<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON NOVEMBER 14, 1996 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 0-21205
NEW YORK BAGEL ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Kansas 73-1369185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 IMA Plaza,
250 North Water,
Wichita, Kansas 67202
(Address of principal executive offices and zip code)
(316) 267-7373
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filings requirements for the past 90 days. [ ] Yes [X] No
As of November 11, 1996, there were 4,667,500 shares of the Registrant's
Common Stock outstanding.
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Balance Sheets at September 29, 1996
and December 31, 1995 3
Unaudited Statements of Operations for the
Thirteen Weeks and Thirty-Nine Weeks ended
September 29, 1996 and the Nine Months and
Three Months Ended September 30, 1995 5
Unaudited Statements of Cash Flows for the Thirty-
Nine Weeks ended September 29, 1996 and
Nine Months ended September 30, 1995 6
Notes to Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION 19
SIGNATURES 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NEW YORK BAGEL ENTERPRISES, INC.
BALANCE SHEETS
SEPTEMBER 29, 1996 AND DECEMBER 31, 1995
(Unaudited)
September 29, December 31,
ASSETS 1996 1995
------------- -----------
Current assets:
Cash $ 6,355,000 $ 133,000
Investment securities available
for sale 2,536,000 -
Accounts receivable 215,000 138,000
Inventory 171,000 144,000
Deferred costs, net of accumulated
amortization of $100,000 at
September 29, 1996 231,000 77,000
Other current assets 117,000 24,000
----------- -----------
Total current assets 9,625,000 516,000
Property, plant and equipment, net 4,394,000 1,256,000
Deferred offering costs - 9,000
Goodwill, net of accumulated
amortization of $18,000 and $1,000
at September 29, 1996 and
December 31, 1995, respectively 528,000 458,000
Other assets 106,000 56,000
----------- -----------
$14,653,000 $ 2,295,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term
debt $ 29,000 $ 520,000
Accounts payable 698,000 163,000
Accrued liabilities 434,000 84,000
Income taxes payable 79,000 -
Deferred income taxes 69,000 -
Current portion of deferred
franchise fees 39,000 69,000
Distributions payable 164,000 49,000
----------- -----------
Total current liabilities 1,512,000 885,000
Long-term debt, less current portion 86,000 2,845,000
Deferred franchise fees 31,000 98,000
Deferred credits 69,000 45,000
Deferred income taxes 5,000 -
----------- -----------
3
<PAGE>
Total liabilities 1,703,000 3,873,000
----------- -----------
Stockholders' equity (deficit) (note 1):
Common stock, $0.01 par value.
Authorized 30,000,000 shares;
issued and outstanding 4,600,000
at September 29, 1996. 46,000 -
Preferred stock, no par value.
Authorized 5,000,000 shares;
issued and outstanding -0- at
September 29, 1996. - -
Class A common stock, $0.01 par value.
Authorized 25,000,000 shares;
issued and outstanding -0- and
1,416,988 shares at September 29, 1996
and December 31, 1995, respectively. - 14,000
Class B common stock, $0.01 par value.
Authorized 5,000,000 shares; issued
and outstanding -0- and 1,368,704
shares at September 29, 1996 and
December 31, 1995, respectively. - 14,000
Additional paid-in capital 12,752,000 158,000
Retained earnings (accumulated deficit) 152,000 (1,764,000)
----------- -----------
Total stockholders' equity (deficit) 12,950,000 (1,578,000)
----------- -----------
Commitments and contingencies
$14,653,000 $ 2,295,000
----------- -----------
----------- -----------
See accompanying notes to unaudited financial statements.
