<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of the earliest event reported): February 18, 1997
(December 6, 1996)
NEW YORK BAGEL ENTERPRISES, INC
-------------------------------
(Exact name of Registrant as specified in its charter)
0-21205
(Commission file number)
KANSAS 73-1369185
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
--------------------------
(Address of principal executive offices, including zip code)
316-267-7373
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 25, 1996, New York Bagel Enterprises, Inc. (the "Company,"
which term shall be deemed to include its subsidiaries, unless the context
indicates otherwise) entered into an Asset Purchase Agreement (the "Agreement")
with Lots A' Bagels, Inc. ("Lots A' Bagels") and Mr. Stephen K. Goldstone and
Mrs. Linda F. Goldstone to acquire through the Company's wholly owned
subsidiary, LAB Acquisition Corporation ("LAB"), certain of the assets and
assume certain of the liabilities of Lots A' Bagels (the "Acquisition"). On
December 6, 1996, the Company completed the Acquisition. Under the terms of
the Agreement, the Company acquired substantially all of the operating assets,
business operations and facilities of Lots A' Bagels, including seven
restaurants and a bagel commissary located in Colorado Springs and Monument,
Colorado for $2.1 million in cash and the assumption of certain liabilities of
Lots A' Bagels. Additionally, certain contingent consideration may be required
as discussed below. LAB has entered into a consulting agreement with Mr.
Goldstone, a former executive officer of Lots A' Bagels. In connection with
the acquisition, Lots A' Bagels, Mr. Goldstone and Mrs. Goldstone executed
noncompete agreements in favor of the Company.
Pursuant to the Agreement, the Company acquired from Lots A' Bagels' seven
leased restaurants, a leased bagel commissary and substantially all of Lots A'
Bagels' inventory, property, operating equipment, intellectual property and
certain other assets. In connection with the Acquisition, all lease agreements
for the restaurants were assigned to and assumed by the Company. The Company
intends to operate the restaurants in substantially the same manner as they
were operated by Lots A' Bagels. The intellectual property acquired from Lots
A' Bagels consists principally of the trademarks and logos of Lots A' Bagels.
The Agreement also provides for contingent consideration which includes a
$563,000 Promissory Note from the Company. The principal amount and accrued
interest payable under the Promissory Note are subject to offset (up to the
full amount of such principal and interest) for (i) certain adjustments to be
made upon the completion of a final statement of operations for the period from
July 1, 1996 through March 30, 1997 (the "Final Statement of Operations") and
(ii) any amounts required to be paid by Lots A' Bagels pursuant to the
indemnification provisions of the Agreement. In addition, depending upon
adjustments which may result from the Final Statement of Operations, the
Company may be required to pay up to an additional $325,000 in cash and issue
to Lots A' Bagels a promissory note in the amount, if any, by which the Final
Statement of Operations adjustment exceeds $325,000. In addition, the Company
issued a Warrant to Purchase Common Stock entitling Lots A' Bagels to purchase
a to be determined number of shares of the Company's common stock at a price
per share equal to the total amount of debt issued to Lots A' Bagels times
sixty percent (60%) divided by the average final "close" price per share of the
Company's Common Stock for the ten trading days ending three trading days prior
to December 6, 1996.
The Company's source of the cash portion of the purchase price was a
portion of the net proceeds from the Company's initial public offering of
Common Stock during August 1996.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
The financial statements of Lots A' Bagels, Inc. which were to be filed by
amendment to the Registrant's Current Report in Form 8-K, dated December 23,
1996, are filed herewith.
(i) Audited balance sheets as of December 31, 1995 and 1994, and
the unaudited balance sheet as of September 30, 1996.
(ii) Audited statements of operations for the years ended
December 31, 1995 and 1994.
(iii) Unaudited statements of operations for the nine months
ended September 30, 1996 and 1995.
(iv) Audited statements of shareholders' equity for the years ended
December 31, 1995 and 1994.
(v) Unaudited statement of shareholders' equity for the nine months
ended September 30, 1996.
(vi) Audited statements of cash flows for the years ended
December 31, 1995 and 1994.
