<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-27148
New World Coffee & Bagels, Inc.
(Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3690261
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
379 WEST BROADWAY
4th Floor
New York, NY 10012
(Address of Principal Executive Offices)
(212) 343-0552
(Issuer's Telephone Number, Including Area Code)
NEW WORLD COFFEE, INC.
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the registrant (1) has 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.
Yes X No
____ ____
Number of shares of common stock, $.001 par value per share, outstanding:
As of September 28, 1997: 11,067,103.
Transitional small business disclosure format (check one): Yes No X
____ ____
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NEW WORLD COFFEE & BAGELS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
SEPTEMBER 28, 1997
<TABLE>
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PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 28, 1997 and
December 29, 1996........................................................... -3-
Condensed Consolidated Statements of Operation for the fiscal quarter and year
to date period ended September 28, 1997 and September 29, 1996.............. -4-
Condensed Consolidated Statements of Cash Flows for the year to date period
ended September 28, 1997 and September 29, 1996............................. -5-
Notes to Consolidated Financial Statements........................................ -6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 28, 1997............................................... -8-
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR
TO DATE PERIOD ENDED SEPTEMBER 28, 1997....................................... -9-
PART II. OTHER INFORMATION........................................................... -12-
SIGNATURES.................................................................. -14-
</TABLE>
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NEW WORLD COFFEE & BAGELS, INC.
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 28, December 29,
1997 1996
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash........................................................... $ 1,606,256 $ 1,419,786
Receivables.................................................... 1,600,129 288,329
Inventories.................................................... 703,908 450,722
Prepaid expenses............................................... 167,701 116,533
----------- -----------
Total current assets................................... 4,077,994 2,275,370
Property and Equipment, net..................................... 9,527,491 10,208,339
Goodwill, net of accumulated amortization....................... 3,760,942 3,567,721
Deposits and Other Assets, net.................................. 898,212 904,757
----------- -----------
Total assets........................................... $18,264,639 $16,956,187
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable............................................... $ 1,123,425 $ 866,098
Accrued expenses............................................... 251,263 1,100,942
Accrued compensation........................................... 120,052 318,487
Current portion of notes payable............................... 1,280,000 846,645
Current portion of obligations under capital leases............ 230,869 230,022
------------ ------------
Total current liabilities.............................. 3,005,609 3,362,194
------------ ------------
Deferred Rent................................................... 668,256 614,285
Notes Payable................................................... 1,505,000 2,200,269
Obligations Under Capital Leases................................ 480,926 496,961
Stockholders' Equity:
Preferred stock, $.001 par value; 2,000,000
shares authorized........................................... - -
Series A Convertible Preferred Stock, $.001 par value;
400 shares authorized, 375 shares issued, 35 and
320 shares outstanding...................................... - -
Series B Convertible Preferred Stock, $.001 par value;
225 shares authorized, 137.5 shares issued, 137.5
and 0 shares outstanding.................................... - -
Common stock, $.001 par value; 20,000,000 shares
authorized; 11,067,103 and 5,034,812 shares
issued and outstanding.................................... 11,067 5,035
Additional paid-in capital..................................... 25,204,769 20,805,479
Accumulated deficit............................................ (12,610,989) (10,528,036)
------------ ------------
Total stockholders' equity................................ 12,604,847 10,282,478
------------ ------------
Total liabilities and stockholders' equity................ $18,264,639 $16,956,187
============ ============
</TABLE>
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NEW WORLD COFFEE & BAGELS, INC.
