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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 29, 1998
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-21205
NEW YORK BAGEL ENTERPRISES, INC.
(Exact name of small business issuer as specified in its charter)
Kansas 73-1369185
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 I.M.A. Plaza
250 North Water Street
Wichita, Kansas 67202-1213
(Address of principal executive offices and zip code)
(316) 267-7373
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filings requirements for the past 90 days.
[x] Yes [ ] No
As of May 11, 1998, there were 4,657,100 shares of the registrant's Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [x] No
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
INDEX
<TABLE>
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at March 29, 1998
and December 28, 1997 3
Unaudited Consolidated Statements of Operations for the
Thirteen weeks ended March 29, 1998 and
March 30, 1997 4
Unaudited Consolidated Statements of Cash Flows
for the Thirteen weeks ended March 29, 1998
and March 30, 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION 13
Item 5. Other Information
Item 6. Exhibits
(a) Exhibit 27 - Financial Data Schedule
(b) Exhibit 27.1 - Restated Financial Data Schedule
SIGNATURES 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 29, 1998 AND DECEMBER 28, 1997
<TABLE>
March 29, December 28,
Assets 1998 1997(a)
------ --------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 41,768 $ 872,949
Accounts receivable 187,123 171,068
Inventories 404,604 349,937
Income tax receivable 180,484 484,957
Prepaid expenses and other current assets 189,823 169,156
Property and equipment available for sale 208,993 193,256
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Total current assets 1,212,795 2,241,323
Property and equipment, net 9,329,238 10,281,696
Goodwill, net 1,210,028 1,220,441
Other assets 255,877 357,001
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$12,007,938 $14,100,461
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Liabilities and Stockholders' Equity
------------------------------------
Current installments of long-term debt $ 1,795,678 $ 2,490,858
Accounts payable 481,063 715,453
Accrued payroll and benefits 413,116 292,321
Accrued liabilities 536,998 539,143
Current portion of deferred franchise fees 17,000 35,000
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Total current liabilities 3,243,855 4,072,775
Long-term debt, less current installments 28,750 28,750
Deferred rents payable 109,261 99,201
Other liabilities 100,481 133,724
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Total liabilities 3,482,347 4,334,450
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Stockholders' equity:
Class A common stock, $.01 par value.
Authorized 30,000,000 shares; issued
and outstanding 4,667,500 shares. 46,675 46,675
Additional paid in capital 13,390,769 13,390,769
Accumulated deficit (4,893,879) (3,671,433)
Treasury stock, at cost, 10,400 shares at
March 29, 1998 (17,974) --
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Total stockholders' equity 8,525,591 9,766,011
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$12,007,938 $14,100,461
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</TABLE>
(a) The balance sheet at December 28, 1997 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to unaudited consolidated financial statements.
3
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NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 29, 1998 AND MARCH 30, 1997
(Unaudited)
<TABLE>
Thirteen Weeks
Ended
March 29, March 30,
1998 1997(a)
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<S> <C> <C>
Revenues:
Sales from Company-owned restaurants $4,761,687 $4,289,602
Franchise revenues 79,928 185,047
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Total revenues 4,841,615 4,474,649
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Costs and expenses:
Costs of sales 1,621,373 1,363,774
Restaurant operating expenses 2,658,572 2,140,571
General and administrative expenses 390,252 369,759
Depreciation and amortization 252,523 191,296
Provision for impairments and closures 1,105,725 --
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Total costs and expenses 6,028,445 4,065,400
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Operating income (loss) (1,186,830) 409,249
Interest income (expense), net (35,616) 60,642
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Earnings (loss) before income taxes (1,222,446) 469,891
Income tax expense -- 180,606
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Earnings (loss) before cumulative
effect of accounting change (1,222,446) 289,285
Cumulative effect of accounting change, net
of income tax benefit of $80,782 -- (129,041)
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Net earnings (loss) $(1,222,446) $ 160,244
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Earnings (loss) per share - basic and diluted:
Earnings (loss) before cumulative effect
of accounting change $ (.26) $ .06
Cumulative effect of accounting change -- (.03)
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Net earnings (loss) $ (.26) $ .03
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Weighted average number of shares
outstanding-basic and diluted 4,663,753 4,667,500
</TABLE>
(a) As restated for the change in accounting principle. See Note 3.
See accompanying notes to unaudited consolidated financial statements.
