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 September 27, 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 September 27, 1998: 14,795,689.
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NEW WORLD COFFEE & BAGELS, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
September 27, 1998
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 27, 1998 and
December 28, 1997........................................................... -3-
Condensed Consolidated Statements of Operations for the fiscal quarter
and year to date period ended September 27, 1998 and
September 28, 1997.......................................................... -4-
Condensed Consolidated Statements of Cash Flows for the year to date
period ended September 27, 1998 and September 28, 1997...................... -5-
Notes to Consolidated Financial Statements..................................... -6-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE FISCAL QUARTER ENDED SEPTEMBER 27,
1998...................................................................... -10-
Item 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEAR TO DATE PERIOD ENDED SEPTEMBER 27,
1998...................................................................... -11-
PART II: OTHER INFORMATION......................................................... -13-
SIGNATURES................................................................ -14-
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NEW WORLD COFFEE & BAGLES, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 27, December 28,
1998 1997
------------ ------------
(Unaudited)
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ASSETS
Current Assets:
Cash ................................................. $ 1,016,698 $ 1,149,013
Receivables .......................................... 2,602,777 936,015
Inventories .......................................... 579,128 632,606
Prepaid expenses ..................................... 165,021 33,914
------------ ------------
Total current assets .............................. 4,363,624 2,751,548
Property and Equipment, net .............................. 4,776,568 6,686,807
Deposits and Other Assets, net ........................... 1,119,410 888,959
Goodwill, net of accumulated amortization ................ 3,123,399 3,274,059
Long Term Receivables .................................... 1,239,391 374,733
------------ ------------
Total assets ...................................... $ 14,622,392 $ 13,976,106
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable ..................................... $ 982,990 $ 1,001,123
Accrued expenses ..................................... 511,179 1,071,197
Current portion of notes payable ..................... 192,500 318,750
Current portion of obligations under capital leases .. 230,869 230,869
Other Current Liabilities ............................ 177,314 227,314
------------ ------------
Total current liabilities ......................... 2,094,852 2,849,253
------------ ------------
Deferred Rent ............................................ 254,123 444,785
------------ ------------
Long Term Notes Payable .................................. 1,364,203 2,407,953
------------ ------------
Obligations Under Capital Leases ......................... 25,976 367,926
------------ ------------
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, 58.5
and 109.75 Shares Outstanding .................... -- --
Common stock, $.001 par value; 20,000,000 Shares
Authorized; 14,795,689 and 11,634,143 Shares
Issued and Outstanding ............................ 14,796 11,634
Additional Paid-In Capital ........................... 27,931,357 25,173,440
Accumulated Deficit .................................. (17,062,915) (17,278,885)
------------ ------------
Total Stockholders' Equity ........................ 10,883,238 7,906,189
------------ ------------
Total Liabilities and Stockholders' Equity ........ $ 14,622,392 $ 13,976,106
============ ============
</TABLE>
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NEW WORLD COFFEE & BAGELS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL QUARTER ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
AND YEAR TO DATE PERIOD ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
UNAUDITED
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<CAPTION>
Fiscal Quarter Ended Year to Date Period Ended
------------------------------- -------------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
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Revenues:
Store Sales ................................... $ 3,157,167 $ 3,855,914 $ 9,539,291 $ 11,542,708
Franchise Related Income ...................... 885,942 678,369 2,304,232 678,369
------------ ------------ ------------ ------------
Total Revenues .................................... 4,043,109 4,534,283 11,843,523 12,221,077
Costs and Expenses:
Cost of Sales and Related Occupancy Costs ..... 1,631,599 1,996,502 5,007,447 6,229,461
Store Operating Expenses ...................... 1,135,683 1,191,786 3,227,570 3,704,583
------------ ------------ ------------ ------------
Total Costs and Expenses .......................... 2,767,282 3,188,288 8,235,017 9,934,044
Income from Store/Franchise Operations ............ 1,275,827 1,345,995 3,608,506 2,287,033
Depreciation and Amortization ................. 321,701 518,240 1,006,085 1,588,715
General and Administrative Expenses ........... 805,442 747,991 2,228,545 2,263,249
