U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number 0-24388
MANHATTAN BAGEL COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2981539
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
246 Industrial Way West, Eatontown, New Jersey 07724
(Address of principal executive offices)
(908) 544-0155
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the last 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___
Number of shares of Common Stock, no par value, outstanding at June 30, 1996:
7,448,465.
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - 1
June 30, 1996
Condensed Consolidated Statements of Income - 3
Three and six months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows - 4
Six months ended June 30, 1996 and 1995
Notes to Consolidated Combined Financial Statements 5
Item 2. Management's Discussion and Analysis of 8
Results of Operations and Financial Condition
Part II Other Information
-----------------
Item 4. Submission of Matters to a Vote of Security-Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Part 1 - Financial Information
Item 1 Financial Statements
MANHATTAN BAGEL COMPANY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,1996
------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $73,499
Marketable securities 17,114,691
Accounts receivable, net of allowance for
doubtful accounts of $14,564 8,231,800
Inventories 1,250,808
Current maturities of notes receivable 85,404
Income taxes receivable 917,314
Prepaid expenses and other current assets 766,880
-------------
Total current assets 28,440,396
-------------
Property and equipment, net of accumulated
depreciation of $2,659,882 11,674,726
-------------
Other assets
Notes receivable, net of current maturities 6,313,875
Notes receivable-related parties 114,509
Goodwill, net of accumulated amortization of
$116,787 6,331,446
Security deposits 698,915
Other assets 2,560,482
-------------
Total Assets $56,134,349
=============
See accompanying notes to condensed consolidated financial statements
MANHATTAN BAGEL COMPANY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30,1996
------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $1,725,870
Current maturities of capital lease obligations 140,613
Accounts payable and accrued expenses 5,079,160
Unearned franchise fee income 199,409
Franchise deposits 346,667
Deferred income taxes 6,700
Other current liabilities 51,492
-------------
Total current liabilities 7,549,911
-------------
Other liabilities
Long-term debt, net of current maturities 4,164,213
Capital lease obligations, net of current maturities 491,151
Security deposits 362,341
Deferred income taxes and other liabilities 241,000
-------------
5,258,705
-------------
Stockholders' equity
Preferred stock, 2,000,000 shares authorized,
no shares issued or outstanding -
Common stock, no par value, 25,000,000 shares
authorized, 7,448,465 issued
and outstanding 40,054,488
Retained earnings 3,271,245
-------------
Total stockholders' equity 43,325,733
-------------
Total liabilities and stockholders' equity $56,134,349
=============
See accompanying notes to condensed consolidated financial statements
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------- -------------- -------------- -------------
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
Product sales $7,344,916 $4,161,761 $13,811,402 $7,170,298
Franchise & license related revenue 2,432,619 1,219,301 4,721,760 2,153,121
Other income 94,813 27,099 164,930 71,271
--------------- -------------- -------------- ---------------
Total revenue 9,872,348 5,408,161 18,698,092 9,394,690
--------------- -------------- -------------- ---------------
Operating expenses
Cost of goods sold 3,830,960 2,254,571 7,136,262 3,918,561
Selling, general & administrative expenses 5,381,173 2,657,092 10,160,303 4,805,628
Non recurring charges 713,000 - 713,000 -
Interest (income) (251,037) (4,820) (519,574) (21,104)
Interest expense 132,948 31,699 186,252 62,956
--------------- -------------- -------------- ---------------
Total operating expenses 9,807,044 4,938,542 17,676,243 8,766,041
--------------- -------------- -------------- ---------------
Earnings before provision for income taxes 65,304 469,619 1,021,849 628,649
Provision for income taxes (109,807) 256,549 186,794 372,307
--------------- -------------- -------------- ---------------
Net income $175,111 $213,070 $835,055 $256,342
=============== ============== ============== ===============
Net income per share $0.02 $0.04 $0.11 $0.05
=============== ============== ============== ===============
Weighted average number of common &
common equivalent shares outstanding 7,478,037 5,558,156 7,386,285 5,558,156
=============== ============== ============== ===============
See accompanying notes to condensed consolidated financial statements
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