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE FISCAL QUARTER ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
----------------------------------------------------------------------
AND YEAR TO DATE PERIOD ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
-----------------------------------------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
Fiscal Quarter Ended Year to Date Period Ended
----------------------------- -----------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Company Owned Stores $ 3,855,914 $2,851,041 $11,542,708 $ 7,758,199
Royalties & Franchise Related Revenues 678,369 - 678,369 -
----------- ---------- ----------- -----------
Total Revenues 4,534,283 2,851,041 12,221,077 7,758,199
COSTS AND EXPENSES:
Cost of Sales & Related Occupancy Costs 1,996,502 1,672,315 6,229,461 4,681,744
Store Operating Expenses 1,191,786 885,350 3,704,583 2,467,422
----------- ---------- ----------- -----------
Total Costs and Expenses 3,188,288 2,557,665 9,934,044 7,149,166
INCOME FROM OPERATIONS 1,345,995 293,376 2,287,033 609,033
Depreciation & Amortization 518,240 348,204 1,588,715 883,109
General & Administrative Expenses 747,991 775,319 2,263,249 2,066,952
Provision for Store Closings &
Reorganization Costs 300,000 - 300,000 1,800,000
----------- ---------- ----------- -----------
OPERATING INCOME/(LOSS) (220,236) (830,147) (1,864,931) (4,141,028)
OTHER EXPENSES:
Interest Expense, Net (26,660) (26,617) (218,207) (7,139)
Write-off of Debt Issuance Costs - - - (1,050,000)
----------- ---------- ----------- -----------
TOTAL OTHER EXPENSES (26,660) (26,617) (218,207) (1,057,139)
Earnings/(Loss) Before Taxes (246,896) (856,764) (2,083,138) (5,198,167)
=========== ========== =========== ===========
NET LOSS PER COMMON SHARE $ (.02) $ (.18) $ (.28) $ (1.21)
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 10,074,821 4,775,565 7,483,076 4,353,009
=========== ========== =========== ===========
</TABLE>
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NEW WORLD COFFEE & BAGELS, INC.
--------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEAR TO DATE PERIOD ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
---------------------------------------------------------------------------
UNAUDITED
---------
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss............................................................................... $(2,083,138) $(5,198,167)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization...................................................... 1,588,715 883,109
Write-off of debt issuance costs................................................... - 1,000,050
Provision for store closings and reorganization costs 300,000 1,800,000
Increase (decrease) in cash resulting from changes in operating assets and
liabilities-
Receivables.................................................................. (1,311,800) (365,335)
Inventories.................................................................. (253,186) (100,963)
Prepaid expenses............................................................. (51,168) (75,473)
Deposits and other assets.................................................... 6,545 (313,342)
Accounts payable............................................................. 257,327 (631,089)
Accrued expenses............................................................. (849,679) (21,970)
Accrued compensation......................................................... (198,435) (172,884)
Deferred rent................................................................ 53,971 184,391
----------- -----------
Net cash used in operating activities.................................. (2,540,848) (3,011,673)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................. (1,266,618) (1,071,059)
Cash received/(paid) from dispositions and acquisitions.............................. 611,203 (692,500)
Capitalized Leases................................................................... (15,188) -
Goodwill............................................................................. (193,221) -
----------- -----------
Net cash used in investing activities............................... (863,824) (1,763,559)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, net of issuance costs.................................... 4,405,322 11,552,782
Additional paid in capital in connection with the issuance of Series A Preferred
Stock......................................................................... - 3,320,189
Redemption of Series C Redeemable Preferred Stock................................. - (1,999,997)
Repayment of bridge financing loan................................................. - (755,000)
Repayments of capital leases....................................................... (552,266) (150,148)
Repayment of notes payable......................................................... (261,914) (3,500,000)
----------- -----------
Net cash provided by financing activities................................ 3,591,142 8,467,826
----------- -----------
Net increase (decrease) in cash.......................................... 186,470 3,692,594
----------- -----------
CASH, beginning of period............................................................ 1,419,786 951,355
----------- -----------
CASH, end of period.................................................................. $ 1,606,256 $ 4,643,949
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................................................... 95,867 86,623
Non-cash investing and financing activities:
Equipment purchased under capital leases......................................... 377,458 150,148
Notes issued in connection with acquisitions..................................... - 920,000
Debt issuance costs incurred in connection with bridge financing................. - 236,884
</TABLE>
-5-
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The September 28, 1997 consolidated balance sheet presented herein was
derived from the audited December 29, 1996 consolidated financial statements of
the Company.
2. These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 29, 1996 for a description
of the significant accounting policies, which have continued without change, and
other note information.
3. The consolidated financial statements included herein contain the accounts
of the Company and its wholly-owned subsidiary, Willoughby's Incorporated, as of
the date of acquisition, October 25, 1996. All material intercompany balances
and transactions have been eliminated for periods subsequent to that date.
4. All adjustments (recurring in nature) which are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods have been included. The results of the interim periods are not
necessarily indicative of the results for the full year.
5. The Company completed its initial public offering ("IPO") on February 1,
1996 of 2,500,000 shares of Common Stock, par value $.001 at a purchase price of
$5.50 per share, for aggregate net proceeds of approximately $11.1 million. A
portion of the proceeds was used to (i) repay the outstanding balance under the
Company's then existing line of credit agreement ($3,500,000), (ii) repay a
bridge financing ($1,000,000) and (iii) redeem the Series C Preferred Stock
($1,999,997). In connection with the IPO, the Convertible Redeemable Preferred
Stock Series A, B, and C were converted into common stock of the Company.
