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 31, 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 March 31, 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>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1999
(unaudited), and December 27, 1998 3
Consolidated Statements of Operations for the
Thirteen Weeks Ended March 31, 1999 and
March 29, 1998, (unaudited) 4
Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended March 31, 1999 and
March 29, 1998, (unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or
Plan of Operation 8
PART II - OTHER INFORMATION
Item 6. Exhibits 13
SIGNATURES 14
</TABLE>
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 27, 1998
<TABLE>
<CAPTION>
March 31, December 27,
Assets 1999 1998
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 89,201 $ 217,775
Accounts receivable 105,217 61,855
Inventories 309,769 310,850
Prepaid expenses and other current assets 156,595 26,609
Total current assets 660,782 617,089
Property and equipment, net 5,887,509 6,330,238
Goodwill, net 792,779 805,028
Investment in Atomic Burrito - Tulsa 96,733 -
Investment in Atomic Burrito - Wichita 80,000 -
Other assets 185,967 203,823
Total assets $7,703,770 $7,956,178
Liabilities and Stockholders' Equity
Current installments on long-term debt $1,977,507 $1,821,894
Accounts payable 467,457 440,387
Accrued payroll and benefits 326,107 241,844
Accrued liabilities 589,135 748,754
Total current liabilities 3,360,206 3,252,879
Long-term debt, less current installments 46,194 49,464
Deferred rents payable 97,725 90,094
Other liabilities 657,135 798,662
Total liabilities 4,161,260 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 (9,876,960) (9,654,391)
Treasury stock, at cost, 10,400 shares (17,974) (17,974)
Total stockholders' equity 3,542,510 3,765,079
Total liabilities and
stockholders' equity $7,703,770 $7,956,178
<FN>
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED
MARCH 31, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues:
Sales from Company-owned restaurants $3,936,078 $ 4,761,687
Franchise revenues 15,376 79,928
Total revenues 3,951,454 4,841,615
Costs and expenses:
Cost of sales 1,379,412 1,621,373
Restaurant operating expenses 2,292,474 2,658,572
General and administrative expenses 278,747 390,252
Depreciation and amortization 184,592 252,523
Provision for impairments and closures - 1,105,725
Total costs and expenses 4,135,225 6,028,445
Operating income (loss) (183,771) (1,186,830)
Interest income (expense), net (38,798) (35,616)
Earnings (loss) before income taxes (222,569) (1,222,446)
Income tax expense (benefit) - -
Net earnings (loss) $ (222,569) $(1,222,446)
Earnings (loss) per share - basic
and diluted:
Net earnings (loss) $ (0.05) $ (0.26)
Weighted average number of shares
outstanding-basic and diluted 4,657,100 4,663,753
</TABLE>
[FN]
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
NEW YORK BAGEL ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED MARCH 31, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (222,569) $(1,222,446)
Adjustments to reconcile net earnings
(loss) to net cash flows from operating
activities:
Depreciation and amortization 184,592 252,523
(Gain) loss on sale of equipment 10,218 -
Provision for impairments and closures - 1,105,725
Increase (decrease) in cash resulting
from changes in listed items:
Inventory 1,082 (54,667)
Income taxes receivable - 304,473
Property and equipment available
for sale - (15,737)
Prepaid expenses and other
current assets (129,986) (20,667)
Accounts receivable (43,362) (16,055)
Deferred costs - -
Other assets 19,595 (13,395)
Accounts payable 27,070 (234,390)
Accrued and other liabilities (209,252) 47,003
Deferred franchise fees - (18,000)
Net cash flows from
operating activities (362,612) 114,367
Cash flows from investing activities:
Additions to property, plant and equipment (38,305) (1,032,394)
Investment in Atomic Burrito Joint Venture (60,000) -
Proceeds from sales of property and
equipment including proceeds from
sale-leaseback transactions 180,000 800,000
Net cash flows from
investing activities 81,695 (232,394)
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 450,000
Principal payments on long-term debt (47,657) (1,145,180)
Proceeds from issuance of notes
to Stockholders 200,000 -
Purchase of treasury stock - (17,974)
Net cash flows from
financing activities 152,343 (713,154)
Net decrease in cash (128,574) (831,181)
Cash at beginning of period 217,775 872,949
Cash at end of period $ 89,201 $ 41,768
</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 March 31,
1999, the Company has 29 Company-owned restaurants primarily located in
Oklahoma, Kansas, Colorado, Texas and Tennessee and 17 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.
During the thirteen weeks ended March 31, 1999, there were no
impairment charges or store closure charges incurred.
<PAGE>
The Company has entered into a joint venture agreement with Western
Country Clubs, Inc. ("Western") whereby the Company will contribute
certain restaurant equipment and leasehold improvements of up to seven
of its restaurant locations and cash in certain instances to the joint
venture. Western will contribute cash (up to a stipulated amount per
restaurant) to convert such restaurant locations to the new "Atomic
Burrito" concept. The Company will have a 40% ownership interest in
the joint venture entities concerning Tulsa, Oklahoma and Wichita,
Kansas. Western will oversee the restaurant conversion, the day-to-day
operations and accounting matters of the Atomic Burrito restaurants.