(vii) Unaudited statements of cash flows for the nine months
ended September 30, 1996 and 1995.
(viii) Notes to financial statements.
(b) Pro Forma Financial Information
The Registrant's pro forma consolidated financial information, which was to be
filed by amendment to the Registrant's Current Report on Form 8-K, dated
December 23, 1996, is filed herewith.
(i) Introduction.
(ii) Unaudited pro forma consolidated balance sheet as of September
29, 1996 (for the Company and for Lots A' Bagels, Inc.).
(iii) Unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 (for the Company and
Lots A' Bagels, Inc.).
(iv) Unaudited pro forma consolidated statements of operations for
the thirty-nine weeks ended September 29, 1996 (for the Company
and Lots A' Bagels, Inc.).
-3-
<PAGE>
(v) Notes to pro forma consolidated financial statements (unaudited).
(c) Exhibits
The following exhibits, from which schedules and attachments have been omitted
and will be furnished to the Commission upon its request, are filed with this
report on Form 8-K/A. Exhibits incorporated by reference to a prior filing (on
Form 8-K) are designated by an asterisk (*); all other exhibits not so
designated are documents required to be filed as exhibits to this Form 8-K/A.
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2* Asset Purchase Agreement dated November 25, 1996 by and among
LAB Acquisition Corporation, New York Bagel Enterprises, Inc.,
Lots A' Bagels, Inc., and Stephen K. Goldstone and Linda F.
Goldstone.
4* New York Bagel Enterprises, Inc. Warrant to Purchase Common
Stock.
99.1 Financial Statements of Business Acquired.
99.2 Pro Forma Financial Information.
SIGNATURE
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, hereunto duly authorized.
NEW YORK BAGEL ENTERPRISES, INC.
/s/ JON H. CRAMER
------------------------------------------------
Jon H. Cramer
CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY
Dated: February 18, 1997
-4-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report 6
Audited balance sheets as of December 31, 1995 and 1994, and the
unaudited balance sheet as of September 30, 1996 7
Audited statements of operations for the years ended December 31, 1995 and 1994 8
Unaudited statements of operations for the nine months ended September 30,
1996 and 1995 8
Audited statements of shareholders' equity for the years ended December 31,
1995 and 1994 9
Unaudited statement of shareholders' equity for the nine months ended
September 30, 1996 9
Audited statements of cash flows for the years ended December 31, 1995 and 1994 10
Unaudited statements of cash flows for the nine months ended September 30,
1996 and 1995 10
Notes to financial statements 12
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction 16
Unaudited pro forma consolidated balance sheet as of September 29, 1996
(for the Company and for Lots A' Bagels, Inc.) 17
Unaudited pro forma consolidated statements of operations for the year ended
December 31, 1995 (for the Company and Lots A' Bagels, Inc.) 19
Unaudited pro forma consolidated statements of operations for the thirty-nine
weeks ended September 29, 1996 (for the Company and Lots A' Bagels, Inc.) 20
Notes to pro forma consolidated financial statements (unaudited) 21
</TABLE>
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lots A' Bagels, Inc.:
We have audited the accompanying balance sheets of Lots A' Bagels, Inc. as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' equity, 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 Lots A' Bagels, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Wichita, Kansas
January 8, 1997
-6-
<PAGE>
99.1 Financial Statements of Business Acquired.
LOTS A' BAGELS, INC.
Balance Sheets
September 30, 1996, December 31, 1995 and 1994
<TABLE>
December 31,
September 30, -------------------------
ASSETS 1996 1995 1994
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 32,857 31,538 2,670
Accounts receivable 23,261 20,532 22,436
Inventory 25,918 19,966 18,317
Other current assets 4,322 22,401 20,114
----------- ----------- -----------
Total current assets 86,358 94,437 63,537
Property and equipment, net (note 3) 1,719,004 1,314,630 929,819
Other assets 36,630 29,840 15,015
----------- ----------- -----------
$ 1,841,992 1,438,907 1,008,371
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 4) $ 300,000 170,000 370,000
Bank overdraft - - 26,383
Accounts payable 31,358 38,344 28,973
Accrued payroll and benefits 32,933 53,843 27,732
Accrued liabilities 57,382 52,130 38,771
----------- ----------- -----------
Total current liabilities 421,673 314,317 491,859
Long-term debt, less current portion (note 4) 1,200,888 878,871 355,722
----------- ----------- -----------
Total liabilities 1,622,561 1,193,188 847,581
----------- ----------- -----------
Shareholders' equity:
Common stock, no par value, authorized 50,000
shares; issued and outstanding 10,000 shares 10,000 10,000 10,000
Retained earnings 209,431 235,719 150,790
----------- ----------- -----------
Total shareholders' equity 219,431 245,719 160,790
Commitments (notes 5 and 6)
----------- ----------- -----------
$ 1,841,992 1,438,907 1,008,371
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
LOTS A' BAGELS, INC.