6. In December 1995 and January 1996, the Company received $1,000,000 in bridge
financing from a group of lenders, which included $200,000 from certain related
parties. This borrowing bore interest at 10% and was repaid from the proceeds
of the IPO. In connection with this bridge financing, the Company issued
warrants to purchase 181,818 shares of Common Stock at an exercise price of $.01
per share. During the first quarter of 1996, the Company repaid the outstanding
balance under the loan with proceeds from the IPO and recorded a write-off of
debt issuance costs of $1,050,000 which has been reflected in the consolidated
statement of operations for the first quarter ended March 31, 1996.
7. The Company completed the sale of 375 shares of Series A Convertible
Preferred Stock, par value $.001 on June 28, 1996 realizing approximately
$3,320,000 in net proceeds after commissions and costs. During the third
quarter of 1996, 55 shares of Series A Convertible Preferred Stock were
converted into 221,022 shares of Common Stock. During the first quarter ended
March 30, 1997, 175 shares of Series A Convertible Preferred Stock were
exchanged for 137.5 shares of Series B Convertible Preferred Stock, par value
$.001 and 194,440 shares of Common Stock. During the second quarter of 1997, 30
shares of Series A Convertible Preferred Stock were exchanged for
-6-
<PAGE>
150,000 shares of Common Stock. During the third quarter of 1997, 80 shares of
Series A Convertible Preferred Stock were exchanged for 790,842 shares of Common
Stock.
8. On February 27, 1997, the Company completed a private placement of 1,000,000
shares of Common Stock and realized net proceeds of approximately $1,345,000.
9. In April 1997, the Company filed its Uniform Franchise Offering Circular
("UFOC") with the Federal Trade Commission and the Office of the Attorney
General of the State of New York. On May 6, 1997, the UFOC was approved by the
State of New York.
10. On May 23, 1997, the Company filed a registration statement with the
Securities and Exchange Commission on Form SB-2 relating to the sale on a
minimum basis of such number of shares of Common Stock resulting in gross
proceeds of $250,000 and on a maximum basis of such number of shares of Common
Stock resulting in gross proceeds of $2,500,000. The Company realized
approximately $1,875,000 in gross proceeds from the offering of approximately
1,500,000 shares of Common Stock. In connection with such offering, finders
fees totaling approximately $127,500 were paid to certain finders. In addition,
the Company satisfied obligations totaling approximately $480,000 through the
issuance of approximately 385,000 shares of Common Stock to among others,
certain vendors.
11. On August 29, 1997 the Company completed a private placement, with an
institutional investor, of 1,142,857 shares of common stock, realizing
approximately $900,000 in net proceeds. These unregistered shares are subject
to a lockup of six months with respect to fifty percent of the shares, and a
lockup of twelve months with respect to the remainder.
12. On November 4, 1997 the Company changed its name to New World Coffee &
Bagels, Inc. This action was approved at the annual shareholder meeting.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-QSB under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1996 with respect to the financial condition and business of the
Company. The words "estimate", "plan", "intend", "believes", "expect", and
similar expressions are intended to identify forward-looking statements. Such
forward-looking statements involve and are subject to known and unknown risks,
uncertainties, and other factors which could cause the actual results,
performance, and achievements of the Company to be materially different from any
future results, performance (financial or operating), or achievements expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: competition; success of operating and franchising
initiatives; development schedules; advertising and promotional efforts; adverse
publicity; acceptance of new product offerings; availability of new locations,
and terms of sites for store development; changes in business strategy or
development plans; availability and terms of capital; food, labor, and employee
benefit costs; changes in government regulations; regional weather conditions;
and other factors referenced in this Form 10-QSB or in the Company's Form SB2
dated May 23, 1997.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
New World Coffee & Bagels, Inc., is the only integrated coffee and bagel
retailer in the United States. The Company owns, operates and franchises 39
stores, consisting of 26 in New York, seven in Connecticut, three in
Pennsylvania and three in New Jersey. In May 1997 the Company announced its
franchising program. To date the Company has signed franchise agreements
relating to additional stores in New York, New Jersey, Maryland, Pennsylvania
and Germany.
