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 September 29, 1999
[ ] 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 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.)
115 East 8th Street
Stillwater, Oklahoma 74074
(Address of principal executive offices)
(405) 624-3700
(Issuer'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 Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
As of September 29, 1999, there were 4,667,500 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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<S> <C>
PART I - FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at September 29, 1999
(unaudited), and December 27, 1998 3
Consolidated Statements of Operations for the
Thirty-Nine Weeks & Thirteen Weeks Ended
September 29, 1999 and September 27, 1998, (unaudited) 4
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended September 29, 1999
and September 27, 1998, (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE>
PART I. FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
Sept. 29, December 27,
Assets 1999 1998
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 13,151 $ 217,775
Accounts receivable 233,227 61,855
Inventories 271,135 310,850
Prepaid expenses and other current assets 16,094 26,609
Total current assets 533,607 617,089
Property and equipment, net 5,485,706 6,330,238
Goodwill, net 778,577 805,028
Investment in Atomic Burrito - Tulsa - -
Investment in Atomic Burrito - Wichita - -
Other assets 164,123 203,823
Total assets $6,962,013 $7,956,178
Liabilities and Stockholders' Equity
Current installments on long-term debt $ 1,857,956 $ 1,821,894
Accounts payable 645,610 440,387
Accrued payroll and benefits 238,958 241,844
Accrued liabilities 404,527 748,754
Total current liabilities 3,147,051 3,252,879
Long-term debt, less current installments 43,552 49,464
Deferred rents payable 91,795 90,094
Other liabilities 455,891 798,662
Total liabilities 3,738,289 4,191,099
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 (10,195,746) (9,654,391)
Treasury stock, at cost, 10,400 shares (17,974) (17,974)
Total stockholders' equity 3,223,724 3,765,079
Total liabilities and
stockholders' equity $ 6,962,013 $ 7,956,178
</TABLE>
[FN]
See accompanying notes to unaudited financial statements.
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTY-NINE WEEKS AND THIRTEEN WEEKS ENDED
SEPTEMBER 29, 1999 AND SEPTEMBER 27, 1998
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Thirteen Weeks
Weeks Ended Ended
Sept. 29, Sept. 27, Sept. 29, Sept. 27,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Sales from
Company-owned
restaurants $10,705,328 $14,602,482 $3,107,964 $ 4,719,134
Franchise revenues $ 24,347 $ 115,776 $ 8,391 $ 18,511
Total revenues 10,729,675 14,718,258 3,116,355 4,737,645
Costs and expenses:
Cost of sales 3,682,118 5,192,535 1,067,458 1,793,730
Restaurant operating
expenses 6,399,652 8,282,222 1,920,354 2,755,408
General and
administrative expenses 803,003 1,077,918 254,744 340,569
Depreciation and
amortization 579,929 751,991 211,959 251,853
Provision for
impairments and
closures (325,283) 4,374,197 (45,622) 3,268,472
Total costs and
expenses 11,139,419 19,678,863 3,408,893 8,410,032
Operating income
(loss) (409,744) (4,960,605) (292,538) (3,672,387)
Interest income
(expense), net (121,608) (107,860) (37,367) (36,641)
Earnings (loss)
before income/(loss)
from joint venture (531,352) (5,068,465) (329,905) (3,709,028)
Income/(loss) from
joint venture (10,004) - 5,839 -
Earnings (loss)
before income taxes (541,356) (5,068,465) (324,066) (3,709,028)
Income tax expense - - - -
Net earnings (loss) $ (541,356) $(5,068,465) $ (324,066) $(3,709,028)
Earnings (loss) per
share - basic and diluted:
Net earnings (loss) $ (0.12) $ (1.09) $ (0.07) $ (0.80)
Weighted average number
of shares outstanding-
basic and diluted 4,667,500 4,659,318 4,667,500 4,657,100
</TABLE>
[FN]
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1999 AND SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
Thirty-Nine Weeks
Ended
Sept. 29, Sept. 27,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (541,356) $(5,068,465)
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Income/(loss) from joint venture 10,004 -
Depreciation and amortization 579,929 751,991
Provision for impairments and closures (325,283) 4,374,197
Gain on sale of equipment 61,121 -
Increase (decrease) in cash resulting
from changes in listed items, net of
effect from acquisitions:
Deferred income taxes - -
Inventory 39,715 (25,402)
Income taxes receivable - 466,974
Property and equipment available for - 106,608
Prepaid expenses and other current as 10,515 1,990
Accounts receivable 3,628 43,872
Deferred costs 18,643
Other assets 5,754 (14,046)
Accounts payable 205,223 (299,938)
Accrued liabilities and other
liabilities (362,900) (387,435)
Deferred franchise fees - (18,000)
Net cash provided by operating
activities (313,650) (49,011)
Cash flows from investing activities:
Additions to property, plant and equipment (77,124) (1,618,200)
Investment in Atomic Burrito (60,000) -
Proceeds from sale-leaseback transactions 216,000 1,700,000
Net cash used in investing
activities 78,876 81,800
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 670,000
Principal payments on long-term debt (169,850) (1,274,330)
Proceeds from issuance of notes to
Stockholder 200,000 -
Purchase of treasury stock - (17,974)
Net cash used in financing
activities 30,150 (622,304)
Net decrease in cash (204,624) (589,515)
Cash at beginning of period 217,775 872,949
Cash at end of period $ 13,151 $ 283,434
</TABLE>
[FN]
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
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 September 29,
1999, the Company has 30 Company-owned restaurants primarily
located in Oklahoma, Kansas, Colorado, Texas and Tennessee and 16
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 1998
Form 10-KSB for the period ended December 29, 1998. 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) 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 the 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
exceeds 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 to be held and used 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.
<PAGE>
During the thirty nine weeks ended September 29, 1999, there were no
impairment charges or store closure charges incurred, however, the
Company successfully negotiated out of several long term lease
obligations and was able to reduce the reserves by $325,000; thus
showing a derived income for the year.
The Company was a partner in a joint venture agreement with Western
Country Clubs, Inc. whereby the Company would contribute certain
restaurant equipment and leasehold improvements of up to seven of its
restaurant locations and cash in certain instances to the joint
venture. On September 29, 1999, the Company entered into an agreement
with Atomic Burrito, Inc., formerly Western Country Clubs, Inc., which,
among other things, terminated the joint venture agreement between the
two companies. The agreement also provides for the sale of
New York Bagel Enterprises, Inc.'s minority interests of 38% and 40%,
respectively, in the Tulsa, Oklahoma and Wichita, Kansas joint venture
entities to Atomic Burrito, Inc. for a purchase price of $175,000,
contingent upon Atomic Burrito, Inc. obtaining acceptable financing.