Statements of Operations
Years Ended December 31, 1995 and 1994 and the
Nine Months Ended September 30, 1996 and 1995
<TABLE>
Nine Months Ended Years Ended
September 30, December 31,
------------------ -----------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Sales $ 2,791,761 2,164,153 2,990,736 2,232,548
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 684,061 478,322 662,285 474,949
Operating expenses 1,665,439 1,215,652 1,718,187 1,236,857
General and administrative expenses 142,400 150,969 210,251 142,467
Depreciation 217,701 148,826 232,006 154,630
----------- ----------- ----------- -----------
Total costs and expenses 2,709,601 1,993,769 2,822,729 2,008,903
----------- ----------- ----------- -----------
Operating income 82,160 170,384 168,007 223,645
Other income (expense):
Interest expense (note 4) (98,895) (64,296) (89,261) (53,597)
Loss on disposal of equipment (11,850) - - (65,055)
Other income 2,297 1,792 6,183 (1,561)
----------- ----------- ----------- -----------
(108,448) (62,504) (83,078) (120,213)
----------- ----------- ----------- -----------
Net earnings (loss) $ (26,288) 107,880 84,929 103,432
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
LOTS A' BAGELS, INC.
Statements of Shareholders' Equity
Years Ended December 31, 1995 and 1994 and the
Nine Months Ended September 30, 1996
Common Retained
Stock Earnings Total
----- -------- -----
Balance, December 31, 1993 $ 10,000 47,358 57,358
Net earnings - 103,432 103,432
--------- ------- -------
Balance, December 31, 1994 10,000 150,790 160,790
Net earnings - 84,929 84,929
--------- ------- -------
Balance, December 31, 1995 10,000 235,719 245,719
Net loss (unaudited) - (26,288) (26,288)
--------- ------- -------
Balance, September 30, 1996 (unaudited) $ 10,000 209,431 219,431
--------- ------- -------
--------- ------- -------
See accompanying notes to financial statements.
9
<PAGE>
LOTS A' BAGELS, INC.
Statements of Cash Flows
Years Ended December 31, 1995 and 1994 and the
Nine Months Ended September 30, 1996 and 1995
<TABLE>
Nine Months Ended Years Ended
September 30, December 31,
----------------------- -------------------
1996 1995 1995 1994
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (26,288) 107,880 84,929 103,432
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 217,701 148,826 232,006 154,630
Loss on disposal of assets 11,850 - - 65,055
Interest expense added to shareholder note
payable 13,129 18,980 24,236 26,648
(Increase) decrease in accounts receivable (2,729) 508 1,904 (1,400)
Increase in inventory (5,952) (1,221) (1,649) (10,019)
(Increase) decrease in other current assets 18,079 (19,875) (2,287) (455)
Decrease in other noncurrent assets - - - 3,272
Increase (decrease) in accounts payable (6,986) 26,411 9,371 19,489
Increase (decrease) in accrued liabilities
and accrued payroll and benefits (15,658) 30,120 39,470 24,978
----------- -------- -------- --------
Net cash provided by operating
activities 203,146 311,629 387,980 385,630
----------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of equipment - - - 25,500
Increase in security and other deposits (6,790) (18,500) (14,825) (8,500)
Acquisition of property and equipment (633,925) (522,624) (616,817) (636,395)
----------- -------- -------- --------
Net cash flows used in investing
activities (640,715) (541,124) (631,642) (619,395)
----------- -------- -------- --------
Cash flows from financing activities:
Borrowings from bank 650,000 415,000 460,000 350,000
Repayments of loans (211,112) (135,258) (161,087) (175,989)
Increase (decrease) in bank overdraft - (26,383) (26,383) 26,383
----------- -------- -------- --------
Net cash flows provided by financing
activities 438,888 253,359 272,530 200,394
----------- -------- -------- --------
Increase (decrease) in cash 1,319 23,864 28,868 (33,371)
Cash at beginning of period 31,538 2,670 2,670 36,041
----------- -------- -------- --------
Cash at end of period $ 32,857 26,534 31,538 2,670
----------- -------- -------- --------
----------- -------- -------- --------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
LOTS A' BAGELS, INC.