The Company differentiates itself from other coffee or bagel retailers by
offering an integrated concept based on gourmet coffee and fresh baked bagels
and bagel sandwiches, allowing the stores to capture all three day parts, i.e.
breakfast, lunch and afternoon/evening neighborhood gathering place. The
Company's coffee operations are vertically integrated, with the Company
purchasing beans from around the world which are roasted in its Connecticut
plant.
The Company has incurred losses in each fiscal year from inception primarily
due to the cost of retail store expansion and developing an infrastructure to
support future growth. The Company's fiscal year ends on the Sunday closest to
December 31. Prior to fiscal 1995 the Company was on a calendar year basis.
FISCAL QUARTER ENDED SEPTEMBER 28, 1997 COMPARED TO FISCAL QUARTER ENDED
SEPTEMBER 29, 1996
Revenues. Total revenues increased 59.0% to $4,534,283 for the fiscal quarter
ended September 28, 1997 from $2,851,041 for the comparable 1996 period. Company
owned store revenues increased 35.2% to $3,855,914 for the fiscal quarter ended
September 28, 1997 from $2,851,041 for the comparable 1996 period. Royalties and
franchise related revenues were $678,369 or 15.0% of total revenues for the
fiscal quarter ended September 28, 1997. There were no such revenues for the
comparable 1996 period. Comparable store sales for the 21 stores open for both
periods increased 6.9%. Comparable sales for the Company's converted coffee and
bagel store increased 56.3% in the quarter.
Costs and Expenses. Cost of sales and related occupancy costs as a percentage
of company owned store revenues for the fiscal quarter ended September 28, 1997
decreased to 51.8% from 58.7% for the comparable 1996 period. The primary
components were a decrease of 2.3% in cost of goods due to better control of
store purchasing and waste, improved coffee costs due to vertical integration
and improved vendor pricing due to greater economies of scale; and a 4.6%
decrease in occupancy costs due to lower rental expense associated with stores
located outside of New York City.
Store operating expenses as a percentage of company owned store revenues for
the fiscal quarter ended September 28, 1997 decreased to 30.9% from 31.1% for
the comparable 1996 period.
Depreciation and amortization expenses as a percentage of total revenues for
the fiscal quarter ended September 28, 1997 decreased to 11.4% from 12.2% for
the comparable 1996 period primarily due to the maturing of new stores opened in
the latter part of 1996.
-8-
<PAGE>
General and administrative expenses for the current quarter decreased as a
percentage of total revenues to 16.5% from 27.2% for the fiscal quarter ended
September 29, 1996.
The Company recorded a $300,000 non-cash provision in the fiscal quarter ended
September 28, 1997 to provide for a shortfall in the second quarter 1996
provision for store closings. There were no such charges for the comparable
1996 period.
Interest expense, net for the fiscal quarter ended September 28, 1997 decreased
as a percentage of revenues to 0.6% from 0.9% for the comparable 1996 period.
Net Loss. Net loss for the fiscal quarter ended September 28, 1997 decreased to
$246,896 from $856,764 for the comparable 1996 period. Operating margins
improved to a loss of 4.9%, which includes a 6.6% non-recurring charge, from a
loss of 29.1% in the comparable 1996 period. This improvement is due primarily
to increased store operating income of 7.0% as a percentage of store revenues,
franchise related income of approximately 15.0% of total revenues, and a
decrease in general and administrative expenses of 10.7% as a percentage of
total revenues.
YEAR TO DATE PERIOD ENDED SEPTEMBER 28, 1997 COMPARED TO THE YEAR TO DATE
PERIOD ENDED SEPTEMBER 29, 1996
Revenues. Total revenues increased 57.5% to $12,221,077 for the year to date
period ended September 28, 1997 from $7,758,199 for the comparable 1996 period.
Company owned store revenues increased 48.8% to $11,542,708 for the year to date
period ended September 28, 1997 from $7,758,199 for the comparable 1996 period.
Royalties and franchise related revenues were $678,369, or 5.6% of total
revenues for the year to date period ended September 28, 1997. There were no
such revenues for the comparable 1996 period. Comparable store sales for the 21
stores open for both periods increased 3.7%. Comparable sales for the Company's
converted coffee and bagel store increased 26.9% in the year to date period.
Costs and Expenses. Cost of sales and related occupancy costs as a percentage
of company owned store revenues for the year to date period ended September 28,
1997 decreased to 54.0% from 60.3% for the comparable 1996 period. The primary
components were a decrease of 3.0% in cost of goods due to better control of
store purchasing and waste, improved coffee costs due to vertical integration
and improved vendor pricing due to greater economies of scale; and a 3.3%
decrease in occupancy costs due to lower rental expense associated with stores
located outside of New York City.
