U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, including zip code)
(212) 343-0552
(Issuer's telephone number)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
---- ---
Transitional small business disclosure format ( check one): Yes No X
--- ---
Number of shares of common stock, $.001 par value per share, outstanding:
As of May 8, 1998: 12,124,027.
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
MARCH 29, 1998
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 29, 1998 and December 28, 1997. . . . . . . . . . . . . -3-
Condensed Consolidated Statements of Operations for
the three months ended March 29, 1998 and March 30, 1997 . . . -4-
Condensed Consolidated Statements of Cash Flows for
the three months ended March 29, 1998 and March 30, 1997 . . . -5-
Notes to Consolidated Financial Statements. . . . . . . . . . . . -6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
RESULTS OF CONDITION AND OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 29, 1998. . . . . . . . . . . . . . . . . . . -8-
PART II: OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . -11-
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 29, 1998
(Unaudited) December 28, 1997
-------------- -----------------
ASSETS
- ------
Current Assets:
Cash $ 757,024 $ 1,149,013
Receivables 1,005,988 936,015
Inventories 591,822 632,606
Prepaid Expenses 21,467 33,914
--------- ---------
Total Current Assets 2,376,301 2,751,548
Property and Equipment Net 5,605,042 6,686,807
Deposits and Other Assets, Net 858,595 888,959
Goodwill, net of Accumulated Amortization 3,223,839 3,274,059
Long Term Receivables 1,374,733 374,733
---------- ----------
Total Assets $13,438,509 $13,976,106
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 1,072,585 $ 1,001,123
Accrued Expenses 653,797 1,071,197
Current Portion of Notes Payable 240,000 318,750
Current Portion of Obligations Under
Capital Leases 230,869 230,869
Other Current Liabilities 177,314 227,314
--------- ---------
Total Current Liabilities 2,374,565 2,849,253
--------- ---------
Deferred Rent 443,021 444,785
--------- ---------
Long Term Notes Payable 2,407,953 2,407,953
--------- ---------
Obligations Under Capital Leases 244,437 367,926
--------- ---------
Stockholders' Equity:
Preferred stock, $.001 par value; 2,000,000
Shares Authorized - -
Series B Convertible Preferred Stock,
$.001 par value; 225 Shares Authorized,
137.5 Shares Issued, 89.25 and 109.75
Shares Outstanding - -
Common stock, $.001 par value; 20,000,000
Shares Authorized; 11,887,336 and
11,634,143 Shares Issued and Outstanding 11,887 11,634
Additional Paid-In Capital 25,173,187 25,173,440
Accumulated Deficit (17,216,541) (17,278,885)
---------- ----------
Total Stockholders' Equity 7,968,533 7,906,189
---------- ----------
Total Liabilities and Stockholders'
Equity $13,438,509 $13,976,106
========== ==========
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------
FOR THE FIRST QUARTER ENDED MARCH 29, 1998 AND MARCH 30, 1997
------------------------------------------------------------
UNAUDITED
--------
March 29, 1998 March 30, 1997
-------------- --------------
Revenues:
Store Sales $3,109,045 $3,667,555
Franchise Related Income 676,175 -
--------- --------
Total Revenues 3,785,220 3,667,555
Costs and Expenses:
Cost of Sales & Related Occupancy Costs 1,657,109 2,086,896
Store Operating Expenses 966,736 1,173,888
--------- ---------
Total Costs and Expenses 2,623,845 3,260,784
Income from Store/Franchise Operations 1,161,375 406,771
Depreciation and Amortization 369,047 520,412
General and Administrative Expenses 695,090 775,976
--------- --------
Operating Income/(Loss) 97,238 (889,617)
Other Expenses:
Interest Expense, Net (34,894) (96,123)
--------- --------
Total Other Expenses (34,894) (96,123)
Earnings/(Loss) Before Taxes 62,344 (985,740)
Basic and Diluted Net Income/(Loss) Per
Common Share $.01 $(.18)
=========== =========
Basic and Diluted Weighted Average Number
of Common Shares Outstanding 11,784,401 5,515,145
========== ==========
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------
FOR THE FIRST QUARTER ENDED MARCH 29, 1998 AND MARCH 30, 1997
------------------------------------------------------------
UNAUDITED
--------
March 29, 1998 March 30, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $62,344 $(985,740)