Atomic Burrito, Inc. will continue to use "New York Bagel Cafe" signage
located on the Tulsa, Oklahoma restaurant as long as it purchases
bagels and other related products from New York Bagel Enterprises, Inc.
In addition, the termination agreement terminates the letter of intent
between the two parties regarding the potential combination of the
companies.
On September 29, 1999, the Company entered into a letter of intent with
New World Coffee - Manhattan Bagel, Inc. (New World) whereby the Company will
be acquired by New World in a stock-for-stock transaction. However, the
consummation of the proposed acquisition is subject to many contingencies,
including, without limitation, the negotiation and execution of a definitive
merger agreement, the approval of the respective Boards of Directors and
stockholders of the two companies, the restructuring of the Company's existing
debt in a manner acceptable to New World and the completion of each company's
due diligence review. There can be no assurance that the proposed acquisition
will be consummated.
(4) 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
September 29, 1999, there were 117,500 options outstanding at a
weighted average exercise price of $.98, which may become dilutive in
the future.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
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-KSB ANNUAL REPORT, WHICH
INCLUDE, WITHOUT LIMITATION, THE COMPANY'S ABILITY TO RENEGOTIATE THE TERMS
OF ITS CREDIT FACILITY AS DISCLOSED IN THIS FORM 10-QSB, CHANGES IN BUSINESS
STRATEGY OR DEVELOPMENT PLANS, AVAILABILITY AND TERMS OF CAPITAL, THE COMPANY'S
ABILITY TO DEFEND CERTAIN LITIGATION AS DISCLOSED IN THIS FORM 10-QSB, THE
TRANSITION TO THE YEAR 2000, ACCEPTANCE OF NEW PRODUCT OFFERINGS, COMPETITION,
MANGEMENT OF QUARTER TO QUARTER EARNINGS, INCREASES IN OPERATING COSTS AND
CHANGES IN GOVERNMENT REGULATION. IN ADDITION, THE COMPANY'S ABILITY TO
COMPLETE THE PROPOSED TRANSACTION WITH NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
AS DISCLOSED IN THIS FORM 10-QSB, IS AN IMPORTANT FACTOR THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
EXPECTATIONS. 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.
<PAGE>
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.
Franchise and development fees are initially recorded as deferred
revenue until each franchised restaurant opens, at which time these
fees are recorded as revenue.
Costs 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.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
operating statement data to total revenues, except as otherwise
indicated:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Thirteen Weeks
Ended Ended
Sept. 29, Sept. 27, Sept 29, Sept 27,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Sales from Company-owned
restaurants 99.8% 99.2% 99.7% 99.6%
Franchise revenues 0.2 0.8 0.3 0.4
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales (1) 34.4% 35.6% 34.4% 38.0%
Restaurant operating
expenses (1) 59.8 56.7 61.8 58.4
General and
administrative expenses 7.5 7.3 8.2 7.2
Depreciation and
amortization 5.4 5.1 6.8 5.3
Provision for impairments
& closures ( 3.0) 29.7 ( 1.5) 69.0
Operating income (loss) ( 3.8) (33.7) ( 9.4) (77.5)
Interest income (expense),
net ( 1.1) ( 0.7) ( 1.2) ( 0.8)
Income/(loss) from joint
venture ( 0.1) 0.0 0.2 0.0
Income tax expense 0.0 0.0 0.0 0.0
Net earnings (loss) ( 5.0) (34.4) (10.4) (78.3)
(1) As a percentage of sales from Company-owned restaurants.
</TABLE>
<PAGE>
THIRTEEN WEEKS ENDED SEPTEMBER 29, 1999
COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 27, 1998
Total revenues decreased by $1.6 million, or 34.2%, to $3.1 million for the
period ended September 29, 1999 compared to $4.7 million for the period ended
September 27, 1998, primarily due to the decrease in the number of operating
stores in operations.
Sales from Company-owned restaurants decreased $1.6 million, or 34.1%, to
$3.1 million for the period ended September 29, 1999 compared to $4.7 million
for the period ended September 27, 1998. The Company experienced a 14.4%
decline in same store sales during the third quarter of 1999 compared to the
same period in 1998. The decline in same store sales is primarily attributed
to the following: (i) increased competition, (ii) increased development
within certain markets, and (iii) the maturation of the bagel industry. The
Company is focusing on operational issues and new product offerings. At
September 29, 1999 the Company had 30 Company-owned restaurants compared to
45 restaurants at September 27, 1998.
Franchise revenues and royalties decreased by $10,100, or 54.7%, to $8,400
for the period ended September 29, 1999 compared to $18,500 for the period
ended September 27, 1998. The overall decrease is due to the discontinuance
of royalty revenue recognition on certain franchise restaurants due to
collectibility concerns and no new franchises have been introduced since
1997. As a result of the above activity, management expects franchise
revenues to continue to decline. There were 16 franchised restaurants as of
September 29, 1999 as compared to 19 restaurants at September 27, 1998.
Cost of sales decreased by $700,000, or 40.5%, to $1.1 million for the
period ended September 29, 1999 compared to $1.8 million for the period ended
September 27, 1998. As a percentage of Company-owned restaurant sales, cost
of sales decreased to at 34.3% for the period ended September 29, 1999 as
compared to 38.0% for the period ended September 27, 1998, primarily due to
the decrease in operating stores and a concentrated effort to control cost.
Restaurant operating expenses decreased by $800,000, or 30.3%, to $1.9
million for the period ended September 29, 1999 compared to $2.8 million for
the period ended September 27, 1998. Such decrease is primarily due to the
Company closing under-performing restaurants. As a percentage of Company-
owned restaurant sales, restaurant operating expenses increased to 61.8% for
the period ended September 29, 1999 from 58.4% for the period ended September
27, 1998. This increase is primarily as a result of the additional rent
expense related to the sale-leaseback transactions that occurred during 1998
and 1999.
General and administrative expenses decreased $86,000 or 25.2%, to $255,000
for the period ended September 29, 1999 compared to $341,000 for the period
ended September 27, 1998 primarily as a reduction in management staff. The
Company repositioned middle management area restaurant managers into the
restaurants during the third quarter of 1998.
<PAGE>
Depreciation and amortization decreased by $39,000, or 15.8%, to $212,000
for the period ended September 29, 1999 compared to $252,000 for the period
ended September 27, 1998. As a percentage of total revenues, depreciation
and amortization increased to 6.8% for the period ended September 29, 1999
from 5.3% for the period ended September 27, 1998. This increase is directly
attributable to the reduction of sales due to the closing of certain
restaurants.
