<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT -October 25, 1996
NEW WORLD COFFEE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-27148 13-3690261
-------- --------- ----------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
379 WEST BROADWAY, 4TH FLR
NEW YORK, NY 10012
-----------------------------
(Address of principal executive offices)
Registrant's telephone, including area code: (212)343-0552
<PAGE>
NEW WORLD COFFEE. INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
INDEX
Page
----
Item 2 Acquisition of Assets 3
---------------------
Item 7 Financial Statements, Proforma Financial Information
----------------------------------------------------
(a) Financial Statements 4
- -------------------------
Report of Independent Public Accountants 5
Willoughby's Incorporated Financial Statements as of April 30, 1996 and
September 30, 1996 (Unaudited) 6-8
Willoughby's Incorporated Notes to Financial Statements 9
(b) Proforma Financial Information 13
- -----------------------------------
Proforma Consolidated Financial Statements 14-15
Notes and Management's Assumptions to Proforma Consolidated Financial
Statements 16
(c) Exhibits 17
--------
2
<PAGE>
Item 2 Acquisition of Assets
---------------------
On October 25, 1996, New World Coffee, Inc., a Delaware Corporation ("New
World"), acquired all of the issued and outstanding stock of Willoughby's Inc.,
a Connecticut corporation ("Willoughby's"), pursuant to a stock purchase
agreement by and among Barry H. Levine, Robert B. Williams, and Willoughby's and
New World. New World purchased all of the issued and outstanding capital stock
of Willoughby's for consideration of $3,800,000 consisting of: (a) $600,000
cash paid at the closing and an additional $600,000 cash due on or before July
1, 1997; (b) two promissory notes in the aggregate principal amount of
$1,700,000 (the "Notes"); (c) restricted shares of New World's common stock
valued at $200,000; and (d) the payment of $700,000 of aggregate debt owned by
Willoughby's. Interest shall accrue on the unpaid principal of the Notes, from
the date of the closing to the date each Note is paid in full, at the rate of 6%
(not compounded) per annum. The principal of the Notes shall be paid in two
installments: the aggregate sum of $600,000 shall be paid on or before January
5, 1998 and the aggregate sum of $1,100,000 shall be paid on or before January
5, 1999. Interest on the unpaid principal shall be paid on or before October 15
of each year.
The assets, which consist of a roasting facility, five operating stores
and one store under construction, were acquired from Willoughby's principals,
Mr. Barry Levine and Mr. Robert Williams, who have each signed employment
agreements with New World. Willoughby's provided the roasting services for New
World from New World's inception until the closing of this transaction.
At the time of closing, New World used its working capital to make the
$600,000 cash payment and to pay off the $700,000 of aggregate debt owed by
Willoughby's.
The Company is currently evaluating the fair value of the net assets
acquired which will approximate $1,000,000. The balance will be recognized as
goodwill and amortized over 20 years. Certain of the assets acquired by New
World will be classified as plant and equipment and will be utilized by New
World in the same manner in which Willoughby's used such assets.