Statements of Cash Flows, Continued
Years Ended December 31, 1995 and 1994 and the
Nine Months Ended September 30, 1996 and 1995
Nine Months Ended Years Ended
September 30, December 31,
----------------- ---------------
1996 1995 1995 1994
------- ------ ------ ------
(Unaudited)
Supplemental disclosure of cash
flow information:
Noncash transactions:
Property and equipment in
accounts payable $ - 44,275 - -
Cash paid during the period for:
Interest $88,165 45,315 65,124 24,451
See accompanying notes to financial statements.
11
<PAGE>
LOTS A' BAGELS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
(1) ORGANIZATION AND OPERATIONS
Lots A' Bagels, Inc. (the Company) was incorporated in the State of
Colorado for the purpose of producing, distributing and selling, at
wholesale and retail, bagels and other food products. At December 31,
1995, the Company operated six retail locations in the Colorado Springs
area.
In December 1996, the assets of the Company were acquired by a subsidiary
of New York Bagel Enterprises, Inc. pursuant to an Asset Purchase
Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company in the
preparation of its financial statements is set forth below.
(a) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(b) PROPERTY AND EQUIPMENT
Property and equipment assets are stated at cost. Major renewals
and betterments are capitalized while maintenance, repairs and minor
renewals are charged against income when incurred.
Depreciation of equipment is recognized using primarily an
accelerated method over lives of five to seven years. Amortization
of leasehold improvements is recognized using primarily the
straight-line method and is generally over the term of the lease,
normally five to ten years, including renewal options where it is
likely the lease will be extended.
(c) INCOME TAXES
The Company operates as an S corporation. As a result, income tax
expense or benefit was not recorded in the accompanying financial
statements as the results of operations were reported to its
shareholders for inclusion in their individual income tax returns.
(d) PREOPENING COSTS
Direct, incremental preopening costs, comprised primarily of the
cost of hiring and training employees and rent, are expensed as
incurred.
12
<PAGE>
LOTS A' BAGELS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management of the Company to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
(f) INTERIM FINANCIAL DATA (UNAUDITED)
The accompanying balance sheet as of September 30, 1996 and the
accompanying statements of operations and cash flows for the nine
months ended September 30, 1996 and 1995 and the statement of
shareholders' equity for the nine-months ended September 30, 1996
have been prepared by the Company without an audit. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation for such
periods have been made. Results for interim periods should not be
considered as indicative of results for a full year.
Footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been omitted herein with respect to the interim
financial data. The interim information herein should be read in
conjunction with the annual financial information presented herein.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment and accumulated depreciation as of
December 31, 1995 and 1994 is as follows:
1995 1994
---------- ---------
Furniture and equipment $ 836,241 598,966
Leasehold improvements 954,074 575,291
---------- ---------
1,790,315 1,174,257
Less accumulated depreciation 475,685 244,438
---------- ---------
Net property and equipment $1,314,630 929,819
---------- ---------
---------- ---------
13
<PAGE>
LOTS A' BAGELS, INC.