Provision for Store Closings .................. -- 300,000 -- 300,000
------------ ------------ ------------ ------------
Operating Income/(Loss) ........................... 148,684 (220,236) 373,876 (1,864,931)
Interest Expense, Net ......................... (66,660) (26,660) (157,906) (218,207)
------------ ------------ ------------ ------------
Net Income/(Loss) ................................. $ 82,024 $ (246,896) $ 215,970 $ (2,083,138)
============ ============ ============ ============
Basic and Diluted Net Income/(Loss) Per Common
Share ......................................... $ .01 $ (.02) $ .02 $ (.28)
============ ============ ============ ============
Basic and Diluted Weighted Average Number of Common
Shares Outstanding ............................ 14,662,391 10,074,821 12,872,019 7,483,076
============ ============ ============ ============
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NEW WORLD COFFEE & BAGELS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR TO DATE PERIOD ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
UNAUDITED
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<CAPTION>
September 27, September 28,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) .............................................................. $ 215,970 $(2,083,138)
Adjustments to Reconcile Net Income/(Loss) to Net Cash Provided by/(Used in)
Operating Activities-
Depreciation and Amortization ............................................ 1,006,085 1,588,715
Gain on Sale of Fixed Assets ............................................. (1,798,312) --
Provision for Store Closing Costs ........................................ -- 300,000
Increase/(Decrease) in Cash Resulting from Changes in Operating Assets and
Liabilities-
Receivables ....................................................... 677,776 (1,311,800)
Inventories ....................................................... 53,478 (253,186)
Prepaid Expenses .................................................. (131,107) (51,168)
Deposits and Other Assets ......................................... (230,451) 6,545
Accounts Payable .................................................. (18,133) 257,327
Accrued Expenses .................................................. (610,016) (1,048,114)
Deferred Rent ..................................................... (190,662) 53,971
----------- -----------
Net Cash Provided by/(Used in) Operating Activities ............ (1,025,372) (2,540,848)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ........................................................... (324,686) (1,459,839)
Cash Received/(Paid) from Dispositions and Acquisitions ........................ -- 611,203
Capitalized Leases ............................................................. (15,332) (15,188)
----------- -----------
Net Cash Provided by/(Used in) Investing Activities ............ (340,018) (863,824)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock, Net of Issuance Costs ................................ 2,761,079 4,405,322
Repayment of Capitalized Leases ................................................ (358,004) (552,266)
Repayment of Notes Payable ..................................................... (1,170,000) (261,914)
----------- -----------
Net Cash Provided by/(Used in) Financing Activities ............ 1,233,075 3,591,142
----------- -----------
Net Increase/(Decrease) in Cash ................................ (132,315) 186,470
CASH, Beginning of Period .......................................................... 1,149,013 1,419,786
----------- -----------
CASH, End of Period ................................................................ $ 1,016,698 $ 1,606,256
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest ....................................................................... 79,105 95,867
Non-Cash Investing and Financing Activities:
Notes Received from Sale of Fixed Assets ....................................... 2,733,500 --
Equipment Purchased Under Capital .............................................. 16,054 377,458
Leases
Issuance of Common Stock as Repayment of Promissory Note ....................... 1,100,000 --
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NEW WORLD COFFEE & BAGELS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The September 27, 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. During the second quarter of 1998, 15.75 shares of Series B
Convertible Preferred Stock were exchanged for 146,165 shares of Common
Stock. During the third quarter of 1998, 15 shares of Series B Convertible
Preferred Stock were exchanged for 138,753 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 were
subject to a lockup of six months with respect
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to fifty percent of the shares, and a lockup of twelve months with respect
to the remainder.
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 Modification Agreements dated March 30, 1998 and November 12,
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 may
be effected through the conversion of these notes into common stock
commencing on certain dates through September 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. During the second quarter of 1998, $1.0 million of the
principal related to the Willoughby's acquisition was converted into
862,068 shares of Common Stock.
