquisition, if
consummated, will be accounted for as a pooling of interests.
On March 28, 1997 an aggregate of 34,000 shares of common
stock were issued to the Company's attorney and a financial
consultant for services rendered in connection with the Acquisition.
Pursuant to the anti-dilutive provisions of its warrant,
InterEquity is entitled to receive 31,915 shares of the Company's
stock and a warrant to acquire an additional 117,989 shares at $2.50
per share. The issuance of the shares and the warrant to InterEquity
will result in a charge to operations of $500,792.
As of April 1, 1997, persuant to settlement discussions,
the employment of Stephen Fass, a director and President of the
Subsidiary, Maria Marfuggi, a director and President of JMS, and
Seth Greenberg, President of the Subsidiary's baking division,
terminated. At the present time, the respective parties have not yet
concluded their settlement discussions. Management intends to seek
an amicable settlement with the named parties as a result of such
terminations; however, each of the named parties have an employment
agreement with the Company. No contingency loss has been charged to
operations insofar as counsel does not know the extent of the
liability, if any, to the Company.
During the period from January 1997 through March 1997 six
(6) of the Company's vendors have each commenced actions which seek
payment of delinquent accounts payable balances aggregating
approximately $80,000. The Company is attempting to settle these
matters without litigation, however, there has been no final
settlements to date.
F-23
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as......'tm'
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of January 23rd, 1997 between WILLIAM GREENBERG
JR. DESSERTS AND CAFES, Inc., a New York corporation, (the "Company"), and
PHILIP GRABOW (the "Employee"):
W I T N E S S E T H
WHEREAS, the parties wish to make provisions for the employment of the
Employee by the Company upon the terms and conditions hereinafter set forth; and
WHEREAS, the parties recognize and acknowledge that under the terms
and conditions hereinafter set forth, the Employee will be employed for a
specified term, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual provisions,
representations and warranties set forth below, and for other good and valuable
consideration, it is hereby agreed as follows:
1. Employment. Subject to the terms and conditions of this Agreement,
the Company hereby agrees to the employment of the Employee, and the Employee
hereby accepts such employment, upon the terms and conditions set forth herein.
2. Term. Subject to the provisions of Section 8 hereof, the Employee's
employment under this Agreement shall commence on the date hereof and shall end
on December 31, 1998. Subject to the provisions of Section 8 hereof, after the
expiration of such initial period, this Agreement shall automatically be renewed
for an additional one-year period, and thereafter shall be automatically renewed
for successive one-year periods, on all the remaining terms and conditions set
forth herein, unless either party elects not to renew this Agreement by giving
written notice to the other at least 60 days before a scheduled expiration date.
3. Position and Duties. (a) The Employee shall serve as the Chief
Executive Officer and President of the Company and shall have such other duties,
consistent with such position, as from time to time may be prescribed by the
Board of Directors of the Company (the "Board"). In addition, the Employee shall
be entitled to a seat on the Board of Directors of the Company and each of its
subsidiaries.
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(b) During the term of this Agreement (the "Term"), the Employee
shall perform and discharge well and faithfully all duties that may be assigned
to him by the Company from time to time in accordance with this Agreement, and
the Employee shall devote his best talents, efforts and abilities to the
performance of his duties hereunder. The Employee, without the consent of the
Board of Directors, shall not discharge any employee of the Company or its
subsidiaries whose base salary is in excess of fifty thousand dollars ($50,000)
per annum.
(c) During the Term, the Employee shall perform such duties on a
full-time basis and, without the express prior written consent of the Board, the
Employee shall have no other employment or related outside business activities
whatsoever; provided, however, that, subject to the provisions of Section 11,
the Employee shall not be precluded from devoting to personal or business
affairs such time as shall not materially interfere with the performance of his
duties hereunder.
4. Compensation. The Company shall pay the Employee during the Term an
annual salary in respect of each year of the Term (and a pro rata portion of
such amount for any portion of the Term that is less than a calendar year),
payable in accordance with the customary payroll practices of the Company. The
Employee's salary for the period from the date hereof through December 31, 1997
shall be $250,000 per annum. The Employee's salary for the period from January
1, 1998 through December 31, 1998 shall be $150,000 per annum. Such salary shall
thereafter be reviewed, no less frequently than annually, by the Board and shall
be subject to such increases (but no decreases), if any, as the Board, in its
sole discretion, from time to time may determine.
5. Benefit Plans. During the Term, the Employee shall be eligible to
participate, subject to meeting any eligibility requirements, in the Company's
major medical and hospitalization programs and any and all other benefit and
bonus programs made available by the Company to its senior employees. The
Company shall have the right, from time to time, in its discretion, to the
extent permitted by applicable law (but only if all senior employees of the
Company are similarly treated), to supplement, amend, replace or terminate the
foregoing plans, reduce the benefits provided thereunder, or increase the amount
of the Employee's contribution. Any benefits to which the Employee may be
entitled under the foregoing plans (as the same may be supplemented, amended or
replaced, the "Benefit Plans") shall be provided to him in accordance with the
respective terms thereof.