Notes to Financial Statements, continued
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
1995 1994
---- ----
<S> <C> <C>
8.5% note payable to bank, due in monthly installments
of $12,164 including interest $ 725,209 350,000
8.5% subordinated note payable to shareholders 250,884 321,648
Prime rate plus 2.25% note payable to bank, due in
monthly installments of $1,667 plus interest 72,778 54,074
----------- -----------
Total long-term debt 1,048,871 725,722
Less current portion of long-term debt 170,000 370,000
----------- -----------
Long-term debt, less current portion $ 878,871 355,722
----------- -----------
The aggregate maturities of long-term debt is as follows:
1996 $ 170,000
1997 177,000
1998 166,000
1999 165,000
2000 119,000
Thereafter 251,871
-----------
$ 1,048,871
-----------
-----------
</TABLE>
The 8.5% note payable to bank is secured by all assets of the Company
not otherwise encumbered. In addition, the 8.5% note payable to bank
requires the Company to maintain a defined net worth, including the
subordinated debt due the shareholders, in the amount of $450,000. The
8.5% note payable to bank also imposes limits on the purchase of property
and equipment and compensation to officers and requires defined cash flow
coverage of current debt plus lease expense of 1.5 times. The 8.5% note
payable to bank is personally guaranteed by the shareholders.
The loan from shareholders is subordinated to the 8.5% note payable to
bank. The 8.5% note payable to bank allows annual payments on the
shareholders' loan in the amount of $65,000 and amounts required to pay
shareholder income tax provided all other terms of the 8.5% note payable
to bank are complied with.
14
<PAGE>
LOTS A' BAGELS, INC.
Notes to Financial Statements, continued
(4) LONG-TERM DEBT, CONTINUED
Interest expense includes $24,236 and $26,648 for the years ended
December 31, 1995 and 1994, respectively, incurred on the shareholder note
payable.
(5) LEASES
The Company has entered into various lease agreements covering its
retail and manufacturing space. Certain leases also provide renewal
options. Generally, the lease provisions require the Company to pay a
minimum base rent and additional rent for real estate taxes, insurance
and common area charges. Lease terms of the operating leases range from
approximately two years to ten years. Rent expense for the years ended
December 31, 1995 and 1994 amounted to $186,590 and $118,888, respectively.
Future minimum lease payments under noncancellable operating leases are
as follows:
Year Ending December 31:
-----------------------
1996 $ 187,200
1997 195,300
1998 180,000
1999 186,800
2000 199,174
Thereafter 682,509
-----------
Total minimum lease payments $ 1,630,983
-----------
-----------
(6) COMMITMENTS
The Company has also committed to leases for two new facilities. The
aggregate lease commitment for these facilities, which are not included in
the data above, are $1,077,600 with terms ranging from seven to fifteen
years.
(7) FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION
The carrying values of the Company's long-term debt approximates their
fair values based on current interest rates of similar instruments. The
carrying values of the Company's other financial instruments at
December 31, 1995, including cash, accounts receivable, other current
assets, accounts payable, and accrued expenses approximate their fair
values because of their short maturity.
15
<PAGE>
99.2 Pro Forma Financial Information
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTRODUCTION
The following pro forma consolidated balance sheet presents the balance sheet
of New York Bagel Enterprises, Inc. (the Company) as of September 29, 1996 as
if the acquisition of the assets of Lots A' Bagels, Inc. had occurred as of
September 29, 1996. The following pro forma consolidated statements of
operations present the results of operations of the Company for the year ended
December 31, 1995 and for the thirty-nine weeks ended September 29, 1996 as if
the acquisition of Lots A' Bagels, Inc. had occurred as of January 1, 1995.
The historical balance sheet information of Lots A' Bagels, Inc. included in
the pro forma consolidated balance sheet is as of September 30, 1996. The
historical statement of operations information of Lots A' Bagels, Inc. included
in the pro forma consolidated statements of operations is for the year ended
December 31, 1995 and the nine months ended September 30, 1996. The
acquisition of the assets of Lots A' Bagels, Inc. by the Company has been
accounted for by the purchase method of accounting. The pro forma financial
information should be read in conjunction with the related historical financial
information of the Company included in its Form S-1 registration statement
dated August 27, 1996 and its Quarterly Report on Form 10-Q for the quarter
ended September 29, 1996, and the Lots A' Bagels, Inc. historical financial
statements included elsewhere herein. The unaudited pro forma consolidated
balance sheet and statements of operations do not purport to represent what the
Company's financial position or results of operations would actually have been
had the transaction in fact occurred on the aforementioned dates, or to project
the Company's results of operations for any future periods. The pro forma
adjustments are based upon available information and upon certain assumptions
that management believes are reasonable. These adjustments are directly
attributable to the transaction and are expected to have a continuing impact on
the financial position and results of operations of the Company.