---------------------------------------
1996 1995
(Unaudited) (Unaudited)
Net cash provided (used) by operating activities ($2,542,550) $249,588
------------------ -----------------
Cash flows from investing activities
Purchase of marketable securities (5,001,440) -
Acquisition and construction of property (2,438,711) (3,291,364)
Issuance of notes receivable (6,095,079) -
Other net cash provided by
investing activities (1,753,861) 578,092
------------------ -----------------
Net cash used by investing activities (15,289,091) (2,713,272)
------------------ -----------------
Cash flows from financing activities
Proceeds from issuance of common stock 3,333,652 15,000
Investment in subsidiary 5,390,512 -
Other financing activities 1,166,457 843,184
------------------ -----------------
Net cash provided (used) by financing activities (9,890,621) 858,184
------------------ -----------------
Net decrease in cash and cash equivalents (7,941,020) (1,605,500)
Cash and cash equivalents - beginning 8,014,519 2,052,032
------------------ -----------------
Cash and cash equivalents - ending $73,499 $446,532
================== =================
See accompanying notes to condensed consolidated financial statements
MANHATTAN BAGEL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
---------------------
The financial information in this report should be read in conjunction with
the Financial Statements included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 and Current Report on Form 8-K reporting
the acquisition of Specialty Bakeries, Inc. on May 22, 1996 as amended.
The comparative amounts for 1995 have been restated to reflect the
acquisition of Specialty Bakeries, Inc. on May 22, 1996 accounted for as a
pooling of interest. See Note 3.
In the opinion of management, the accompanying financial statements include
all adjustments necessary for a fair presentation. All such adjustments are of a
normal recurring nature with the exception of those charges discussed in Note 5.
The results of operations for the three and six months ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
Note 2 - Inventories
-----------
June 30, 1996
-------------
Raw materials $ 339,071
Finished Goods 911,737
---------
$1,250,808
==========
Note 3 - Acquisitions
------------
On January 9, 1996, the Company completed the acquisition of Bay Area
Bagels, Inc., a private company which owned eight bagel bakery stores in the San
Francisco Area. The purchase price was 65,500 shares of Common stock of the
Company and $85,000. The transaction was treated as a purchase for accounting
purposes.
On January 17, 1996, the Company completed the acquisition of three stores
in the Los Angeles market, which were licensed locations of I&J Bagels, Inc.
Such stores are being operated as company owned locations. The purchase price
was $1,500,000 and was treated as a purchase for accounting purchases.
On May 22, 1996, the Company completed the acquisition of Specialty
Bakeries, Inc. ("SBI") a private company which owned and franchised a total of
23 bagel bakery stores in the
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Southern New Jersey and Philadelphia areas operating under the name Bagel
Builders. The Company completed the acquisition through the merging of a newly
created, wholly owned subsidiary of the Company with and into SBI and 132,500
shares of common stock of the Company were issued to the shareholders of SBI.
This transaction was structured to be a tax-free reorganization and is being
accounted for as a pooling of interests. Net revenues and net income included in
the Company's Consolidated Statements of income are as follows ($ thousands):
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Net Revenues
Manhattan Bagel Company, Inc. $9,100 $4,596 $17,059 $7,807
Specialty Bakeries, Inc. 772 812 1,639 1,588
------ ------ ------- ------
$9,872 $5,408 $18,698 $9,395
====== ====== ======= ======
Net Income
Manhattan Bagel Company, Inc. $ 218 $ 422 $ 864 $ 594
Specialty Bakeries, Inc. (43) (209) (29) (338)
------ ------ ------- ------
$ 175 $ 213 $ 835 $ 256
====== ====== ======= ======
On June 28, 1996, the Company completed a transaction under which it added
23 Bagel Brothers stores (including two under development) to its franchise
network. Under terms of the agreement, the Company purchased the Bagel Brothers
bagel dough factories in Cleveland and Buffalo for $2,000,000 and 50,000 shares
of the Company's common stock. This transaction was treated as a purchase for
accounting purposes. Additionally, the Company provided Bagel Brothers with
$6,000,000 in financing, which, among other things, provided funds to retire
existing loans, to pay franchise fees, and to remodel of the 21 operating stores
to the Manhattan Bagel format. The Company has the right to convert the loan to
equity should certain profit targets be met.