Furthermore, Western can elect to convert only five restaurants,
instead of the aforementioned seven, by payment of a nominal amount to
the Company. The joint venture agreement also calls for the opening of
one Atomic Burrito restaurant in a location for which the Company
currently holds an option to lease. As of March 31, 1999 there was one
cobranded New York Bagel and Atomic Burrito restaurant located in
Tulsa, Oklahoma, and one Atomic Burrito restaurant located in Wichita,
Kansas, both of which are being converted from New York Bagel
restaurants. The restaurant in Tulsa, Oklahoma opened in late March
1999 and the results of their operations are not available at this
time; however, it is not expected to have a material impact on the
financial statements.
(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 March 31,
1999, there were 205,000 options outstanding at a weighted average
exercise price of $1.00, 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 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, ABILITY TO
SUCCESSFULLY CONVERT CERTAIN RESTAURANTS TO ATOMIC BURRITO RESTAURANTS
AND PARTICIPATE AS A JOINT VENTURE PARNTER, 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 WESTERN COUNTRY CLUBS, INC., AS
DISCUSSED 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 ITSBEHALF 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>
Thirteen Weeks
Ended
Mar 31, Mar 29,
1999 1998
<S> <C> <C>
Revenues:
Sales from Company-owned restaurants 99.6% 98.4%
Franchise revenues 0.4 1.6
Total revenues 100.0% 100.0%
Cost and expenses:
Cost of sales (1) 35.0% 34.0%
Restaurant operating expenses (1) 58.2 55.8
General and administrative expenses 7.0 8.1
Depreciation and amortization 4.7 5.2
Provision for impairments and closures 0.0 22.8
Operating income (loss) ( 4.6) ( 24.5)
Interest income (expense), net ( 1.0) ( 0.7)
Net earnings (loss) ( 5.6) ( 25.2)
(1) As a percentage of sales from Company-owned restaurants
</TABLE>
<PAGE>
THIRTEEN WEEKS ENDED MARCH 31, 1999
COMPARED TO THIRTEEN WEEKS ENDED MARCH 29, 1998
Total revenues decreased by $890,000, or 18.4%, to $3.9 million for the
period ended March 31, 1999 compared to $4.8 million for the period ended
March 29, 1998, primarily due to a decrease in the number of operating stores
in operations.
Sales from Company-owned restaurants decreased $826,000, or 17.3%, to $3.9
million for the period ended March 31, 1999 compared to $4.7 million for the
period ended March 29, 1998. The Company experienced a 8.2% decline in same
store sales during the first 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 March 31,
1999 the Company had 29 Company-owned restaurants compared to 45 restaurants
at March 29, 1998.
Franchise revenues and royalties decreased by $65,000, or 80.8%, to $15,000
for the period ended March 31, 1999 compared to $80,000 for the period ended
March 29, 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 17 franchised restaurants as of March 31, 1999 as
compared to 32 restaurants at March 29, 1998.
Cost of sales decreased by $242,000, or 14.9%, to $1.4 million for the
period ended March 31, 1999 compared to $1.6 million for the period ended
March 29, 1998. As a percentage of Company-owned restaurant sales, cost of
sales increased to 35.0% for the period ended March 31, 1999 from 34.0% for
the period ended March 29, 1998, primarily due to the increased cost of
butterfat related items. Butterfat is used in cream cheese, cheese, and
other dairy products.
Restaurant operating expenses decreased by $366,000, or 13.8%, to $2.3
million for the period ended March 31, 1999 compared to $2.7 million for the
period ended March 29, 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 58.2% for the
period ended March 31, 1999 from 55.8% for the period ended March 29, 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 $111,000 or 28.6%, to
$279,000 for the period ended March 31, 1999 compared to $390,000 for the
period ended March 29, 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 $68,000, or 26.9%, to $185,000
for the period ended March 31, 1999 compared to $253,000 for the period ended
March 29, 1998. As a percentage of total revenues, depreciation and
amortization decreased to 4.7% for the period ended March 31, 1999 from 5.2%
for the period ended March 29, 1998. This decrease is primarily the result
of the closing of certain restaurants, the impairing of other restaurants,
and the recognition of the sale-leaseback transactions that occurred
during 1998.
<PAGE>
In the period ended March 29, 1998, the Company closed or recorded
impairment losses on four stores in the amount of $1.1 million dollars. For
the period ended March 31, 1999, there were no store closures or impairment
losses.
The Company has entered into a joint venture agreement with Western
Country Clubs, Inc. ("Western") whereby the Company will contribute certain
restaurant equipment and leasehold improvements of up to seven of its
restaurant locations and cash in certain instances to the joint venture.