4
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NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED MARCH 29, 1998 AND MARCH 30, 1997
(Unaudited)
<TABLE>
Thirteen Weeks
Ended
March 29, March 30,
1998 1997(a)
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(1,222,446) $ 160,244
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 252,523 191,296
Provision for impairments and closures 1,105,725 --
Cumulative effect of accounting change, net of
income tax benefit -- 129,041
Increase (decrease) in cash resulting from changes
in listed items, net of effects from acquisitions:
Deferred income taxes -- 912
Inventory (54,667) (3,057)
Income taxes receivable 304,473 87,783
Property and equipment available for sale (15,737) --
Prepaid expenses and other current assets (20,667) 2,274
Accounts receivable (16,055) (149,619)
Other assets (13,395) (45,179)
Accounts payable (234,390) (198,396)
Accrued liabilities and other liabilities 47,003 100,761
Income taxes payable -- 78,925
Deferred franchise fees (18,000) (33,000)
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Net cash provided by operating activities 114,367 321,985
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Cash flows from investing activities:
Additions to property, plant and equipment (1,032,394) (1,452,525)
Acquisitions, net of cash acquired -- (470,826)
Purchase of investment securities available for sale -- (4,095,964)
Proceeds from sales and maturities of investment
securities available for sale -- 5,843,117
Proceeds from sale-leaseback transactions 800,000 --
----------- -----------
Net cash used in investing activities (232,394) (176,198)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 450,000 --
Principal payments on long-term debt (1,145,180) --
Decrease in distributions payable -- (146,978)
Purchase of treasury stock (17,974) --
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Net cash used in financing activities (713,154) (146,978)
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Net decrease in cash (831,181) (1,191)
Cash at beginning of period 872,949 1,305,130
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Cash at end of period $ 41,768 $ 1,303,939
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</TABLE>
(a) As restated for the change in accounting principle. See Note 3.
See accompanying notes to unaudited consolidated financial statements.
5
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NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
The Company owns and franchises New York Bagel and Lots A' Bagels
restaurants that provide a wide variety of bagels that are made from scratch,
boiled and baked in the traditional "New York style." Breakfast menu items
include a wide variety of bagels and custom-blended cream cheeses, gourmet
coffees, muffins and croissants. Lunch and dinner items include an assortment
of bagel delicatessen sandwiches, prepared salads, cookies and soft drinks. As
of March 29, 1998, the Company has 45 Company-owned restaurants primarily
located in Oklahoma, Kansas, Colorado, Texas and Tennessee and 23 franchised
restaurants located throughout the United States.
(2) BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 unaudited consolidated financial statements be
read in conjunction with the annual consolidated financial statements included
in the Company's 1997 Form 10-K for the period ended December 28, 1997. In the
opinion of management of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (all of which were of a normal
recurring nature) necessary to present fairly the consolidated financial
position of the Company and the results of its operations and its cash flows for
the interim periods. The results of the interim period are not necessarily
indicative of the results of the full year.
(3) CHANGE IN ACCOUNTING PRINCIPLE
Effective September 28, 1997, the Company changed its accounting policy on
restaurant preopening costs. In prior periods, the Company initially
capitalized and then amortized preopening costs over the initial 12-months of a
restaurant's operation. Under the new method, the Company expenses such
restaurant preopening costs as incurred. Management believes the change is
preferable to obtain a better matching of expenses with revenues. The effect of
adopting the accounting change on earnings (loss) before cumulative effect of
accounting change, net earnings (loss), and net earnings (loss) per share for
the thirteen weeks ended March 30, 1997 is to increase (decrease) such amounts
$30,230, ($98,811) and ($0.03), respectively. The change is considered a
cumulative effect-type accounting change and, accordingly, the cumulative effect
as of the beginning of fiscal 1997 has been reported in the accompanying
unaudited consolidated statement of operations for the thirteen-week period
ended March 30, 1997. The accompanying unaudited consolidated financial
statements for the thirteen weeks ended March 30, 1997 have been restated to
reflect adoption of the new accounting policy.
6
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NEW YORK BAGEL ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) IMPAIRMENT OF LONG-LIVED ASSETS AND STORE CLOSURES
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used (including associated goodwill) is measured by a comparison of
the carrying amount of an asset to estimated future net cash flows (undiscounted
and without interest charges) expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
For purposes of determining impairment, the Company groups long-lived
assets at a market level due to the bakery-satellite relationship which, in
management's estimation, results in the market level as the lowest level for
which there are cash flows that are largely independent of the cash flows of
other groups of assets.