16
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 29, 1996
<TABLE>
Historical
---------------------------
New York
Bagel Lots A'
Enterprises, Bagels, Pro Forma
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 6,354,611 32,857 (2,214,947)(a) 4,144,516
(28,005)(b)
Investment securities held for sale 2,536,400 - - 2,536,400
Accounts receivable 215,476 23,261 (23,261)(b) 215,476
Inventories 170,928 25,918 2,225 (c) 199,071
Deferred costs, net 231,380 - - 231,380
Other current assets 117,347 4,322 17,925 (c) 139,594
------------ --------- --------- ----------
Total current assets 9,626,142 86,358 (2,246,063) 7,466,437
Property and equipment, net 4,394,289 1,719,004 162,256 (c) 6,275,549
Goodwill, net 528,256 - 279,124 (d) 807,380
Deposits and other assets 105,369 36,630 (11,490)(b) 130,509
------------ --------- --------- ----------
Total assets $ 14,654,056 1,841,992 (1,816,173) 14,679,875
------------ --------- --------- ----------
------------ --------- --------- ----------
</TABLE>
17
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED
September 29, 1996
<TABLE>
Historical
-----------------------------
New York
Bagel Lots A'
Enterprises, Bagels, Pro Forma
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Current liabilities:
Current portion of long-term debt $ 28,750 300,000 (300,000)(e) 28,750
Accounts payable 698,445 31,358 (31,358)(f) 698,445
Accrued liabilities 433,970 90,315 (64,496)(f) 459,789
Income taxes payable 78,246 - - 78,246
Deferred income taxes 69,000 - - 69,000
Current portion of deferred franchise fees 39,000 - - 39,000
Distributions payable 164,193 - - 164,193
------------ --------- ---------- ----------
Total current liabilities 1,511,604 421,673 (395,854) 1,537,423
Noncurrent liabilities, less current portion 191,546 1,200,888 (1,200,888)(e) 191,546
------------ --------- ---------- ----------
Total liabilities 1,703,150 1,622,561 (1,596,742) 1,728,969
Stockholders' equity 12,950,906 219,431 (219,431)(g) 12,950,906
------------ --------- ---------- ----------
Total liabilities and stockholders'
equity $ 14,654,056 1,841,992 (1,816,173) 14,679,875
------------ --------- ---------- ----------
------------ --------- ---------- ----------
</TABLE>
18
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Year Ended December 31, 1995
<TABLE>
Historical
----------------------
New York
Bagel Lots A'
Enterprises, Bagels, Pro Forma
Inc. Inc. Adjustments Pro Forma
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Total revenues $7,359,446 2,990,736 - 10,350,182
---------- --------- -------- ----------
Costs of goods sold 2,612,772 662,285 - 3,275,057
Operating expenses 3,083,902 1,718,187 - 4,802,089
Depreciation and amortization 158,996 232,006 (15,493)(h) 389,465
13,956 (i)
General and administrative
expenses 838,190 210,251 - 1,048,441
---------- --------- -------- ----------
Total costs and expenses 6,693,860 2,822,729 (1,537) 9,515,052
---------- --------- -------- ----------
Operating income 665,586 168,007 1,537 835,130
---------- --------- -------- ----------
Other income (expense):
Interest expense (39,800) (89,261) 89,261 (j) (128,397)
(88,597)(k)
Other income - 6,183 - 6,183
---------- --------- -------- ----------
Total other income (expense) (39,800) (83,078) 664 (122,214)
---------- --------- -------- ----------
Earnings before income taxes 625,786 84,929 2,201 712,916
Income taxes 6,689 - 267,783(l) 274,472
---------- --------- -------- ----------
Net earnings $ 619,097 84,929 (265,582) 438,444
---------- --------- -------- ----------
---------- --------- -------- ----------
Pro forma net earnings per share $ .13 .15
---------- ----------
---------- ----------
Pro forma average common shares
outstanding 3,018,538 3,018,538
---------- ----------
---------- ----------
</TABLE>
19
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Thirty-Nine Weeks Ended September 29, 1996
<TABLE>
Historical
--------------------------
New York