4
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
THIRTEEN WEEKS AND THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996
AND THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
Thirty-
Thirteen Three nine Nine
Weeks Months Weeks Months
Ended Ended Ended Ended
September 29, September 30, September 29, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Revenues:
Sales from Company-
owned restaurants $2,716,000 $1,652,000 $7,566,000 $4,997,000
Franchise revenues 175,000 145,000 515,000 339,000
---------- ---------- ---------- ----------
Total revenues 2,891,000 1,797,000 8,081,000 5,336,000
---------- ---------- ---------- ----------
Costs and expenses:
Cost of sales 942,000 649,000 2,675,000 1,922,000
Restaurant operating
expenses 1,327,000 759,000 3,529,000 2,191,000
General and admin-
istrative expenses 206,000 192,000 608,000 567,000
Depreciation and
amortization 172,000 41,000 349,000 106,000
---------- ---------- ---------- ----------
Total costs and
expenses 2,647,000 1,641,000 7,161,000 4,786,000
---------- ---------- ---------- ----------
Operating income 244,000 156,000 920,000 550,000
Interest expense 34,000 8,000 197,000 28,000
---------- ---------- ---------- ----------
Earnings before
income taxes 210,000 148,000 723,000 522,000
Income tax expense (Note 3) 151,000 2,000 151,000 2,000
---------- ---------- ---------- ----------
Net earnings $ 59,000 $ 146,000 $ 572,000 $ 520,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro forma earnings
data (Note 4):
Pro forma provision
for income taxes $ 77,000 $ 58,000 $ 279,000 $ 205,000
Pro forma net earnings $ 133,000 $ 90,000 $ 444,000 $ 317,000
Pro forma net earnings
per share $ 0.04 $ 0.03 $ 0.14 $ 0.11
See accompanying notes to unaudited financial statements.
5
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996
AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
Thirty-Nine Nine
Weeks Ended Months Ended
September 29, September 30,
1996 1995
------------- -------------
Cash flows from operating activities:
Net earnings $ 572,000 $ 520,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 349,000 106,000
Increase (decrease) in cash resulting
from changes in listed items, net of
effects from acquisitions:
Deferred income taxes 74,000 -
Inventory (27,000) (26,000)
Income taxes receivable 14,000 -
Other current assets (107,000) 4,000
Accounts receivable (77,000) (33,000)
Deferred costs (254,000) (26,000)
Other assets (56,000) (2,000)
Accounts payable 535,000 71,000
Accrued liabilities and deferred
credits 374,000 70,000
Income taxes payable 79,000 -
Deferred franchise fees (97,000) 49,000
----------- -----------
Net cash provided by
operating activities 1,379,000 733,000
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (3,203,000) (234,000)
Purchase of investment securities
available for sale (2,536,000) -
Acquisitions, net of cash acquired (248,000) -
----------- -----------
Net cash used in investing
activities (5,987,000) (234,000)
----------- -----------
Cash flows from financing activities:
Proceeds from initial public offering 14,121,000 -
Proceeds from issuance of long-term debt 1,525,000 94,000
Principal payments on long-term debt (4,775,000) (47,000)
Decrease in due to stockholders - (26,000)
Decrease in distributions payable - (9,000)
Distributions to stockholders (41,000) (328,000)
----------- -----------
Net cash provided by (used in)
financing activities 10,830,000 (316,000)
----------- -----------
Net increase in cash 6,222,000 183,000
Cash at beginning of period 133,000 46,000
----------- -----------
Cash at the end of period $ 6,355,000 $ 229,000
----------- -----------
----------- -----------
See accompanying notes to unaudited financial statements.
6
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) REORGANIZATION AND OPERATIONS
The Company was formed as a result of a merger (the "Merger") between
New York Bagel Enterprises, Inc., which became the surviving corporation, and
New York Bagel Shop, Inc.; New York Bagel Shop & Delicatessen, Inc.; Bagels
of Norman, Inc.; Bagel Boss, Inc.; and VPR Incorporated (the "five restaurant
entities"). The Merger was effective on December 31, 1995, whereby each of
the five restaurant entities was merged into New York Bagel Enterprises, Inc.
The term "Company" as used herein refers to New York Bagel Enterprises, Inc.
including the five restaurant entities unless the context otherwise requires.
For periods prior to December 31, 1995, the financial statements include the
results of operations of the Company and the five restaurant entities on a
combined basis.
Effective January 1, 1996, the Company elected to change its fiscal year
from a calendar year end to a 52/53 week fiscal year, ending on the last
Sunday of the year, which consists of four 13-week periods. On August 27,
1996, the Company completed an initial public offering in which it sold
2,000,000 shares (1,800,000 shares from the Company and 200,000 shares from
existing stockholders) and realized net proceeds of approximately $14.1
million. On September 26, 1996, the underwriters of the Company's initial
public offering notified the Company that they were exercising their
over-allotment option by purchasing an additional 75,000 shares (67,500 from
the Company and 7,500 from existing stockholders) of the Company's common
stock at $9.00 per share. This purchase was settled on October 1, 1996, with
the Company receiving net proceeds of approximately $565,000. Due to the
transaction settling subsequent to the Balance Sheet date of September 29,
1996, the net proceeds are not reflected in the accompanying unaudited financial
statements.