During the thirteen weeks ended September 27, 1998, the Company closed two
restaurants and decided to close an additional eighteen restaurants and a
support facility. These closures and impairments cost amounted to $3.3
million dollars during the thirteen weeks ended September 27, 1998. For the
period ended September 29, 1999, the Company successfully negotiated out of a
long-term lease that had resulted in a reserve previously being recorded.
The amount of this reduction was $46,000. The Company continues to try to
negotiate all of the remaining long-term leases on closed locations but there
is no certainty that any additional savings can be recognized in the future.
Prior to September 29, 1999 the Company entered into a joint venture
agreement with Western Country Clubs, Inc. ("Western") whereby the Company
would have contributed certain restaurant equipment and leasehold
improvements of up to seven of its restaurant locations and cash in certain
instances to the joint venture. The investment in the joint venture was being
accounted for on the "Equity Method." The results for the Company's ownership
in the joint venture for the thirteen weeks ended September 29, 1999 were
$5,839.
Net interest expense increased by $1,000, or 1.9%, to $37,000 for the
period ended September 29, 1999 compared to net interest expense of $36,000
for the period ended September 27, 1998. The increase in interest expense is
due to the borrowings from certain shareholders that were completed in
January of this year and the increased interest rate on the existing loans.
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1999
COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1998
Total revenues decreased by $4.0 million, or 27.1%, to $10.7 million for
the period ended September 29, 1999 compared to $14.7 million for the period
ended September 27, 1998, primarily due to a decrease in the number of
operating stores in operations.
Sales from Company-owned restaurants decreased $3.9 million, or 26.7%, to
$10.7 million for the period ended September 29, 1999 compared to $14.6
million for the period ended September 27, 1998. The Company experienced a
9.65% decline in same store sales during the first thirty-nine weeks of 1999
compared to the same period in 1998. The decline in same store sales is
primarily attributed to the following: (i) increased competition, (ii)
increased development within certain markets, and (iii) the maturation of the
bagel industry. The Company is focusing on operational issues and new
product offerings. At September 29, 1999 the Company had 30 Company-owned
restaurants compared to 45 restaurants at September 27, 1998.
<PAGE>
Franchise revenues and royalties decreased by $91,000, or 79.0%, to $24,000
for the period ended September 29, 1999 compared to $116,000 for the period
ended September 27, 1998. The overall decrease is due to the discontinuance
of royalty revenue recognition on certain franchise restaurants due to
collectibility concerns and no new franchises have been introduced since
1997. As a result of the above activity, management expects franchise
revenues to continue to decline. There were 16 franchised restaurants as of
September 29, 1999 as compared to 19 restaurants at September 27, 1998.
Cost of sales decreased by $1.5 million, or 29.1%, to $3.7 million for the
period ended September 29, 1999 compared to $5.2 million for the period ended
September 27, 1998. As a percentage of Company-owned restaurant sales, cost
of sales decreased to 34.4% for the period ended September 29, 1999 compared
to 35.6% for the same period ended September 27, 1998, primarily due to the
decrease in operating stores and a concentrated effort to control cost.
Restaurant operating expenses decreased by $1.9 million, or 22.7%, to $6.4
million for the period ended September 29, 1999 compared to $8.3 million for
the period ended September 27, 1998. Such decrease is primarily due to the
Company closing under-performing restaurants. As a percentage of Company-
owned restaurant sales, restaurant operating expenses increased to 59.8% for
the period ended September 29, 1999 from 56.7% for the period ended September
27, 1998. This increase is primarily as a result of the additional rent
expense related to the sale-leaseback transactions that occurred during 1998
and 1999.
General and administrative expenses decreased $275,000 or 25.5%, to
$803,000 for the period ended September 29, 1999 compared to $1.1 million for
the period ended September 27, 1998 primarily as a reduction in management
staff. The Company repositioned middle management area restaurant managers
into the restaurants during the third quarter of 1998.
Depreciation and amortization decreased by $172,000, or 22.9%, to $580,000
for the period ended September 29, 1999 compared to $752,000 for the period
ended September 27, 1998. As a percentage of total revenues, depreciation
and amortization increased to 5.4% for the period ended September 29, 1999
from 5.1% for the period ended September 27, 1998. This increase is directly
attributable to the reduction of sales due to the closing of certain
restaurants.
A provision for impairment and restaurant closures of $4.4 million dollars
was recorded for the period ended September 27, 1998. The Company closed
four under-performing restaurants during the period resulting in restaurant
closure cost of $719,000. The restaurant closures relate to two restaurants
in which an impairment provision of $585,000 had been recorded during the
first quarter of 1998 as well as an additional restaurant that was closed
during the first quarter of 1998. The remaining costs relate to the
additional 18 restaurants the Company identified for closure during the
thirteen weeks ended September 27, 1998 discussed above. For the period
ended September 29, 1999, the Company successfully negotiated out of several
long-term leases that had resulted in a reserve previously being recorded. The
amount of these reductions was $325,000. The Company continues to try to
negotiate all of the remaining long-term leases on closed locations but there
is no certainty that any additional savings can be recognized in the future.
<PAGE>
Prior to September 29, 1999 the Company entered into a joint venture
agreement with Western Country Clubs, Inc. ("Western") whereby the Company
would have contributed certain restaurant equipment and leasehold
improvements of up to seven of its restaurant locations and cash in certain
instances to the joint venture. The investment in the joint venture was being
accounted for on the "Equity Method." The results for the Company's ownership
in the joint venture for the thirty-nine weeks ended September 29, 1999 were
$(10,004).
Net interest expense increased by $14,000, or 12.7%, to $122,000 for
the period ended September 29, 1999 compared to net interest expense of
$108,000 for the period ended September 27, 1998. The increase in interest
expense is due to the borrowings from certain shareholders that were
completed in January of this year and the increased interest rate on the
existing loans.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants, maintenance of existing Company-owned restaurants. Capital
expenditures totaled $77,000 and $1.6 million for the thirty-nine week
periods ended September 29, 1999 and September 27, 1998, 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 $(314,000)
and $(49,000) for the periods ended September 29, 1999 and September 27,
1998, respectively.
Based on its contemplated limited expansion plans, the Company estimates
that its capital expenditures for development of Company-owned restaurants
will be less than $50,000 during the remainder of 1999. The Company expects
that proceeds from its Credit Facility, sale-leaseback transactions and cash
provided by operating activities will provide sufficient funds to finance its
capital expenditures through 1999.