Western will contribute cash (up to a stipulated amount per restaurant) to
convert such restaurant locations to the new "Atomic Burrito" concept. The
Company will have a 40% ownership interest in the joint venture entities
concerning Tulsa, Oklahoma and Wichita, Kansas. Western will oversee the
restaurant conversion, the day-to-day operations and accounting matters of
the Atomic Burrito restaurants. Furthermore, Western can elect to convert
only five restaurants, instead of the aforementioned seven, by payment of a
nominal amount to the Company. The joint venture agreement also calls for
the opening of one Atomic Burrito restaurant in a location for which the
Company currently holds an option to lease. As of March 31, 1999 there was
one cobranded New York Bagel and Atomic Burrito restaurant located in Tulsa,
Oklahoma, and one Atomic Burrito restaurant located in Wichita, Kansas, both
of which are being converted from New York Bagel restaurants. The restaurant
in Tulsa, Oklahoma opened in late March 1999 and the results of their
operations are not available at this time; however, it is not expected to
have a material impact on the financial statements.
Net interest expense increased by $3,000, or 8.9%, to $39,000 for the
period ended March 31,1999 compared to net interest expense of $36,000 for
the period ended March 29, 1998. The increase in interest expense is due to
the borrowings from certain shareholders that was completed in January of
this year.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants, maintenance of existing Company-owned restaurants and the
participation as a joint venture partner in certain Atomic Burrito
restaurants. Capital expenditures totaled $38,000 and $1.0 million for the
thirteen week periods ended March 31, 1999 and March 29, 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 $(363,000)
and $114,000 for the periods ended March 31, 1999 and March 29, 1998,
respectively.
Based on its contemplated limited expansion plans, the Company estimates
that its capital expenditures for development of Company-owned restaurants
will be approximately $100,000 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.
<PAGE>
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. During August 1998 the Company refinanced the Credit Facility for an
additional year, which now matures on September 1, 1999. The note is
amortized over approximately a seven year period requiring monthly payments
of principal and interest of $26,000. As of March 31, 1999, the Company had
$1.8 million of outstanding borrowings pursuant to the Credit Facility. As
of March 31, 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. The
Company is current on all payments due under the Credit Facility.
SALE-LEASEBACK TRANSACTION. 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 will
be 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.
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 March 31, 1999 are $7.8 million as
compared to $8.0 million as of December 28, 1998. Cash and cash equivalents
have decreased by approximately $129,000 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 $300,000
decrease due to the sale leaseback of a previously owned restaurant. Current
liabilities have increased approximately $100,000 primarily as a result of
the new loan from certain stockholders of $200,000 that matures on December
31, 1999. Stockholders' equity has decreased $200,000 due to the net loss for
the thirteen week period ended March 31, 1999.
<PAGE>
POTENTIAL ACQUISITION TRANSACTION
The Company has entered into a letter of intent, which was publicly announced
on May 10, 1999, whereby the Company will be acquired by Western. However,
many of the terms of the letter of intent have been, or are anticipated to be,
modified as a result of further discussions between the Company and Western.
The Company and Western are in the process of negotiating the structure of the
proposed acquisition, and the consummation of the acquisition is subject to
many contingencies, including, without limitation, negotiation and execution
of a definitive acquisition agreement, approval of the respective Boards of
Directors of the Company and Western, approval of the respective stockholders
of the Company and Western, and completion of due diligence. 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 believes its point of sale equipment is Year 2000 compliant and
has been informed by the software and hardware provider that Year 2000
compliant software will be available to the Company during 1999. 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 previously utilized
data processing services from an entity controlled by a director of the
Company in connection with the Company's financial/management reporting
function. The Company has installed its own data processing capabilities
during 1999. The Company estimates the cost of a new data processing system,
which would be Year 2000 compliant, to be less than $75,000. The costs of
becoming Year 2000 compliant, other than cost related to the possible
implementation of a new internal data processing system, are not expected to
be material.
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
questionaire have indicated that they have addressed the issue or will do so
timely.
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibit 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 14th day of May, 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
<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
fifty-two week period ended December 27, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1999
<PERIOD-END> MAR-31-1999
<CASH> 89,201
<SECURITIES> 0
<RECEIVABLES> 105,217
<ALLOWANCES> 0
<INVENTORY> 309,769
<CURRENT-ASSETS> 660,782
<PP&E> 7,840,379
<DEPRECIATION> 1,952,870
<TOTAL-ASSETS> 7,703,770
<CURRENT-LIABILITIES> 3,360,206
<BONDS> 46,194
0
0
<COMMON> 46,675
<OTHER-SE> 3,495,835
<TOTAL-LIABILITY-AND-EQUITY> 7,703,770
<SALES> 3,936,078
<TOTAL-REVENUES> 3,951,454
<CGS> 1,379,412
<TOTAL-COSTS> 4,135,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,798
<INCOME-PRETAX> (222,569)
<INCOME-TAX> 0
<INCOME-CONTINUING> (222,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,569)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