3
<PAGE>
Item 7(a) Financial Statements
--------------------
WILLOUGHBY'S INCORPORATED
-------------------------
FINANCIAL STATEMENTS
--------------------
AS OF APRIL 30, 1996
--------------------
AND SEPTEMBER 30, 1996 (UNAUDITED)
----------------------------------
TOGETHER WITH
-------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Willoughby's Incorporated:
We have audited the accompanying balance sheet of Willoughby's Incorporated (a
Connecticut corporation) as of April 30, 1996 and the related statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Willoughby's Incorporated as of
April 30, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 4, 1996
5
<PAGE>
WILLOUGHBY'S INCORPORATED
-------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
April 30, September 30,
1996 1996
---------- --------------
(unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 58,475 $ 39,293
Accounts receivable 51,718 52,053
Inventories 190,712 213,333
Refundable income taxes and other
current assets 42,884 62,311
--------- ---------
Total current assets 343,789 366,990
--------- ---------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Machinery and equipment 389,765 469,681
Leasehold improvements 194,166 270,969
--------- ---------
583,931 740,650
Less - Accumulated depreciation (310,401) (341,184)
--------- ---------
273,530 399,466
--------- ---------
OTHER ASSETS 8,892 24,731
--------- ---------
Total assets $ 626,211 $ 791,187
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 91,874 $ 55,573
Accounts payable 111,887 86,935
Accrued expenses 37,877 51,061
Customer deposits - 100,000
Loans payable to stockholders 26,414 -
--------- ---------
Total current liabilities 268,052 293,569
NOTES PAYABLE, less current portion 255,244 398,240
--------- ---------
Total liabilities 523,296 691,809
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 5,000 shares
authorized, 1,000 shares issued and
outstanding 1,000 1,000
Retained earnings 101,915 98,378
--------- ---------
Total stockholders' equity 102,915 99,378
--------- ---------
Total liabilities and stockholders'
equity $ 626,211 $ 791,187
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE>
WILLOUGHBY'S INCORPORATED
-------------------------
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
----------------------------------------------
<TABLE>
<CAPTION>
For the
For the Five Months
Year Ended Ended
April 30, September 30,
1996 1996
----------- --------------
(unaudited)
<S> <C> <C>
SALES $2,696,550 $1,214,063
COST OF GOODS SOLD 1,466,397 592,484
---------- ----------
Gross margin 1,230,153 621,579
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,244,811 586,239
---------- ----------
Operating (loss) income (14,658) 35,340
---------- ----------
OTHER EXPENSE:
Interest expense 41,627 17,570
Other, net 6,443 18,940
---------- ----------
48,070 36,510
---------- ----------
Loss before benefit from
(provision for) income taxes (62,728) 1,170
BENEFIT FROM (PROVISION FOR) INCOME TAXES 5,497 (2,367)
---------- ----------
Net loss (57,231) (3,537)
RETAINED EARNINGS, beginning of period 159,146 101,915
---------- ----------
RETAINED EARNINGS, end of period $ 101,915 $ 98,378
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
<PAGE>
WILLOUGHBY'S INCORPORATED
-------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the
For the Five Months
Year Ended Ended
April 30, September 30,
1996 1996
----------- --------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(57,231) $ (3,537)
Adjustment to reconcile net loss
to net cash provided by operating
activities -
Depreciation 77,115 32,783
Changes in operating assets and
liabilities:
Accounts receivable 16,058 (335)
Inventories 49,156 (22,621)
Accounts payable (41,686) (17,343)
Accrued expenses 3,146 5,575
Customer deposits - 100,000
Other (37,386) (29,180)
-------- ---------
Net cash provided by operating
activities 9,172 65,342
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold
improvements (7,552) (158,719)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 50,000 172,881
Repayments of notes payable (36,798) (66,186)
Proceeds from (repayments of) loans payable
to stockholders 32,500 (32,500)
-------- ---------
Net cash provided by financing
activities 45,702 74,195
-------- ---------
NET INCREASE (DECREASE) IN CASH 47,322 (19,182)
CASH, beginning of period 11,153 58,475
-------- ---------
CASH, end of period $ 58,475 $ 39,293
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for -
Interest $ 41,179 $ 18,018
======== =========
Income taxes $ 27,899 $ 15,708
======== =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
8
<PAGE>
WILLOUGHBY'S INCORPORATED
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Information as of September 30, 1996 and
For the Five Months Ended
September 30, 1996 is Unaudited)
1. Organization and Summary of Significant Accounting Policies:
-----------------------------------------------------------
Nature of operations -
--------------------
Willoughby's Incorporated (the Company) is a coffee roaster, a wholesaler
and retailer of coffee and a retailer of coffee related merchandise. The
Company operated three cafes in New Haven, Connecticut, and a roasting
plant and cafe in Branford, Connecticut as of April 30, 1996. Subsequent
to April 30, 1996, the Company opened cafes in New Haven, Connecticut and
Madison, Connecticut.
Interim financial statements -
----------------------------
The financial statements as of September 30, 1996, and for the five months
then ended, are unaudited and, in the opinion of management, include all
adjustments (consisting only of normal and recurring adjustments) necessary
for a fair presentation of results for this interim period. The results
for the five months ended September 30, 1996, are not necessarily
indicative of the results to be expected for the entire year. Interim
financial information for the five months ended September 30, 1995 is not
available.
