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 28, 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 May 14, 1999: 20,235,047
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
MARCH 28, 1999
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 28, 1999 and
December 27, 1998....................................................................... -3-
Condensed Consolidated Statements of Operations for the first quarter
ended March 28, 1999 and March 29, 1998................................................. -4-
Condensed Consolidated Statements of Cash Flows for the first quarter
ended March 28, 1999 and March 29, 1998................................................. -5-
Notes to Consolidated Financial Statements.................................................. -6-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the First Quarter Ended
March 28, 1999 -7-
PART II: OTHER INFORMATION...................................................................... -10-
SIGNATURES....................................................................................... -11-
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 28, December 27,
1999 1998
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ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $4,494,785 $5,269,627
Franchise and other receivables, net........................ 1,662,340 964,609
Current maturities of notes receivables..................... 1,917,296 2,103,079
Inventories................................................. 1,480,019 1,355,730
Prepaid expenses and other current assets................... 154,409 206,073
Assets held for resale...................................... 1,633,053 1,633,053
--------- ---------
Total current assets..................................... 11,341,902 11,532,171
Property, plant and equipment, net.............................. 6,738,078 6,889,876
Notes and other receivables, net................................ 1,464,117 1,391,929
Trademarks, net................................................. 9,866,667 9,966,667
Goodwill, net................................................... 7,047,670 7,097,670
Deposits and other assets....................................... 1,021,618 1,215,124
--------- ---------
Total Assets $37,480,052 $38,093,437
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable............................................ $1,992,926 $1,750,647
Accrued expenses............................................ 5,920,914 7,279,646
Current portion of long-term debt........................... 2,545,986 1,633,624
Current portion of obligations under capital leases......... 365,054 398,764
------- -------
Total current liabilities................................ 10,824,880 11,062,681
---------- ----------
Long-term debt.................................................. 12,593,686 13,530,749
Obligations under capital leases................................ - 115,591
Deferred rent................................................... 269,151 261,638
Other liabilities............................................... 4,171,246 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 outstanding........... - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 20,058,831 and 19,442,644 shares
issued and outstanding................................... 20,059 19,443
Additional paid-in capital.................................. 34,028,643 33,694,196
Accumulated deficit......................................... (24,427,613) (24,770,496)
------------ ------------
Total stockholders' equity............................... 9,621,089 8,943,143
--------- ---------
Total liabilities and stockholders' equity............... $37,480,052 $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 FIRST QUARTER ENDED MARCH 28, 1999 AND MARCH 29, 1998
UNAUDITED
<TABLE>
<CAPTION>
March 28, March 28,
1999 1998
<S> <C> <C>
Revenues:
Manufacturing revenues.............................................................. $6,044,207 $119,082
Retail sales........................................................................ 2,330,002 3,109,045
Franchise related revenues.......................................................... 1,205,628 557,093
--------- -------
Total Revenues.......................................................................... 9,579,837 3,785,220
Cost of sales....................................................................... 6,892,180 2,623,844
General and administrative expenses................................................. 1,511,171 695,090
Depreciation and amortization....................................................... 542,714 369,048
------- -------
Operating Income........................................................................ 633,772 97,238
Other Expenses:
Interest expense, net............................................................... 290,889 34,894
------- ------
Net Income.............................................................................. $342,883 $62,344
======== =======
Basic Net Income Per Common Share....................................................... $.02 $.01
==== ====
Basic Weighted Average Number of Common Shares Outstanding.............................. 19,815,173 11,784,401
========== ==========
Diluted Net Income Per Common Share..................................................... $.02 $.01
==== ====
Diluted Weighted Average Number of Common Shares Outstanding............................ 20,326,886 11,784,401
========== ==========
</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 FIRST QUARTER ENDED MARCH 28, 1999 AND MARCH 29, 1998
UNAUDITED
<TABLE>
<CAPTION>
March 28, March 29,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $342,883 $62,344
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................... 542,714 369,048
Gain on sale of fixed assets................................................ (219,585) (524,161)
Increase/(decrease) in cash as a result of changes in operating assets and
liabilities:
Receivables (697,731) 180,027
Inventories (124,289) 40,784
Prepaid expenses and other current assets................................... 51,664 12,448
Deposits and other assets................................................... 193,506 30,364
Accounts payable 242,279 71,461
Accrued expenses (1,358,732) (373,666)
Deferred rent............................................................... 7,514 -
Other liabilities........................................................... (157,587) (1,765)
--------- -------
Net cash used in operating activities........................... (1,177,364) (133,116)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (325,070) (56,634)
Proceeds from the sale of fixed assets 452,935 -
------- --------
Net cash provided by/(used in) investing activities............. 127,865 (56,634)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of issuance costs 335,064 -
Receipts of notes receivables 171,095 -
Additions to notes receivables (57,500) -
Repayments of capital leases (149,301) (123,489)
Repayment of notes payable...................................................... (24,701) (78,750)
-------- --------
Net cash provided by/(Used in) financing activities............. 274,657 (202,239)
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Net decrease in cash............................................ (774,842) (391,989)
CASH, Beginning of Period........................................................... 5,269,627 1,149,013
--------- ---------
CASH, End of Period................................................................. 4,494,785 757,024
========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... 366,352 26,549
Non-cash investing and financing activities:
Notes received from sale of fixed assets..................................... - 1,250,000
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
Noted to Consolidated Financial Statements
(Unaudited)
1. The March 28, 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; 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED MARCH 28, 1999 AND MARCH 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 March 28, 1999, the
Company's retail system consisted of 330 stores, including 25 Company-owned and
305 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.
