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 June 27, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-27148
New World Coffee - Manhattan Bagel, 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.)
246 Industrial Way West
Eatontown, NJ 07724
(Address of principal executive offices, including zip code)
(732) 544-0155
(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 August 4, 1999: 20,485,047
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
JUNE 27, 1999
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of June 27, 1999 and
December 27, 1998....................................................................... -3-
Condensed Consolidated Statements of Operations for the second quarter
and year to date period ended June 27, 1999 and June 28, 1998........................... -4-
Condensed Consolidated Statements of Cash Flows for the year to date period
ended June 27, 1999 and June 28, 1998................................................... -5-
Notes to Consolidated Financial Statements.................................................. -6-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Second Quarter Ended
June 27, 1999....................................................................... -7-
Item 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Year to Date Period Ended
June 27, 1999....................................................................... -8-
PART II: OTHER INFORMATION...................................................................... -12-
SIGNATURES....................................................................................... -13-
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 27, December 27,
1998 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $3,152,311 $5,269,627
Franchise and other receivables, net........................ 1,773,018 964,609
Current maturities of notes receivables..................... 2,393,981 2,103,079
Inventories................................................. 1,492,143 1,355,730
Prepaid expenses and other current assets................... 252,669 206,073
Assets held for resale...................................... 1,633,053 1,633,053
--------- ---------
Total current assets..................................... 10,697,175 11,532,171
Property, plant and equipment, net.............................. 6,959,062 6,889,876
Notes and other receivables, net................................ 1,100,688 1,391,929
Trademarks, net................................................. 15,733,334 9,966,667
Goodwill, net................................................... 1,031,003 7,097,670
Deposits and other assets....................................... 969,103 1,215,124
------- ---------
Total assets $36,490,365 $38,093,437
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable............................................ $1,651,464 $1,750,647
Accrued expenses............................................ 4,873,319 7,279,646
Current portion of long-term debt........................... 3,333,818 1,633,624
Current portion of obligations under capital leases......... 374,532 398,764
------- -------
Total current liabilities................................ 10,233,133 11,062,681
---------- ----------
Long-term debt.................................................. 11,459,605 13,530,749
Obligations under capital leases................................ 180,938 115,591
Deferred rent................................................... 276,665 261,638
Other liabilities............................................... 4,169,279 4,179,635
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000
shares authorized; 0 issued and outstanding.............. - -
Series B convertible preferred stock, $.001 par value; 225 Shares Authorized, 43.5 shares issued
and outstanding.............................................
- -
Common stock, $.001 par value; 50,000,000 shares
authorized; 20,485,047 and 19,442,644 shares
issued and outstanding................................... 20,485 19,443
Additional paid-in capital.................................. 34,028,217 33,694,196
Accumulated deficit......................................... (23,877,957) (24,770,496)
------------ ------------
Total stockholders' equity............................... 10,170,745 8,943,143
---------- ---------
Total liabilities and stockholders' equity............... $36,490,365 $38,093,437
=========== ===========
</TABLE>
The accompany notes are an integral part of these consolidated balance
sheets.
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SECOND QUARTER ENDED JUNE 27, 1999 AND JUNE 28, 1998
AND YEAR TO DATE PERIOD ENDED JUNE 27, 1999 AND JUNE 28, 1998
UNAUDITED
<TABLE>
<CAPTION>
Second Quarter Ended Year To Date Ended
June 27,1999 June 28, 1998 June 27, 1999 June 28, 1998
<S> <C> <C> <C> <C>
Revenues:
Manufacturing revenues......................................$6,152,254 $ 112,402 $12,196,4611 $ 231,484
Retail sales.................................................2,399,425 3,041,595 4,729,427 6,150,640
Franchise related revenues...................................1,236,461 861,197 2,442,089 1,418,290
--------- --------- ---------- ---------
Total Revenues...................................................9,788,140 4,015,194 19,367,977 7,800,414
Cost of sales................................................6,907,008 2,843,891 13,799,188 5,458,013
General and administrative expenses..........................1,476,447 728,013 2,987,618 1,433,103
Depreciation and amortization..................................531,954 315,336 1,074,668 684,384
--------- --------- --------- -------
Operating Income...................................................872,731 127,954 1,506,503 215,192
Other Expenses:
Interest expense, net..........................................322,877 56,350 613,766 81,244
------- ------ ------- ------
Net Income........................................................$549,854 $71,604 $892,737 $133,948