The Company has incurred operating losses. While the Company is taking
corrective measures, there is no assurance that future operating losses will
not be incurred and that the Company might have to seek additional financing.
Such additional financing is not committed at this time. The Company
anticipates the need to raise additional funds through the private sale of
either equity or debt securities even though no such funds are committed.
CREDIT FACILITY. As previously disclosed in the Company's 1998 Form 10-
KSB, 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"). The Credit Facility is secured by substantially all of the Company's
assets. The Credit Facility matured on September 1, 1999. The Company is
trying to renegotiate the terms of the Credit Facility with the Bank at this
time. There is no assurance, however, that the Company will be successful in
doing so. As of September 29, 1999, the Company had $1.6 million of
outstanding borrowings pursuant to the Credit Facility. As of September 29,
1999 the Company was not in compliance with certain restrictive covenants
contained in the Credit Facility which require specified financial ratios.
However, the Company does not believe such noncompliance will adversely
impact liquidity although there is no assurance of such. As of October 15,
1999, the Company is no longer current on all payments due under the Credit
Facility.
<PAGE>
SALE-LEASEBACK TRANSACTIONS. During January 1999, the Company entered into
an agreement to sell and leaseback a restaurant site with an entity owned by
a then officer of the Company and a significant stockholder, both of whom are
Directors. The sale-leaseback transaction included an owned restaurant
location in which the Company sold such property to such entity for
approximately $180,000 and leased back over a 15-year period. The lease is
accounted for as operating lease. As a result of the sale-leaseback
transaction, the Company incurred a loss of $89,000 which has been deferred
for financial reporting purposes and is included within leasehold
improvements and is being amortized over the term of the lease. 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 operations.
In June 1999 and October 1999, the Company issued two promissory notes which
totaled $120,368 and entered into two amendments to cross default agreements
and two agreements to terminate certain leases which were part of
sale-leaseback transactions with the same entity referred to above.
In June 1999, the Company entered into an agreement to sell and
leaseback a home with an entity owned by two of the officers of the Company
and a significant stockholder. The sale-leaseback transaction included an
owned single family home in which the Company sold such property to such
entity for approximately $36,000 and leased it back over a 5-year period.
The lease is accounted for as an operating lease. 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 operations.
STOCKHOLDER LOANS. During January 1999, the Company borrowed $200,000 in
total from four stockholders. Each note is in the principal amount of
$50,000 and bears interest at 12.75% per annum which is paid quarterly
beginning March 31, 1999. The notes are due on December 31, 1999 with
accrued interest. The notes are not secured.
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. As of March 31, 1999, the Company
had purchased 10,400 shares of Common Stock for $17,974. The Company
anticipates limited purchases, if any, pursuant to the Stock Repurchase Program
during fiscal 1999.
FINANCIAL CONDITION. Total assets at September 29, 1999 are $7.0 million
as compared to $8.0 million as of December 27, 1998. Cash and cash
equivalents have decreased by approximately $200,000 primarily due to minimal
capital expenditures and the one time payments to be released from leases on
closed restaurant locations. Property and equipment reflects an approximate
$800,000 decrease due to the sale-leaseback of a previously owned restaurant
and the transfer of assets to the joint venture with Atomic Burrito. Current
liabilities have decreased approximately $100,000 primarily as a result of
the Company's ability to successfully negotiate out of certain long term
leases for stores that had previously been closed; as well as the reduction
in accrued payroll liabilities as additional restaurants have closed during
the period ending September 29, 1999. Stockholders' equity has decreased
$541,000 due to the net loss for the thirty-nine week period ended September
29, 1999.
<PAGE>
POTENTIAL MERGER TRANSACTION
On September 29, 1999, the Company entered into a letter of intent with New
World Coffee - Manhattan Bagel, Inc. (New World) whereby the Company will be
acquired by New World in a stock-for-stock transaction. However, the
consummation of the proposed acquisition is subject to many contingencies,
including, without limitation, the negotiation and execution of a definitive
merger agreement, the approval of the respective Boards of Directors and
stockholders of the two companies, the restructuring of the Company's
existing debt in a manner acceptable to New World, and the completion of each
company's due diligence review. There can be no assurance that the proposed
acquisition will be consummated.
YEAR 2000 COMPLIANCE
The Company's Year 2000 issues involve (i) its restaurant point of sale
function, (ii) its outsourced payroll function, (iii) its
financial/management reporting function and (iv) its vendors.
The Company has tested its point of sale equipment and found it to be Year
2000 compliant. Also, the Company believes that it has sufficient manual
back-up procedures that the Company could rely upon to continue operations,
if required to do so. The Company has been informed by the provider of its
outsourced payroll services that such services are Year 2000 compliant. The
Company has installed its own data processing capabilities during 1999 which
are all Year 2000 compliant.
The Company purchases products and services from various vendors. If the
Company is not able to acquire such products and services due to any vendor's
inability to address the Year 2000 issue, the Company could incur a
disruptive effect on its business. However, the key providers of such
products and services are generally large and sophisticated entities, and the
Company does not expect to incur a material disruption to its business from
the Year 2000 issue. In November 1998, the Company circulated a
questionnaire to its large vendors to determine their status regarding
addressing the Year 2000 issue. The vendors that have responded to the
questionnaire have indicated that they have addressed the issue or will do so
timely.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, a Company stockholder filed a petition against the Company,
alleging that the Company breached an agreement with such stockholder to
purchase the Company's stock from stockholder pursuant to the Company's common
stock repurchase program. The Company firmly denies entering into any such
agreement and intends to vigorously contest the allegation.
Item 3. Defaults Upon Senior Securities
The Credit Facility matured on September 1, 1999. The Company is
trying to renegotiate the terms of the Credit Facility with the Bank at this
time. There is no assurance, however, that the Company will be successful in
doing so. As of September 29, 1999, the Company had $1.6 million of
outstanding borrowings pursuant to the Credit Facility. As of September 29,
1999 the Company was not in compliance with certain restrictive covenants
contained in the Credit Facility which require specified financial ratios.
However, the Company does not believe such noncompliance will adversely
impact liquidity although there is no assurance of such. As of October 15,
1999, the Company is no longer current on all payments due under the Credit
Facility.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 Agreement to Terminate Lease, by and between New York Bagel
Enterprises, Inc., and Commercial Equity, Inc. dated June 11, 1999
(in regard to Lot 1 in Lone Pine Place, Springfield, Missouri).