Concurrent with the initial public offering, the outstanding shares of
the Company's Class B Common Stock were converted into shares of Class A
Common Stock, which were reclassified as Common Stock, and the Class B Common
Stock ceased to exist. In addition, the accumulated deficit as of August 27,
1996 was reclassified to additional paid-in capital, in conjunction with the
change in S corporation status. The retained earnings, as of September 29,
1996, represents earnings subsequent to the initial public offering.
The Company operates Company-owned restaurants and sells franchise
rights to operate restaurants. In both instances, the restaurants operate
under certain derivations of the name "New York Bagel."
(2) BASIS OF PRESENTATION
The accompanying unaudited financial statements are for interim periods
and consequently, do not include all disclosures required by generally
accepted accounting principles for annual financial statements. It is
suggested that the accompanying financial statements be read in conjunction
with the financial statements included in the Company's Prospectus dated
August 27, 1996. In the opinion of management of the Company, the financial
statements reflect all adjustments (all of which were of a normal recurring
nature) necessary to present fairly the financial position of the Company and
the results of operations and cash flows for the interim periods.
7
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
(3) INCOME TAXES
Prior to the Company's initial public offering, the Company and certain
of the five restaurant entities operated as S corporations, and, accordingly,
income tax expense or benefit was not recorded in the accompanying financial
statements for such periods as the entities' results of operations were
reported to the entities' stockholders for inclusion in their individual
income tax returns. Effective August 26, 1996, in connection with the initial
public offering, the Company terminated its S corporation status. Income tax
expense has been provided for the period subsequent to August 26, 1996.
Accordingly, also included in income tax expense is a one-time deferred tax
charge of approximately $74,000, as the Company established a net deferred
tax liability representing the cumulative effect of the differences between
the financial statement and tax bases of assets and liabilities at the time
of the termination of the S corporation status.
(4) PRO FORMA EARNINGS DATA
Pro forma income tax expense, as set forth in the accompanying
statements of operations, reflects what income tax expense of the Company
would have been for the periods ended September 29, 1996 and September 30,
1995, if none of the entities included in the financial statements had
operated as S corporations during such periods. Pro forma net earnings was
computed based on reported earnings before income taxes less pro forma income
tax expense.
8
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
Pro forma weighted average common shares outstanding have been
determined as follows:
Thirteen Three
Weeks Months
Ended Ended
September 29, September 30,
1996 1995
------------- -------------
Weighted average shares outstanding 3,413,187 2,785,692
Shares issued during 12-month period prior
to initial filing of the registration state-
ment at price per share below initial public
offering price - 14,308
Pro forma number of shares whose proceeds would
be sufficient (based upon the net initial public
offering price) to replace the excess of dis-
tributions to stockholders over net earnings for
the year ended December 31, 1995 136,886 218,538
Shares contingently issuable under convertible
subordinated debentures 19,320 -
Common stock options 12,565 -
--------- ---------
Pro forma weighted average common shares outstanding 3,581,958 3,018,538
--------- ---------
--------- ---------
Thirty-Nine Nine
Weeks Months
Ended Ended
September 29, September 30,
1996 1995
------------- -------------
Weighted average shares outstanding 3,004,396 2,785,692
Shares issued during 12-month period prior
to initial filing of the registration state-
ment at price per share below initial public
offering price - 14,308
Pro forma number of shares whose proceeds would
be sufficient (based upon the net initial public
offering price) to replace the excess of dis-
tributions to stockholders over net earnings
for the year ended December 31, 1995 191,321 218,538
Shares contingently issuable under convertible
subordinated debentures 19,320 -
Common stock options 4,188 -
--------- ---------
Pro forma weighted average common shares outstanding 3,219,225 3,018,538
--------- ---------
--------- ---------
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT,
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS.
EXPANSION. As of September 29, 1996 there were 53 New York Bagel
restaurants in operation, consisting of 23 Company-owned and 30 franchised
restaurants. By the end of 1996, the Company contemplates having
approximately 26 to 30 Company-owned and 35 to 40 franchised restaurants in
operation. The Company expects to have approximately 45 to 50 Company-owned
and 55 to 60 franchised restaurants in operation by the end of 1997. The
Company intends to use a significant portion of the net proceeds of its
initial public offering to develop additional Company-owned restaurants.
