UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended June 30, 1997 Commission File Number 33-39759
CRESCENT CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3645694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6701 Democracy Boulevard
Suite 300
Bethesda, Maryland 20817
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (301) 530-1708
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
As of August 1, 1997, 2,545,800 shares of common stock par value, $0.001 per
share were outstanding.
CRESCENT CAPITAL, INC.
FORM 10-QSB
QUARTERLY REPORT
For the Quarter Ended June 30, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1 : Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1997 [Unaudited] 1 - 2
Condensed Consolidated Statements of Operations for the
quarters April 1, 1997 to June 30, 1997 and April 1,
1996 to June 30, 1996 and for the period January 1,
1997 to June 30, 1997 [Unaudited] 3
Condensed Consolidated Statement of Stockholders'
Equity for the periods ended June 30, 1997 and June 30,
1997 [Unaudited] 4
Condensed Consolidated Statements of Cash Flows for the
period December 31, 1996 to June 30, 1997 [Unaudited] 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
Part II: OTHER INFORMATION 11
SIGNATURES 12
o o o o o o o o o o
CRESCENT CAPITAL, INC.
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CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997
- --------------------------------------------------------------------------------
As of
June 30, 1997 December 31, 1996
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 3,942,254 $ 657,880
Trade Accounts Receivable - Net 1,635,610 2,278,638
Franchisee Loans 878,511 1,008,990
Other Receivables 509,804 51,475
Inventories 937,881 865,131
Prepaid Expenses and Accrued Income 656,567 778,834
Officer Loan Receivable 145,323 125,016
Due from Related Parties [D] 1,550,730 1,471,997
----------- -----------
Total Current Assets 10,256,680 7,237,961
----------- -----------
Property and Equipment - Net 3,548,660 3,423,542
----------- -----------
Other Assets:
Intangible Assets 1,062,884 1,107,953
Deposits 324,156 637,562
Prepaid and Deferred Offering Costs 100,000 100,000
----------- -----------
Total Other Assets 1,487,040 1,845,515
----------- -----------
Total Assets $15,292,380 $12,507,018
----------- -----------
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
1
As of
June 30, 1997 December 31, 1996
Liabilities and Stockholders' Equity:
Current Liability:
Trade Accounts Payable $ 2,961,047 $ 3,704,523
Accrued Expenses 1,575,985 1,186,168
Other Payables and Accrued Interest 332,263 29,785
Obligations Under Capital Leases 206,912 217,691
Other Taxes Payable 479,860 415,771
Current Portion of Long Term Debt 299,770 321,621
------------ ------------
Total Current Liabilities 5,855,837 5,875,559
------------ ------------
Long-Term Liabilities 483,606 460,240
------------ ------------
Minority Interest 3,338,544 2,015,233
------------ ------------
Stockholders' Equity:
$.01 Par Value, Preferred Stock,
1,000,000 Shares Authorized,
No Shares Issued and Outstanding -- --
$.001 Par Value, Class A Common Stock,
5,000,000 Shares Authorized and
545,800 Shares Issued and Outstanding 546 546
$.001 Par Value, Convertible Class B
Common Stock - 2,000,000 Shares
Authorized, Issued and Outstanding 2,000 2,000
Additional Paid-in-Capital 6,209,214 6,209,214
Retained Earnings 1,870,419 322,246
Cumulative Foreign Currency
Translation Adjustment 220,634 250,400
Note Receivable for Stock (1,912,275) (1,852,275)
Cost of Common Stock Held in Treasury
51,743 shares in 1996 (776,145) (776,145)
------------ ------------
Total Stockholders' Equity 5,614,393 4,155,986
------------ ------------
Total Liabilities and Stockholders' Equity $ 15,292,380 $ 12,507,018
------------ ------------
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
2
CRESCENT CAPITAL, INC
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CONDENSED STATEMENTS OF OPERATIONS.
