U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] 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 0-24388
MANHATTAN BAGEL COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2981539
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
246 INDUSTRIAL WAY WEST, EATONTOWN, NEW JERSEY 07724
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(908) 544-0155
(REGISTRANT'S TELEPHONE NUMBER)
CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934 DURING THE LAST 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. YES X
NO___
NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING AT APRIL 13, 1997:
7,474,822.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance, or achievements of Manhattan
Bagel Company, Inc. (the "Company") to be materially different from any future
results, performance or achievements, expressed or implied by such
forward-looking statements.
Specifically, the Company is dependent upon the success of existing and new
franchised and Company owned stores and alternative distribution outlets; the
success of the Company, its master franchisees and area developers in getting
new stores or other retail locations opened; the ability of the Company and its
master franchisees to attract new qualified franchisees; and such other factors
as competition, commodity pricing and economic conditions.
The opening and success of Manhattan Bagel Company stores will depend on
various factors, including the availability of suitable store sites and the
negotiation of acceptable lease terms for new locations, the ability of the
Company or its franchisees to obtain construction and other necessary permits in
a timely manner the ability to meet construction schedules, the financial and
other capabilities of the Company's franchisees and master franchisees, and
general economic and business conditions.
The Company's success is partially dependent on its ability to attract,
retain and contract with suitable franchisees and the ability of these
franchisees to open and operate their stores successfully.
The Company's business may also be subject to changes in consumer taste,
national, regional and local economic conditions, demographic trends and the
type, number and location of competing businesses. Competition in the bagel
industry is increasing significantly with an increasing number of national,
regional and local stores competing for franchisees and store locations as well
as customers.
The Company's future results may also be negatively impacted by future
pricing of the key ingredients for its frozen bagel dough.
The success of Manhattan Bagel Company units in alternative distribution
locations, including convenience stores, supermarkets, military bases and other
non-traditional locations, will depend, in addition to the factors affecting
traditional franchisee and Company owned stores, on the success of the locations
in which they are located.
The openings and remodelings of Manhattan Bagel stores, as well as openings
of units within alternative locations, may be subject to potential delays caused
by, among other things, permitting, weather, the delivery of equipment and
materials, and the availability of labor.
1
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
2
<PAGE>
MANHATTAN BAGEL COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
1996 1997
------------ ------------
ASSETS .............................................................................. (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................................. $ 1,619,494 $ 1,406,561
Marketable securities ...................................................................... 6,926,921 5,568,188
Accounts receivable, net of allowance for doubtful
accounts of $292,685 ................................................................ 2,795,478 2,914,039
Construction costs receivable, net of allowance for doubtful
accounts of $60,000 ................................................................. 2,254,842 2,318,643
Franchise fee receivable area developers, net of allowance of $565,000 ..................... 721,782 332,235
Inventories ................................................................................ 1,381,648 1,243,518
Current maturities of notes receivable, net of reserve of $256,000 ......................... 462,225 1,040,854
Current maturities of notes receivable - affiliates ........................................ 250,000 250,000
Income taxes receivable .................................................................... 2,053,663 2,055,263
Prepaid expenses and other current assets .................................................. 628,634 379,378
------------ ------------
Total current assets ................................................................ 19,094,687 17,508,679
------------ ------------
Property and equipment, net of accumulated
depreciation of $1,987,142 and $2,431,807, respectively .................................... 12,000,338 13,814,910
------------ ------------
Other assets:
Accounts receivable long term .............................................................. 480,539 480,539
Franchise fee receivable area developers long term, net of allowance
of $633,019 ......................................................................... 200,000 200,000
Notes receivable, net of current maturities ................................................ 7,304,151 8,159,952
Notes receivable affiliates, net of current maturities ..................................... 1,250,000 1,250,000
Goodwill, net of accumulated amortization of $214,201 and $252,901, respectively .......... 4,386,853 4,348,153
Security deposits .......................................................................... 909,053 882,319
Investment in stores, net of reserve of $849,000 and $725,000, respectively ................ 3,145,659 3,125,725
Other assets ............................................................................... 819,910 811,104
------------ ------------
Total assets ........................................................................ $ 49,591,190 $ 50,581,381
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....................................................... $ 2,098,408 $ 4,695,010
Current maturities of capital lease obligations ............................................ 164,812 164,812
Accounts payable and accrued expenses ...................................................... 6,354,511 4,845,957
Unearned franchise fee income .............................................................. 303,451 151,239
Franchise deposits ......................................................................... 202,500 207,500
------------ ------------
