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 25, 2000
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
July 25, 2000:13,142,258
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
JUNE 25, 2000
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of June 25, 2000 and
December 26, 1999....................................................................... -3-
Condensed Consolidated Statements of Operations for the second quarter
and year to date period ended June 25, 2000 and June 27, 1999........................... -4-
Condensed Consolidated Statements of Cash Flows for the year to date period
ended June 25, 2000 and June 27, 1999................................................... -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 25, 2000....................................................................... -7-
Item 3. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Year to Date Period Ended
June 25, 2000....................................................................... -8-
PART II: OTHER INFORMATION...................................................................... -12-
SIGNATURES....................................................................................... -13-
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 25, December 26,
2000 1999
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ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents................................... $4,366,146 $2,880,342
Franchise and other receivables, net........................ 2,986,303 2,011,398
Current maturities of notes receivable ..................... 1,959,454 1,959,454
Inventories................................................. 2,084,726 1,845,354
Prepaid expenses and other current assets................... 1,013,912 275,694
Deferred income taxes - current portion..................... 500,000 500,000
Assets held for resale...................................... 1,994,567 1,595,036
--------- ---------
Total current assets..................................... 14,905,108 11,067,278
Property, plant and equipment, net.............................. 6,749,834 7,017,513
Notes and other receivables, net................................ 982,138 1,143,073
Trademarks, net................................................. 16,014,303 15,988,993
Goodwill, net................................................... 2,258,961 2,312,645
Deferred income taxes........................................... 6,000,000 6,000,000
Deposits and other assets....................................... 750,635 495,296
------- -------
Total assets $47,660,979 $44,024,798
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $1,609,092 $2,014,703
Accrued expenses............................................ 2,623,148 4,554,880
Current portion of long-term debt........................... 2,840,505 2,840,492
Current portion of obligations under capital leases......... 201,354 163,359
Other current liabilities................................... 505,044 49,642
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Total current liabilities................................ 7,779,143 9,623,076
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Long-term debt.................................................. 15,474,226 15,557,416
Obligations under capital leases................................ 332,491 230,692
Deferred rent................................................... 219,807 227,065
Other long term liabilities..................................... 5,913,754 6,014,784
Commitments and Contingencies
Stockholders' equity:
Series C convertible preferred stock, $.001 par
value; 500,000 shares authorized; 392,190 and 0
shares issued and outstanding............................. 392 -
Common stock, $.001 par value; 50,000,000 shares
authorized; 12,801,436 and 11,313,508 shares
issued and outstanding................................... 12,801 11,314
Additional paid-in capital.................................. 38,853,406 34,706,849
Accumulated deficit......................................... (20,925,041) (22,346,398)
------------ ------------
Total stockholders' equity............................... 17,941,558 12,371,765
---------- ----------
Total liabilities and stockholders' equity............... $47,660,979 $44,024,798
=========== ===========
</TABLE>
The accompanying 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 25, 2000 AND JUNE 27, 1999
AND YEAR TO DATE PERIOD ENDED JUNE 25, 2000 AND JUNE 27, 1999
UNAUDITED
<TABLE>
<CAPTION>
Second Quarter Ended Year To Date Ended
-------------------- ------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Manufacturing revenues............................................ $6,524,522 $6,152,254 $12,675,160 $12,196,461
Franchise related revenues........................................ 1,701,986 1,236,461 3,476,930 2,442,089
Retail sales...................................................... 1,941,251 2,399,425 3,161,751 4,729,427
--------- --------- --------- ---------
Total Revenues........................................................ 10,167,759 9,788,140 19,313,841 19,367,977
Cost of sales...................................................... 6,759,437 6,907,008 12,619,488 13,799,188
General and administrative expenses................................ 1,589,499 1,476,447 3,174,672 2,987,618
Depreciation and amortization...................................... 587,420 531,954 1,159,335 1,074,668
------- ------- --------- ---------
Operating Income....................................................... 1,231,403 872,731 2,360,346 1,506,503
Other Expenses:
Interest expense, net.............................................. 460,811 322,877 938,989 613,766
------- ------- ------- -------
Net Income............................................................. $770,592 $549,854 $1,421,357 $892,737
======== ======== ========== ========
Basic Net Income Per Common Share...................................... $.07 $.06 $.12 $.09
==== ==== ==== ====
Basic Weighted Average Number of Common Shares Outstanding.............11,746,579 9,924,720 11,566,678 9,856,661
========== ========= ========== =========
Diluted Net Income Per Common Share.................................... $.06 $.05 $.12 $.09
==== ==== ==== ====
Diluted Weighted Average Number of Common Shares Outstanding...........12,619,689 10,180,603 12,156,540 10,112,543
========== ========== ========== ==========
</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 25, 2000 AND JUNE 27, 1999
UNAUDITED
<TABLE>
<CAPTION>
June 25, June 27,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income...................................................................... $1,421,357 $892,737
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................... 1,159,335 1,074,668
(Gain)/loss on sale of fixed assets......................................... 119,344 (219,829)
Increase/(decrease) in cash as a result of changes in operating assets and
liabilities:
Receivables (974,903) (808,409)
Inventories (239,371) (136,413)
Prepaid expenses and other current assets................................... (354,424) (46,596)
Deposits and other assets................................................... (255,340) 246,021
Receipts on Notes Receivable................................................ 160,935 295,195
Accounts payable (405,610) (99,183)
Accrued expenses (511,388) (563,259)
Deferred rent............................................................... (7,258) 15,028
Other liabilities........................................................... 364,365 (159,658)
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Net cash provided by/(used in) operating activities.................. 477,042 490,302
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (216,085) (568,352)
Net Cash Paid for Acquired Store Assets......................................... (983,794) -
Proceeds from the sale of fixed assets ......................................... - 452,935
- -------
Net cash provided by/(used in) investing activities.................. (1,199,879) (115,417)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common and preferred stock, net of issuance costs................... 4,148,436 335,064
Proceeds from long term borrowings.............................................. - 77,826
Additions to notes receivable................................................... - (294,156)
Payment of liabilities in connection with acquired assets....................... (1,620,343) (1,842,197)
Repayments of capital leases.................................................... (236,275) (318,542)
Repayment of notes payable...................................................... (83,177) (450,296)
-------- ---------
Net cash provided by/(used in) financing activities.................. 2,208,641 (2,492,301)
--------- -----------
Net increase/(decrease) in cash...................................... 1,485,804 (2,117,416)
CASH, Beginning of Period........................................................... 2,880,342 5,269,627
--------- ---------
CASH, End of Period................................................................. $4,366,146 $3,152,211
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... 1,224,743 718,121
Non-cash investing and financing activities:
Equipment purchased under capital leases..................................... 376,069 359,657
</TABLE>
<PAGE>
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The June 25, 2000 consolidated balance sheet presented herein was derived
from the audited December 26, 1999 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, 1999 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.
4. On May 5, 2000, the Company acquired certain lien rights on substantially
all the assets of New York Bagel Enterprises ("NYBE") and its wholly owned
subsidiary Lots `A Bagels, Inc. ("LAB") from a bank. Both NYBE and LAB were
operating as Debtors in Possession under Chapter 11 of the bankruptcy code.
On May 13, 2000, the Company acquired the leases and other assets of 17
NYBE stores through NYBE's bankruptcy proceeding. In addition, the Company
acquired all trademarks and franchise rights for 12 stores operating under
the New York Bagel & Deli trade name. The store assets acquired are
included as Assets held for resale in the accompanying balance sheet, as
the Company intends to sell the stores to franchisees. Subsequent to May
13, 2000 the Company has included the operating results of the acquired
stores in its Consolidated Statements of Operations. Subsequent to June 25,
2000, in LAB's bankruptcy proceeding, the Company acquired the leases and
other assets of an additional 6 LAB stores.
5. On June 7, 2000, the Company issued 1,219,471 Shares of Common Stock and
392,190 shares of Series C Convertible Preferred Stock as a part of a
private placement. The proceeds from this offering, net of related expenses
were $3,628,905. Each share of the Series C Convertible Preferred Stock is
convertible into 3 shares of Common Stock. Conversion to Common Stock is
mandatory upon the registration of the underlying common stock. The Series
C Convertible Preferred Stock provides for a cumulative dividend equal to
10% per annum, based upon a deemed value of $ 7.00 per share.