[UNAUDITED]
- --------------------------------------------------------------------------------
For the Quarter For the Period
March 31, 1997 April 1, 1996 December 31, January 1,
to June 30, 1997 to June 30, 1996 to 1996 to
1996 June 30, 1997 June 30, 1996
Revenue:
Sales by Company Owned Stores $ 1,030,626 $ 1,410,032 $ 1,939,351 $ 2,473,246
Commissary Sales 4,042,559 2,899,511 7,961,599 5,481,077
Franchise Fees 122,095 137,491 255,372 180,339
Rental Income 540,255 326,253 1,031,706 623,358
Royalty Sales 957,971 691,157 1,844,745 1,326,343
Computer Sales 201,079 -- 569,602 --
Other Operating Income 69,942 198,602 146,651 365,130
------------ ------------ ------------ ------------
Total Revenue 7,054,627 5,663,046 13,749,026 10,449,493
------------ ------------ ------------ ------------
Cost of Sales
Company Owned Stores 614,543 881,819 1,176,900 1,644,672
Commissary 3,445,331 2,564,852 6,834,735 4,912,687
Royalty Sales 1,037,487 649,192 2,048,418 1,242,439
------------ ------------ ------------ ------------
Total Cost of Sales 5,097,361 4,095,853 10,060,053 7,799,798
------------ ------------ ------------ ------------
Gross Margin 1,957,266 1,567,193 3,688,973 2,649,695
------------ ------------ ------------ ------------
Amortization/Depreciation 196,526 140,767 382,147 272,860
Administrative Expenses 1,585,471 1,464,864 2,988,466 2,543,337
Gain on Sale of Fixed Assets 88,434 -- 88,434 --
------------ ------------ ------------ ------------
Operating (Loss)/Income 263,703 (38,438) 406,794 (166,502)
Interest Income 77,318 113,460 162,320 133,830
Interest Expense (20,906) (24,162) (50,979) (49,858)
Income (Loss) from Continuing Operations 320,115 50,860 518,135 (82,530)
------------ ------------ ------------ ------------
(Loss) from Discontinued Operations 349 -- (68,022) (400,986)
------------ ------------ ------------ ------------
Minority Interest on Continued/Discontinued Operations
(93,886) (17,006) (131,167) 132,646
------------ ------------ ------------ ------------
Extraordinary Income After Tax 1,756,038 -- 1,756,038 --
------------ ------------ ------------ ------------
Minority Interest on Extraordinary Income (526,811) -- (526,811) --
------------ ------------ ------------ ------------
Net (Loss)/Income $ 1,455,805 $ 33,854 $ 1,548,173 $ (350,870)
------------ ------------ ------------ ------------
Earnings/(Loss) Per Share:
------------ ------------ ------------ ------------
Income from Continuing Operations $ 0.12 $ 0.02 $ 0.20 $ 0.03
------------ ------------ ------------ ------------
Loss from Discontinued Operations -- -- $ (0.02) $ (0.16)
------------ ------------ ------------ ------------
Extraordinary Income $ 0.69 -- $ 0.69 --
------------ ------------ ------------ ------------
Minority Interest $ (0.24) $ (0.01) $ (0.26) $ (0.14)
------------ ------------ ------------ ------------
Net Income (Loss) Per Share $ 0.57 $ 0.01 $ 0.60 $ (0.14)
------------ ------------ ------------ ------------
Weighted Average Number of Shares Outstanding
2,545,800 2,545,200 2,545,800 2,545,200
------------ ------------ ------------ ------------
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
3
CRESCENT CAPITAL, INC.
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
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Cumulative
Foreign
Common Stock Additional Currency Note Total
Number of Paid-in Retained Translation Treasury Receivable Stockholders'
Shares Amount Capital Earnings Adjustments Stock For Stock Equity
Balance - December 31, 1996 2,545,800 2,546 6,209,214 322,246 250,400 (776,145) (1,852,275) 4,155,986
Foreign Currency -- -- -- -- (29,766) -- -- (29,766)
Translation Adjustment
Net Income for the quarter -- -- -- 1,548,173 -- -- -- 1,548,173
ended June 30, 1997
Accrued Interest on Note -- -- -- -- -- -- (60,000) (60,000)
---------- --------- ---------- ----------- ----------- ----------- ----------- ----------
Balance - June 30, 1997 2,545,800 $2,546 $6,209,214 $1,870,419 $220,634 (776,145) $(1,912,275) $5,614,393
---------- --------- ---------- ----------- ----------- ----------- ----------- ----------
Foreign Currency Translation
The functional currency for the Company's foreign operations is the British
pound sterling. The translation from the British pound sterling into U.S.
dollars is performed for balance sheet accounts using the current exchange rate
in effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. The gains or losses resulting
from such translations are included in stockholders' equity. Equity transactions
are denominated in British Pound sterling have been translated into U.S. dollars
using the effective rate of exchange at date of issuance.