======== ======= ======== ========
Basic Net Income Per Common Share.....................................$.03 $.01 $.05 $.01
==== ==== ==== ====
Basic Weighted Average Number of Common Shares
Outstanding.................................................19,849,440 12,168,587 19,713,321 11,976,494
========== ========== ========== ==========
Diluted Net Income Per Common Share...................................$.03 $.01 $.04 $.01
==== ==== ==== ====
Diluted Weighted Average Number of Common Shares
Outstanding.................................................20,361,205 12,168,587 20,225,086 11,976,494
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR TO DATE PERIOD ENDED JUNE 27, 1999 AND JUNE 28, 1998
UNAUDITED
<TABLE>
<CAPTION>
June 27, June 28,
1998 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $892,737 $ 133,948
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................... 1,074,668 684,384
Gain on sale of fixed assets................................................ (219,829) (1,128,458)
Increase/(decrease) in cash as a result of changes in operating assets and
liabilities:
Receivables (808,409) 205,742
Inventories (136,413) 33,839
Prepaid expenses and other current assets................................... (46,596) (25,092)
Deposits and other assets................................................... 246,021 (42,739)
Accounts payable (99,183) (106,938)
Accrued expenses (563,259) (793,022)
Deferred rent............................................................... 15,028 26,473
Other liabilities........................................................... (159,658) -
--------- ---------
Net cash provided by/(used in) operating activities................................ 195,107 (1,011,863)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (568,352) (292,490)
Proceeds from the sale of fixed assets ......................................... 452,935 -
--------- ----------
Net cash provided by/(used in) investing activities.................. (115,417) (292,490)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of issuance costs................................. 335,064 1,590,187
Proceeds from long term borrowings.............................................. 77,826 -
Receipts on notes receivable.................................................... 295,195 -
Additions to notes receivable................................................... 294,156) -
Payment of liabilities in connection with acquired assets (1,842,197) -
Repayments of capital leases.................................................... (318,542) (120,815)
Repayment of notes payable...................................................... (448,776) (26,250)
--------- ---------
Net cash provided by/(used in) financing activities.................. (2,195,586) 1,443,122
----------- ---------
Net increase(decrease) in cash....................................... (2,117,416) 138,769
CASH, Beginning of Period........................................................... 5,269,627 1,149,013
--------- ---------
CASH, End of Period................................................................. 3,152,211 1,287,782
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... 718,121 53,334
Non-cash investing and financing activities:
Equipment purchased under capital leases..................................... 359,657 15,332
Issuance of Common Stock as repayment of promissory note..................... - 1,100,000
Notes received from sale of fixed assets..................................... - 2,373,750
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1 The June 27, 1999 consolidated balance sheet presented herein was derived
from the audited December 27, 1998 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 27, 1998 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. Certain
reclassifications have been made to the prior interim financial statements to
conform to the current interim presentation.
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; the ability to integrate acquisitions successfully;
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 , in the Company's Form 10-KSB for its
1998 fiscal year, and in the Company's most recent S-3 filing which are
incorporated by reference herein.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SECOND QUARTER ENDED JUNE 27, 1999 AND JUNE 28, 1998
General
New World Coffee - Manhattan Bagel, Inc., a Delaware Corporation organized
in 1992, is one of the largest franchisors of coffee bars and bagel bakeries in
the United States. It operates and franchises coffee bars, bagel bakeries and
integrated coffee bar/bagel bakeries in 18 states in the Northeastern,
Southeastern and Southwestern United States, the District of Columbia, and
internationally. The first Company-owned New World Coffee store opened in 1993
and the first franchised New World Coffee store opened in 1997. The Company
acquired the stock of Manhattan Bagel Company, Inc. - Debtor in Possession
("MBC") on November 24, 1998, resulting in the addition of 6 Company-owned and
285 franchised and licensed Manhattan Bagel stores. At June 27, 1999, the
Company's retail system consisted of 319 stores, including 24 Company-owned and
295 franchised and licensed stores.
The Company is vertically integrated with bagel dough and cream cheese
manufacturing plants in Eatontown, NJ and Los Angeles, CA, and a coffee roasting
plant in Branford, CT. The Company's products are sold to franchised, licensed
and Company-owned stores as well as to wholesale supermarket and non-traditional
outlets.
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 strategic plan does not
include the development of additional Company owned stores.
Results of Operations
Quarter Ended June 27, 1999 Compared to Quarter Ended June 28, 1998
Revenues. Total revenues increased 143.8% to $9,788,140 for the quarter
ended June 27, 1999 from $4,015,194 for the comparable 1998 period.