Note 4 - Restatement of the Three Months ending March 31, 1996
-----------------------------------------------------
Following the installation of new management at its I&J West Coast
subsidiary and subsequent to the Company's filing of its first quarter 10-QSB,
the Company uncovered certain improper bookkeeping and accounting practices at
the Los Angeles subsidiary. As a result, the Board of Directors authorized a
full investigation into the accounting practices at the subsidiary and retained
special counsel to assist in the investigation. Based on the conclusion of that
investigation, the Company has restated its first quarter 1996 Statement of
Operations to reduce revenues $90,000 and record additional expenses of
$290,000. Such adjustments are reflected in the Financial Statements for the six
month period ending June 30, 1996.
-6-
Note 5 - Non-Recurring Charge
--------------------
Professional fees associated with the special investigation (see Note 4)
and the class action lawsuits (see Note 6), and settlements of certain
consulting agreements totaling approximately $713,000 are included in the
Statement of Operations for the three and six month periods ended June 30, 1996.
Note 6 - Contingencies
-------------
On June 20, 1996, the Company announced that following the installation of
new management at its I&J West Coast subsidiary, the Company has uncovered
certain improper bookkeeping and accounting practices at the Los Angeles
subsidiary, that it would be restating its first quarter 1996 Statement of
Operations to account for these improper practices and that it expected the West
Coast subsidiary will operate at a close to break-even level for the remainder
of 1996. On the day following the announcement the stock price of the Company's
common stock declined from a closing price of $21.25 on June 20, 1996 to a
closing price of $13.75 on June 21, 1996. As a result, certain class action law
suits have been filed. The Company believes it has acted properly and has
adequate defenses to such actions. Accordingly, no provisions for these
contingencies have been made. Certain cost of the defense of these actions have
been included in the non-recurring charge (see Note 5).
-7-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Following the installation of new management at its I&J West Coast
subsidiary and subsequent to the company's filing of its first quarter 10-QSB,
the Company uncovered certain improper bookkeeping and accounting practices at
the Los Angeles subsidiary. As a result, the Board of Directors authorized a
full investigation into the accounting practices at the subsidiary and retained
special counsel to assist in the investigation. Based on the conclusion of that
investigation, the company has restated its first quarter 1996 Statement of
Operations to reduce revenues $90,000 and record additional expenses of
$290,000. Such adjustments are reflected in the Financial Statements for the six
month period ending June 30, 1996. Simultaneously with the public announcement
by the Company of the improprieties uncovered at the I&J subsidiary, the Company
announced it expected the West Coast subsidiary will operate at a close to
break-even level for the remainder of 1996. On the day following the
announcement, the Company's common stock declined from a closing price of $21.25
on June 20, 1996 to a closing price of $13.75 on June 21, 1996. As a result,
certain class action law suits have been filed. The Company believes it has
acted properly and has adequate defenses to such actions. Accordingly, no
provisions for these contingencies have been made. Certain cost of the defense
of these actions have been included in the non-recurring charge. The
non-recurring charge also includes professional fees associated with the special
investigation and settlements of certain consulting agreements totaling
approximately $713,000 are included in the Statement of Operations for the three
and six month periods ended June 30, 1996. See Note 5, Notes to the Condensed
Consolidated Financial Statements. This non-recurring charge substantially
effects the comparability of the results to prior periods.