There can be no assurance that the Company will be able to open all of its
planned restaurants or that, if opened, such restaurants can operate
profitably. The opening and success of New York Bagel restaurants will depend
on various factors, not all of which are within the control of the Company,
including customer acceptance of the Company's concept in new markets, the
availability of suitable sites, the negotiation of acceptable lease or
purchase terms for new locations, permit and regulatory compliance, the
ability to meet construction schedules, the financial and other capabilities
of the Company and its franchisees, the ability of the Company to
successfully manage this anticipated expansion and to hire and train
personnel, and general economic and business conditions. Furthermore, because
of the Company's relatively small restaurant base, an unsuccessful restaurant
could have a more significant adverse effect on the Company's results of
operations than would be the case for a company with a larger restaurant base.
The Company's expansion will also require the implementation and
integration of enhanced operational and financial systems and additional
management, operational and financial resources. Failure to implement and
integrate these systems and add these resources could have a material adverse
effect on the Company's results of operations and financial condition. There
can be no assurance that the Company will be able to manage its expanding
operations effectively or that it will be able to maintain or accelerate its
growth. The Company experienced growth in revenues and net income in 1995 and
in the period ended September 29, 1996. There can be no assurance that the
Company will continue to experience growth in, or maintain its present level
of, revenues or net earnings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
10
<PAGE>
POSSIBLE ACQUISITIONS. The Company's growth strategy includes possible
acquisitions of bagel restaurants. However, no assurance can be given that
the Company will be able to find attractive acquisition candidates,
consummate additional acquisitions or that it will successfully integrate,
convert or operate any acquired business. In the event that the Company makes
acquisitions, there can be no assurance that any such acquisition and
resulting conversion expenses, including loss of restaurant sales during the
remodel period, if any, will not have a material adverse effect upon the
Company's operating results, particularly during the period in which such
operations are being integrated into the Company. Furthermore, the Company's
ability to make acquisitions may depend upon its ability to obtain financing.
There can be no assurance that the Company will be able to obtain financing
on acceptable terms.
FLUCTUATIONS IN QUARTERLY RESULTS. The timing of restaurant openings,
remodelings or acquisitions, recognition of franchise fee income and seasonal
factors may result in fluctuations in quarterly operating results of the
Company. In accordance with generally accepted accounting principles,
franchise and development fees and the corresponding deferred charges with
respect to each franchise or development agreement are not recognized as
income until a restaurant commences operations. There can be no assurance
that quarterly fluctuations will not continue and, accordingly, the Company's
financial results for a particular quarter may not be indicative of results
for an entire year.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY,
INCLUDING, WITHOUT LIMITATION, RISKS ASSOCIATED WITH THE COMPANY'S ABILITY TO
DEVELOP, CONSTRUCT, ACQUIRE OR FRANCHISE ADDITIONAL RESTAURANTS IN ACCORDANCE
WITH THE COMPANY'S DEVELOPMENT SCHEDULE, MANAGEMENT OF QUARTER TO QUARTER
RESULTS, INCREASES IN OPERATING COSTS AND SUCCESSFUL INTEGRATION OF POSSIBLE
ACQUISITIONS. THESE RISKS ARE SET FORTH IN THE "RISK FACTORS" SECTION OF THE
PROSPECTUS PORTION OF THE COMPANY'S FORM S-1 REGISTRATION STATEMENT
AND THE "RISK FACTORS" SECTION CONTAINED HEREIN. UPDATED INFORMATION WILL
BE PERIODICALLY PROVIDED BY THE COMPANY AS REQUIRED BY THE SECURITIES ACT OF
1933 AND THE SECURITIES EXCHANGE ACT OF 1934.
OVERVIEW
The Company opened its first restaurant in 1986, and has developed 20
of its 23 Company-owned restaurants in Oklahoma, Kansas, Tennessee, Texas and
Missouri. In addition to developing new restaurants, the Company acquired
two bagel restaurants in December 1995, a bagel restaurant located in
Nashville, Tennessee ("Nashville Bagel") and a franchised New York Bagel
restaurant. The Company acquired an additional franchised location in
September 1996. The Company commenced franchising the New York Bagel concept
in 1993 and at September 29, 1996 had 30 franchised restaurants.
The Company's revenues are derived from sales from Company-owned
restaurants and franchise revenues, which consist of royalties from
franchised restaurant sales as well as franchise and development fees.