6. Expenses. (a) During the Term, the Company shall pay or reimburse
the Employee for all business expenses actually incurred or paid by the Employee
in the performance of his services hereunder, provided that (i) such expenses
are reasonable and (ii) the Employee submits expense statements or vouchers or
such supporting information as the Company may reasonably require of the
Employee.
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(b) During the Term, the Company shall furnish the Employee with
a monthly allowance of $650.00 before taxes for the use of an automobile by the
Employee in connection with his duties hereunder, and shall reimburse the
Employee for all repairs, registration, insurance and maintenance expenses
incurred by the Employee in connection with his use thereof.
7. Vacations. The Employee shall be entitled to four (4) weeks paid
vacation during each calendar year of the Term (and a pro rata portion thereof
for any portion of the Term that is less than a calendar year), to be taken at
times as may mutually be agreed upon by the Employee and the Company. In the
event vacation days are not used in a given calendar year, the Employee may
carry over and use these days or be paid for same upon the termination of this
Agreement, as Employee may elect.
8. Termination. (a) In the event the Employee's employment terminates,
whether during the term of the Agreement or following the expiration of the term
of the Agreement, due to either a Without Cause Termination or a Constructive
Discharge, the Company shall, as liquidated damages or severance pay, or both,
continue to pay the Employee's base salary as in effect at the time of such
termination for the greater of (i) the remainder of the then-current term of the
Agreement, or (ii) a period of twelve months from the effective date of such
termination. In the event the Employee's employment terminates, whether during
the term of the Agreement or following the expiration of the term of the
Agreement, due to a Permanent Disability, the Company shall continue to pay the
Employee's base salary as in effect at the time of such termination for a period
of six months from the date of such termination; provided, that such amounts
shall be offset by any amounts otherwise paid to the Employee under the
Company's then-existing disability program. In addition, earned but unpaid base
salary as of the date of termination of employment shall be payable in full and
any incentive compensation bonus, or profit-sharing plan maintained by the
Company had he been employed throughout the year in which such bonus is
calculated shall be payable on a pro-rated basis for the year in which such
termination of employment occurs only. The Employee shall be entitled to
continued group hospitalization, health and dental care insurance for the
periods specified in the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") upon payment by the Employee of the amounts specified under COBRA. For
purposes hereof, no Without Cause Termination shall be effective until 30 days
after the Company has given notice of termination to the Employee.
(b) In the event that the Employee's employment hereunder
terminates due to a Termination for Cause or the Employee terminates employment
with the Company for reasons other than a Constructive Discharge, Permanent
Disability or retirement pursuant to the Company's retirement plan (the
"Retirement Plan"), earned but unpaid base salary as of the date of termination
of employment shall be payable in full. However, no other payments shall be
made, or benefits provided, by the Company under this Agreement except for
benefits payable under the Retirement Plan and benefits that have already become
vested under the terms of employee benefit programs
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maintained by the Company or its affiliates for its employees and except as
otherwise required by law.
(c) For purposes of this Agreement, the following terms have the
following meanings:
(i) The term "Termination for Cause" means, to the maximum
extent permitted by applicable law, a termination of the Employee's employment
by the Company because the Employee has (a) materially breached or materially
failed to perform his duties under applicable law and such breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness, (b)
committed an act of dishonesty in the performance of his duties hereunder or
engaged in conduct materially detrimental to the business of the Company, (c)
been convicted of a felony involving moral turpitude, (d) materially breached or
materially failed to perform his obligations and duties hereunder, which breach
or failure the Employee shall fail to remedy within 30 days after written demand
from the Company, or (e) violated in any material respect the provisions of
Section 9 or 11 below.
(ii) The term "Constructive Discharge" means a termination
of the Employee's employment by the Employee due to a failure of the Company or
its successors without prior consent of the Employee to fulfill its obligations
under this Agreement in any material respect, including (a) any failure to elect
or re-elect or to appoint or reappoint the Employee to the offices of President
and Chief Executive Officer (or any equivalent titles with substantially similar
duties), which failure the Company shall fail to remedy within 30 days after
written demand from the Employee, or (b) any other material change by the
Company in the functions, duties or responsibilities of the Employee's position
with the Company which would materially reduce the ranking or level, dignity,
responsibility, importance or scope of such position, which change the Company
shall fail to remedy within 30 days after written demand from the Employee.
(iii) The term "Without Cause Termination" means a
termination of the Employee's employment by the Company other than due to a
Permanent Disability, retirement or expiration of the term of the Agreement and
other than a Termination for Cause.