On June 29, 1995, the Company acquired I&J Bagels Inc. ("I&J"). I&J was a
private company which owned and licensed a total of 17 bagel bakery stores in
the Los Angeles area operating under the name of I & Joy Bagels. The Company
completed the acquisition through the merging of a newly created, wholly-owned
subsidiary of the Company with DAB Industries Inc., ("DAB") whose sole asset is
all of the stock of I&J, in exchange for 1.5 million shares of Common Stock of
the Company. Accordingly, the consolidated financial statements for periods
prior to June 29, 1995 have been restated to include the accounts and results of
operations of I&J for all the periods presented.
On January 9, 1996, the Company completed the acquisition of Bay Area
Bagels, Inc., a private company which owned eight bagel bakery stores in the San
Francisco Area. The purchase price was 65,500 shares of Common stock of the
Company and $85,000. The transaction was treated as a purchase for accounting
purposes.
On January 17, 1996, the Company completed the acquisition of three stores
in the Los Angeles market, which were licensed locations of I&J Bagels, Inc.
Such stores are being operated as company owned locations. The purchase price
was $1,500,000 and was treated as a purchase for accounting purchases.
-8-
On May 22, 1996, the Company completed the acquisition of Specialty
Bakeries, Inc. ("SBI") a private company which owned and franchised a total of
23 bagel bakery stores in the Southern New Jersey and Philadelphia areas
operating under the name Bagel Builders. The Company completed the acquisition
through the merging of a newly created, wholly owned subsidiary of the Company
with and into SBI and 132,500 shares of common stock of the Company were issued
to the shareholders of SBI. This transaction was structured to be a tax-free
reorganization and is being accounted for as a pooling of interests. See Note 3,
Notes to Condensed Consolidated Financial Statements.
On June 28, 1996, the Company completed a transaction under which it added
23 Bagel Brothers stores (including two under development) to its franchise
network. Under terms of the agreement, the company purchased the Bagel Brothers
bagel dough factories in Cleveland and Buffalo for $2,000,000 and 50,000 shares
of the Company's common stock. This transaction was treated as a purchase for
accounting purposes. Additionally, the Company provided Bagel Brothers with
$6,000,000 in financing, which, among other things, provided funds to retire
existing loans, to pay franchise fees, and to remodel the 21 operating stores to
the Manhattan Bagel format. The Company has the right to convert the loan to
equity should certain profit targets be met.
Results of Operations
The total number of operating Manhattan Bagel Company stores has increased
from four at December 31, 1990 to 248 at June 30 1996.
The following total number of stores were open and operating on the
following dates:
December 31, 1990....................................... 4
December 31, 1991....................................... 11
December 31, 1992....................................... 27
December 31, 1993....................................... 41
December 31, 1994....................................... 73
December 31, 1995....................................... 152
June 30, 1996 .......................................... 248
In addition, at June 30, 1996, the Company had over 100 additional stores
in various stages of development.
The rapid expansion significantly affects the comparability of results of
operations in several ways. Total royalty income and frozen raw bagel dough
sales rise significantly as new franchised and licensed stores open. New store
revenues are not usually as high in the first periods following opening as they
are in later periods as evidenced by the same store sales increases discussed
below. Total expenses have also risen significantly as the Company
-9-
expanded its corporate infrastructure. The number of employees as of June 30,
1996 was 551, while the number of employees as of June 30, 1995 was 241.
The Company has also granted several master franchises. Under the terms of
the master franchise agreement, a master franchisee is required to pay the
Company an initial fee based on the population of the territory covered by such
master franchise. The granting of new master franchises and the payment of the
initial fees also affects the comparability of results to prior periods.
The Company also grants area development rights. Under the terms of the
area development agreements, the area developer is required to pay the Company
an initial fee based on the number of stores to be developed within a specified
time period. The granting of new area development rights and the payment of
initial fees also affects the comparability of results to prior periods.
The Company's revenues are primarily derived from (i) the sale of frozen
raw bagel dough and cream cheese spreads to franchisees and licensees, (ii)
retail and wholesale sale of products by the Company-owned stores, and (iii)
royalties, franchise and license fees, including master franchise fees, and area
development fees. The percentage of revenues derived from product sales to total
sales for the six months of 1996 was 73.9% compared to 76.3% in 1995.