10.2 Amendment to Cross Default Agreement, by and between New York
Bagel Enterprises, Inc., and Commercial Equity, Inc., dated June 11,
1999 (in regard to Lot 1 in Lone Pine Place, Springfield, Missouri).
10.3 Promissory Note by New York Bagel Enterprises, Inc., payable to
Commercial Equity, Inc., in the amount of $83, 143.47, dated June 11,
1999 (in regard to Lot 1 in Lone Pine Place, Springfield, Missouri).
10.4 Agreement to Terminate Lease, by and between New York Bagel
Enterprises, Inc., and Commercial Equity, Inc., dated October 31,
1999 (in regard to Mobile, Alabama lease).
10.5 Second Amendment to Cross Default Agreement, by and between New
York Bagel Enterprises, Inc., and Commercial Equity, Inc., dated
October 31, 1999 (in regard to Mobile, Alabama lease).
10.6 Promissory Note by New York Bagel Enterprises, Inc., payable to
Commercial Equity, Inc., in the amount of $37,224.11, dated
October 31, 1999 (in regard to Mobile, Alabama lease).
27 Financial Data Schedule
<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 12th day of November, 1999.
NEW YORK BAGEL ENTERPRISES, INC.
By: /s/ ROBERT J. GERESI
Robert J. Geresi
Chief Executive Officer
and President
By: /s/ RICHARD R. WEBB
Richard R. Webb
Chief Financial Officer,
Secretary and Treasurer
<PAGE>
INDEX TO EXHIBITS
10.1 Agreement to Terminate Lease, by and between New York Bagel
Enterprises, Inc., and Commercial Equity, Inc., dated June 11, 1999
(in regard to Lot 1 Lone Pine Place, Springfield, Missouri).
10.2 Amendment to Cross Default Agreement, by and between New York
Bagel Enterprises, Inc., and Commercial Equity, Inc., dated June 11,
1999 (in regard to Lot 1 Lone Pine Place, Springfield, Missouri).
10.3 Promissory Note by New York Bagel Enterprises, Inc., payable to
Commercial Equity, Inc., in the amount of $83,143.47, dated June 11,
1999 (in regard to Lot 1 Lone Pine Place, Springfield, Missouri).
10.4 Agreement to Terminate Lease, by and between New York Bagel Enterprises,
Inc., and Commercial Equity, Inc., dated October 31, 1999 (in
regard to Mobile, Alabama lease).
10.5 Second Amendment to Cross Default Agreement, by and between New
York Bagel Enterprises, Inc., and Commercial Equity, Inc., dated
October 31, 1999 (in regard to Mobile, Alabama lease).
10.6 Promissory Note by New York Bagel Enterprises, Inc., payable to
Commercial Equity, Inc., in the amount of $37,224.11, dated
October 31, 1999 (in regard to Mobile, Alabama lease).
10.7 Financial Data Schedule
<PAGE>
AGREEMENT TO TERMINATE LEASE
THIS AGREEMENT TO TERMINATE LEASE (this "Agreement") is made and entered
into as of this 11th day of June, 1999,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as
"Lessee"
AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereinafter referred to as
"Lessor"
W I T N E S S E T H:
WHEREAS, Lessee and Lessor previously entered into a certain Lease, dated
the 1st day of November, 1997 (the "Lease") whereby Lessor leased to Lessee
that certain realty commonly known as __________________________________,
Springfield, Missouri, and having a legal description as follows: All of Lot 1
in Lone Pine Place, a subdivision in the City of Springfield, Greene County,
Missouri; and
WHEREAS, Lessor and Lessee desire to mutually terminate the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Termination. Lessee and Lessor hereby cancel and terminate the Lease,
which termination (notwithstanding any renewal terms contained in the Lease)
shall be effective as of the date of this Agreement.
2. Release. Lessor and Lessee each shall and do hereby remise, release
and forever discharge each other and their respective successors, predecessors,
assigns, directors, officers, members, agents, managers, administrators,
employees, attorneys and franchisees from their respective obligations to keep,
observe and perform the various covenants, indemnities and agreements contained
in the Lease, and further release and discharge each other with respect to
fixed rent, variable rent, percentage rent, security deposits, lease renewal,
utilities, insurance coverage, taxes, assessments, common area maintenance,
operating expenses, repairs and maintenance, compliance with applicable law,
liability, casualty, condemnation, fee mortgages, leasehold mortgages, tenant
default, sublease and assignment, purchase options, notices, costs, legal and
<PAGE>
professional costs, claims, actions, causes of action, suits, proceedings,
debts due, contracts, demands, liabilities, judgments, settlements, rights,
losses, damages, costs and expenses of any nature whatsoever, at law or in
equity, which either party may not have or may hereafter have, for or by reason
of any matter, cause or thing whatsoever, arising out of or in any way in
connection with the Lease. The foregoing release shall survive the execution
and delivery of this Agreement.
3. Additional Provisions. This Agreement contains the entire agreement
between the parties and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof. This Agreement shall
bind the parties and their respective successors and permitted assigns, and
shall inure to the benefit of the parties hereto. This Agreement may only be
amended or modified in writing signed by the parties with respect to any of
the terms contained herein. This Agreement may be executed simultaneously in
two (2) or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. Facsimile
signatures of the parties hereto shall be binding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NEW YORK BAGEL ENTERPRISES, INC.
By:
Name:
Title:
"Lessee"
COMMERCIAL EQUITY, INC.
By:
Name:
Title:
"Lessor"
<PAGE>
ACKNOWLEDGMENT
State of Kansas )
) ss:
County of )
BE IT REMEMBERED, that on this 11th day of June, 1999, before me, the
subscriber, a Notary Public in and for said county, personally came
_________________________________, the ______________________ of NEW YORK BAGEL
ENTERPRISES, INC., a Kansas corporation, and acknowledged that he/she signed
the foregoing instrument on behalf of said corporation and that the signing
thereof is his/her voluntary act and deed and the voluntary act and deed of
said corporation.
IN TESTIMONY THEREOF, I have hereunto subscribed my name and affixed my
seal on this day and year aforesaid.
Notary Public
My Appointment Expires:
ACKNOWLEDGMENT
State of Kansas )
) ss:
County of )
BE IT REMEMBERED, that on this 11th day of June, 1999, before me, the
subscriber, a Notary Public in and for said county, personally came
_________________________________, the _________________________ of COMMERCIAL
EQUITY, INC., a Kansas corporation, and acknowledged that he/she signed the
foregoing instrument on behalf of said corporation and that the signing thereof
is his/her voluntary act and deed and the voluntary act and deed of said
corporation.