Total current liabilities ........................................................... 9,123,682 10,064,518
------------ ------------
Other liabilities:
Long-term debt, net of current maturities .................................................. 3,897,090 3,838,602
Capital lease obligations, net of current maturities ....................................... 410,904 351,029
Security deposits .......................................................................... 414,622 451,625
Other liabilities .......................................................................... 79,636 79,636
------------ ------------
Total other liabilities ............................................................. 4,802,252 4,720,892
------------ ------------
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized,
no shares issued or outstanding ..................................................... -- --
Common stock, no par value, 25,000,000 shares
authorized, 7,454,822 and 7,474,822 shares issued and outstanding, respectively ..... 40,721,233 40,781,233
Foreign currency translation ............................................................... (12,695) (3,792)
Accumulated deficit ........................................................................ (5,043,282) (4,981,470)
------------ ------------
Total stockholders' equity .......................................................... 35,665,256 35,795,971
------------ ------------
Total liabilities and stockholders' equity .......................................... $ 49,591,190 $ 50,581,381
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
Revenues
<S> <C> <C>
Product sales ........................................... $ 6,612,305 $ 7,638,616
Franchise & license related revenue ..................... 2,289,141 2,701,261
------------ ------------
Total revenue ............................ 8,901,446 10,339,877
------------ ------------
Operating expenses
Cost of goods sold ...................................... 3,391,121 4,274,237
Selling, general & administrative expenses .............. 4,839,130 6,183,596
Other income ............................................ (70,118) (58,017)
Interest income ......................................... (268,537) (298,925)
Interest expense ........................................ 53,305 177,174
------------ ------------
Total operating expenses ................. 7,944,901 10,278,065
------------ ------------
Earnings before provision for income taxes .................... 956,545 61,812
Provision for income taxes .................................... 296,601 --
------------ ------------
Net income .................................................... $ 659,944 $ 61,812
============ ============
Net income per share .......................................... $ 0.09 $ 0.01
============ ============
Weighted average number of common &
common equivalent shares outstanding .................... 7,563,416 7,492,740
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash used in operating activities ................................................. ($ 426,064) ($1,014,801)
----------- -----------
Cash flows from investing activities:
Payments for the purchase of property and equipment ......................... (1,679,129) (2,239,303)
(Purchase) / sale of marketable securities, net ............................ (3,090,290) 1,358,733
Purchase of business, net of cash acquired .................................. (3,084,739) --
Other net cash provided by / (used in) investing activities ................. 157,093 (855,801)
----------- -----------
Net cash used in investing activities ........................ (7,697,065) (1,736,371)
----------- -----------
Cash flows from financing activities:
Proceeds from debt issuance ................................................. -- 2,920,000
Proceeds from the exercise of stock options ................................. -- 60,000
Proceeds from issuance of common stock ...................................... 956,175 --
Other net cash provided by / (used in) financing activities ................. 348,467 (441,761)
----------- -----------
Net cash provided by financing activities .................... 1,304,642 2,538,239
----------- -----------
Net decrease in cash and cash equivalents ......................................... (6,818,487) (212,933)
Cash and cash equivalents-beginning of period ..................................... 8,014,519 1,619,494
----------- -----------
Cash and cash equivalents-end of period ........................................... $ 1,196,032 $ 1,406,561
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information in this report should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-KSB, as amended for the year ended December 31, 1996.
In the opinion of management, the accompanying financial statements
include all adjustments necessary for a fair presentation. All such adjustments
are of a normal recurring nature with the exception of those charges discussed
in Note 4. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - INVENTORIES
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
Raw materials $788,977 $653,145
Finished Goods 592,671 590,373
------- -------
$1,381,648 $1,243,518
========== ==========
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, EARNINGS PER SHARE, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The impact
of Statement 128 on the calculation of primary and fully diluted earnings per
share has not yet been determined by management.
NOTE 4 - MODIFICATION OF CREDIT LINE
On April 15, 1997 the Company amended its letter of credit supporting its
line of credit agreement with the New Jersey Economic Development Authority and
the line of credit agreement with a bank. Under the terms of the amendment
certain covenants were modified and in return the Company's borrowing rate was
increased to Prime plus 1% and the Company paid a fee of $20,000.
6
<PAGE>
NOTE 5 - CONTINGENCIES
On June 20, 1996, the Company announced that following the installation of
new management at its I&J West Coast subsidiary, the Company has uncovered
certain improper bookkeeping and accounting practices at the Los Angeles
subsidiary, that it would be restating its first quarter 1996 Statement of
Operations to account for these improper practices. Simultaneously with the
public announcement by the Company of the improprieties uncovered at the I&J
subsidiary, the Company announced it expected the West Coast subsidiary will
operate at a close to break-even level for the remainder of 1996. On the day
following the announcement the stock price of the Company's common stock
declined from a closing price of $21.25 on June 20, 1996 to a closing price of
$13.75 on June 21, 1996. As a result, certain class action law suits have been
filed.