11. On June 22, 1998 the Company completed a private placement of 1,208,518
shares of Common Stock, realizing approximately $1.6 million in net
proceeds.
12. 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 that 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 1996 with respect to the financial condition and
business of the Company. The words "forecast," "estimate," "plan," "intend,"
"believes," "expect," "should," "project," "would," similar expressions, and all
references to the Manhattan Bagel Company, Inc. acquisition 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 other SEC filings. In addition, the terms of the
acquisition are subject to change in advance of approval of
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the definitive plan of reorganization, and the effectiveness of the plan of
reorganization is subject to, among other things, the Bankruptcy court's prior
approval of such plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
New World Coffee & Bagels, Inc. currently operates 29 Company owned and 15
franchised stores, consisting of 28 in New York, seven in Connecticut, three in
Pennsylvania, five in New Jersey and one in Germany. In the fiscal quarter ended
September 27, 1998, the Company signed eleven franchise agreements.
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.
On July 28, 1998, the Company entered into an acquisition agreement (the
"Agreement") for the purchase of Manhattan Bagel Company, Inc., Debtor in
Possession, a New Jersey Corporation ("MBC"). MBC filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code in 1997. MBC presently
franchises, licenses or operates approximately 290 bagel stores and manufactures
bagel dough and cream cheese products at plants in Eatontown, New Jersey and Los
Angeles, California.
The acquisition would represent a substantial expansion of the Company's
operations and would increase the Company's store base by approximately 600%,
while generating approximately $120 million in annual sales. As a result of the
addition of this franchise base, the Company should experience a significant
increase in ongoing royalty income. In addition, the Company should experience a
significant increase in revenues from the addition of the company owned stores.
The Company plans to integrate its growing franchise operation with the
existing franchise operation of MBC. The Company may experience difficulties in
dealing with the MBC franchisee base as to its current issues with MBC, and/or
the upgrading of its reporting and control equipment and the introduction and
promotion of the Company's premium coffees. The Company believes that it has the
resources, including personnel, to manage these relationships in a successful
manner.
The acquisition would also expand the Company's manufacturing facilities by
the addition of two operating bagel dough/cream cheese production facilities
located in New Jersey and in California, which primarily supply the Manhattan
Bagel franchise base. As a result, the Company should experience a significant
increase in factory revenues of approximately $25 million annually, based on
historical operations. The Company has not had experience concerning bagel
dough/cream cheese plant operations, but believes that management of MBC, who
will be directly in charge of these operations, will provide significant
expertise.
Furthermore, New World's coffee factory sales are projected to increase by
supplying coffee to the Manhattan Bagel franchisees, which currently purchase
significant amounts of coffee from third party vendors. The Company believes
that the sale of its premium coffees
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by the MBC franchisees and the expansion of their coffee product line will
enhance their sales and operations. Similarly, the Company also anticipates
supplying its coffee & bagel stores with bagels and cream cheese from the MBC
plants, resulting in a corresponding increase in Manhattan Bagel's factory
sales.
The agreement includes the acquisition of Manhattan Bagel's management
infrastructure. The Company expects to realize significant savings from the
consolidation of general and administrative expenses of New World and MBC.
The Company projects the acquisition to be accretive to its earnings.
Assuming the acquisition, the approval of a reorganization plan, the benefits of
cross selling and the consolidation of general and administrative overhead had
occurred at the beginning of each period, the transaction would have been
significantly accretive on a pro forma basis for the first, second and third
quarters of 1998. The pro forma analysis does not purport to be indicative of
the results that actually would have been obtained if the combined operations
had been conducted during the periods presented, nor does it purport to be
indicative of future periods of the combined operations.
Separately, New World has received proxies, exercisable under certain
circumstances, for approximately 2 million shares or approximately 27% of the
outstanding voting stock of MBC (prior to exercise of warrant discussed
hereafter). New World has also received a warrant, exercisable under certain
circumstances, to purchase 4 million shares of newly issued shares, representing
approximately 35% of the outstanding voting stock following such exercise, of
MBC. Assuming exercise of the warrant, the above would give New World a right to
vote the majority of the outstanding common stock of MBC under certain
circumstances.