The impairment charge, which amounted to $585,000 for the thirteen weeks
ended March 29, 1998, represents a reduction of the carrying value of the
impaired assets to estimated fair value. Such impairment charge relates to
long-lived restaurant assets. The primary indicators of impairment are
continued operating losses or sufficient negative trends that management
determines impairment is probable. Estimated fair values were determined by
using a combination of discounted estimated future cash flows and valuation
multiples recently used by the Company in actual acquisitions. Management
judgment is inherent in the estimated fair value determinations and,
accordingly, actual results could vary from such estimates.
Store closure costs are recognized when a decision is made to close a
restaurant within the next twelve months. Store closure costs, which amounted
to $520,725 for the thirteen weeks ended March 29, 1998, include the costs of
writing down the carrying amount of a restaurant's assets to estimated fair
value less costs of disposal aggregating $472,261, and the net present value of
any remaining noncancelable lease payments after the expected closure date net
of estimated sublease income considered by management to be probable aggregating
$48,464.
(5) NET EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
EARNINGS PER SHARE (Statement 128) which replaces the prior accounting
standard regarding computation and presentation of earnings per share.
Statement 128 requires a dual presentation of basic earnings per share (based
on the weighted average number of common shares outstanding) and diluted
earnings per share which reflects the potential dilution that could occur if
contracts to issue securities (such as stock options) were exercised. The
Company adopted Statement 128 as of December 28, 1997 and, accordingly,
earnings per share data for all periods presented has been computed in
accordance with Statement 128. For all periods presented, there are no
differences between net earnings (loss) and outstanding shares utilized in
the computation of basic and diluted earnings per share.
Options to purchase common stock were not included in the computation of
diluted earnings (loss) per share because the options' exercise price was
greater than the average market price of the common shares during such period
so the effect would not be dilutive. As of March 29, 1998, there are 425,000
options outstanding at a weighted average exercise price of $5.10 which may
become dilutive in the future.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS FORM 10-QSB INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, HOPES,
BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS,
OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN THIS FORM 10-QSB
REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND OTHER PLANS
AND OBJECTIVES FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-QSB ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH
THE COMPANY BELIEVES THAT THE ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT OR THAT THE COMPANY WILL TAKE
ANY ACTIONS THAT MAY PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS ARE DISCLOSED IN THE "RISK FACTORS" SECTION OF THE COMPANY'S
FORM 10-K ANNUAL REPORT, WHICH INCLUDE, WITHOUT LIMITATION, THE COMPANY'S
ABILITY TO DEVELOP, CONSTRUCT, ACQUIRE OR FRANCHISE ADDITIONAL RESTAURANTS IN
ACCORDANCE WITH THE COMPANY'S DEVELOPMENT SCHEDULE, CHANGES IN BUSINESS
STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY AND TERMS OF CAPITAL, ACCEPTANCE
OF NEW PRODUCT OFFERINGS, COMPETITION, MANAGEMENT OF QUARTER TO QUARTER
EARNINGS, INCREASES IN OPERATING COSTS AND CHANGES IN GOVERNMENT REGULATION.
ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY SUCH FACTORS.
OVERVIEW
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.
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, accounting, legal and direct costs
associated with franchise operations.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
operating statement data to total revenues, except as otherwise indicated:
<TABLE>
Thirteen Weeks
Ended
March 29, March 30,
1998 1997(1)
--------- ---------
<S> <C> <C>
Revenues:
Sales from Company-owned restaurants 98.4% 95.9%
Franchise revenues 1.6 4.1
----- -----
Total revenues 100.0% 100.0%
Costs and expenses:
Cost of sales (2) 34.0% 31.8%
Restaurant operating expenses (2) 55.8 49.9
General and administrative expenses 8.1 8.3
Depreciation and amortization 5.2 4.3
Provision for impairments and closures 22.8 --
Operating income (loss) (24.5) 9.1
Interest income (expense), net (.7) 1.4
Income tax expense -- 4.0
Cumulative effect of accounting change -- 2.9
Net earnings (loss) (25.2) 3.6
</TABLE>
- ------------------------
(1) As restated for the change in accounting principle. See Note 3 to
unaudited consolidated financial statements.
(2) As a percentage of sales from Company-owned restaurants.
THIRTEEN WEEKS ENDED MARCH 29, 1998
COMPARED TO THIRTEEN WEEKS ENDED MARCH 30, 1997
Total revenues increased by $367,000, or 8.2%, to $4.8 million for the
period ended March 29, 1998 compared to $4.5 million for the period ended
March 30, 1997, primarily due to an increase in the number of Company-owned
restaurants open.