Use of estimates in the preparation of financial statements -
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories -
-----------
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. As of April 30, 1996 inventory consists of the
following:
Raw materials $ 78,381
Finished goods 4,000
Merchandise 108,331
--------
$190,712
========
9
<PAGE>
Equipment and leasehold improvements -
------------------------------------
Depreciation is provided using the Modified Accelerated Cost Recovery
System (MACRS) method over the following estimated useful lives of the
assets, or in the case of leasehold improvements, the lease term if
shorter:
Years
-----
Machinery and equipment 5 - 7 years
Leasehold improvements 10 years
Expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs that do not improve or extend the
life of the respective assets are expensed as incurred.
Income taxes -
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes". This standard requires a company to recognize deferred tax
assets and liabilities for the expected future tax consequences of events
that have been recognized in a company's financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and the tax bases of assets and liabilities and net operating loss
carryforwards available for tax reporting purposes, using the applicable
tax rates for the years in which the differences are expected to reverse.
A valuation allowance is recorded on deferred tax assets unless realization
is more likely than not.
As of April 30, 1996, the difference between the financial statement
carrying amounts and the tax bases of assets and liabilities and net
operating loss carryforwards available for tax reporting purposes was not
material. Accordingly, the Company does not have any deferred income taxes
as of such date.
2. Notes Payable:
-------------
Notes payable at April 30, 1996 consists of the following:
Note payable to bank at $5,987 per month
(including interest) for 84 months beginning
October, 1994. Secured by substantially all
of the Company's assets and an assignment
of life insurance policies on two stockholders
of the Company and personally guaranteed by the
Company's officers and their spouses. Variable
interest at the prime rate (8.25% at April 30,
1996) plus 2.5%. $297,118
10
<PAGE>
Note payable to bank due April 30, 1996.
Variable interest at the prime rate (8.25%
at April 30, 1996) plus 2.5%. 50,000
--------
347,118
Less: current portion (91,874)
--------
$255,244
========
As of April 30, 1996, the Company believes that the carrying value of the
notes payable approximates their fair market value since the notes have
variable interest rates.
Future principal payments on notes payable as of April 30, 1996 are as
follows:
Year Ended
April 30, Amount
---------- ------
1997 $91,874
1998 46,604
1999 51,868
2000 57,727
2001 64,248
Thereafter 34,797
-------
$347,118
========
Subsequent to April 30, 1996, the Company borrowed additional monies at the
prime rate plus 2.5% under a $350,000, 10-year note payable to bank dated
May 10, 1996. The $50,000 note payable to bank due April 30, 1996 was
repaid in May 1996. Amounts outstanding on other borrowings were repaid in
connection with the acquisition of the Company (see Note 7).
3. Related Party Transactions:
--------------------------
Officers' salaries of $131,200 were paid to the two shareholders for the
year ended April 30, 1996 and are included in selling, general and
administrative expenses in the accompanying statement of operations. The
loans payable to stockholders are non-interest bearing.
4. Significant Customer:
--------------------
During the year ended April 30, 1996 the Company's sales to one customer
(New World Coffee, Inc., see Note 7) represented approximately 33% of the
Company's sales for such period. As of April 30, 1996 the Company's
account receivable from such customer represented 79% of the Company's
accounts receivable balance.
11
<PAGE>
5. Profit-Sharing Plan:
-------------------
The Company has a profit-sharing plan for substantially all of its
employees. Contributions are determined at the discretion of the Board of
Directors. Contributions for the year ended April 30, 1996 were $5,121.
6. Commitments and Contingencies:
-----------------------------
Leases -
------
As of April 30, 1996, future minimum lease payments are as follows:
Year Ended
April 30, Amount
-------- ------
1997 $ 85,257
1998 87,377
1999 73,214
2000 40,739
2001 34,499
Thereafter 121,397
--------
$442,483
========
Rental expense related to these leases for the year ended April 30, 1996
was $95,797.
Purchase commitments -
--------------------
The Company, as part of its normal operations, enters into commitments to
buy coffee beans for its future requirements. The honoring of these
commitments is an integral part of the operation of the Company.