For the comparative six month periods ending June 30 1996 and June 30,
1995, same store retail sales as reported by the Company's bagel franchisees
(which are unaudited), increased 3.9%, and total sales rose from $15.0 million
to $36.5 million, an increase of $21.5 million or 143.3%. The amounts so
reported are exclusive of three original stores that are on a fixed royalty
basis and are not required to report sales to the Company. The amounts so
reported also exclude the I & Joy stores which were previously operated by I&J
and acquired on June 29, 1995.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Revenues. Total revenues of the Company for the three months ended June 30,
1996 were $9,872,348 as compared to total revenues of $5,408,161 for the three
months ended June 30, 1995, a $4,464,187 or 82.5% increase over the three months
of the prior year. The increase is primarily attributable to the increased
product sales resulting from the increase in the number of franchised stores
opened as well as an increase in retail and wholesale sales by the Company owned
stores. For the three months ended June 30, 1996, master franchise fees were
$375,000. There were no master franchise fees for the three months ended June
30, 1996. Ongoing royalties and continuing license fees increased from $331,174
in the quarter to $691,554 a $360,380 or 108.8% increase.
Costs of Goods Sold. Cost of goods sold for the three months ended June 30,
1996 increased 69.9% to $3,830,960 as compared to $2,254,571 for the three
months ended June 30, 1995. This increase is directly attributable to the
increase in product sales. Costs of goods sold
-10-
decreased to 52.2% of product sales for the three months ended June 30, 1996
compared to 54.2% of product sales for the three months ended June 30, 1995.
This decrease is due to a combination of increased purchasing and manufacturing
efficiencies from the operation of the Company's new Eatontown factory and the
addition of Company owned stores which have a positive impact on gross profit
margins.
Selling, General and Administrative. Selling, general and administrative
expenses increased 102.5% to $5,381,173 for the three months ended June 30,
1996, compared with $2,657,092 for the three months ended June 30, 1995. As a
percentage of total revenues, selling, general, and administrative expenses
increased to 54.5% for the three months ended June 30, 1996 from 49.1% for the
three months ended June 30, 1995. The increase in both absolute dollars and
percentage of revenues is attributable to the growth of the Company, addition of
senior and middle level personnel to manage the growth and the addition of
Company owned stores which have a negative impact on S.G.&A. margins.
Non Recurring Charge: Non-recurring charges of $713,000 for the three
months ended June 30, 1996 were comprised of professional fees associated with
the investigation (see Note 4, Notes to Condensed Consolidated Financial
Statements) and the class action lawsuits (See Note 6, Notes to Condensed
Consolidated Financial Statements) and related settlements of certain consulting
agreements..
Interest Income. Interest income for the three months ended June 30, 1996
was $251,037 compared to $4,820 for the three months ended June 30, 1995. The
increase of $246,217 was due to the proceeds of the November 23, 1995 public
offering and proceeds received on April 9, 1996 from the exercise of the over
allotment option in connection with an underwritten March 22, 1996 public
offering by selling shareholders invested in marketable securities. The majority
of these securities are short-term tax-free investments.
Interest Expense. Interest expense increased from $31,699 for the three
months ended June 30, 1995 to $132,948 for the three months ended June 30, 1996.
The $101,249 increase was primarily due to interest associated with the EDA loan
for the new Eatontown manufacturing facility which became operational in April,
1996.
Earnings before provision for income taxes. Earnings before provision for
income taxes for the three months ended June 30, 1996 decreased 86.1% to
$65,304, compared with $469,619 for the three months ended June 30, 1995.
Earnings were substantially decreased due to a non recurring charge of $713,000.
See Note 5, Notes to Condensed Consolidated Financial Statements.
Income Tax. Provision for income taxes for the three months ended June 30,
1996 was a benefit of $109,807 compared to expense of $256,549 for the three
months ended June 30, 1995. The benefit is a result of the $292,330 tax effect
due to a one-time charge and the tax-free status of the majority of interest
income.