Franchise and development fees are initially recorded as deferred revenue
until each franchised restaurant opens, at which time these fees are
recorded as revenue.
Cost of sales include food, paper and beverage costs associated with
Company-owned restaurants. Restaurant operating expenses consist primarily of
labor costs, rent, advertising, utilities, maintenance and insurance
associated with Company-owned restaurants. General and administrative
expenses include corporate and administrative salaries,
12
<PAGE>
accounting, legal and direct costs associated with franchise operations.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
operating statement data to total revenues, except as otherwise indicated:
<TABLE>
Thirty-
Thirteen Three Nine Nine
Weeks Months Weeks Months
Ended Ended Ended Ended
September 29, September 30, September 29, September 30,
1996 1995 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales from Company-owned
restaurants 93.9% 91.9% 93.6% 93.6%
Franchise revenues 6.1 8.1 6.4 6.4
------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales (1) 34.7% 39.3% 35.4% 38.5%
Restaurant operating
expenses (1) 48.9 45.9 46.6 43.8
General and administrative
expenses 7.1 10.7 7.5 10.6
Depreciation and amortization 5.9 2.3 4.3 2.0
Operating income 8.4 8.7 11.4 10.3
Interest expense, net 1.2 0.4 2.4 0.5
Pro forma net earnings 4.6 5.0 5.5 5.9
</TABLE>
- - ------------------------------------
(1) As a percentage of sales from Company-owned restaurants.
THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995
Total revenues increased by $1.1 million, or 60.9%, to $2.9 million for
the period ended September 29, 1996 compared to $1.8 million for the period
ended September 30, 1995, primarily due to an increase in the number of
Company-owned and franchised restaurants open.
Sales from Company-owned restaurants increased $1.0 million, or
13
<PAGE>
64.4%, to $2.7 million for the period ended September 29, 1996 compared to
$1.7 million for the period ended September 30, 1995. This increase is
largely the result of opening seven additional Company-owned restaurants
during 1996, the acquisitions of two bagel restaurants in December 1995 and
the opening of a Company-owned restaurant in September 1995. In addition,
the Company experienced a 4.7% increase in same restaurant sales during the
period. At September 29, 1996, the Company had 23 Company-owned restaurants
compared to 13 restaurants at September 30, 1995.
Franchise revenues increased by $30,000, or 20.7%, to $175,000 for the
period ended September 29, 1996 compared to $145,000 for the period ended
September 30, 1995. This increase is primarily due to an increase in royalty
revenue of $51,000, or 79.7%, to $115,000 for the period ended September 29,
1996 from $64,000 during the period ended September 30, 1995. This is
attributable to the growth in the number of franchised restaurants opened
during the last half of 1995 and continuing through the thirty-nine week
period ended September 29, 1996. At September 29, 1996, there were 30
franchised restaurants compared to 22 restaurants at September 30, 1995.
Cost of sales increased by $293,000, or 45.1%, to $942,000 for the
period ended September 29, 1996 compared to $649,000 for the period ended
September 30, 1995, primarily due to the increase in Company-owned restaurant
sales discussed above. As a percentage of Company-owned restaurant sales,
cost of sales decreased to 34.7% for the period ended September 29, 1996 from
39.3% for the period ended September 30, 1995, as a result of purchasing and
operating efficiencies experienced in 1996, and, to a lesser extent, modest
price increases taken during 1996. Prices of the Company's commodities (meat
and cheese, flour and other bakery ingredients) have generally remained
stable during the comparable periods.
Restaurant operating expenses increased by $568,000, or 74.8%, to $1.3
million for the period ended September 29, 1996 compared to $759,000 for the
period ended September 30, 1995, primarily due to the increase in restaurant
sales discussed above. As a percentage of Company-owned restaurant sales,
restaurant operating expenses increased to 48.9% for the period ended
September 29, 1996 from 45.9% for the period ended September 30, 1995. This
increase is primarily due to the remodeling of four Company-owned restaurants
during the third quarter of fiscal 1996. These four restaurants were closed
an aggregate of 14 weeks during this period. This increase is also
attributable to increased labor costs associated with the Company's
acquisition of Nashville Bagel in December 1995, and the opening of three
Company-owned restaurants in Nashville, Tennessee during the first half of
1996.