Sales from Company-owned restaurants increased $472,000, or 11.0%, to
$4.8 million for the period ended March 29, 1998 compared to $4.3 million for
the period ended March 30, 1997. This increase is largely the result of
opening 16 additional Company-owned restaurants during the period subsequent
to March 30, 1997. Such increase has been offset somewhat by the closing of
9
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seven Company-owned restaurants during the last quarter of 1997 and the first
quarter of 1998. In addition, the Company experienced a 14.6% decrease in
same restaurant sales during the first quarter of 1998 as compared to the
same period in 1997. Such decline is primarily attributed to the following:
(i) increased competition, (ii) increased development within certain markets,
and (iii) restaurant manager/operational issues. The Company is focusing on
operational issues and new product offerings. At March 29, 1998, the Company
had 45 Company-owned restaurants compared to 36 restaurants at March 30, 1997.
Franchise revenues decreased by $105,000, or 56.8%, to $80,000 for the
period ended March 29, 1998 compared to $185,000 for the period ended March
30, 1997. Franchise and development fees decreased $48,000, or 54.5%, to
$41,000 during the first quarter of 1998 as compared to $89,000 for the
comparable period in 1997 and royalty revenue decreased by $57,000, or 59.5%,
to $39,000 for 1998 compared to $96,000 for 1997. The overall decrease is
primarily due to the decrease in new restaurant development within the
franchise program as well as the closing or disenfranchising of 14 franchise
restaurants during the period subsequent to March 30, 1997. Franchise
royalty revenue has also decreased due to the discontinuance of royalty
revenue recognition on certain franchise restaurants due to collectibility
concerns. As a result of the above activity, management expects franchise
revenues to continue to decline. There were 23 franchised restaurants as of
March 29, 1998 as compared to 32 restaurants at March 30, 1997.
Cost of sales increased by $258,000, or 18.9%, to $1.6 million for the
period ended March 29, 1998 compared to $1.4 million for the period ended
March 30, 1997, primarily due to the increase in Company-owned restaurant
sales discussed above. As a percentage of Company-owned restaurant sales,
cost of sales increased to 34.0% for the period ended March 29, 1998 from
31.8% for the period ended March 30, 1997, primarily as a result of certain
markets that incur higher food costs as a result of utilizing frozen-dough
bagels and pre-packaged cream cheeses. Prices of the Company's commodities
(meat and cheese, flour and other bakery ingredients) have generally remained
fairly stable during the comparable periods.
Restaurant operating expenses increased by $518,000, or 24.2%, to $2.7
million for the period ended March 29, 1998 compared to $2.1 million for the
period ended March 30, 1997, primarily due to the increase in Company-owned
restaurant sales discussed above. As a percentage of Company-owned
restaurant sales, restaurant operating expenses increased to 55.8% for the
period ended March 29, 1998 from 49.9% for the period ended March 30, 1997.
Such increase is primarily due to: (i) the increase in direct labor costs of
1.7% from 27.7% in 1997 to 29.4% in 1998 and (ii) the increase in occupancy
costs (rent and utilities) of 3.3% from 9.1% in 1997 to 12.4% in 1998. These
increases are attributable to the increase in the minimum wage rate, the
decrease in same-store sales as discussed above and certain of the Company's
new restaurant development in which sales levels have not matured.
General and administrative expenses have remained fairly consistent for
the thirteen week periods ended March 29, 1998 and March 30, 1997.
10
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Depreciation and amortization increased by $61,000, or 32.0%, to $253,000
for the period ended March 29, 1998 compared to $191,000 for the period ended
March 30, 1997. As a percentage of total revenues, depreciation and
amortization increased to 5.2% for the period ended March 29, 1998 from 4.3% for
the period ended March 30, 1997. This increase is primarily the result of the
significant addition of capital expenditures to develop and acquire additional
Company-owned restaurants for the period subsequent to March 30, 1997. Such
increase is offset, to a certain extent, by certain restaurants that are open
but were impaired in 1997 whereby depreciation and amortization has been
completely or significantly reduced.
A provision for impairment and restaurant closures of $1.1 million was
recorded for the period ended March 29, 1998. The impairment charge, which
amounted to $585,000, represents a reduction of the carrying value of property
and equipment for one operating market (two restaurants) to estimated fair
value. Such charge was a result of increased operating losses primarily due to
declining sales levels. In addition, the Company closed two under-performing
restaurants during the period resulting in restaurant closure costs of $521,000.