The total cost of the acquisition is presently estimated at approximately
$20 million including a combination of cash and common stock to be made
available to the creditors of MBC, and the assumption of certain liabilities to
MBC creditors.
There is no assurance as to when such acquisition will be consummated or as
to the final terms of the acquisition, in that the same may be subject to
changes by interaction between the Company, MBC and the various creditors of
MBC, and is subject to bankruptcy court approval. Accordingly, it is possible
that the Company may agree to a final plan of reorganization which involves
acquisition costs in excess of those set forth in the Agreement, although the
Company has no obligation to do so.
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Fiscal Quarter Ended September 27, 1998 Compared to Fiscal Quarter Ended
September 28, 1997
Revenues. Total revenues were $4,043,109 for the fiscal quarter ended
September 27, 1998 compared to $4,534,283 for the comparable 1997 period.
Revenues from company stores decreased 18.1% to $3,157,167 for the fiscal
quarter ended September 27, 1998 from $3,855,914 for the comparable 1997 period
primarily due to the conversion of company owned stores to franchised stores.
Royalties and franchise related revenues increased to $885,942 or 21.9% of total
revenues for the fiscal quarter ended September 27, 1998 as compared to $678,369
or 15.0% of total revenues for the comparable 1997 period. Comparable store
sales for franchise and Company owned stores open for both periods increased by
1.3% and (6.5%), respectively, over the comparable 1997 period.
Costs and Expenses. Cost of sales and related occupancy costs as a
percentage of store sales for the fiscal quarter ended September 27, 1998
decreased to 51.7% from 51.8% for the comparable 1997 period. The primary
components were a 0.2% decrease in occupancy costs which was offset by an
increase of 0.1% in cost of goods.
Store operating expenses as a percentage of store sales for the fiscal
quarter ended September 27, 1998 increased to 36.0% from 30.9% for the
comparable 1997 period. The primary components were an increase of 2.5% in store
payroll and a 2.4% increase in miscellaneous store expenses, both of which were
primarily related to training costs relating to the sale of company owned stores
to franchisees.
Depreciation and amortization expenses as a percentage of total revenues
for the fiscal quarter ended September 27, 1998 decreased to 8.0% from 11.4% for
the comparable 1997 period primarily due to compliance with "SFAS No. 121" and
the sale of company owned stores to franchisees.
General and administrative expenses as a percentage of total revenues for
the fiscal quarter ended September 27, 1998 increased to 19.9% from 16.5% for
the comparable 1997 period due to the addition of marketing and operations
support personnel. 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.
Interest expense, net for the fiscal quarter ended September 27, 1998
increased to $66,660, or 1.6% of total revenues, from $26,660, or 0.6% for the
comparable 1997 period.
Net Income/(Loss). Net income for the fiscal quarter ended September 27,
1998 increased to $82,024 from a net loss of $246,896 for the comparable 1997
period. Net income margins improved to a 2.0% profit from a loss of 5.4% in the
comparable 1997 period.
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Year to Date Period Ended September 27, 1998 Compared to the Year to Date Period
Ended September 28, 1997
Revenues. Total revenues decreased 3.1% to $11,843,523 for the year to date
period ended September 27, 1998 from $12,221,077 for the comparable 1997 period.
Revenues from company stores decreased 17.4% to $9,539,291 for the year to date
period ended September 27, 1998 from $11,542,708 for the comparable 1997 period
primarily due to the conversion of company owned stores to franchised stores.
Royalties and franchise related revenues increased to $2,304,232 or 19.5% of
total revenues for the year to date period ended September 27, 1998 from
$678,369 or 5.6% of total revenues for the comparable 1997 period. Comparable
store sales for franchise and company owned stores open for both periods
increased by 4.5% and (7.9%), respectively, over the comparable 1997 period.