Store operating expenses as a percentage of company owned store revenues for
the year to date period ended September 28, 1997 increased to 32.1% from 31.8%
for the comparable 1996 period. Miscellaneous store expenses increased 0.3% as
a percentage of company owned store revenues reflecting higher utility and other
expenses during the ramp up period of stores opened late in 1996.
Depreciation and amortization expenses as a percentage of total revenues for
the year to date period ended period September 28, 1997 increased to 13.0% from
11.4% for the comparable 1996 period primarily due to an increase in the number
of new stores opened during the latter part of 1996 which carry higher
depreciation expense as a percentage of revenues during their ramp-up period as
well as amortization related to the acquisitions made during the latter half of
1996.
-9-
<PAGE>
General and administrative expenses decreased as a percentage of total revenues
to 18.5% for the year to date period ended September 28, 1997 from 26.6% of
total revenues for the comparable 1996 period.
The Company recorded a $300,000 non-cash provision in the year to date period
ended September 28, 1997 to provide for a shortfall in the second quarter 1996
provision for store closings. For the year to date period ended September 29,
1996 the Company recorded a provision of $1,800,000 for store closings and
reorganization costs. This charge was taken to provide for the closing of five
unprofitable stores, four of which are not in residential areas, in accordance
with the Company's strategy of concentrating its business in primarily
residential areas, and the reorganization of senior management.
Interest expense, net for the year to date period ended September 28, 1997
decreased to $218,207 or 1.8% as a percentage of total revenues, from $1,057,139
or 13.6% for the comparable 1996 period. This decrease resulted primarily from
a charge taken in the first fiscal quarter of 1996 of $1,050,000 for issuance
costs relating to the Company's bridge financing prior to its initial public
offering.
Net Loss. Net loss for the year to date period ended September 28, 1997
decreased to $2,083,138 from $5,198,167 for the comparable 1996 period.
Operating margins improved to a loss of 15.3% from a loss of 53.4% in the
comparable 1996 period. This improvement is due primarily to an increase in
store operating income of 6.0% as a percentage of store revenues, franchise
related income of approximately 5.6% of total revenues, and a decrease in
general and administrative expenses of 8.1% as a percentage of total revenues
and a decrease in provisions for store closing of 16.7 %.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirement is to support its franchising
efforts. The Company currently estimates that capital expenditures through
fiscal 1997 will be approximately $200,000. The Company expects to meet its
funding requirements with cash on hand and internally generated funds.
At September 28, 1997 the Company had a working capital surplus of $1,072,385
compared to a working capital deficit of $1,086,824 at December 29, 1996. The
primary reasons for the increase in working capital were the additional
franchise revenues the company earned in the third quarter and the successful
completion of secondary stock offerings.
The Company had net cash used in operating activities of $2,540,848 for the
first nine months of 1997 compared with net cash used in operating activities of
$3,011,673 for the comparable 1996 period.
The Company had net cash used for investing activities of $863,824 for the
first nine months of 1997 compared with net cash used for investing activities
of $1,763,559 for the comparable 1996 period. The primary use of cash for
investing activities was for capital expenditures related to the Company's
retail store operations.
The Company had net cash provided by financing activities of $3,591,142 for the
first nine months of 1997. These funds were primarily the result of additional
stock offerings. The Company had net cash provided by financing activities of
$8,467,826 for the comparable 1996 period as a result of its initial public
offering which raised approximately $11.1 million in net proceeds.
-10-
<PAGE>
On May 23, 1997, the Company filed a registration statement with the Securities
and Exchange Commission on Form SB-2 relating to the sale on a minimum basis of
such number of shares of Common Stock resulting in gross proceeds of $250,000
and on a maximum basis of such number of shares of Common Stock resulting in
gross proceeds of $2,500,000. The Company realized approximately $1,875,000 in
gross proceeds from the offering of approximately 1,500,000 shares of Common
Stock. In connection with such offering, finders fees totaling approximately
$127,500 were paid to certain finders. In addition, the Company satisfied
obligations totaling approximately $480,000 through the issuance of
approximately 385,000 shares of Common Stock to among others, certain vendors.
The Company has re-negotiated the principal payment schedule of the
Willoughby's acquisition to $200,000 on July 1, 1997, $1,000,000 on April 1,
1998 and $1,100,000 on January 5, 1999.
