U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB / A NO. 1
(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, 1996
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 SMALL BUSINESS ISSUER 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
(ISSUER'S TELEPHONE NUMBER)
CHECK WHETHER THE ISSUER (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 MARCH 31, 1996:
7,098,531.
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed combined balance sheet - 1
March 31, 1996
Condensed combined statements of income - 3
Three months ended March 31, 1996 and 1995
Condensed combined statements of cash flows - 4
Three months ended March 31, 1996 and 1995
Notes to condensed combined financial statements 5
Item 2. Management's Discussion and Analysis of 7
Results of Operations and Financial Condition
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
Part 1 - Financial Information
Item 1 Financial Statements
MANHATTAN BAGEL COMPANY, INC.
AND SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEET
MARCH 31,1996
-------------
(RESTATED UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $1,204,278
Marketable securities 25,715,290
Accounts receivable, net of allowance for
doubtful accounts of $14,564 6,119,907
Inventories 962,376
Current maturities of notes receivable 71,860
Due from officer/stockholder -
Prepaid expenses and other current assets 498,802
-----------
Total current assets 34,572,513
Property and equipment, net of accumulated
depreciation of $1,439,914 10,908,570
-----------
Other assets
Notes receivable, net of current maturities 267,072
Notes receivable-related parties 159,827
Goodwill, net of accumulated amortization of $51,304 3,531,567
Security deposits 633,864
Other assets 1,799,292
-----------
Total Assets $51,872,705
===========
SEE ACCOMPANYING NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
-1-
<PAGE>
MANHATTAN BAGEL COMPANY, INC.
AND SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEET
MARCH 31,1996
-------------
(RESTATED UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $1,587,149
Current maturities of capital lease obligations 151,238
Accounts payable and accrued expenses 3,739,767
Unearned franchise fee income 290,000
Franchise deposits 185,833
Loans payable officer/stockholder -
Income taxes payable 103,861
Deferred income taxes 7,700
Other current liabilities 52,649
-----------
Total current liabilities 6,118,197
-----------
Other liabilities
Long-term debt, net of current maturities 4,033,885
Capital lease obligations, net of current maturities 526,814
Security deposits 361,167
Deferred income taxes and other liabilities 241,000
-----------
5,162,866
-----------
Stockholders' equity
Preferred stock, 2,000,000 shares authorized,
no shares issued or outstanding -
Common stock, no par value, 10,000,000 shares
authorized, 7,098,531 issued
and outstanding 37,141,872
Retained earnings 3,449,770
-----------
Total stockholders' equity 40,591,642
-----------
Total liabilities and stockholders' equity $51,872,705
===========
SEE ACCOMPANYING NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
-2-
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1996 1995
---- ----
(RESTATED UNAUDITED) (UNAUDITED)
Revenues
Product sales $5,923,594 $2,300,904
Franchise & license related revenue 2,111,192 865,895
Other income 70,118 -
---------- ----------
Total revenue 8,104,904 3,166,799
---------- ----------
Operating expenses
Cost of goods sold 3,162,695 1,398,755
Selling, general & administrative expenses 4,230,582 1,476,030
Interest expense (income), net (220,705) 3,481
---------- ----------
Total operating expenses 7,172,572 2,878,266
---------- ----------
Earnings before provision for income taxes 932,332 288,533
Provision for income taxes 286,917 115,758
---------- ----------
Net income $645,415 $172,775
========== ==========
Net income per share $0.09 $0.03
========== ==========
Weighted average number of common &
common equivalent shares outstanding 7,430,916 5,219,475
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
-3-
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1996 1995
---- ----
(RESTATED UNAUDITED) UNAUDITED)
Net cash used by operating activities ($390,894) ($669,719)
----------- -----------
Cash flows from investing activities
Purchase of marketable securities (3,090,290) -
Acquisition and construction of property (1,679,129) (1,164,521)
Investment in subsidiary 1,187,188 -
Purchase of goodwill (3,084,739) -
Other net cash provided by
investing activities (1,101,118) 319,971
----------- -----------
Net cash used by investing activities (7,768,088) (844,550)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of common stock 956,175 -
Other financing activities 414,927 6,495
----------- -----------
Net cash provided by financing activities 1,371,102 6,495
----------- -----------
Net decrease in cash and cash equivalents (6,787,880) (1,507,774)
Cash and cash equivalents - beginning 7,992,158 2,016,852
----------- -----------
Cash and cash equivalents - ending $1,204,278 $509,078
=========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
-4-
<PAGE>
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED COMBINED 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 for the year ended December 31, 1995.