(iv) The term "Permanent Disability" means permanently
disabled so as to qualify for full benefits under the Company's then-existing
disability insurance policy; provided, however, that if the Company does not
maintain any such policy on the date of termination, "Permanent Disability"
shall mean the inability of the Employee to work for a period of six full
calendar months during any twelve consecutive calendar months due to illness or
injury of a physical or mental nature, supported by the completion of a medical
certification form outlining the disability or treatment issued by (i) the
Employee's attending physician or (ii) an alternate physician chosen by the
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Company as may be necessary in order to comply with the requirements of the
Company's insurance carrier (the costs incurred in connection with the issuance
of such additional medical certification shall be covered by the Company).
9. Trade Secrets; Confidentiality. (a) The Employee recognizes and
acknowledges that, in connection with his employment with the Company, he will
have access to valuable trade secrets and confidential information of the
Company and its Affiliates (as hereinafter defined), including, but not limited
to, operating, technical and marketing methods and that these are special and
unique assets of the Company's business that are made available to the Employee
only in connection with the furtherance of his employment with the Company. The
Employee agrees that he shall not at any time disclose any of such confidential
information or trade secrets of the Company or any of its Affiliates to any
Person (as hereinafter defined), directly or indirectly, or use same for any
reason or purpose whatsoever, except: (i) in connection with the performance of
his duties under this Agreement; (ii) with the express prior written consent of
the Company; or (iii) as required by law to be divulged to a government agency
or pursuant to lawful process.
(b) For purposes of this Agreement:
(i) The term "Affiliate" of any Person means any other
Person directly or indirectly through one or more intermediary Persons,
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" shall mean the power to direct the
management and policies of such Person, directly or indirectly, by or through
stock ownership, agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding with one or more other Persons by or
through stock ownership, agency or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
(ii) The term "Person" means any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization or joint venture.
10. Return of Proprietary Information. In the event of the termination
of the Employee's employment with the Company, regardless of the cause of such
termination, whether voluntary or involuntary, the Employee shall immediately:
(i) return to the Company any original records of the Company and (ii) purge or
destroy any computerized, duplicated or copied records referred to in Section 9
that have been removed from the Company's premises.
11. Restrictive Covenants. (a) During the Term and for a period of
three years immediately following the termination of the Employee's employment,
regardless of the cause of such termination, whether voluntary or involuntary,
the Employee shall not directly or indirectly on his own behalf or on behalf of
any Person
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in an area comprising the states of New Jersey and New York: (i) own, manage,
operate, control, be employed by, participate in, provide consulting services
to, or be connected or associated in any manner with the ownership, management,
operation, or control of any business involving the production, marketing or
distribution of pastries, cakes, pies, cookies, batter and frozen-finished
cakes, brownies, muffins or other assorted desserts, or (ii) persuade or seek to
persuade any supplier, customer, contractor, employee, agent or consultant or
other Person having business relations with the Company to cease such
relationship; provided, however, nothing set forth in this Section 11(a) shall
preclude the Employee from providing consulting services to J.P. Veggies, Inc.
(b) The Employee acknowledges and agrees that the restrictive
covenants set forth in this Section 11 (the "Restrictive Covenants") are
reasonable and valid in geographical and temporal scope and in all other
respects. If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full force and
effect, without regard to the invalid or unenforceable parts.
(c) If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable for any reason, such
court shall have the power to modify such Restrictive Covenant, or any part
thereof, and, in its modified form, such restrictive covenant shall then be
valid and enforceable.
12. Equitable Relief. In the event of a breach by the Employee of any
of the covenants contained in Sections 9, 10 or 11 hereof, the Company shall be
entitled to a temporary restraining order, a preliminary injunction and/or a
permanent injunction restraining the Employee from breaching or continuing to
breach any of said covenants. Nothing herein contained shall be construed as
prohibiting the Company from pursuing any other remedies that may be available
to it for such breach including the recovering of damages.
13. Severability. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each individual provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
14. Successors and Assigns. This Agreement and the benefits hereunder
are personal to the Company and are not assignable or transferable by the
Employee. The services or any specified portion thereof to be performed by the
Employee hereunder may be assigned by the Company to any of its Affiliates.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the Company and it successors and assigns and the Employee and his
heirs and legal representatives.
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15. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
16. Dispute Resolution. (a) If a dispute arises out of or relates to
this Agreement, or the breach thereof, and if such dispute cannot be settled
through negotiation, the parties agree first to try in good faith to settle the
dispute by mediation administered by the American Arbitration Association under
its Commercial Mediation Rules before resorting to arbitration or some other
dispute resolution procedure.