Results of Operations
Quarter Ended March 28, 1999 Compared to Quarter Ended March 29, 1998
Revenues. Total revenues increased 153.1% to $9,579,837 for the quarter
ended March 28, 1999 from $3,785,220 for the comparable 1998 period.
Manufacturing revenues increased 4975.7% to $6,044,207 or 63.1% of total
revenues for the quarter ended March 28, 1999 from $119,082 or 3.2% of total
revenues for the comparable 1998 period, primarily as a result of the
acquisition of MBC. Retail sales decreased 25.1% to $2,330,002 or 24.3% of total
revenues for the quarter ended March 28, 1999 from $3,109,045 or 82.1% of total
revenues for the comparable 1998 period primarily due to the conversion of
Company owned stores to franchised stores. Franchise related revenues increased
116.5% to $1,205,628 or 12.6% of total revenues for the quarter ended March 28,
1999 from $557,093 or 14.7% 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 increased to 82.3% for the quarter ended March 28, 1999 from
81.3% for the comparable 1998 period. The primary components were lower margins
associated with Manhattan Bagel manufacturing revenues and temporary increases
in cost of goods and personnel costs primarily as a result of the transition in
management responsibility for the Company-owned stores.
<PAGE>
Depreciation and amortization expenses as a percentage of revenues
decreased to 5.7% for the quarter ended March 28, 1999 from 9.8% 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.
General and administrative expenses as a percentage of revenues decreased
to 15.8% for the quarter ended March 28, 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 $290,889, or 3.0% of revenues, for the
quarter ended March 28, 1999 from $34,894, or 1.2% 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 $342,883 for the quarter ended March
28, 1999 from $62,344 for the comparable 1998 period. This increase is primarily
a result of increased manufacturing gross profit and increased franchise related
revenues of $1,309,878 and $648,535 respectively which were partially offset by
a decrease in retail gross profit of $432,132 and increases in general and
administrative, interest and depreciation and amortization expenses of $816,081,
$255,995 and $173,666 respectively.
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 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 28, 1999 the Company had a working capital surplus of $517,022
compared to a working capital surplus of $469,490 at December 27, 1998.
The Company had net cash used in operating activities of $1,177,364 for the
first quarter of 1999 compared with net cash used in operating activities of
$133,116 for the first quarter of 1998. The increase in cash used predominantly
relates to the payment of primarily one time liabilities incurred in connection
with the acquisition of MBC.
The Company had net cash provided by investing activities of $127,865 for
the first quarter of 1999 compared with net cash used in investing activities of
$56,634 for the first quarter of 1998.
<PAGE>
The Company had net cash provided by financing activities of $274,657 for
the first quarter of 1999 compared with net cash used in financing activities of
$202,239 for the first quarter of 1998.
The Company may refinance some or all of its 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.
<PAGE>
PART II - OTHER INFORMATION
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
MARCH 28, 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.
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 - MANHATTAN BAGEL, INC.
Date: May 17, 1999 By: /s/R. Ramin Kamfar
-----------------------------------
R. Ramin Kamfar
Chairman and Chief Executive Officer
Date: May 17, 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> 3-MOS
<FISCAL-YEAR-END> DEC-28-1999
<PERIOD-START> DEC-29-1998
<PERIOD-END> MAR-28-1999
<CASH> 4,495,000
<SECURITIES> 0
<RECEIVABLES> 3,579,000
<ALLOWANCES> 0
<INVENTORY> 1,480,000
<CURRENT-ASSETS> 11,341,000
<PP&E> 8,164,000
<DEPRECIATION> 1,428,000
<TOTAL-ASSETS> 37,480,000
<CURRENT-LIABILITIES> 10,824,000
<BONDS> 15,134,000
0
0
<COMMON> 20,000
<OTHER-SE> 9,601,000
<TOTAL-LIABILITY-AND-EQUITY> 37,480,000
<SALES> 8,374,000
<TOTAL-REVENUES> 9,579,000
<CGS> 6,892,000
<TOTAL-COSTS> 6,892,000
<OTHER-EXPENSES> 2,054,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291,000
<INCOME-PRETAX> 343,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