Adjustments to Reconcile Net Income/(Loss)
to Net Cash Used in Operating
Activities
Depreciation and Amortization 369,047 520,412
Gain on Sale of Fixed Assets (524,161) -
Increase/(Decrease) in Cash
Resulting from Changes in Operating
Assets and Liabilities
Receivables 180,027 98,124
Inventories 40,784 (153,690)
Prepaid Expenses 12,448 (158,310)
Deposits and Other Assets 30,364 (171,917)
Accounts Payable 71,461 712,945
Accrued Expenses (373,666) (537,422)
Deferred Rent (1,764) 72,301
--------- ---------
Net Cash Provided by/(Used in)
Operating Activities (133,116) (603,297)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (56,634) (809,517)
--------- ---------
Net Cash Provided by/(Used in)
Investing Activities (56,634) (809,517)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net of
Issuance Costs - 1,306,462
Repayments of Capital Leases (123,489) (114,527)
Repayment of Notes Payable (78,750) (43,750)
--------- ---------
Net Cash Provided by/(Used in)
Financing Activities (202,239) 1,148,185
Net Increase/(Decrease) in Cash (391,989) (264,629)
CASH, Beginning of Period 1,149,013 1,419,786
--------- ---------
CASH, End of Period 757,024 $1,155,157
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for:
Interest 26,549 2,625
Non-Cash Investing and Financing
Activities:
Notes Received from Sale of Fixed
Assets 1,250,000 -
Equipment Purchased under Capital
Leases - 248,385
<PAGE>
NEW WORLD COFFEE & BAGELS, INC.
---------------------------------
Notes to Consolidated Financial Statements
-----------------------------------------
(Unaudited)
----------
1. The March 29, 1998 consolidated balance sheet presented herein was derived
from the audited December 28, 1997 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. The consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended December
28, 1997 for a description of the significant accounting policies, which have
continued without change, and other note information.
3. 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.
4. During 1997, 320 shares of Series A Convertible Preferred Stock were
exchanged for 137.5 shares of Series B Convertible Preferred Stock, par value
$.001 and 1,606,094 shares of Common Stock. In addition, 27.75 shares of
Series B Convertible Preferred Stock were exchanged for 213,425 shares of
Common Stock. During the first quarter of 1998, 20.5 shares of Series B
Convertible Preferred Stock were exchanged for 196,193 shares of Common
Stock.
5. On February 27, 1997, the Company completed a private placement of
1,000,000 shares of Common Stock and realized net proceeds of $1,153,000.
6.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 State of New York
approved the UFOC.
7. On May 23, 1997, the Company completed a secondary public offering and a
subsequent filing to register and issue additional shares of Common Stock.
1,898,806 and 521,864 shares of Common Stock were issued, respectively, at a
purchase price of $1.25 per share, realizing approximately $2,347,000 in net
proceeds after expenses of approximately $679,000. 308,000 and 307,000
shares of Common Stock, respectively, were issued to vendors as payment for
the fair value of property, equipment and other services received by the
Company. In addition, 58,526 and 205,000 of shares of Common Stock,
respectively, were issued as payment for notes payable and employee
compensation.
8.On August 29, 1997 the Company completed a private placement, with an
institutional investor, of 1,142,857 shares of Common Stock, realizing
approximately $845,000 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.
<PAGE>
9. On November 4, 1997 the Company changed its name to New World Coffee &
Bagels, Inc. This action was approved at the annual shareholder meeting.
10. Pursuant to the Modification Agreement dated March 30, 1998, the payment
terms of the remaining principal amounts payable of $2,100,000 related to the
Willoughby's acquisition were amended. In accordance with the Modification
Agreement, all payments of principal and interest shall be effected only
through the conversion of these notes into common stock commencing on certain
dates through March 1999. The conversions of the notes into Common Stock,
and sales of such shares, will be effected at such time as shall be
determined by the holder of the notes, subject to certain limitations.