IN TESTIMONY THEREOF, I have hereunto subscribed my name and affixed my
seal on this day and year aforesaid.
Notary Public
My Appointment Expires:
<PAGE>
AMENDMENT TO CROSS DEFAULT AGREEMENT
THIS AMENDMENT TO CROSS DEFAULT AGREEMENT ("Amendment") is made and
entered into as of this 11th day of June, 1999,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereafter called
"NYB"
AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereafter called
"CEI"
W I T N E S S E T H;
WHEREAS, NYB and CEI are parties to a certain Cross Default Agreement
dated as of ________________, 19____ (the "Agreement");
WHEREAS, NYB and CEI have executed a certain Agreement to Terminate Lease
dated as of June 11, 1999 (the "Springfield Lease Termination");
WHEREAS, to induce CEI to execute the Lease Termination, NYB
contemporaneously therewith executed and delivered to CEI a certain Promissory
Note dated as of June 11, 1999 (the "Springfield Note"); and
WHEREAS, the above parties desire to amend the Agreement to extend certain
rights granted therein.
NOW, THEREFORE, in consideration of the promises contained herein and
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the parties do hereby agree as follows:
1. Amendment 1. The second "WHEREAS" clause in the recitals to the
Agreement is amended by deleting in its entirety that portion of such clause
which reads as follows:
"in Springfield, Missouri and dated November 1, 1997;"
2. Amendment 2. Section 1 of the Agreement, entitled "Cross Default,"
is amended by adding the following to that section:
Further, the occurrence of an Event of Default, as
defined in each of the respective Leases, under any
provision of any of the Leases, shall constitute a
default under that certain Promissory Note dated as of
<PAGE>
June 11, 1999, made by NYB as maker in favor of CEI as
holder (the "Springfield Note"), and the amount of the
Springfield Note, or so much thereof as may be
outstanding, together with all accrued interest, shall
immediately become due and payable at the option of the
holder; and the failure of NYB to make any payment due
under the Springfield Note within five (5) days of its
due date shall constitute an Event of Default, as
defined in the Leases, under all of the Leases.
3. Other Provisions. All other terms and conditions contained in the
Agreement shall remain unchanged and nothing contained herein shall otherwise
effect the rights and obligations of the parties hereto under the Agreement.
Provided, to the extent that any inconsistency exists between this Amendment
and the Agreement, this Amendment shall control.
4. Modification. This Amendment together with the Agreement constitute the
entire agreement of the parties, and no additions, modifications or amendments
may be made hereto, except if in writing and signed by all parties to this
Amendment.
5. Miscellaneous.
(a) Governing Law. This Amendment shall be construed in accordance with
an governed by the laws of the State of Kansas.
(b) Counterparts; Facsimile Execution. This Amendment may be
executed in any number of counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same Amendment. Execution and delivery by facsimile of a
facsimile copy of this Amendment shall be of the same force and effect as an
original of a manually executed copy.
(c) Successors and Assigns. Except as otherwise expressly
provided for herein, all covenants and agreements contained in this Amendment
by or on behalf of any of the parties hereto will bind and inure to the
benefit of the heirs, legal representatives, successors and permitted assigns
of the parties hereto whether so expressed or not.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
NEW YORK BAGEL, INC. ("NYB")
By: ___________________________
Name:__________________________
Title: ________________________
COMMERCIAL EQUITY, INC. ("CEI")
By: ___________________________
Name:__________________________
Its: __________________________
<PAGE>
PROMISSORY NOTE
$83,143.47 Wichita, Kansas
June 11, 1999
FOR VALUE RECEIVED, NEW YORK BAGEL ENTERPRISES, INC., a Kansas corporation
("Maker"), hereby promises to pay to COMMERCIAL EQUITY, INC., a Kansas
corporation ("Holder"), the principal sum of Eighty-Three Thousand One Hundred
Forty-Three and 47/100 Dollars ($83,143.47) plus interest thereon compounded
annually at the rate of eleven and 76/100 percent (11.76%) per annum, payable
as to principal and interest in twenty-one (21) equal installments of Four
Thousand Four Hundred and 00/100 Dollars ($4,400.00) commencing on July 1,
1999, and a like amount thereafter on the same day of each succeeding calendar
month through March 1, 2001 (the "Maturity Date").
From time to time the maturity date of this Note may be extended or this
Note may be renewed, in whole or in part, and the Holder, from time to time,
may waive any guaranty given for the benefit of the Holder securing the payment
of this Note; but no such occurrence shall in any manner effect, limit, modify
or otherwise impair any rights or guaranty of the Holder not specifically
waived, released or surrendered in writing, nor shall any maker, guarantor,
endorser or any person who is or might be liable hereon, either primarily or
contingently, be released from such liability by reason of the occurrence of
any such events.
This Note is unsecured.
It is expressly agreed that, upon the failure of Maker to make any payment
due hereunder within five (5) days of its due date, or upon the occurrence of
an Event of Default (as hereinafter defined) under any provision of any of the
Leases (as hereinafter defined), the amount of the Note, or so much thereof as
may be outstanding, together with accrued interest, shall immediately become
due and payable at the option of the Holder, notwithstanding the Maturity Date
set forth herein. If any principal of or interest on this Note is not paid in
accordance with the terms hereof, such overdue principal and, to the extent
permitted by applicable law, overdue interest, shall bear interest at the
lesser of the rate of eighteen percent (18%) per annum or the maximum rate of
interest allowed by law until paid. For the purposes of this Note, the term
"Leases" shall have the meaning given to it under a certain Cross Default
Agreement, as amended, dated as of the ____ day of ________, 19___, by and
between Maker and Holder, and the term "Event of Default" shall have the
meaning(s) given to it under the Leases.
Each payment shall first be applied to interest and then principal.
Prepayment in full or in part may be made at any time without penalty or fee,
in which event such prepayment shall be applied to the payments last due.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. This Note shall extend to, and be
binding upon the Maker and the Holder, and their respective heirs, personal
representatives, successors and permitted assigns.
<PAGE>
This Note is governed by and shall be construed in accordance with the
laws of the State of Kansas.