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements
4
CRESCENT CAPITAL, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
- --------------------------------------------------------------------------------
For the Period
January 1, 1997 January 1, 1996
to to
June 30, 1997 June 30, 1996
Net Cash - Operating Activities 653,987 $(1,489,762)
----------- -----------
Investing Activities:
Purchase of Property, Equipment and Capitalized Costs (857,886) (1,151,811)
Proceeds on Disposal of Property and Equipment 328,934 259,047
Repayment of Loan to Officer -- --
Loan to Related Party -- --
----------- -----------
Net Cash - Investing Activities (528,952) (892,764)
----------- -----------
Financing Activities:
New Short Term Loans 260,236 --
Capital Repayments Made (98,137) --
Payment of Debt (157,589) (239,046)
Proceeds from Sale of Common Stock 3,129,572
----------- -----------
Net Cash - Financing Activities 3,129,572 (239,046)
----------- -----------
Effect of Exchange Rate Changes on Cash 29,766 10,845
Net [Decrease] in Cash and Cash Equivalents 3,284,373 (974,221)
Cash and Cash Equivalents - Beginning of Periods 657,880 1,072,363
----------- -----------
Cash and Cash Equivalents - End of Periods $ 3,942,253 $ 98,142
----------- -----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest Paid $ 43,610 $ 49,858
Taxes Paid -- --
Supplemental Disclosures of Non-Cash Financing and Investing Activities:
Exchange of Treasury Stock and Assignment of Consulting Agreements -- $ 776,145
Fixed Assets acquired under Capital Leases -- $ 248,295
The Accompanying Notes are an Integral Part of these Condensed Consolidated
Financial Statements.
5
CRESCENT CAPITAL, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
- --------------------------------------------------------------------------------
[A] Significant Accounting Policies
Significant accounting policies of Crescent Capital, Inc. are set forth in
the Company's Form 10-KSB for the year ended December 31, 1996, as filed
with the Securities and Exchange Commission. Crescent Capital's strategic
objective is to invest in business ventures which will maximize the return
to the shareholders. Currently, Crescent Capital, Inc.'s only operations
are the 70% ownership of International Franchise Systems, Inc. Crescent
Capital, Inc. and International Franchise Systems, Inc. [including its
wholly owned subsidiaries] are collectively referred to as "the Company."
[B] Basis of Reporting
The balance sheet as of June 30, 1997, the statements of operations for the
period March 31, 1997 to June 30, 1997, and for the period December 31,
1996 to June 30, 1997, the statement of stockholders' equity for the period
December 31, 1996 to June 30, 1997 and the statements of cash flows for the
period December 31, 1996 to June 30, 1997 and for the period April 1, 1996
to June 30, 1996 have been prepared by the Company without audit. The
accompanying interim condensed unaudited financial have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions of Form 10-QSB and
Regulation SB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the management of the Company, such
statements include all adjustments [consisting only of normal recurring
items] which are considered necessary for a fair presentation of the
financial position of the Company at June 30, 1997, and the results of its
operations and cash flows for the nine months then ended. It is suggested
that these unaudited financial statements be read in conjunction with the
financial statements and notes contained in the Company's Form 10-KSB for
the year ended December 31, 1996.
Certain reclassifications may have been made to the 1996 financial
statements to conform to classification used in 1997.
[C] Assignment Of Consulting Agreements
The three consulting agreements entered into by International Franchise
Systems, Inc. ("IFS") were assigned to Woodland Limited Partnership at
their net book value on April 1, 1996. IFS received shares of Crescent
Capital, Inc. in return for consideration. The shares are reflected as
"Treasury Stock" in the shareholders equity section of the Company's
balance sheet.
[D] Due From Related Parties
Woodland Limited Partnership is a partnership controlled by members of the
Colin Halpern family. At June 30, 1997, $1,550,730 was due from Woodland
for funds advanced by the Company and its subsidiaries. These funds are to
be repaid on a short-term basis and are interest bearing.
o o o o o o o o o o
6
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Overview -
Income for the quarter was higher than the same period of the previous year due
to the opening of seven new stores in the second quarter of 1997 as compared to
three in the second quarter of 1996, an increase in same store sales year of
13%, its corresponding impact on royalties and commissary sales and higher
computer system sales. As of June 30, 1997, International Franchise Systems,
Inc, (IFS) has opened a total of 140 Domino's units. This includes 134 delivery
units (9 that are IFS owned) and 6 units that are "call and collect".