Costs and Expenses. Cost of sales and related occupancy costs as a
percentage of store sales for the year to date period ended September 27, 1998
decreased to 52.5% from 54.0% for the comparable 1997 period. The primary
components were a decrease of 1.1% in cost of goods due to improved store
purchasing and waste resulting from the Company's point of sale system and a
0.4% decrease in occupancy costs.
Store operating expenses as a percentage of store sales for the year to
date period ended September 27, 1998 increased to 33.8% from 32.1% for the
comparable 1997 period. Store payroll as a percentage of store sales increased
by 0.5%. Other operating expenses as a percentage of store sales increased by a
1.2%. These increases were primarily related to training costs relating to the
sale of company owned stores to franchisees.
Depreciation and amortization expenses as a percentage of total revenues
for the year to date period ended September 27, 1998 decreased to 8.5% from
13.0% for the comparable 1997 period primarily due to compliance with "SFAS No.
121" and the sale of company owned stores to franchisees.
General and administrative expenses as a percentage of total revenues for
the year to date period ended September 27, 1998 increased to 18.8% from 18.5%
for the comparable 1997 period due to the addition of marketing and operations
support personnel. 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.
Interest expense, net for the year to date period ended September 27, 1998
decreased to $157,904, or 1.3% of total revenues, from $218,207, or 1.8% for the
comparable 1997 period.
Net Income/(Loss). Net income for the year to date period ended September
27, 1998 increased to $215,972 from a loss of $2,083,138 for the comparable 1997
period. Net income margins improved to a 1.8% profit from a loss of 17.0% in the
comparable 1997 period.
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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 1998 will be approximately $100,000. The Company expects to meet its
funding requirements with cash on hand and internally generated funds, as well
as prospective cash flow from franchising.
At September 27, 1998 the Company had positive working capital of
$2,268,772 compared to a working capital deficit of $97,705 at December 28,
1997.
The Company had net cash used in operating activities of $1,025,372 for the
year to date period ended September 27, 1998 compared with net cash used in
operating activities of $2,540,848 for the comparable 1997 period.
The Company had net cash used for investing activities of $340,018 for the
year to date period ended September 27, 1998 compared with net cash used for
investing activities of $863,824 for the comparable 1997 period.
The Company had net cash provided by financing activities of $1,233,075 for
the year to date period ended September 27, 1998. These funds were primarily the
result of a private placement of common stock. The Company had net cash provided
by financing activities of $3,591,142 for the comparable 1997 period as a result
of additional stock offerings.
The consummation of the proposed acquisition of MBC currently requires
delivery of approximately $7.3 million at the closing. The Company has received
debt financing commitments over and above the $7.3 million required to close the
transaction from institutional sources. The terms and conditions on which the
financings are to be made available may change. Such arrangements must be
consummated prior to the effective date of a plan of reorganization. The Company
has expended, and will expend, a significant amount of time and funds in
connection with the proposed acquisition of MBC.
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 espresso bars, 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.
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PART II - OTHER INFORMATION
NEW WORLD COFFEE & BAGELS, INC.
SEPTEMBER 27, 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. On June 22, 1998 the Company completed a private placement of
1,208,518 shares of Common Stock, realizing approximately $1.6 million in net
proceeds. During the second quarter of 1998, $1.0 million of the principal
amount related to the Willoughby's acquisition was converted into 862,068 shares
of Common Stock. 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. During the second quarter of 1998, 15.75 shares of Series B
Convertible Preferred Stock were exchanged for 146,165 shares of Common Stock.
During the third quarter of 1998, 15 shares of Series B Convertible Preferred
Stock were exchanged for 138,753 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
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 its behalf by the
undersigned thereunto duly authorized.
NEW WORLD COFFEE & BAGELS, INC.
Date: November 18, 1998 By: /s/ R. Ramin Kamfar
-----------------------------------
R. Ramin Kamfar
President and Chief Executive
Officer
Date: November 18, 1998 By: /s/ Jerold E. Novack
-----------------------------------
Jerold E. Novack
Chief Financial Officer
-14-
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