The majority of the aforementioned restaurant closure costs relate to a
single restaurant. Such restaurant was opened November 1, 1997, but due to
operating losses and negative cash flow experienced since opening, management
made the decision during March 1998 to close the restaurant. The other
restaurant closure related to a restaurant in which an impairment provision
had been recorded during the third quarter of 1997. As disclosed in the
accompanying notes to the unaudited consolidated financial statements,
long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management also
continuously assesses whether or not to close underperforming restaurants.
Accordingly, while at this time, the Company is not aware of any restaurants
for which a provision for impairment should be recorded which has not been so
recorded in the accompanying unaudited consolidated financial statements and
management has not currently made a decision to close any restaurants other
than those restaurants for which store closure costs have been recorded in the
accompanying unaudited consolidated financial statements, additional
provisions of impairment and closures may be required from time-to-time
including in the near term.
Net interest expense increased by $96,000, or 158.7%, to $36,000 for the
period ended March 29, 1998 compared to net interest income of $61,000 for the
period ended March 30, 1997. The increase in interest expense is due to the
borrowings from a bank that were initiated in September 1997. In addition,
during the period ended March 30, 1997 the Company still had a portion of the
proceeds from its initial public offering invested in interest-bearing
securities as such proceeds had not yet been expended.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants. Capital expenditures totaled $1.0 million and $1.9 million for the
thirteen-week periods ended March 29, 1998 and March 30, 1997, respectively.
The Company has funded its capital expenditures with proceeds from its Credit
Facility and sale-leaseback transactions discussed below and cash flows from
operating activities. Cash flows from operating activities were $114,000 and
$322,000 for the periods ended March 29, 1998 and March 30, 1997,
respectively. The reduction in cash flows from operating activities results
from the Company's significant reduction in operating income for the quarter
ended March 29, 1998.
Based on its contemplated expansion plans, the Company estimates that its
capital expenditures for development of Company-owned restaurants will be
approximately $400,000 during the remainder of 1998. The Company expects
that proceeds from its Credit Facility or refinancing of such facility and
11
<PAGE>
cash provided by operating activities will provide sufficient funds to
finance its capital expenditures through 1998.
CREDIT FACILITY. As previously disclosed in the Company's 1997 Form
10-K, the Company has a loan agreement with a revolving line of credit and
term loan facilities (the "Credit Facility") with NationsBank, N.A. (the
"Bank"). Borrowings from term loans during the thirteen-week period ended
March 29, 1998 amounted to $450,000 and were used to fund new restaurant
development. In addition, the Company repaid $1.1 million of borrowings from
the Credit Facility during the thirteen-week period ended March 29, 1998
primarily with the proceeds of the sale-leaseback transactions discussed
below and available cash. The Credit Facility is secured by substantially
all of the Company's assets and matures on September 30, 1998. The proceeds
from the Credit Facility (which are classified as a current liability at March
29, 1998) were primarily used for acquisition of long-lived assets such as
property and equipment. The Company will be required to refinance $1.0 million
of the outstanding balance of such notes payable when such notes come due in
September 1998, although the Company does not currently have a commitment
from the Bank or any other institution to refinance such notes payable. As of
March 29, 1998, the Company has $1.8 million of outstanding borrowings
pursuant to the Credit Facility.
SALE-LEASEBACK TRANSACTIONS. During February 1998, the Company entered
into agreements to sell and lease back two restaurant sites with an entity
owned by an officer of the Company and a significant stockholder, both of
whom are Directors. The sale-leaseback transactions include two owned
restaurant locations in which the Company sold such properties to such entity
for approximately $800,000 and leased back over a 15-year period. The leases
will be accounted for as operating leases. As a result of the sale-leaseback
transactions, the Company incurred a loss of $277,000 which has been deferred
for financial reporting purposes and is included within leasehold
improvements and is being amortized over the term of the related leases. The
Company believes that the terms and conditions of both the real estate sale
and the related lease back were fair and reasonable and were on terms at
least as favorable as would be available from non-affiliated parties. The
Company utilized the proceeds to fund new restaurant development and to
reduce borrowings under the Credit Facility.