7. Subsequent Events:
-----------------
On October 25, 1996, New World Coffee, Inc. (New World), a Delaware
corporation, acquired all of the issued and outstanding stock of the
Company pursuant to a stock purchase agreement by and among Barry H.
Levine, Robert B. Williams, the Company and New World. New World purchased
all of the issued and outstanding capital stock of the Company for
consideration of $3,800,000 consisting of: (a) $600,000 cash paid at the
closing and an additional $600,000 cash due on or before July 1, 1997; (b)
two promissory notes in the aggregate principal amount of $1,700,000 (the
Notes); (c) restricted shares of New World's common stock valued at
$200,000; and (d) the payment of $700,000 of aggregate debt owned by the
Company. Interest shall accrue on the unpaid principal of the Notes, from
the date of the closing to the date each Note is paid in full, at the rate
of 6% (not compounded) per annum. The principal of the Notes shall be paid
in two installments: the aggregate sum of $600,000 shall be paid on or
before January 5, 1998 and the aggregate sum of $1,100,000 shall be paid on
or before January 5, 1999. Interest on the unpaid principal shall be paid
by the purchaser to each Note holder on or before October 15 of each year.
12
<PAGE>
Item 7(b) Proforma Financial Information
------------------------------
The following Proforma Consolidated Balance Sheet as of September 29,
1996, and the Proforma Condensed Consolidated Statements of Income for the year
ended December 31, 1995, and nine months ended September 29, 1996, reflect
certain acquisition transactions and the adjustments described in the
accompanying notes. The proforma financial information is based on the
historical consolidated financial statements of New World Coffee, Inc. (the
"Company") and should be read in conjunction with the notes and management's
assumptions thereto. The Proforma Consolidated Balance Sheet was prepared as if
the acquisitions occurred on September 29, 1996. The Pro Forma Condensed
Consolidated Statements of Income for the year ended December 31, 1995 and for
the nine months ended September 29, 1996, were prepared assuming the
transactions occurred on the first day of each of the periods presented. The
proforma financial information is unaudited and not necessarily indicative of
the consolidated results which actually would have occurred had the acquisition
transactions been consummated at the beginning of the periods presented, nor
does it purport to represent the financial position and results of operations
for future periods.
The proforma financial statements reflect the historical financial
statements of the Company together with the following transactions as if they
had occurred on the first day of each of the periods for which proforma
consolidated statements of income are presented. On June 13, 1996 the Company
purchased three Coopers Coffee Bar locations for $242,500 cash and a $770,000
note payable over 4 years bearing interest at 6%. On August 26, 1996 the Company
purchased The Ridgefield Coffee Company store for $150,000 cash and a $175,000
note payable over 2 years bearing interest at 6%. On September 30, 1996 the
Company purchased five Willoughby's locations (plus one under construction) and
its roasting facility for total consideration of $3,800,000 consisting of
$1,300,000 cash paid at the closing with an additional $600,000 due on July 1,
1997, $200,000 worth of restricted common shares, and a $1,700,000 promissory
note with $600,000 due on 1/5/98 and $1,100,000 payable 1/5/99 bearing interest
at 6%. During the second quarter of 1996, the Company took a $1.5 million
charge to cover the cost of closing 5 unprofitable stores.
13
<PAGE>
New World Coffee, Inc.
-----------------------
Proforma Consolidated Balance Sheet
-----------------------------------
September 29, 1996
------------------
($000's)
--------
<TABLE>
<CAPTION>
NWC* Willoughby's Adjustment Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash $ 4,644 $ 39 $ (1,893) (2a) $ 2,790
Receivables 432 52 (40) (2a) 444
Inventories 318 213 531
Prepaid Expenses 145 63 208
------- ---- -------
Total Current Assets 5,539 367 (1,933) 3,973
Property and Equipment(net) 7,253 399 - 7,652
Goodwill 604 - 2,941 (2a) 3,545
Deposits and Other assets 837 25 - 862
------- ---- ------------ -------
Total Assets $14,233 $791 $ 1,008 $ 16,032
======= ==== ============ =======
Accounts Payable $ 527 $ 87 $ (39) $ 575
Accrued Expenses 716 51 - 767
Current Position of Obligations -
under capital lease 225 - 225
Current Portion of Notes Payable 280 156 (156) (2a) 280
------- ---- ------------ -------
Total current Liabilities 1748 294 (195) 1847
Deferred Rent 692 - - 692
Obligations under capital leases 548 - - 548
Notes Payable 665 398 1,302 (2a) 2365
------- ---- ------------ -------
Total Liabilities 3,653 692 1,107 5,452
Stockholder's Equity 10,580 99 (99) (2a) 10,580
------- ---- ------------ -------
Total Liabilities and Stockholders $1,4233 $791 $ 1,008 $16,032
Equity ======= ==== ============ =======
</TABLE>
* Includes the assets of the Coopers Coffee Bar and The Ridgefield Coffee
Company stores acquired prior to September 29, 1996.