Net Income. The Company generated net income of $175,111 ($.02 per share)
for the three months ended June 30, 1996, as compared to net income of $213,070
($.04 per share) a
-11-
decrease of 21.7% over the three months ended June 30, 1995 as a result of the
factors discussed above.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
Revenues. Total revenues of the Company for the six months ended June 30,
1996 were $18,698,092 as compared to total revenues of $9,394,690 for the six
months ended June 30, 1995, a $9,303,402 or 99.0% increase over the six months
of the prior year. The increase is primarily attributable to the increased
product sales resulting from the increase in the number of franchised stores
opened as well as an increase in retail and wholesale sales by the company
stores. For the six months ended June 30, 1996, master franchise and area
development fees were $1,000,000 and $140,000 respectively. For the six months
ended June 30, 1995 master franchise fees were $102,000 and there were no area
development fees. Ongoing royalty and continuing license fees increased from
$685,179 to $1,228,556 or 79.3% increase.
Cost of Goods Sold. Cost of goods sold for the six months ended June 30,
1996 increased 82.1% to $7,136,262 as compared to $3,918,561 for the six months
ended June 30, 1995. This increase is directly attributable to the increase in
product sales. Costs of goods sold decreased to 51.7% of products sales for the
six months ended June 30, 1996 compared to 54.6% of product sales for the six
months ended June 30, 1995. This decrease is due to a combination of increased
purchasing and manufacturing efficiencies from the automation of the existing
Eatontown factory and the operation of the new Eatontown factory, and the
addition of company owned stores which have a positive impact on gross profit
margins.
Selling, General and Administrative. Selling, general and administrative
expenses increased 111.4% to $10,160,303 for the six months ended June 30, 1996,
compared with $4,805,628 for the six months ended June 30, 1995. As a percentage
of total revenues, selling, general, and administrative expenses increased to
54.3% for the six months ended June 30, 1996 from 51.2% for the six months ended
June 30, 1995. The increase in both absolute dollars and percentage of revenues
is attributable to the growth of the company, addition of senior and middle
level personnel to manage the growth and the addition of company owned stores
which have a negative impact on S.G.&A. margins.
Non-Recurring Charges. Non-recurring charges of $713,000 for the six months
ended June 30, 1996 were comprised of professional fees associated with the
investigation (see Note 4, Notes to Condensed Consolidated Financial Statements)
and the class action lawsuits (See Note 6, Notes to Condensed Consolidated
Financial Statements) and related settlements of certain consulting agreements.
Interest Income. Interest income for the six months ended June 30, 1996 was
$519,574 compared to $21,104 for the six months ended June 30, 1995. The
increase of $498,470 was due
-12-
to the proceeds of the November 23, 1995 public offering and proceeds received
on April 9, 1996 from the exercise of the over allotment option in connection
with an underwritten March 22, 1996 public offering by selling shareholders
invested in marketable securities. The majority of these securities are
short-term tax-free investments.
Interest Expense. Interest expense increased from $62,956 for the six
months ended June 30, 1995 to $186,252 for the six months ended June 30, 1996.
The $123,296 increase was primarily due to interest associated with the EDA loan
for the new Eatontown manufacturing facility which became operational in April,
1996.
Earnings before provision for income taxes. Earnings before provision for
income taxes for the six months ended June 30, 1996 increased 62.5% to
$1,021,849, compared with $628,649 for the six months ended June 30, 1995. This
increase was attributed to increases in the Company's product sales to the
franchisees, retail sales and on-going royalty revenue and to the sale of master
franchise and area developer agreements. Earnings were decreased by a non
recurring charge of $713,000. See Note 5, Notes to Condensed Consolidated
Financial Statements.
Income Tax. Income taxes for the six months ended June 30, 1996 were
$186,794 compared to $372,307 for the six months ended June 30, 1996. The
effective tax rate for the six months ended June 30, 1996 of 18.2% is due to the
tax free status of the majority of interest income.