The Maker, endorsers, and all parties to this Note and all who may become
liable for same, jointly and severally, waive presentment for payment, protest,
notice of protest, notice of non-payment of this Note, demand and all legal
diligence in enforcing collection, and hereby expressly agree that the lawful
owner or holder of this Note may defer or postpone collection of the whole or
any part thereof, either principal and/or interest, or may extend or renew the
whole or any part thereof, either principal and/or interest, or may accept
collateral for security for the payment of this Note, or may release the whole
or any part of any collateral security and/or liens given to secure the payment
of this Note or may release from liability on account of this Note the Maker,
endorsers and/or other parties thereto, all without notice to them or any of
them; and such deferment, postponement, renewal, extension, acceptance of
additional collateral or security and/or release shall not in any way affect or
change the obligation of any such maker, endorser, or other party to this Note,
or of anyone who may become liable for the payment thereof.
No liability shall arise against any holder or holders hereof from any
act, or the omission of any act, pertaining to the collection of, or failure to
collect, any collateral which said holder or holders may hold to secure this
obligation of the undersigned.
NEW YORK BAGEL ENTERPRISES, INC.
By _________________________________
Name: ______________________________
Title: _____________________________
<PAGE>
AGREEMENT TO TERMINATE LEASE
THIS AGREEMENT TO TERMINATE LEASE (this "Agreement") is made and entered
into as of this 31st day of October, 1999,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereinafter referred to as
"Lessee"
AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereinafter referred to as
"Lessor"
W I T N E S S E T H:
WHEREAS, Lessee and Lessor previously entered into a certain Lease, dated
the 1st day of July, 1998 (the "Lease") whereby Lessor leased to Lessee that
certain realty commonly known as 1281 Hillcrest Road, Mobile, Alabama, and
having a legal description as follows: Lot 3, according to the Survey of
Grelot & Hillcrest Shopping Center, as recorded in Map Book 70, Page 39, in
the Probate Office of Mobile County, Alabama; and
WHEREAS, Lessor and Lessee desire to mutually terminate the Lease.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Termination. Lessee and Lessor hereby cancel and terminate the Lease,
which termination (notwithstanding any renewal terms contained in the Lease)
shall be effective as of the date of this Agreement.
2. Release. Lessor and Lessee each shall and do hereby remise, release
and forever discharge each other and their respective successors, predecessors,
assigns, directors, officers, members, agents, managers, administrators,
employees, attorneys and franchisees from their respective obligations to keep,
observe and perform the various covenants, indemnities and agreements contained
in the Lease, and further release and discharge each other with respect to
fixed rent, variable rent, percentage rent, security deposits, lease renewal,
utilities, insurance coverage, taxes, assessments, common area maintenance,
operating expenses, repairs and maintenance, compliance with applicable law,
liability, casualty, condemnation, fee mortgages, leasehold mortgages, tenant
default, sublease and assignment, purchase options, notices, costs, legal and
<PAGE>
professional costs, claims, actions, causes of action, suits, proceedings,
debts due, contracts, demands, liabilities, judgments, settlements, rights,
losses, damages, costs and expenses of any nature whatsoever, at law or in
equity, which either party may not have or may hereafter have, for or by
reason of any matter, cause or thing whatsoever, arising out of or in any way
in connection with the Lease. The foregoing release shall survive the
execution and delivery of this Agreement.
3. Additional Provisions. This Agreement contains the entire agreement
between the parties and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof. This Agreement shall
bind the parties and their respective successors and permitted assigns, and
shall inure to the benefit of the parties hereto. This Agreement may only be
amended or modified in writing signed by the parties with respect to any of the
terms contained herein. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Facsimile
signatures of the parties hereto shall be binding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NEW YORK BAGEL ENTERPRISES, INC.
By:
Name:
Title:
"Lessee"
COMMERCIAL EQUITY, INC.
By:
Name:
Title:
"Lessor"
<PAGE>
ACKNOWLEDGMENT
State of ___________________ )
) ss:
County of )
BE IT REMEMBERED, that on this ____ day of October, 1999, before me, the
subscriber, a Notary Public in and for said county, personally came
_________________________________, the ______________________ of NEW YORK BAGEL
ENTERPRISES, INC., a Kansas corporation, and acknowledged that he/she signed
the foregoing instrument on behalf of said corporation and that the signing
thereof is his/her voluntary act and deed and the voluntary act and deed of
said corporation.
IN TESTIMONY THEREOF, I have hereunto subscribed my name and affixed my
seal on this day and year aforesaid.
Notary Public
My Appointment Expires:
ACKNOWLEDGMENT
State of Kansas )
) ss:
County of )
BE IT REMEMBERED, that on this ____ day of October, 1999, before me, the
subscriber, a Notary Public in and for said county, personally came
_________________________________, the _________________________ of COMMERCIAL
EQUITY, INC., a Kansas corporation, and acknowledged that he/she signed the
foregoing instrument on behalf of said corporation and that the signing thereof
is his/her voluntary act and deed and the voluntary act and deed of said
corporation.
IN TESTIMONY THEREOF, I have hereunto subscribed my name and affixed my
seal on this day and year aforesaid.
Notary Public
My Appointment Expires:
<PAGE>
SECOND AMENDMENT TO CROSS DEFAULT AGREEMENT
THIS SECOND AMENDMENT TO CROSS DEFAULT AGREEMENT ("Amendment") is made and
entered into as of this 31st day of October, 1999,
BY AND BETWEEN NEW YORK BAGEL ENTERPRISES, INC.,
a Kansas corporation,
hereafter called
"NYB"
AND COMMERCIAL EQUITY, INC.,
a Kansas corporation,
hereafter called
"CEI"
W I T N E S S E T H;
WHEREAS, NYB and CEI are parties to a certain Cross Default Agreement
dated as of ________________, 1999, as amended (the "Agreement");
WHEREAS, NYB and CEI have executed a certain Agreement to Terminate Lease
dated as of October 31, 1999 (the "Mobile No. 2 Lease Termination");
WHEREAS, to induce CEI to execute the Mobile No. 2 Lease Termination, NYB
contemporaneously therewith executed and delivered to CEI a certain Promissory
Note dated as of October 31, 1999 (the "Mobile No. 2 Note"); and
WHEREAS, the above parties desire to amend the Agreement to extend certain
rights granted therein.
NOW, THEREFORE, in consideration of the promises contained herein and
other good and valuable consideration, the sufficiency and receipt of which is
hereby acknowledged, the parties do hereby agree as follows:
1. Amendment 1. The second "WHEREAS" clause in the recitals to the
Agreement is amended by deleting in its entirety that portion of such clause
which reads as follows:
"; in Mobile, Alabama and dated _____________, 1998"
2. Amendment 2. Section 1 of the Agreement, entitled "Cross Default,"
is amended by adding the following to the end of that section:
Provided further, the occurrence of an Event of Default,
as defined in each of the respective Leases, under any
provision of any of the Leases, shall constitute a
default under that certain Promissory Note dated as of
October 31, 1999, made by NYB as maker in favor of CEI
<PAGE>
as holder (the "Mobile No. 2 Note"), and the amount of
the Mobile No. 2 Note, or so much thereof as may be
outstanding, together with all accrued interest, shall
immediately become due and payable at the option of the
holder; and the failure of NYB to make any payment due
under the Mobile No. 2 Note within five (5) days of its
due date shall constitute an Event of Default, as
defined in the Leases, under all of the Leases.