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. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - RESTATEMENT OF THE THREE MONTHS ENDING MARCH 31,1996
----------------------------------------------------
Following the installation of new management at its I&J West Coast subsidiary
and subsequent to the Company's filing of its first quarter 10-QSB, the Company
uncovered certain improper bookkeeping and accounting practices at the Los
Angeles subsidiary. As a result, the Board of Directors authorized a full
investigation into the accounting practices at the subsidiary and retained
special counsel to assist in the investigation. Based on the conclusion of that
investigation, the Company has restated its first quarter 1996 Statement of
Operations to reduce revenues $90,000 and record additional expenses of
$290,000. Such adjustments are reflected in the Financial Statements for the
three month period ended March 31,1996.
NOTE 3 - INVENTORIES
-----------
MARCH 31, 1996
--------------
Raw materials $ 261,160
Finished Goods 701,216
---------
$ 962,376
=========
NOTE 4 - ACQUISITIONS
------------
On January 9, 1996, the Company completed the acquisition of Bay Area
Bagels, Inc., a private company which owned eight bagel bakery stores in the San
Francisco Area. The purchase price was 65,500 shares of Common stock of the
Company and $85,000. The transaction was treated as a purchase for accounting
purposes.
-5-
<PAGE>
On January 17, 1996, the Company completed the acquisition of three
stores in the Los Angeles market, which were licensed locations of I&J Bagels,
Inc. Such stores will be operated as company owned locations. The purchase price
was $1,500,000. The transaction was treated as a purchase for accounting
purchases.
-6-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
On June 29, 1995, the Company acquired I&J Bagels Inc. ("I&J"). I&J was
a private company which owned and licensed a total of 17 bagel bakery stores in
the Los Angeles area operating under the name of I & Joy Bagels. The Company
completed the acquisition through the merging of a newly created, wholly-owned
subsidiary of the Company with DAB Industries Inc., ("DAB") whose sole asset is
all of the stock of I&J, in exchange for 1.5 million shares of Common Stock of
the Company. Accordingly, the consolidated financial statements for periods
prior to June 29, 1995 have been restated to include the accounts and results of
operations of I&J for all the periods presented.
On January 9, 1996, the Company completed the acquisition of Bay Area
Bagels, Inc., a private company which owned eight bagel bakery stores in the San
Francisco Area. The purchase price was 65,500 shares of Common stock of the
Company and $85,000. The transaction was treated as a purchase for accounting
purposes.
On January 17, 1996, the Company completed the acquisition of three
stores in the Los Angeles market, which were licensed locations of I&J Bagels,
Inc. Such stores will be operated as company owned locations. The purchase price
was $1,500,000 and will be treated as a purchase for accounting purchases.
RESULTS OF OPERATIONS
The total number of operating Manhattan Bagel Company stores has
increased from four at December 31, 1990 to 177 at March 31, 1996.
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
March 31, 1996.............................. 177
In addition, at March 31, 1996, the Company had an additional 132
stores in various stages of development.
-7-
<PAGE>
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 as evidenced by the same store sales increases discussed
below. Total expenses have also risen significantly as the Company expanded its
corporate infrastructure. The number of employees as of March 31, 1996 was 423,
while the number of employees as of March 31, 1995 was 193.
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.