14
<PAGE>
New World Coffee, Inc.
----------------------
Proforma Condensed Consolidated Statement of Income
---------------------------------------------------
for the Year to Date Ended December 31, 1995
--------------------------------------------
(000's)
-------
<TABLE>
<CAPTION>
NWCI Coopers Ridgefield Willoughby's Adjustments Consolidated
-------- ------- ---------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 9,572 $1,827 $552 $2,540 $(781) (3c) $13,710
Store Operating Income 214 243 151 860 (163) (3c) 1,305
Operating Loss (2,604) 144 133 394 (132) (3c,d) (2,065)
Net Loss (2,901) 144 133 394 (273) (3a,b,c,d) (2,503)
</TABLE>
New World Coffee, Inc.
----------------------
Proforma Condensed Consolidated Statement of Income
---------------------------------------------------
for the Nine Months Ended September 29, 1996
--------------------------------------------
(000's
------
<TABLE>
<CAPTION>
NWCI Coopers Ridgefield Willoughby's Adjustments Consolidated
-------- ------- ---------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 7,758 $738 $419 $2,450 $(1,847) (3c) $ 9,518
Store Operating Income 609 155 99 867 (225) (3c) 1,505
Operating Loss (4,141) 68 81 317 2,162 (3c,d) (2,065)
Net Loss (5,198) 45 72 242 1,862 (3a,b,c,d) (2,977)
</TABLE>
15
<PAGE>
New World Coffee, Inc.
----------------------
Notes and Management's Assumptions
----------------------------------
To Proforma Consolidated Financial Statements
---------------------------------------------
1. Basis of Presentation
---------------------
The accompanying unaudited proforma consolidated balance sheet is presented as
if the acquisition transactions occurred on September 29, 1996.
The accompanying unaudited proforma consolidated statements of income are
presented as if the acquisition transactions occurred at the beginning of each
period presented.
These proforma financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company as of December
31, 1995, and September 29, 1996. In management's opinion, all material
adjustments necessary to reflect the effects of the acquisitions by the Company
have been made.
The unaudited proforma consolidated financial statements are not necessarily
indicative of the actual financial position of the Company as of September 29,
1996, or what the actual results of operations of the Company would have been
assuming the acquisitions had been completed as of January 1, 1995, nor are they
necessarily indicative of the results of operations for future periods.
2. Adjustments to Proforma Consolidated Balance Sheet
--------------------------------------------------
(a) To reflect the proforma acquisition of Willoughby's as of September 29,
1996.
3. Adjustments to Proforma Condensed Consolidated Statements of Income
-------------------------------------------------------------------
(a) To reflect a reduction in interest income as if the cash payment portion of
the acquisitions of approximately $2,292,500 had been made at the beginning
of each of the periods, using an assumed interest rate of 5 %.
(b) To reflect an increase of interest expense related to the $2,645,000
acquisition-related notes payable at an interest rate of 6% as if the notes
had been outstanding for the entire period.
(c) To eliminate intercompany sales.
(d) To reflect amortization of goodwill as if the acquisitions were made as of
the beginning of each period presented.
16
<PAGE>
Item 7c. Exhibits
--------
The Exhibits attached to the Current Report on Form 8-K of the Company
dated November 12, 1996 are hereby incorporated by reference in this amendment.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be duly signed on its behalf by the
undersigned hereunto duly authorized.
NEW WORLD COFFEE, INC.
By: /s/ Jerold Novack
---------------------------
Name: Jerold Novack
Title: Vice President Finance
17