These lawsuits from New Jersey and California have been consolidated into
one class action lawsuit in the Federal District Court in New Jersey. The
plaintiffs seek unspecified money damages. The Company has filed a motion to
dismiss the lawsuit and all discovery has been stayed pending the resolution of
this motion to dismiss the lawsuit and all discovery has been stayed pending the
resolution of this motion. Although the Company believes it has acted properly
and has adequate defenses to such actions, no assessment of the amount or range
of any loss that might be incurred by, or the effects thereof on the Company,
should it be found to have violated any law, can be made at this time.
Accordingly, no provisions for these contingencies have been made.
The Company is also involved in various other pending legal proceedings
arising out of the Company's business. The adverse outcome of any of these legal
proceeding is not expected to have a material adverse effect on the financial
condition of the Company.
The Company has executed a $25.0 million franchisee financing agreement
with Atlantic Financial Services, Inc. Under the terms of this agreement, the
Company has agreed to guarantee certain portions of loans in exchange for more
favorable terms and rates for the Company's franchisees. The liability of the
Company under this agreement is the greater of (i) $1,500,000 or (ii) 20% of the
first $10,000,000 of loans to franchisees and 10% of the remaining $15,000,000
of loans to franchisees. At December 31, 1996 and March 31, 1997 the Company's
contingent liability was $2,139,418 for outstanding loans.
The Company has executed a $10.0 franchisee financing agreement with
Stephens Franchise Finance which was purchased by Sun Trust Credit Corp. Under
the terms of this agreement, the Company has agreed to guarantee certain
portions of loans in exchange for more favorable terms and rates for the
Company's franchisees. The liability of the Company under this agreement is the
greater of (i) $1,000,000 or (ii) 30% of the aggregate principal amount of loans
to franchisees. At December 31, 1996 and March 31, 1997, the Company's
contingent liability was $1,695,026 and $1,904,757 for outstanding loans,
respectively. As of June 13, 1996, the Company ceased using Sun Trust Credit
Corp. for franchisee financing.
As of March 31, 1997, there have been no events of default under either the
Atlantic Financial Services, Inc. agreement or the Sun Trust Credit Corp.
agreement.
In addition, the Company had commitments for the purchase of equipment of
approximately $1.1 million at March 31, 1997.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
On May 22, 1996, the Company completed the acquisition of Specialty
Bakeries, Inc. ("SBI") a private Company which owned and franchised a total of
23 bagel bakery stores in the Southern New Jersey and Philadelphia areas
operating under the name Bagel Builders. The Company completed the acquisition
through the merging of a newly created, wholly owned subsidiary of the Company
with and into SBI and 132,500 shares of common stock of the Company were issued
to the shareholders of SBI. This transaction was structured to be a tax-free
reorganization and is being accounted for as a pooling of interests. Accordingly
the financial statements for the three months ended March 31, 1996 have been
restated to give affect to this acquisition as if it took place on January 1,
1996.
RESULTS OF OPERATIONS
The total number of operating Manhattan Bagel Company stores has increased
from four at December 31, 1990 to 310 at March 31, 1997.
The following total number of stores were open and operating on the
following dates:
December 31, 1990.................................... 4
December 31, 1991.................................... 11
December 31, 1992.................................... 27
December 31, 1993.................................... 41
December 31, 1994.................................... 73
December 31, 1995.................................... 152
December 31, 1996.................................... 293
March 31, 1997....................................... 310
In addition, on March 31, 1997, the Company had approximately 100
additional stores in various stages of development.
The rapid expansion significantly affects the comparability of results of
operations in several ways. Total royalty income and frozen raw bagel dough
sales rise significantly as new franchised and licensed stores open. New store
revenues are not usually as high in the first periods following opening as they
are in later periods. Total expenses have also risen significantly as the
Company expanded its corporate infrastructure. The number of employees as of
March 31, 1997 was 519, while the number of employees as of March 31, 1996 was
527.
The Company has also granted several master franchises. Under the terms of
the master franchise agreement, a master franchisee is required to pay the
Company an initial fee based on the population of the territory covered by such
master franchise. The granting of new master franchises and the payment of the
initial fees also affects the comparability of results to prior periods.
The Company also grants area development rights. Under the terms of the
area development agreements, the area developer is required to pay the Company
an initial fee based on the number of stores to be developed within a specified
time period. The granting of new area development rights and the payment of
initial fees also affects the comparability of results to prior periods.