SEASONALITY AND GENERAL ECONOMIC TRENDS
The Company anticipates that its business will be affected by general economic
trends that affect retailers in general. While the Company has not operated
during a period of high inflation, it believes based on industry experience that
it would generally be able to pass on increased costs resulting from inflation
to its customers. The Company's business may be affected by other factors,
including increases in the commodity prices of green coffee, acquisitions by the
Company of existing coffee or bagels stores, existing and additional
competition, marketing programs, weather, special or unusual events, and
variations in the number of store openings. The Company has few, if any,
employees at the minimum wage level and therefore believes that an increase in
the minimum wage would have minimal impact on its operations and financial
condition.
-11-
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PART II - OTHER INFORMATION
NEW WORLD COFFEE & BAGELS, INC.
SEPTEMBER 28, 1997
Item 1. Legal Proceedings
On May 6, 1997, a holder of Series A Preferred Stock filed an action against
the Company in the Delaware Court of Chancery in New Castle County, Delaware in
which he alleged that the Company violated the Company's Certificate of
Incorporation creating Series B Preferred Stock without obtaining the necessary
consents of the holders of Series A Preferred Stock. The plaintiff requested
that the court cancel the Series B Preferred Stock and enjoin the Company from
creating any new series of stock on parity with the Series A Preferred Stock
without complying with the Company's Certificate of Incorporation. The Company
denied that it had violated the applicable provisions of Delaware law. On July
11, 1997, the Company entered into a settlement agreement with the plaintiff
providing for the dismissal of this action.
Item 2. Changes in Securities
On May 23, 1997, the Company filed a registration statement with the
Securities and Exchange Commission on Form SB-2 relating to the sale on a
minimum basis of such number of shares of Common Stock resulting in gross
proceeds of $250,000 and on a maximum basis of such number of shares of Common
Stock resulting in gross proceeds of $2,500,000. The Company realized
approximately $1,875,000 in gross proceeds from the offering of approximately
1,500,000 shares of Common Stock. In connection with such offering, finders
fees totaling approximately $127,500 were paid to certain finders. In addition,
the Company satisfied obligations totaling approximately $480,000 through the
issuance of approximately 385,000 shares of Common Stock to among others,
certain vendors.
During the third quarter of 1997, 80 shares of Series A Convertible Preferred
Stock were exchanged for 790,842 shares of Common Stock.
On August 29, 1997 the Company completed the private placement of 1,142,857
shares of common stock with an institutional investor, realizing approximately
$900,000 in net proceeds. These unregistered shares are subject to a lockup of
six months with respect to fifty percent of the shares, and a lockup of twelve
months with respect to the remainder.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On November 4, 1997 the Company held an annual meeting of shareholders (the
"Meeting") to elect directors of the Company and to amend the certificate of
incorporation of the Company to change the name of the Company from "New World
Coffee, Inc." to New World Coffee & Bagels,
-12-
<PAGE>
Inc." At the Meeting each of the following persons were elected as directors of
the Corporation: Keith F. Barket, Ronald S. Hari, R. Ramin Kamfar, Edward McCabe
and Steven A. Rothstein. All of these individuals served as directors during the
prior term. Each of the nominees for director received 6,844,574 votes,
constituting 61.8% of the share entitled to vote. There were no votes against
any of the directors and 19,846 withheld from each of the directors. The
resolution to change the name of the Company to New World Coffee & Bagels, Inc.
was approved, with 6,840,181, shares voting for, 21,192 shares voting against,
and 3,047 shares abstaining from voting.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
NEW WORLD COFFEE & BAGELS, INC.
Date: By:
----------------------------------------
R. Ramin Kamfar
President and Chief Executive Officer
Date: By:
----------------------------------------
Jerold E. Novack
Vice President Finance
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-28-1997
<CASH> 1,606
<SECURITIES> 0
<RECEIVABLES> 1,600
<ALLOWANCES> 0
<INVENTORY> 704
<CURRENT-ASSETS> 4,078
<PP&E> 12,629
<DEPRECIATION> 3,102
<TOTAL-ASSETS> 18,265
<CURRENT-LIABILITIES> 3,006
<BONDS> 2,785
0
0
<COMMON> 11
<OTHER-SE> 12,594
<TOTAL-LIABILITY-AND-EQUITY> 18,265
<SALES> 11,543
<TOTAL-REVENUES> 12,221
<CGS> 6,229
<TOTAL-COSTS> 9,934
<OTHER-EXPENSES> 4,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> (2,083)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,083)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