The Company's revenues are primarily derived from (i) the sale of
frozen raw bagel dough and cream 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 1996 was 72.3% compared to 72.7% in
1995.
For the comparative three month periods ending March 31, 1996 and March
31, 1995, same store retail sales as reported by the Company's bagel franchisees
(which are unaudited), increased from $5.3 million to $5.5 million, an increase
of $.2 million or 2.9%, and total sales rose from $6.3 million to $14.6 million,
an increase of $8.3 million or 130.5%. The amounts so reported are exclusive of
three original stores that are on a fixed royalty basis and are not required to
report sales to the Company. The amounts so reported also exclude the I & Joy
stores which were previously operated by I&J and acquired on June 29, 1995.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES. Total revenues of the Company for the three months ended
March 31, 1996 were $8,104,904 as compared to total revenues of $3,166,799 for
the three months ended March 31, 1995, a $4,938,105 or 155.9% increase over the
three months of the prior year. The increase is primarily attributable to the
increased product sales resulting from the increase in the number of franchised
stores opened as well as an increase in retail and wholesale sales by the
company stores. For the three months ended March 31, 1996, franchise and area
development fees were $535,000 and $140,000 respectively. For the three months
ended March 31, 1995 master franchise fees were $102,000. Ongoing royalties and
continuing license fees increased from $274,344 in the quarter to $734,881, a
$460,537 or 167.9% increase.
-8-
<PAGE>
COSTS OF GOODS SOLD. Cost of goods sold for the three months ended
March 31, 1996 increased 126.1% to $3,162,695 as compared to $1,398,755 for the
three months ended March 31, 1995. This increase is directly attributable to the
increase in product sales. Costs of goods sold decreased to 53.4% of product
sales for the three months ended March 31, 1996 compared to 60.8% of product
sales for the three months ended March 31, 1995. This decrease is due to a
combination of increased purchasing and manufacturing efficiencies from the
automation of the original Eatontown facility and the addition of company owned
stores which have a positive impact on gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased 186.6% to $4,230,582 for the three months
ended March 31, 1996, compared with $1,476,030 for the three months ended March
31, 1995. As a percentage of total revenues, selling, general, and
administrative expenses increased to 52.2% for the three months ended March 31,
1996 from 46.6% for the three months ended March 31, 1995. The increase in both
absolute dollars and percentage of revenues is attributable to the growth of the
company, addition of senior and middle level personnel to manage the growth and
the addition of company owned stores which have a negative impact on S.G.&A.
margins.
EARNINGS BEFORE PROVISION FOR INCOME TAXES. Earnings before provision
for income taxes for the three months ended March 31, 1996 increased 223.1% to
$932,332, compared with $288,533 for the three months ended March 31, 1995. This
increase was directly attributable to an increase in the Company's product sales
to the franchisees, retail sales and on-going royalty revenue.
INCOME TAX. Income Taxes provided for the three months ended March 31,
1996 increased 147.9% to $286,917 compared to $115,758 for the three months
ended March 31, 1995. The effective tax rate for the three months ended March
31, 1996 was 30.8% compared to 40.1% for the three months ended March 31, 1995.
This decline in the tax rate is due to the majority of marketable securities are
invested in tax free securities.
NET INCOME. The Company generated net income of $645,415 ($.09 per
share) for the three months ended March 31, 1996, as compared to net income of
$172,775 ($.03 per share) an increase of 273.6% over the three months ended
March 31, 1995 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On November 20, 1995, completed a public offering of 1,500,000 shares
of Common Stock at a public offering price of $19.625 per share. The proceeds of
such offering, net of discounts and offering expenses were $27,084,440. The
Company also received additional proceeds of $2,176,509 on December 14, 1995
from the sale of 118,000 shares of Common Stock to the public pursuant to the
underwriters' over-allotment option. The proceeds of the offering are being used
to finance the expansion of the Company's business through remodeling stores,
constructing and equipping manufacturing facilities and acquiring existing bagel
businesses as well as providing financing for future franchisees, and for
general corporate and working capital purposes.