Bagel Lots A'
Enterprises, Bagels, Pro Forma
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 8,080,235 2,791,761 - 10,871,996
----------- --------- -------- ----------
Costs of goods sold 2,675,144 684,061 - 3,359,205
Operating expenses 3,528,567 1,665,439 - 5,194,006
Depreciation and amortization 349,641 217,701 (55,316)(h) 522,493
10,467 (i)
General and administrative expenses 608,260 142,400 - 750,660
----------- --------- -------- ----------
Total costs and expenses 7,161,612 2,709,601 (44,849) 9,826,364
----------- --------- -------- ----------
Operating income 918,623 82,160 44,849 1,045,632
----------- --------- -------- ----------
Other income (expense):
Interest income 47,766 - (47,766)(k) -
Interest expense (245,042) (98,895) 98,895 (j) (263,724)
(18,682)(k)
Other - (9,553) - (9,553)
----------- --------- -------- ----------
Total other income (expense) (197,276) (108,448) 32,447 (273,277)
----------- --------- -------- ----------
Earnings (loss) before income taxes 721,347 (26,288) 77,296 772,355
Income taxes 150,035 - 147,322 (l) 297,357
----------- --------- -------- ----------
Net earnings (loss) $ 571,312 (26,288) (70,026) 474,998
----------- --------- -------- ----------
Pro forma net earnings per share $ .14 .15
----------- ------------
Pro forma average common shares
outstanding 3,219,225 3,219,225
----------- ------------
----------- ------------
</TABLE>
20
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
NATURE OF TRANSACTION
The assets of Lots A' Bagels, Inc. were acquired by the Company on December 6,
1996 for an initial cash payment of $2,214,947 pursuant to an asset purchase
agreement. The cost of the acquisition has been allocated to the assets
acquired based upon the Company's estimate of the fair value of such assets.
The asset purchase agreement also requires additional contingent consideration
to be paid by the Company in the event the final purchase price (as defined in
the asset purchase agreement and as to be determined based on operating income
for the period July 1, 1996 through March 30, 1997) exceeds the initial cash
payment. The contingent consideration will be payable in additional cash,
promissory notes, and a warrant to purchase the Company's common stock. Since
the amount, if any, of the contingent consideration is not presently
determinable, the contingent consideration has not been reflected in the
accompanying pro forma consolidated financial statements.
PRO FORMA ADJUSTMENTS:
Adjustments to the pro forma consolidated balance sheet as of September 29,
1996 are as follows:
(a) To reflect initial cash payment to effect the acquisition.
(b) To reflect cash, accounts receivable and other assets not acquired.
(c) To reflect inventories, other current assets and property and
equipment acquired at estimated fair value.
(d) To reflect the excess of cost of the acquisition over the fair
value of the net assets acquired which is recorded as goodwill.
(e) To eliminate long-term debt paid off pursuant to the acquisition.
(f) To reflect liabilities not assumed by the Company.
(g) To eliminate the equity of Lots A' Bagels, Inc.
Adjustments to the pro forma consolidated statements of operations for the
year ended December 31, 1995 and the thirty-nine weeks ended September 29,
1996 are as follows:
(h) To reflect depreciation and amortization of property and equipment
based upon the cost assigned by the Company.
(i) To reflect amortization of goodwill over 20 years using the
straight-line method.
(j) To eliminate interest expense on borrowings paid off pursuant to
the acquisition.
(k) To reflect reduction of interest income and/or increase in interest
expense arising from the cost of the acquisition by use of interest
bearing cash equivalents.
(l) To reflect the adjustment for income taxes based upon the statutory
rate applied to pro forma earnings before income taxes as if the
Company had never operated as an S corporation.
21