Manufacturing revenues increased 5373.4% to $6,152,254 or 62.9% of total
revenues for the quarter ended June 27, 1999 from $112,402 or 2.8% of total
revenues for the comparable 1998 period, primarily as a result of the
acquisition of MBC. Retail sales decreased 21.1% to $2,399,425 or 24.5% of total
revenues for the quarter ended June 27 1999 from $3,041,595 or 75.8% of total
revenues for the comparable 1998 period primarily due to the conversion of
Company owned stores to franchised stores. Franchise related revenues increased
43.6% to $1,236,461 or 12.6% of total revenues for the quarter ended June 27,
1999 from $861,197 or 21.4% of total revenues for the comparable 1998 period,
primarily as a result of the acquisition of MBC.
Costs and Expenses. Cost of sales as a percentage of manufacturing revenues
and retail sales decreased to 80.8% for the quarter ended June 27, 1999 from
90.2% for the comparable 1998 period. The primary components of the increase
were the substantial shift toward manufacturing revenues and higher margins
associated with such revenues as compared to the operating margins of Company
owned stores.
<PAGE>
Depreciation and amortization expenses as a percentage of revenues
decreased to 5.4% for the quarter ended June 27, 1999 from 7.9% for the
comparable 1998 period primarily due to an increase in the Company's revenue
base, the sale of Company owned stores to franchisees and the Company's previous
compliance with FASB 121.
General and administrative expenses as a percentage of revenues decreased
to 15.1% for the quarter ended June 27, 1999 from 18.1% for the comparable 1998
period, primarily as a result of the Company's revenue growth which is enabling
it to better leverage its management infrastructure.
Interest expense, net increased to $322,877, or 3.3% of revenues, for the
quarter ended June 27, 1999 from $56,350,or 1.4% of revenues for the comparable
1998 period. This increase is primarily due to interest costs relating to the
acquisition of MBC.
Net Income. Net income increased to $549,854 for the quarter ended June 27,
1999 from $71,604 for the comparable 1998 period. This increase is primarily a
result of increased manufacturing and retail gross profit of $1,334,565 and
increased franchise related revenues of $375,264 which were partially offset by
increases in general and administrative expenses of $748,434, interest expense
of $ 266,527 and depreciation and amortization expense of $216,618.
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR TO DATE PERIOD ENDED JUNE 27, 1999 AND JUNE 28, 1998
Results of Operations
Year To Date Period Ended June 27, 1999 Compared to Year To Date Period
Ended June 28, 1998
Revenues. Total revenues increased 148.3% to $19,367,977 for the year to
date period ended June 27, 1999 from $7800,414 for the comparable 1998 period.
Manufacturing revenues increased 5168.8% to $12,196,461 or 63.0% of total
revenues for the year to date period ended June 27, 1999 from $231,484 or 3.0%
of total revenues for the comparable 1998 period, primarily as a result of the
acquisition of MBC. Retail sales decreased 23.1% to $4,729,427 or 24.4% of total
revenues for the year to date period ended June 27, 1999 from $6,150,540 or
78.9% of total revenues for the comparable 1998 period primarily due to the
conversion of Company owned stores to franchised stores. Franchise related
revenues increased 72.2% to $2,442,089 or 12.6% of total revenues for the year
to date period ended June 27, 1999 from $1,418,290 or 18.2% of total revenues
for the comparable 1998 period, primarily as a result of the acquisition of MBC.
Costs and Expenses. Cost of sales as a percentage of manufacturing revenues
and retail sales decreased to 81.5% for the year to date period ended June 27,
1999 from 85.5% for the comparable 1998 period. The primary components of the
increase were the substantial shift toward manufacturing revenues and higher
margins associated with such revenues as compared to the operating margins of
Company owned stores.
Depreciation and amortization expenses as a percentage of revenues
decreased to 5.5% for the year to date period ended June 27, 1999 from 8.8% for
the comparable 1998 period primarily due to an increase in the Company's revenue
base, the sale of Company-owned stores to franchisees and the Company's previous
compliance with FASB 121.
<PAGE>
General and administrative expenses as a percentage of revenues decreased
to 15.4% for the year to date period ended June 27, 1999 from 18.4% for the
comparable 1998 period, primarily as a result of the Company's revenue growth
which is enabling it to better leverage its management infrastructure.
Interest expense, net increased to $613,766, or 3.2% of revenues, for the
year to date period ended June 27, 1999 from $81,244, or 1.0% of revenues for
the comparable 1998 period. This increase is primarily due to interest costs
relating to the acquisition of MBC.