11. In June 1997, the FASB issued Statement of Financial Accounting Standards,
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting and display of comprehensive income and components
(revenue, expenses, gains and losses) in a full set of general purpose
financial statements. The Company does not anticipate SFAS No. 130 will have
a material impact on its financial statements.
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 1995 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 10-KSB for its 1997 fiscal year.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
New World Coffee & Bagels, Inc. currently operates 34 Company owned and
seven franchised stores, consisting of 26 in New York, seven in Connecticut,
three in Pennsylvania, four in New Jersey and one in Germany. In the fiscal
quarter ended March 29, 1998, the Company signed 14 franchise agreements, for
a total of 27 franchise agreements signed but not yet operating.
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.
In 1997 the Company launched its franchising program and its new integrated
coffee bar/bagel bakery concept. The Company is in the process of converting
its existing coffee bars to integrated coffee bar/bagel bakeries, which the
Company anticipates, would lead to substantial increases in same store sales.
In addition, New World is in the process of converting its Company owned
operations to franchisees, which the Company anticipates would improve
operations at such stores and generate significant free cash from such sales.
The Company anticipates that a substantial majority of its existing stores
will be converted to the coffee bar/bagel bakery format and to franchised
operations.
The Company forecasts the following for fiscal 1998:
(A) The Company expects to grow systemwide revenues through (i) new
franchise sales, targeting 45 in 1998, (ii) new franchise store openings,
(iii) conversion of existing coffee bars to coffee bar/bagel bakeries, and
(iv) increasing royalty and product sale revenues from operating franchisees.
New World expects franchise royalty and product sale revenues to become the
most significant and stable component of the Company's revenue structure over
time.
(B) The Company expects improved expense structure in its Company owned
stores from (i) lower cost of goods as a percentage of sales and (ii) lower
occupancy costs as a percentage of sales, both due to the bagel conversion
program.
(C) The Company expects its general and administrative expenses to
continue to decline as a percentage of systemwide revenues as anticipated
revenue growth will leverage its management infrastructure.
FISCAL QUARTER ENDED MARCH 29, 1998 COMPARED TO FISCAL QUARTER ENDED
MARCH
30, 1997
REVENUES. Total revenues increased 3.2% to $3,785,220 for the fiscal
quarter ended March 29, 1998 from $3,667,555 for the comparable 1997 period.
Company store sales decreased 15.2% to $3,109,045 for the fiscal quarter
ended March 29, 1998 from $3,667,555 for the comparable 1997 period primarily
due to the conversion of Company owned stores to franchised stores.
Royalties and franchise related revenues were $676,175 or 17.9% of total
revenues for the fiscal quarter ended March 29, 1998. There were no such
<PAGE>
revenues for the comparable 1997 period. Comparable store sales for
franchise and Company owned stores open for both periods increased by 8.9%
and (3.4%) respectively, over the same 1997 period. Comparable sales for the
Company's converted coffee bar/bagel bakery store increased 17.9% over the
same 1997 period.
COSTS AND EXPENSES. Cost of sales and related occupancy costs as a
percentage of store sales for the fiscal quarter ended March 29, 1998
decreased to 53.3% from 56.9% for the comparable 1997 period. The primary
components were a decrease of 2.0% in cost of goods due to improved store
purchasing and waste resulting from the Company's point of sale system and a
1.6% decline in occupancy costs due to lower rental expense associated with
stores located outside of New York City.
Store operating expenses as a percentage of store sales for the fiscal
quarter ended March 29, 1998 decreased to 31.1% from 32.0% for the comparable
1997 period. Store payroll as a percentage of store sales improved by 1.5%
due to improved staffing efficiencies which was partially offset by a 0.6%
increase in miscellaneous store expenses.
Depreciation and amortization expenses as a percentage of revenues for the
fiscal quarter ended March 29, 1998 decreased to 11.9% from 14.2% for the
comparable 1997 period primarily due to compliance with FASB 121 and the sale
of Company owned stores to franchisees.
General and administrative expenses as a percentage of revenues for the
fiscal quarter ended March 29, 1998 decreased to 18.3% from 21.2% for the
comparable 1997 period, as the Company's franchising effort is enabling it to
leverage its management infrastructure.