In a move to strengthen IFS's investment value and future growth potential, in
June, International Franchise Systems agreed to sell up to a 20% interest in its
Domino's subsidiary for approximately $4.5 million to prominent British
businessman Nigel Wray. IFS will use the proceeds from the sale to finance a new
commissary and distribution center to support continuing rapid growth of
Domino's U.K. IFS recorded $3,125,000 in gross proceeds from the sale of a 15%
share and a net profit after expenses and taxes of $1,756,038. Mr. Wray holds an
option to acquire an additional 5% for another $1.5 million.
In September 1996, the International Franchise Systems sold one Haagen Dazs
parlour back to the Master Franchisor in the UK. IFS is attempting to divest the
two other Haagen Dazs units. The ice cream business is influenced by cold
weather and IFS experienced losses from these 2 units during the first quarter
1997. The margins improved in the second quarter as the weather improved.
International Franchise Systems opened a sit down restaurant, Pizzazz, in
December 1995, to further increase awareness of the Domino's brand. The
restaurant was closed in June 1996 after the Company determined that the success
of the concept would require too much management attention to be redirected from
the Company's primary business. Accordingly, the Company reported the losses
from Pizzazz as a loss from discontinued operations in the 1996 financial
statements. IFS has sublet the property commencing April 1997 and terminating
December 2010. Since April, the income is reflected as rental income.
7
Results of Operations
For the Periods Ended
Income Statement Data June 30, June 30,
1997 1996
Revenues: (%) (%)
Sales by IFS Owned Stores 14.1 23.7
Commissary Sales 57.9 52.5
Franchise Fees 1.9 1.7
Rental Income 7.5 6.0
Royalty Sales 13.4 12.6
Computer Sales 4.1 3.3
Other Operating Income 1.1 0.2
------- -------
Total Revenues 100.0 100.0
Cost of Sales:
IFS Owned Stores (2) 60.7 66.5
Commissary Sales (2) 87.4 89.6
Other Cost of Goods (2) 53.2 50.0
------- -------
Total Cost of Sales 73.2 74.6
Gross Margin 26.8 25.4
Administrative 21.7 24.3
Amortization 0.4 0.3
Depreciation 2.4 2.3
Sale of Fixed Assets (0.6) -0-
------- -------
Operating Income 2.9 (1.5)
Other Income 0.8 0.7
Continuing Operations 3.7 (0.8)
Minority Interest on
Continuing/Discontinued Operations (1.0) 1.3
Discontinued Operations - (Loss) (0.5) (3.8)
------- -------
Income/(Loss) before Extraordinary Income
2.2 (3.3)
======= =======
Notes:
(1) as a percentage of respective revenue
(2) as a percentage of total revenue
Comparison of the Quarters April 1, 1997 to June 30, 1997 and April 1, 1996 to
June 30, 1996.
Revenue
Total revenue for the period ended June 30, 1997 was $7,054,627, an increase of
24.6% against the same period of 1996. The main constituents of this increase
arose from royalty income which increased by $266,814, commissary sales which
increased by $1,143,048, rental and other income which increased by $214,102 and
computer sales which increased by $106,043. Sales at IFS owned stores decreased
by $379,406.
For the period ended June 30, 1997, system wide sales totalled $17.5 million
versus $12.6 million in the second quarter of 1996. This represents a 39%
improvement from the previous year. This increase in system-wide sales is the
primary reason for the increase in royalty income and commissary sales.
8
The decrease in comparative sales at IFS owned stores resulted primarily from
one less Haagen Dazs unit in operation and the operating of more corporate
stores under the dealer development program than the previous year. Other income
increased as a result of the subleasing of the property formerly occupied by
IFS's Pizzazz restaurant.
Cost and Expenses
International Franchise Systems experienced an increase in cost of sales against
the same period in 1996 from approximately $4,095,853 to $5,097,361, a increase
of 24.5%. The cost of sales as a percentage of commissary sales decreased by
3.2% from the same period of the previous year because of better controls to
ensure that Commissary pricing was adjusted for raw material price fluctuations,
and lower distribution cost per delivery. The cost of sales as a percentage of
IFS owned store sales decreased from 62.5% in the same period in 1996 to 59.6%
in 1997.
Income
Operating income of $320,115 was achieved in the period against an operating
income of $50,860 in the comparable period in 1996. This increase in
profitability resulted from an increase in sales and lower expenses. The
extraordinary income of $1,756,038 was attributed to the sale by IFS of 15% of
the UK subsidiary.
Comparison of the Periods January 1, 1997 to June 30, 1997 and January 1, 1996
to June 30, 1996.