(b) Except as provided in Section 12 hereof, any dispute or claim
arising out of or relating to this Agreement or the breach thereof will be
settled by arbitration before a single arbitrator in accordance with the rules
of the American Arbitration Association then in effect, and judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction. Any such arbitration will be conducted in New York.
17. Notices. (a) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed as follows:
(i) If to the Company, to:
William Greenberg Jr. Desserts and Cafes, Inc.
533 West 47th Street
New York, New York 10036
Fax No.: (212) 586-2418
Attention: Stephen Fass, Executive Vice President
(ii) If to the Employee, to:
Philip Grabow
J.M. Specialties
222 New Road
Parsippany, New Jersey 07054
Fax No.: (201) 808-0203
(b) Each such notice or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in Section 17(a) (with confirmation of transmission) (ii) if
mailed by registered or certified mail, postage prepaid, three (3) business days
after deposit in the mails or (iii) if given by any other means, when delivered
at the address specified in Section 17(a). Any party by notice given in
accordance with this Section 17 to the other party
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may designate another address (or telecopier number) or person for receipt of
notices hereunder. Notices by a party may be given by counsel to such party.
18. Withholding. All payments required to be made by the Company to
the Employee under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with the Company's policies
applicable to employees of the Company at the Employee's level and the
provisions of the Benefit Plans.
19. Complete Understanding. This Agreement supersedes any prior
contracts, understandings, discussions and agreements relating to employment
between the Employee and the Company and constitutes the complete understanding
between the parties with respect to the subject matter hereof. No statement,
representation, warranty or covenant has been made by either party with respect
to the subject matter hereof except as expressly set forth herein.
20. Modification; Waiver. (a) This Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of any amendment, by the Company and the Employee or, in the case of a waiver,
by the party against whom the waiver is to be effective. Any such waiver shall
be effective only to the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
21. Mutual Representations. (a) The Employee represents and warrants
to the Company that the execution and delivery of this Agreement and the
fulfillment of the terms hereof (i) will not constitute a default under or
conflict with any agreement or other instrument to which he is a party or by
which he is bound and (ii) do not require the consent of any Person.
(b) The Company represents and warrants to the Employee that this
Agreement has been duly authorized, executed and delivered by the Company and
that the fulfillment of the terms hereof (i) will not constitute a default under
or conflict with any agreement or other instrument to which it is a party or by
which it is bound and (ii) do not require the consent of any Person.
(c) Each party hereto warrants and represents to the other that
this Agreement constitutes the valid and binding obligation of such party
enforceable against such party in accordance with its terms.
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22. Headings. The headings in this Agreement are for convenience
of reference only and shall not control or affect the meaning or construction of
this Agreement.
23. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
IN WITNESS WHEREOF, the Company has caused this Employment
Agreement to be duly executed in its corporate name by one of its officers duly
authorized to enter into and execute this Agreement, and the Employee has
manually signed his name hereto, all as of the day and year first above written.
WILLIAM GREENBERG JR. DESSERTS
& CAFES, INC.
By: /s/ Stephen Fass
--------------------------
Stephen Fass, President
/s/ Philip Grabow
--------------------------
Philip Grabow
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN
THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
NO. W-__ VOID AFTER DECEMBER 31, 2000 __,___ Shares
WARRANT CERTIFICATE TO PURCHASE SHARES OF COMMON STOCK
of
WILLIAM GREENBERG JR. DESSERTS & CAFES, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED
____________________, or registered assigns (the "Registered Holder")
is the owner of the number of Common Stock Purchase Warrants (the "Warrants")
specified above. Each Warrant initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 par value, of William Greenberg Jr. Desserts &
Cafes, Inc., a New York corporation (the "Company"), at any time from January
23, 1997, and prior to the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of the
Company, accompanied by payment of $2.50, subject to adjustment (the "Purchase
Price"), in lawful money of the United States of America in cash or by check
made payable to the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
January 23, 1997, by and between the Company and the holder thereof.
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In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor for the
balance of such Warrants.
The term "Expiration Date" shall mean at 5:00 p.m. (New York time) on
December 31, 2000. If each such date shall in the State of New York be a holiday
or a day on which the banks are authorized to close, then the Expiration Date
shall mean 5:00 p.m. (New York time) the next following day which in the State
of New York is not a holiday or a day on which banks are authorized to close.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Registered Holder as the absolute owner hereof
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company) for all purposes and shall not be affected by any notice to the
contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the date hereof.
Dated as of: January 23, 1997
WILLIAM GREENBERG JR. DESSERTS &
CAFES, INC.
By:
----------------------------------
Philip Grabow, President and Chief
Executive Officer
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Exhibit 21.1
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
WGJ Deserts and Cafes, Inc. New York corporation
J.M. Specialities, Inc. New Jersey corporation