8
<PAGE>
The Company's revenues are primarily derived from (i) the sale of frozen
raw bagel dough and cheese spreads to franchisees and licensees, (ii) retail and
wholesale sale of products by the Company-owned stores, and (iii) royalties,
franchise and license fees, including master franchise fees, and area
development fees. The percentage of revenues derived from product sales to total
sales for the first three months of 1997 was 73.9% compared to 74.3% in 1996
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES. Total revenues of the Company for the three months ended March
31, 1997 were $10,339,877 as compared to total revenues of $8,901,446 for the
three months ended March 31, 1996, a $1,438,431 or 16.2% increase over the three
months of the prior year. The increase is primarily attributable to the
increased product sales ($1,026,311) resulting from the increase in the number
of franchised stores opened as well as an increase in retail and wholesale sales
by the Company owned stores. The additional increase of $412,120 can be
attributed to increases in ongoing royalties and continuing license fees of
$385,916, advertising fees of $213,783 and area developer and master franchise
fees of $235,000, which were offset by a reduction in franchise fees of
$422,579. The increase in royalties and continuing license fees is a result of
increased retail sales by franchised stores.
COSTS OF GOODS SOLD. Cost of goods sold for the three months ended March
31, 1997 increased 26.0% to $4,274,237 as compared to $3,391,121 for the three
months ended March 31, 1996. This increase is attributable to the increase in
product sales as well as costs associated with the temporary transfer of bagel
production for the West Coast stores to the East Coast to assure product
quality. The latter factor also negatively impacted cost of goods sold as a
percentage of product sales which increased to 56.0% of product sales for the
three months ended March 31, 1997 compared to 51.3% of product sales for the
three months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 27.8% to $6,183,596 for the three months ended
March 31, 1997, compared with $4,839,130 for the three months ended March 31,
1996. As a percentage of total revenues, selling, general, and administrative
expenses increased to 59.8% for the three months ended March 31, 1997 from 54.4%
for the three months ended March 31, 1996. The increase in both absolute dollars
and percentage of revenues is attributable, in addition, to the growth of the
Company, to the consolidation of acquired businesses, addition of personnel to
manage the growth, and the addition of Company owned stores.
INTEREST INCOME. Interest income for the three months ended March 31, 1997
was $298,925 compared to $268,537 for the three months ended March 31, 1996. The
increase of $30,388 was primarily due to increase in notes receivable.
9
<PAGE>
INTEREST EXPENSE. Interest expense increased from $53,305 for the three
months ended March 31, 1996 to $177,174 for the three months ended March 31,
1997. The $123,869 increase was primarily due to interest associated with the
EDA loan for the new Eatontown manufacturing facility which became operational
in April 1996.
NET INCOME BEFORE PROVISION FOR INCOME TAXES. Net income before provision
for income taxes for the three months ended March 31, 1997 was $61,812, compared
with income of $956,545 for the three months ended March 31, 1996. This decrease
is attributable to the increases in cost of sales and SG&A expenses discussed
above.
INCOME TAX. There is no provision for income taxes for the three months
ended March 31, 1997 as compared to an expense of $296,601 for the three months
ended March 31, 1996. A provision for income taxes has not been recorded for the
quarter ended March 31, 1997 due to the utilization of net operating losses and
deductible temporary differences against which a valuation allowance has
previously been provided.
NET INCOME. The Company generated net income of $61,812 ($.01 per share)
for the three months ended March 31, 1997, as compared to net income of $659,944
($.09 per share) for the three months ended March 31, 1996 as a result of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On January 4, 1995, the Company executed a $10 million dollar franchisee
financing agreement with Stephen Diversified Leasing, Inc. d/b/a Stephens
Franchise Finance which was later purchased by Sun Trust Credit Corp. Upon
entering into the agreement with Atlantic Financial Services, the Company
terminated its agreement with Stephens except for the loans then outstanding.
Under the terms of the Agreement, which provided for financing to the Company's
favorable terms and rates for the Company's franchisees. The aggregate liability
of the Company under this arrangement the greater of (i) $1,000,000 or (ii) 30%
of the aggregate principal amount of loans to franchisees. At March 31, 1997,
the Company's contingent liability was approximately $1,905,000 constituting the
full amount of loans outstanding to franchisees under this franchise financing
programs.
On May 24, 1996 the Company executed a $25 million dollar franchisee
financing agreement with Atlantic Financial Services. Under the terms of the
Agreement, the Company has agreed to guarantee certain portions of these loans
in exchange for more favorable terms and rates for the Company's franchisees.