STOCK REPURCHASE PROGRAM. During January 1998, the Company's Board of
Directors approved a plan to repurchase up to 1.0 million shares of the
Company's Common Stock (the "Stock Repurchase Program"). Purchases pursuant
to the Stock Repurchase Program are to be made from time to time in the open
market or directly from stockholders at prevailing market prices. The Stock
Repurchase Program is anticipated to be funded with internally generated cash
and borrowings under the Credit Facility or the refinancing of the Credit
Facility. As of March 29, 1998, the Company had purchased 10,400 shares of
Common Stock for $17,974.
FINANCIAL CONDITION. Total assets at March 29, 1998 are $12.0 million
as compared to $14.1 million as of December 29, 1997. Cash and cash
equivalents have decreased by approximately $800,000 primarily due to capital
expenditures for new restaurant development. Income tax receivable has also
decreased as a partial refund for 1997 was received from the Internal Revenue
Service in March 1998. Property and equipment reflects an approximate $1.0
million decrease despite significant new capital expenditures due to the
provision for impairments and closures related to three restaurants and the
sale-leaseback of two previously owned restaurant locations. Current
liabilities have decreased approximately $800,000 primarily as a result of
repayments of certain term loans with the bank. Stockholders' equity has
decreased $1.2 million due to the net loss for the thirteen-week period ended
March 29, 1998, which loss is primarily due to the $1.1 million provision for
impairments and closures.
12
<PAGE>
YEAR 2000 COMPLIANCE
The Company is currently taking actions to provide that its computer
systems are capable of processing the Year 2000. The gross costs associated
with this are not expected to be material and are being expensed as incurred.
PART II. OTHER INFORMATION
Item 5. Other Information
On April 17, 1998, the Company was notified by the Nasdaq Stock
Market, Inc. (Nasdaq) that it has failed to maintain the appropriate
market value of public float that is required to maintain the Company's
listing on the Nasdaq National Market. No delisting action is currently
being taken as the Company has until July 17, 1998 in which to regain
compliance. If such compliance cannot be regained, the Company intends
to pursue listing under the Nasdaq SmallCap Market. To the extent the
Nasdaq SmallCap Market listing is not achievable, the Company's common
stock would then be traded over the counter.
Item 6. Exhibits
(a) Exhibit 27 - Financial Data Schedule.
(b) Exhibit 27.1 - Restated Financial Data Schedule.
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 May, 1998.
NEW YORK BAGEL ENTERPRISES, INC.
By: /s/ ROBERT J. GERESI
------------------------------
Robert J. Geresi
Chief Executive Officer
and President
By: /s/ JON H. CRAMER
------------------------------
Jon H. Cramer
Chief Financial Officer,
Secretary and Treasurer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF
AND FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 29, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 41,768
<SECURITIES> 0
<RECEIVABLES> 207,123
<ALLOWANCES> (20,000)
<INVENTORY> 404,604
<CURRENT-ASSETS> 1,212,795
<PP&E> 10,881,042
<DEPRECIATION> (1,551,804)
<TOTAL-ASSETS> 12,007,938
<CURRENT-LIABILITIES> 3,243,855
<BONDS> 28,750
0
0
<COMMON> 46,675
<OTHER-SE> 8,478,916
<TOTAL-LIABILITY-AND-EQUITY> 12,007,938
<SALES> 4,761,687
<TOTAL-REVENUES> 4,841,615
<CGS> 1,621,373
<TOTAL-COSTS> 4,918,820
<OTHER-EXPENSES> 1,105,725
<LOSS-PROVISION> 3,900
<INTEREST-EXPENSE> 35,616
<INCOME-PRETAX> (1,222,446)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,222,446)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,222,446)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF
AND FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 1,303,939
<SECURITIES> 2,518,709
<RECEIVABLES> 497,612
<ALLOWANCES> (32,700)
<INVENTORY> 283,358
<CURRENT-ASSETS> 4,718,235
<PP&E> 10,145,917
<DEPRECIATION> (1,068,690)
<TOTAL-ASSETS> 15,054,907
<CURRENT-LIABILITIES> 1,022,112
<BONDS> 57,500
0
0
<COMMON> 46,675
<OTHER-SE> 13,788,402
<TOTAL-LIABILITY-AND-EQUITY> 15,054,907
<SALES> 4,289,602
<TOTAL-REVENUES> 4,474,649
<CGS> 1,363,774
<TOTAL-COSTS> 4,060,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,500
<INTEREST-EXPENSE> (60,642)
<INCOME-PRETAX> 469,891
<INCOME-TAX> 180,606
<INCOME-CONTINUING> 289,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (129,041)
<NET-INCOME> 160,244
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