Net Income. Net income increased to $892,737 for the year to date period
ended June 27, 1999 from $133,948 for the comparable 1998 period. This increase
is primarily a result of increased manufacturing and retail gross profit of
$2,202,589 and increased franchise related revenues of $1,023,799 which were
partially offset by increases in general and administrative expenses of
$1,554,515, interest expense of $532,522 and depreciation and amortization
expense of $390,284.
Liquidity and Capital Resources
The Company plans to satisfy its capital requirements in 1999 through cash
flow from operations and through the sale of Company owned stores to
franchisees, which should generate additional free cash.
The Company is currently in the process of completing the modification of
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 June 27, 1999 the Company had a working capital surplus of $464,542
compared to a working capital surplus of $469,490 at December 27, 1998.
The Company had net cash provided by operating activities of $195,107 for
the first six months of 1999 compared with net cash used in operating activities
of $1,011,863 for the first six months of 1998. The increase in net cash
provided by operating activities primarily reflects the increased net income of
the Company.
The Company had net cash used in investing activities of $115,417 for the
first six months of 1999 compared with net cash used in investing activities of
$292,490 for the first six months of 1998.
<PAGE>
The Company had net cash used in financing activities of $2,195,586 for the
first six months of 1999 compared with net cash provided by financing activities
of $1,443,122 for the first six months of 1998. This increase primarily relates
to the payment of acquisition related liabilities.
The Company may refinance some or all of its funded indebtedness and incur
an increase in the amount of funded debt in 1999, to better leverage its asset
base and reduce borrowing costs. There can be no assurance that such refinancing
will be accomplished or as to the amount or the cost of such refinancing.
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 employees at the minimum wage level and therefore
believes that an increase in the minimum wage would have little impact on its
operations and financial condition.
Revaluation of Trademarks
In the second quarter the Company commissioned an independent valuation
firm to determine the value of the intellectual property purchased in the
Manhattan Bagel Company, Inc. acquisition. In accordance with the resultant
valuation, the Company increased the book value of the trademarks purchased by
$6 Million, with an offsetting reduction in Goodwill.
Subsequent Event
On July 26, 1999 the Company signed an agreement to acquire Chesapeake
Bagel Bakery from AFC Enterprises, under which the Company would add 89
Chesapeake franchised locations to its system. The closing of the transaction is
subject to the Company's completion of operational due diligence and standard
closing conditions. There can be no assurance that such conditions shall be met
and that the acquisition will close.
<PAGE>
PART II - OTHER INFORMATION
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
JUNE 27, 1999
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
During the first quarter of 1999, 15 shares of Series B Convertible
Preferred Stock were exchanged for 126,665 shares of Common Stock.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On March 24, 1999 a special meeting of shareholders was held. The
shareholders voted to approve the name change of the Company to New World Coffee
- - Manhattan Bagel, Inc. Additionally the shareholders approved an increase in
the number of authorized shares of common stock to 50,000,000 shares.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. None
(b) Reports on Form 8-K. On June 14, 1999 the filed an 8-K report relating
to the adoption of a Shareholder Rights Plan and the entering into of a
Shareholder Rights Agreement.
<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 - MANHATTAN BAGEL, INC.
Date: August 10, 1999 By: /s/R. Ramin Kamfar
-------------------------
R. Ramin Kamfar
Chairman and Chief Executive Officer
Date: August 10, 1999 By: /s/Jerold E. Novack
-------------------------
Jerold E. Novack
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000949373
<NAME> New World Coffee - Manhattan Bagel, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> MAR-27-1999
<PERIOD-END> JUN-27-1999
<CASH> 3,152
<SECURITIES> 0
<RECEIVABLES> 3,646
<ALLOWANCES> 0
<INVENTORY> 1,492
<CURRENT-ASSETS> 10,175
<PP&E> 8,921
<DEPRECIATION> 1,971
<TOTAL-ASSETS> 36,490
<CURRENT-LIABILITIES> 10,233
<BONDS> 15,619
0
0
<COMMON> 20
<OTHER-SE> 10,150
<TOTAL-LIABILITY-AND-EQUITY> 36,490
<SALES> 16,926
<TOTAL-REVENUES> 19,368
<CGS> 7,195
<TOTAL-COSTS> 7,195
<OTHER-EXPENSES> 4,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614
<INCOME-PRETAX> 892
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892
<EPS-BASIC> .05
<EPS-DILUTED> .04
</TABLE>