Revenue
Total revenue for the period ended June 30, 1997 was $13,749,026, an increase of
31.6% against the same period of 1996. The main constituents of this increase
were royalty income, which increased by $518,402, commissary sales, which
increased by $2,480,522, rental and other income which increased by $532,499 and
computer sales which increased by $226,972. Sales at IFS owned stores decreased
by $533,895.
For the period ended June 30, 1997, system wide sales totalled $33.5 million
versus $24.1 million in the same twenty-six week period of 1996. This represents
a 39% improvement from the previous year. This increase in system-wide sales is
the primary reason for the increase in royalty income and commissary sales.
The decrease in comparative sales at IFS owned stores resulted primarily from
one less Haagen Dazs unit and the operating of more corporate stores under the
dealer development program than the previous year. Other income increase as the
result of the subleasing of the property formerly occupied by the IFS's Pizzazz
restaurant.
Cost and Expenses
International Franchise Systems experienced an increase in cost of sales against
the same period in 1996 from approximately $7,799,798 to $10,060,053, an
increase of 29.0%. Cost of sales went up due to increased sales, but margins
increased due to better price controls. The cost of sales as a percentage of
commissary sales decreased by 2.2% from the same period of the previous year
because of better controls to ensure that Commissary pricing was adjusted for
raw material price fluctuations, and lower distribution cost per delivery. The
cost of sales as a percentage of IFS owned stores sales decreased from 66.5% in
the same period in 1996 to 60.7% in 1997.
9
Income
Operating income of $518,135 was achieved in the period against an operating
loss of $82,530 in the comparable period in 1996. This increase in profitability
resulted from an increase in sales and higher margins. The loss on discontinued
operations is attributed to the sit down restaurant, Pizzazz, which was
operating in the first five months of 1996. The loss of $400,986 in 1996
compares to the loss of $68,022 in 1997.
Liquidity and Capital Resources
At June 30, 1997, the Company's working capital of $4.0 million compared to $2.6
million at June 30, 1996, and $1.9 million at December 31, 1996. IFS's trade
receivable has decreased by $423,387 from the same period of the prior year.
IFS's receivable from related parties decreased by $733,583 and inventories and
other receivable have increased by $434,983. Total current liabilities have
increased by $668,544 from the same period of the pervious year. The principle
increase in current liabilities is related almost entirely to the accrual for
expenses and taxes related to the sale of shares in the subsidiary.
International Franchise System believes that its working capital will be
sufficient to satisfy its obligations over the next twelve months.
International Franchise Systems has started to negotiate on the purchase of land
and the construction of a new commissary and headquarters building. The existing
Commissary will adequately service the dough production needs of existing and
projected new franchisees for the next twelve months. IFS has a tentative
commitment from National Westminster Bank to provide financing for 70% of the
total estimated cost of $4 million for the new facility. IFS does not believe
that projected cash flow will be able to support the development of new
corporate stores and the remaining 30% of the costs of the land/construction.
International Franchise Systems is exploring different ways to finance this
project.
International Franchise Systems anticipates it will spend $500,000 to open
additional corporate stores and acquire commissary equipment in 1997. IFS is not
obligated to open any additional IFS owned stores through the end of 1997 under
the Master Franchise Agreement. If IFS's plans change or its assumptions or
estimates prove to be inaccurate, IFS may require additional funds to achieve
increased sales. If such funds are unavailable, the Company will have to reduce
its operations to a level consistent with its available funding.
Exchange Rate
The weighted exchange rate for the thirteen weeks ended June 30, 1997 ($1.6370
per British pound sterling) was approximately 7% higher than the exchange rate
during the comparable period in 1996 ($1.5283 per British pound sterling). This
difference has the effect of improving IFS's results by approximately 7% when
expressed in U.S. dollars.
Inflation
The primary inflationary factor affecting IFS's operations is the cost of food.
As the cost of food has increased, International Franchise Systems has
historically been able to offset these increases through economies of scale and
improved operating procedures, although there is no assurance that such offsets
will continue. To date, inflation has not had a material effect on IFS's
operations.
10
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any litigation or governmental proceedings
that management believes would result in judgements or fines that would
have a material adverse effect on the Company.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Other Information
Not Applicable.
Item 5. Exhibits
(a) Exhibits
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
11
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRESCENT CAPITAL, INC.
Date: August 6, 1997 By: /s/ Colin Halpern
--------------------------------------
Colin Halpern, President