Interest expense, net for the fiscal quarter ended March 29, 1998 decreased
to $34,894, or 0.9% of revenues, from $96,123, or 2.6% of revenues for the
comparable 1997 period.
NET INCOME. Net income for the fiscal quarter ended March 29, 1998
increased to $62,344 from a net loss of $985,740 for the comparable 1997
period. Operating margins improved to a 2.6% profit from a loss of 24.3% in
the comparable 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirement is for the costs related to the
conversion of its existing stores to the New World Coffee & Bagels concept.
The Company currently estimates that capital expenditures through the
remainder of fiscal 1998 will be approximately $600,000.
The Company plans to satisfy its capital requirements through the sales
of franchises in 1998, sales of Company-owned stores to franchisees which
should generate free cash, conversion of existing coffee bars to coffee
bar/bagel bakeries which should generate substantial same-store sales
increases and improved store level expense structure, and increasing royalty
and product sale revenues from operating franchises. During 1998, the
Company renegotiated its debt payment relating to the Willoughby's
acquisition reducing the Company's immediate working capital requirements.
In addition, the Company may seek additional capital or debt financing from
time to time. There can be no assurances, however, that all of these
objectives will be attained.
<PAGE>
The Company is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Company does not
expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or
results of operations. The Company does not anticipate any material
disruption in its operations as a result of any failure by the Company to be
in compliance.
At March 29, 1998 the Company had a working capital surplus of $1,736
compared to a working capital deficit of $97,705 at December 28, 1997.
The Company had net cash used in operating activities of $133,116 for the
first quarter of 1998 compared with net cash used in operating activities of
$603,297 for the first quarter of 1997.
The Company had net cash used in investing activities of $56,634 for the
first quarter of 1998 compared with net cash used in investing activities of
$809,517 for the first quarter of 1997.
The Company had net cash used in financing activities of $202,239 for the
first quarter of 1998 compared with net cash provided by financing activities
of $1,148,185 for the first quarter of 1997.
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 and/or flour, acquisitions by the Company of existing stores,
existing and additional competition, marketing programs, weather, 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.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
NEW WORLD COFFEE & BAGELS, INC.
-----------------------------
MARCH 29, 1998
-------------
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
On February 26, 1997, the Company sold 1,000,000 shares of Common Stock
at $1.375 per share. During 1997, 320 shares of Series A Convertible
Preferred Stock were exchanged for 137.5 shares of Series B Convertible
Preferred Stock, par value $.001 and 1,606,094 shares of Common Stock. The
Series B Convertible Preferred Stock bears no dividend and has limited voting
rights except as provided under the General Corporation Law of the State of
Delaware. The Series B Convertible Preferred Stock is convertible into
shares of Common Stock. In addition, 27.75 shares of Series B Convertible
Preferred Stock were exchanged for 213,425 shares of Common Stock. During
the first quarter of 1998, 20.5 shares of Series B Convertible Preferred
Stock were exchanged for 196,193 shares of Common Stock.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW WORLD COFFEE & BAGELS, INC.
Date: 5/12/98 By: /s/ R. RAMIN KAMFAR
----------------------------------
R. Ramin Kamfar
President and Chief Executive Officer
Date:5/12/98 By: /s/ JEROLD E. NOVACK
----------------------------------
Jerold E. Novack
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-END> MAR-29-1998
<CASH> 757,024
<SECURITIES> 0
<RECEIVABLES> 2,380,721
<ALLOWANCES> 0
<INVENTORY> 591,822
<CURRENT-ASSETS> 2,376,301
<PP&E> 8,211,107
<DEPRECIATION> 2,606,065
<TOTAL-ASSETS> 13,438,509
<CURRENT-LIABILITIES> 2,374,565
<BONDS> 2,647,953
<COMMON> 11,887
0
0
<OTHER-SE> 7,956,646
<TOTAL-LIABILITY-AND-EQUITY> 13,438,509
<SALES> 3,109,045
<TOTAL-REVENUES> 3,785,220
<CGS> 993,056
<TOTAL-COSTS> 2,623,845
<OTHER-EXPENSES> 1,064,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,894
<INCOME-PRETAX> 62,344
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,344
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