14
<PAGE>
General and administrative expenses increased by $14,000, or 7.3%, to
$206,000 for the period ended September 29, 1996 compared to $192,000 for the
period ended September 30, 1995. This increase is primarily attributable to
the increase in franchise activity. As a percentage of total revenues,
general and administrative expenses decreased to 7.1% for the period ended
September 29, 1996 from 10.7% for the period ended September 30, 1995. The
decrease as a percentage of total revenues was primarily due to increased
economies of scale resulting from franchise infrastructure implemented in
1995.
Depreciation and amortization increased by $131,000, or 319.5%, to
$172,000 for the period ended September 29, 1996 compared to $41,000 for the
period ended September 30, 1995. As a percentage of total revenues,
depreciation and amortization increased to 5.9% for the period ended
September 29, 1996 from 2.3% for the period ended September 30, 1995. This
increase is primarily the result of higher depreciation and amortization
associated with the acquisitions of two restaurants in December 1995 and the
opening of seven additional Company-owned restaurants during 1996.
Interest expense increased by $26,000 to $34,000 for the period ended
September 29, 1996 compared to $8,000 for the period ended September 30,
1995. This increase in interest expense is primarily the result of increased
borrowings in December 1995 and during the period ended September 29, 1996.
Interest expense was offset by interest income earned subsequent to the
Company's initial public offering of common stock from the net proceeds of
the offering. Virtually all existing debt was retired with a portion of
these proceeds during the fiscal quarter ended September 29, 1996.
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995
Total revenues increased by $2.8 million, or 51.4%, to $8.1 million for
the period ended September 29, 1996 compared to $5.3 million for the period
ended September 30, 1995, primarily due to an increase in the number of
Company-owned and franchised restaurants open.
Sales from Company-owned restaurants increased $2.6 million, or 51.4%,
to $7.6 million for the period ended September 29, 1996 compared to $5.0
million for the period ended September 30, 1995. This increase is largely
the result of opening seven additional restaurants during 1996, the
acquisitions of two bagel restaurants in December 1995 and the opening of a
Company-owned restaurant in September 1995. In addition, the Company
experienced a 4.9% increase
15
<PAGE>
in same restaurant sales during the period. At September 29, 1996, the
Company had 23 Company-owned restaurants compared to 13 restaurants at September
30, 1995.
Franchise revenues increased by $176,000, or 51.9%, to $515,000 for the
period ended September 29, 1996 compared to $339,000 for the period ended
September 30, 1995. This increase is primarily due to an increase in royalty
revenue of $188,000, or 124.5%, to $339,000 for the period ended September
29, 1996 from $151,000 during the period ended September 30, 1995. This is
attributable to the growth in the number of franchised restaurants opened
during the last half of 1995 and continuing through the thirty-nine week
period ended September 29, 1996. At September 29, 1996, there were 30
franchised restaurants compared to 22 restaurants at September 30, 1995.
Cost of sales increased by $753,000, or 39.2%, to $2.7 million for the
period ended September 29, 1996 compared to $1.9 million for the period ended
September 30, 1995, primarily due to the increase in Company-owned restaurant
sales discussed above. As a percentage of Company-owned restaurant sales,
cost of sales decreased to 35.4% for the period ended September 29, 1996 from
38.5% for the period ended September 30, 1995, as a result of purchasing and
operating efficiencies experienced in 1996, and, to a lessor extent, modest
price increases taken during 1996. Prices of the Company's commodities (meat
and cheese, flour and other bakery ingredients) have generally remained
stable during the comparable periods.
Restaurant operating expenses increased by $1.3 million, or 61.1%, to
$3.5 million for the period ended September 29, 1996 compared to $2.2 million
for the period ended September 30, 1995, primarily due to the increase in
restaurant sales discussed above. As a percentage of Company-owned
restaurant sales, restaurant operating expenses increased to 46.6% for the
period ended September 29, 1996 from 43.8% for the period ended September 30,
1995. This increase is primarily due to the remodeling of four Company-owned
restaurants during the third fiscal quarter of 1996. These four restaurants
were closed an aggregate of 14 weeks during this period. This increase is
also attributable to increased labor costs associated with the Company's
acquisition of Nashville Bagel in December 1995, and the opening of three
Company-owned restaurants in Nashville, Tennessee during the first half of
1996.