<PAGE>
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
1999 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 25, 2000 AND JUNE 27, 1999
General
New World Coffee - Manhattan Bagel, Inc. is the largest franchisor of bagel
bakeries and coffee bars in the United States. It operates and franchises bagel
bakeries and coffee bars in 28 states throughout the United States and the
District of Columbia. The first Company-owned New World Coffee store opened in
1993 and the first franchised New World Coffee store opened in 1997. On November
24, 1998, the Company acquired the stock of Manhattan Bagel, Company, Inc. On
August 31, 1999, the Company acquired the assets of Chesapeake Bagel Bakery. On
May 13, 2000, the Company acquired the leases and other assets of 17 New York
Bagel Enterprises stores. At June 25, 2000 the Company's retail system consisted
of approximately 368 stores, including 29 Company-owned and 339 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 is a Delaware corporation and was organized in November 1992.
Results of Operations
Quarter Ended June 25, 2000 Compared to Quarter Ended June 27, 1999
Revenues. Total revenues increased 3.9% to $10,167,759 for the quarter
ended June 25, 2000 from $9,788,140 for the comparable 1999 period.
Manufacturing revenues increased 6.1% to $6,524,522 or 64.2% of total revenues
for the quarter ended June 25, 2000 from $6,152,254 or 62.9% of total revenues
for the comparable 1999 period. Retail sales decreased 19.1% to $1,941,251 or
19.1% of total revenues for the quarter ended June 25, 2000 from $2,399,425 or
24.5% of total revenues for the comparable 1999 period primarily due to the
conversion of Company owned stores to franchised stores. Franchise related
revenues increased 37.6% to $1,701,986 or 16.7% of total revenues for the
quarter ended June 25, 2000 from $1,236,461 or 12.6% of total revenues for the
comparable 1999 period. The increase in franchise related revenues was primarily
attributable to additional revenues from the Chesapeake Bagel Bakery brand,
which was acquired in August 1999.
Costs and Expenses. Cost of sales as a percentage of manufacturing revenues
and retail sales decreased to 79.8% for the quarter ended June 25, 2000 from
80.8% for the comparable 1999 period. The primary components of the decrease
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>
General and administrative increased to $1,589,499 or 15.6% of total
revenues for the quarter ended June 25, 2000 from $1,476,447 or 15.1% of total
revenues for the comparable 1999 period. The increase was primarily attributable
to additions to the Company's infrastructure required to support the Company's
brands.
Depreciation and amortization expenses increased to $587,420 or 5.8% of
total revenues for the quarter ended June 25, 2000 from $531,954 or 5.4% of
total revenues for the comparable 1999 period. The increase was primarily
attributable to depreciation on infrastructure improvements that the Company
made during the second half of fiscal 1999.
Interest expense, net increased to $460,811, or 4.5% of revenues, for the
quarter ended June 25, 2000 from $322,877, or 3.3% of revenues for the
comparable 1999 period. This increase is primarily due to interest costs
relating to the acquisition of the Chesapeake Bagel Bakery brand.
Net Income. Net income increased to $770,592 or 7.6 % of total revenues for
the quarter ended June 25, 2000 from $549,854 or 5.6% of total revenues for the
comparable 1999 period. This increase is primarily a result of increased
franchise related revenues and increased manufacturing and retail gross profits.
which were partially offset by increases in general and administrative expense,
interest expense and depreciation and amortization. The Company has recorded a
tax provision based upon book income for the period at its effective tax rate.
This provision has been offset, in whole, by the recording of a deferred tax
benefit resulting from management's reevaluation of the allowance applied
against its deferred tax asset. Management reevaluated the allowance in light of
recent acquisitions and changes in the Company's operations.
ITEM 3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR TO DATE PERIOD ENDED JUNE 25, 2000 AND JUNE 27, 1999
Results of Operations
Year To Date Period Ended June 25, 2000 Compared to Year To Date Period Ended
June 27, 1999
Revenues. Total revenues decreased 0.3% to $19,313,841 for the year to date
period ended June 25, 2000 from $19,367,977 for the comparable 1999 period.
Manufacturing revenues increased 3.9% to $12,675,160 or 65.6% of total revenues
for the year to date period ended June 25, 2000 from $12,196,461 or 63.0% of
total revenues for the comparable 1999 period. Retail sales decreased 33.1% to
$3,161,751 or 16.4% of total revenues for the year to date period ended June 25,
2000 from $4,729,427 or 24.4% of total revenues for the comparable 1999 period
primarily due to the conversion of Company owned stores to franchised stores.