On April 9, 1996 the Company received net proceeds of $1,911,150 from
the sale of 90,000 shares of common stock pursuant to the exercise of an
over-allotment option in connection with an underwritten public offering of
shares owned by a shareholder of the Company. These proceeds will be utilized
for general corporate and working capital purposes.
-9-
<PAGE>
In order to accommodate the growth in the Company's operations and to
increase efficiency, the Company decided to move its headquarters and construct
an additional manufacturing facility. The Company executed a lease in January
1995 and moved its headquarters into the new space on April 1, 1995. The new
premises include approximately 13,100 square feet of office and administrative
space (as compared to 2,500 square feet in the old space), including Bagel
University, a fully operational Manhattan Bagel Company training store; and
approximately 24,200 square feet for the new manufacturing facility, which
became operational on April 1, 1996.
In October 1995, the Company received $3,500,000 constituting the
proceeds of Economic Development Bonds issued by the New Jersey Economic
Development Authority. The bonds are supported by a $3,575,000 direct pay letter
of credit issued by First Fidelity Bank, N.A. The proceeds of the bonds are
being used to finance the completion of the new Eatontown facility, the purchase
of equipment and machinery for the factory, and to refinance the equipment and
machinery recently purchased for use at the existing factory.
The Company's cash flow used by operating activities during the first
three months of 1996 was $336,894 compared to a cash used of $669,719 during the
first three months of 1995. During the three months ended March 31, 1996, cash
flow from net income and depreciation was offset by increases in accounts
receivable.
The Company had working capital of $28,454,316 at March 31, 1996, which
represents a decrease of $2,381,207 from December 31, 1995. This decrease in
working capital is a result of the Company using its working capital to fund
expansion. The Company believes there are no long-term trends or events that
would have a material negative impact on working capital. Moreover, except for
equipment purchases for the new bagel manufacturing facilities financed by the
Economic Development Bonds, the Company has no material commitments for capital
expenditures. The Company also has two short-term credit facilities aggregating
$2,300,000 for use in funding construction of Manhattan Bagel stores.
Management believes that the Company's working capital, credit
facilities and anticipated funds generated internally from operations will be
sufficient to finance the Company's anticipated growth through acquisitions and
expansion and to meet the Company's liquidity requirements for the foreseeable
future.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(b) The following reports on Forms 8-K were filed for the quarter for which
this report is filed.
Form 8-K reporting the acquisition of Bay Area Bagels on January 9,
1996 was filed on January 23, 1996 and a Form 8-KA was filed March 21,
1996.
Form 8-K reporting the acquisition of the "Refold" stores on January
17, 1996 was filed on January 31, 1996 and a Form 8-KA was filed March
21, 1996.
-11-
<PAGE>
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.
(Small Business Issuer)
Dated: January 7,1997 By: S/N JACK GRUMET
---------------
Jack Grumet,
Chairman of the Board and
Chief Executive Officer
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> $1,204,278
<SECURITIES> 25,715,290
<RECEIVABLES> 6,134,471
<ALLOWANCES> 14,564
<INVENTORY> 962,376
<CURRENT-ASSETS> 34,572,513
<PP&E> 12,348,484
<DEPRECIATION> 1,439,914
<TOTAL-ASSETS> 51,872,705
<CURRENT-LIABILITIES> 6,118,197
<BONDS> 4,560,699
0
0
<COMMON> 37,141,872
<OTHER-SE> 3,449,770
<TOTAL-LIABILITY-AND-EQUITY> 51,872,705
<SALES> 5,923,594
<TOTAL-REVENUES> 8,104,904
<CGS> 3,162,695
<TOTAL-COSTS> 4,230,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (220,705)
<INCOME-PRETAX> 932,332
<INCOME-TAX> 286,917
<INCOME-CONTINUING> 645,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645,415
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</TABLE>