The aggregate liability of the company under this arrangement is the greater of
(i) $1,5000,000 or (ii) 20% of the first $10,000,000 aggregate principal amount
of loans to franchisees and 10% of the remaining $15,000,000 principal of loans
to franchisees. At March 31, 1997, the Company's contingent liability was
approximately $2,139,000 constituting the full amount of the loans outstanding
to franchisees under the franchise financing program.
On August 8, 1996 the Company obtained a $7.5 million revolving line of
credit from First Union Bank, N.A. Under the terms of the agreement the Company
must maintain certain liquidity ratios and earnings.
10
<PAGE>
On April 15, 1997 the Company amended its letter of credit supporting its
line of credit agreement with the New Jersey Economic Development Authority and
the line of credit agreement with a bank. Under the terms of the amendment
certain covenants were modified and in return the Company's borrowing rate was
increased to Prime plus 1% and the Company paid a fee of $20,000.
In April 1997, the Company announced that Global Alliance Finance Company,
LLC (GAFCO), wholly owned subsidiary of Deutsche Bank North America, has agreed
to provide, on a case-by-case basis, the lending of up to $50 million per year,
chainwide, in franchise financing to qualified applicants. The GAFCO program is
targeted at multi-unit operators from other franchise systems who plan to open
new Manhattan Bagel stores or acquire existing locations. The Company believes
that the new financing program will assist it in attracting new area developers.
The Company's cash flow used by operating activities during the first three
months of 1997 was $1,014,801 compared to a use of $426,064 during the first
three months of 1996.
The Company had working capital of $7,444,161 at March 31, 1997, which
represents a decrease of $2,526,844 from December 31, 1996. This decrease in
working capital is primarily a result of an increase in current borrowing to
fund the remodeling of the Company's West Coast stores and the building of new
stores to be franchised. The Company expects to sell the majority of these
stores and existing Company owned stores to franchisees during this fiscal year.
The Company believes there are no long-term trends or events that would have a
material negative impact on working capital.
The Company is a defendant in class action law suits that have been filed.
These lawsuits from New Jersey and California have been consolidated into one
class action lawsuit in the Federal District Court in New Jersey. The plaintiffs
seek unspecified money damages. The Company has filed a motion to dismiss the
lawsuit and all discovery has been stayed pending the resolution of this motion
to dismiss the lawsuit and all discovery has been stayed pending the resolution
of this motion. Although the Company believes it has acted properly and has
adequate defenses to such actions, no assessment of the amount or range of any
loss that might be incurred by, or the effects thereof on, the Company should it
be found to have violated any law, can be made at this time. Accordingly, no
provisions for these contingencies have been made.
The Company is also involved in various other pending legal proceedings
arising out of the Company's business. The adverse outcome of any of these legal
proceeding is not expected to have a material adverse effect on the financial
condition of the Company.
Management believes that the Company's working capital, credit facilities
and funds anticipated to be generated internally from operations will be
sufficient to meet the Company's liquidity requirements for the foreseeable
future, including the construction of the new West Coast bagel dough and cheese
spread manufacturing facility. The Company may also find it necessary or
desirable to obtain additional funds. Such funds could be obtained from
strategic alliances with other companies, including joint venture, joint
development or license agreements or additional equity or debt offerings.
However, there can be no assurance that the Company will be successful in
obtaining additional financing from any of the foregoing sources, if it seeks to
do so.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANHATTAN BAGEL COMPANY, INC.
Dated: May 15, 1997 By: S/N JACK GRUMET
---------------
Jack Grumet,
Chairman of the Board and
Chief Executive Officer
Dated: May 15, 1997 By: S/N JAMES J. O'CONNOR
---------------------
James J. O'Connor
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914565
<NAME> Manhattan Bagel Company, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> $1,406,561
<SECURITIES> 5,568,188
<RECEIVABLES> 8,029,456
<ALLOWANCES> (1,173,685)
<INVENTORY> 1,243,518
<CURRENT-ASSETS> 17,508,679
<PP&E> 16,246,717
<DEPRECIATION> (2,431,807)
<TOTAL-ASSETS> 50,581,381
<CURRENT-LIABILITIES> 10,064,518
<BONDS> 0
0
0
<COMMON> 40,781,233
<OTHER-SE> (4,985,262)
<TOTAL-LIABILITY-AND-EQUITY> 50,581,381
<SALES> 7,638,616
<TOTAL-REVENUES> 10,339,877
<CGS> 4,274,237
<TOTAL-COSTS> 6,183,596
<OTHER-EXPENSES> (256,942)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,174
<INCOME-PRETAX> 61,812
<INCOME-TAX> 0
<INCOME-CONTINUING> 61,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,812
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