General and administrative expenses increased by $41,000, or 7.2%, to
$608,000 for the period ended September 29, 1996 compared to $567,000 for the
period ended September 30, 1995. This increase is primarily attributable to
the increase in franchise activity. As a percentage of total revenues, general
and administrative expenses decreased to 7.5% for the period ended September
29, 1996 from 10.6%
16
<PAGE>
for the period ended September 30, 1995. The decrease as a percentage of
total revenues was primarily due to increased economies of scale resulting
from franchise infrastructure implemented in 1995.
Depreciation and amortization increased by $243,000, or 229.3%, to
$349,000 for the period ended September 29, 1996 compared to $106,000 for the
period ended September 30, 1995. As a percentage of total revenues,
depreciation and amortization increased to 4.3% for the period ended
September 29, 1996 from 2.0% for the period ended September 30, 1995. This
increase is primarily the result of higher depreciation and amortization
associated with the acquisitions of two restaurants in December 1995 and the
opening of seven additional Company-owned restaurants during 1996.
Interest expense increased by $169,000 to $197,000 for the period ended
September 29,1996 compared to $28,000 for the period ended September 30,
1995. This increase in interest expense is primarily the result of increased
borrowings in December 1995 and during the period ended September 29, 1996.
Interest expense was offset by interest income earned subsequent to the
Company's initial public offering of common stock from the net proceeds of
the offering. Virtually all existing debt was retired with a portion of
these proceeds during the fiscal quarter ended September 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants, possible acquisitions and the remodeling of existing
Company-owned restaurants. Capital expenditures totaled $3.2 million and
$234,000 for the thirty-nine week period ended September 29, 1996 and the
nine month period ended September 30, 1995, respectively. Net cash provided
by operating activities was $1.4 million and $733,000 for the thirty-nine
week period ended September 29, 1996, and the nine month period ended
September 30, 1995, respectively. The Company has historically funded capital
expenditures with cash provided by operations and bank borrowings.
On August 27, 1996 the Company completed the initial public offering of
its common stock in which it sold 2,000,000 shares (1,800,000 shares from the
Company and 200,000 shares from existing stockholders) and realized net
proceeds of $14.1 million. Approximately $4.5 million of the net proceeds
were used to retire all outstanding bank indebtedness. Also, approximately
$250,000 of the proceeds were used to acquire an existing franchised New York
Bagel restaurant in Santa Fe, New Mexico during September 1996. The
remainder of the net proceeds has been invested in interest-bearing,
short-term, investment-grade securities.
17
<PAGE>
The Company expects that the net proceeds of the initial public offering and
cash provided by operating activities will provide sufficient funds to
finance its capital expenditures through 1997.
FINANCIAL CONDITION
For the thirty-nine week period ended September 29, 1996, total assets
increased by $12.4 million. Total assets as of September 29, 1996 were $14.7
million compared to $2.3 million at December 31, 1995. This increase in
total assets is primarily attributable to the net proceeds from the Company's
initial public offering of common stock discussed above. This increase is
also the result of the Company expanding its Company-owned restaurants to 23
from the 15 restaurants which were open at December 31, 1995.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
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, this 13th day of November, 1996.
NEW YORK BAGEL ENTERPRISES, INC.
By: /s/ Robert J. Geresi
---------------------------------
Robert J. Geresi
Chief Executive Officer
and President
By: /s/ J. Chris Dennis
---------------------------------
J. Chris Dennis
Chief Financial Officer,
Secretary and Treasurer
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET, AND THE STATEMENTS OF OPERATION AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 6,355,000
<SECURITIES> 2,536,000
<RECEIVABLES> 230,000
<ALLOWANCES> (15,000)
<INVENTORY> 171,000
<CURRENT-ASSETS> 9,625,000
<PP&E> 5,165,000
<DEPRECIATION> (771,000)
<TOTAL-ASSETS> 14,653,000
<CURRENT-LIABILITIES> 1,512,000
<BONDS> 86,000
0
0
<COMMON> 46,000
<OTHER-SE> 12,904,000
<TOTAL-LIABILITY-AND-EQUITY> 14,653,000
<SALES> 7,566,000
<TOTAL-REVENUES> 8,081,000
<CGS> 2,675,000
<TOTAL-COSTS> 4,137,000
<OTHER-EXPENSES> 349,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,000
<INCOME-PRETAX> 723,000
<INCOME-TAX> 151,000
<INCOME-CONTINUING> 572,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 572,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
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