Franchise related revenues increased 42.4% to $3,476,930 or 18.0% of total
revenues for the year to date period ended June 25, 2000 from $2,442,089 or
12.6% of total revenues for the comparable 1999 period. The increase in
franchise related revenues was primarily attributable to additional revenues
from the Chesapeake Bagel Bakery brand, which was acquired in August 1999.
Costs and Expenses. Cost of sales as a percentage of manufacturing revenues
and retail sales decreased to 79.7% for the year to date period ended June 25,
2000 from 81.5% for the comparable 1999 period. The primary components of the
decrease were the substantial shift toward manufacturing revenues and higher
margins associated with such revenues as compared to the operating margins of
Company owned stores.
General and administrative increased to $3,174,672 or 16.4% of total
revenues for the year to date period ended June 25, 2000 from $2,987,618 or
15.4% of total revenues for the comparable 1999 period. The increase was
primarily attributable to additions to the Company's infrastructure required to
support the Company's brands.
Depreciation and amortization expenses increased to $1,159,335 or 6.0% of
total revenues for the year to date period ended June 25, 2000 from $1,074,668
or 5.5% of total revenues for the comparable 1999 period. The increase was
primarily attributable to depreciation on infrastructure improvements that the
Company made during the second half of fiscal 1999.
Interest expense, net increased to $938,989, or 4.9% of revenues, for the
year to date period ended June 25, 2000 from $613,766, or 3.2% of revenues for
the comparable 1999 period. This increase is primarily due to interest costs
relating to the acquisition of the Chesapeake Bagel Bakery brand as well as
interest incurred on borrowings for infrastructure improvements.
Net Income. Net income increased to $1,421,357, or 7.4% of total revenues
for the year to date period ended June 25, 2000 from $892,737, or 4.6% of total
revenues for the comparable 1999 period. This increase is primarily a result of
increased franchise related revenues and increased manufacturing and retail
gross profits which were partially offset by increases in general and
administrative expense, interest expense and depreciation and amortization. The
Company has recorded a tax provision based upon book income for the period at
its effective tax rate. This provision has been offset, in whole, by the
recording of a deferred tax benefit resulting from management's reevaluation of
the allowance applied against its deferred tax asset. Management reevaluated the
allowance in light of recent acquisitions and changes in the Company's
operations.
Liquidity and Capital Resources
The Company plans to satisfy any of its capital requirements for the
remainder of 2000 through cash flow from operations and the sale of
Company-owned stores to franchisees, which should generate additional cash. The
Company continually accesses its ongoing capital needs and may consider the
issuance of additional shares in order to raise capital should business
conditions dictate that such is necessary.
On June 7, 2000, the Company issued 1,219,471 Shares of Common Stock and
392,190 shares of Series C Convertible Preferred Stock as a part of a private
placement. The proceeds, net of related offering expenses were $3,628,905. On
June 27, 2000 the Company completed the private placement realizing an
additional $ 494,000 in net proceeds.
At June 25, 2000 the Company had a working capital surplus of $7,125,965
compared to a working capital surplus of $1,444,202 at December 26, 1999.
The Company had net cash provided by operating activities of $477,042 for
the first six months of 2000 compared with net cash provided by operating
activities of $490,302 for the first six months of 1999.
The Company had net cash used in investing activities of $1,199,879 for the
first six months of 2000 compared with net cash used in investing activities of
$115,417 for the first six months of 1999. Cash used in investing activities
during 2000 was primarily related to acquisitions.
<PAGE>
The Company had net cash provided by financing activities of $2,208,641 for
the first six months of 2000 compared with net cash used in financing activities
of $2,492,301 for the first six months of 1999. This increase in cash provided
by financing activities primarily relates proceeds from the sale of common and
preferred stock.
The Company may refinance some or all of its funded indebtedness and incur
an increase in the amount of funded debt in 2000, 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.
JUNE 25, 2000
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
During the second quarter of 2000, the Company's board of directors
designated 500,000 shares of preferred stock as Series C Preferred 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 - MANHATTAN BAGEL, INC.
Date: August 8, 2000 By:/s/ Ramin Kamfar
-----------------
R. Ramin Kamfar
Chairman and Chief Executive Officer
Date: August 8, 2000 By:/s/ Jerold E. Novack
--------------------
Jerold E. Novack
Chief Financial Officer