3. Other Provisions. All other terms and conditions contained in the
Agreement shall remain unchanged and nothing contained herein shall otherwise
effect the rights and obligations of the parties hereto under the Agreement.
Provided, to the extent that any inconsistency exists between this Amendment
and the Agreement, this Amendment shall control.
4. Modification. This Amendment together with the Agreement constitute the
entire agreement of the parties, and no additions, modifications or amendments
may be made hereto, except if in writing and signed by all parties to this
Amendment.
5. Miscellaneous.
(a) Governing Law. This Amendment shall be construed in accordance with
an governed by the laws of the State of Kansas.
(b) Counterparts; Facsimile Execution. This Amendment may be
executed in any number of counterparts, and each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same Amendment. Execution and delivery by facsimile of a
facsimile copy of this Amendment shall be of the same force and effect as an
original of a manually executed copy.
(c) Successors and Assigns. Except as otherwise expressly
provided for herein, all covenants and agreements contained in this Amendment
by or on behalf of any of the parties hereto will bind and inure to the
benefit of the heirs, legal representatives, successors and permitted assigns
of the parties hereto whether so expressed or not.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
NEW YORK BAGEL, INC.
By:
Name:
Title:
COMMERCIAL EQUITY, INC.
By:
Name:
Its:
<PAGE>
PROMISSORY NOTE
$37,224.11 Wichita, Kansas
October 31, 1999
FOR VALUE RECEIVED, NEW YORK BAGEL ENTERPRISES, INC., a Kansas corporation
("Maker"), hereby promises to pay to COMMERCIAL EQUITY, INC., a Kansas
corporation ("Holder"), the principal sum of Thirty-Seven Thousand Two Hundred
Twenty-Four and 11/100 Dollars ($37,224.11) plus interest thereon compounded
annually at the rate of thirteen percent (13.0%) per annum, payable as to
principal and interest in nine (9) equal installments of Four Thousand Seven
Hundred Fifty Dollars ($4,750.00) commencing on November 1, 1999, and a like
amount thereafter on the same day of each succeeding calendar month through
July 1, 2000 (the "Maturity Date").
From time to time the maturity date of this Note may be extended or this
Note may be renewed, in whole or in part, and the Holder, from time to time,
may waive any guaranty given for the benefit of the Holder securing the
payment of this Note; but no such occurrence shall in any manner effect,
limit, modify or otherwise impair any rights or guaranty of the Holder not
specifically waived, released or surrendered in writing, nor shall any maker,
guarantor, endorser or any person who is or might be liable hereon, either
primarily or contingently, be released from such liability by reason of the
occurrence of any such events.
This Note is unsecured.
It is expressly agreed that, upon the failure of Maker to make any payment
due hereunder within five (5) days of its due date, or upon the occurrence of
an Event of Default (as hereinafter defined) under any provision of any of the
Leases (as hereinafter defined), the amount of the Note, or so much thereof as
may be outstanding, together with accrued interest, shall immediately become
due and payable at the option of the Holder, notwithstanding the Maturity Date
set forth herein. If any principal of or interest on this Note is not paid in
accordance with the terms hereof, such overdue principal and, to the extent
permitted by applicable law, overdue interest, shall bear interest at the
lesser of the rate of eighteen percent (18%) per annum or the maximum rate of
interest allowed by law until paid. For the purposes of this Note, the term
"Leases" shall have the meaning given to it under a certain Cross Default
Agreement, as amended, dated as of the ____ day of ________, 1999, by and
between Maker and Holder, and the term "Event of Default" shall have the
meaning(s) given to it under the Leases.
Each payment shall first be applied to interest and then principal.
Prepayment in full or in part may be made at any time without penalty or fee,
in which event such prepayment shall be applied to the payments last due.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. This Note shall extend to, and be binding
upon the Maker and the Holder, and their respective heirs, personal
representatives, successors and permitted assigns.
<PAGE>
This Note is governed by and shall be construed in accordance with the
laws of the State of Kansas.
The Maker, endorsers, and all parties to this Note and all who may become
liable for same, jointly and severally, waive presentment for payment, protest,
notice of protest, notice of non-payment of this Note, demand and all legal
diligence in enforcing collection, and hereby expressly agree that the lawful
owner or holder of this Note may defer or postpone collection of the whole or
any part thereof, either principal and/or interest, or may extend or renew the
whole or any part thereof, either principal and/or interest, or may accept
collateral for security for the payment of this Note, or may release the whole
or any part of any collateral security and/or liens given to secure the payment
of this Note or may release from liability on account of this Note the Maker,
endorsers and/or other parties thereto, all without notice to them or any of
them; and such deferment, postponement, renewal, extension, acceptance of
additional collateral or security and/or release shall not in any way affect or
change the obligation of any such maker, endorser, or other party to this Note,
or of anyone who may become liable for the payment thereof.
No liability shall arise against any holder or holders hereof from any
act, or the omission of any act, pertaining to the collection of, or failure to
collect, any collateral which said holder or holders may hold to secure this
obligation of the undersigned.
NEW YORK BAGEL ENTERPRISES, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated balance sheet and statement of operations as of and for the
thirty-nine week period ended September 29, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1999
<PERIOD-END> SEP-29-1999
<CASH> 13,151
<SECURITIES> 0
<RECEIVABLES> 233,227
<ALLOWANCES> 0
<INVENTORY> 271,135
<CURRENT-ASSETS> 533,607
<PP&E> 6,852,819
<DEPRECIATION> (1,367,113)
<TOTAL-ASSETS> 6,962,013
<CURRENT-LIABILITIES> 3,147,051
<BONDS> 43,552
0
0
<COMMON> 46,675
<OTHER-SE> 3,177,049
<TOTAL-LIABILITY-AND-EQUITY> 6,962,013
<SALES> 10,705,328
<TOTAL-REVENUES> 10,729,675
<CGS> 3,682,118
<TOTAL-COSTS> 11,139,419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,608
<INCOME-PRETAX> (541,356)
<INCOME-TAX> 0
<INCOME-CONTINUING> (541,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (541,356)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