Net Income. The Company generated net income of $835,055 ($.11 per share)
for the six months ended June 30, 1996, as compared to net income of $256,342
($.05 per share) an increase of 225.8% over the six month period ended June 30,
1995 as a result of the factors discussed above.
Liquidity and Capital Resources
On November 20, 1995, completed a public offering of 1,500,000 shares of
Common Stock at a public offering price of $19.625 per share. The proceeds of
such offering, net of discounts and offering expenses were $27,084,440. The
Company also received additional proceeds of $2,176,509 on December 14, 1995
from the sale of 118,000 shares of Common Stock to the public pursuant to the
underwriters' over-allotment option. The proceeds of the offering are being used
to finance the expansion of the Company's business through remodeling stores,
constructing and equipping manufacturing facilities and acquiring existing bagel
businesses as well as providing financing for future franchisees, and for
general corporate and working capital purposes.
On April 9, 1996 the Company received net proceeds of $1,911,150 from the
sale of 90,000 shares of common stock pursuant to the exercise of an
over-allotment option in
-13-
connection with an underwritten public offering of shares owned by shareholders
of the Company. These proceeds will be utilized for general corporate and
working capital purposes.
On August 8, 1996 the Company obtained a $7.5 million revolving line of
credit from First Union Bank, N.A. Under the terms of the agreement the Company
must maintain certain liquidity ratios and earnings.
On May 24, 1996 the Company executed a $25 million dollar franchisee
financing agreement with Atlantic Financial Services. Under the terms of the
Agreement, the Company has agreed to guarantee certain portions of these loans
in exchange for more favorable terms and rates for the Company's franchisees.
The Company's cash flow used by operating activities during the first six
months of 1996 was $2,542,550 compared to a cash flow of $249,588 provided by
operating activities during the six months of 1995. During the six months ended
June 30, 1996, cash flow provided from net income and depreciation was
$1,335,291.
The Company had working capital of $20,890,485 at June 30, 1996, which
represents a decrease of $9,487,620 from December 31, 1995. This decrease in
working capital is primarily a result of the Bagel Brothers transaction. The
Company believes there are no long-term trends or events that would have a
material negative impact on working capital.
Management believes that the Company's working capital, credit facilities
and anticipated funds generated internally from operations will be sufficient to
finance the Company's anticipated growth through acquisitions and expansion and
to meet the Company's liquidity requirements for the foreseeable future.
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PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security-Holders.
----------------------------------------------------
An annual meeting of Shareholders of the Registrant took place on June 26, 1996.
At the meeting, the following six directors were elected with the votes cast as
follows:
DIRECTOR VOTES FOR VOTES WITHHELD
--------------------------------------------------------
Jack Grumet 6,417,274 22,013
David Goldsmith 6,417,099 22,188
Jason Gennusa 6,417,274 22,013
Andrew Gennusa 6,416,774 22,513
Julia S. Heckman 6,381,599 59,458
Jack Levy 6,381,599 57,688
At the meeting, the Registrant's 1996 Stock Option Plan was approved by the
following vote: For - 4,462,071, Against - 712,826, and Abstain (including
broker non-votes) - 49,261.
At the meeting, an amendment to the Registrant's Certificate of
Incorporation to increase the number of authorized shares of common stock to
25,000,000 was approved by the following vote: For - 5,652,992, Against -
743,070, and Abstain (including broker non-votes) - 43,225.
At the meeting a resolution to ratify an amendment to the Underwriting
Agreement from the Registrant's initial public offering relating to employment
agreements of certain executive officers was adopted by the following vote: For
- - 5,170,312, Against - 50,788, and Abstain (including broker non-votes) -
72,815.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(b) The following reports on Forms 8-K were filed for the period for which this
report is filed.
Form 8-K reporting the acquisition of Bay Area Bagels on January 9, 1996 as
amended by Form 8-KA.
Form 8-K reporting the acquisition of the "Refold" stores on January 17,
1996 as amended by Form 8-KA.
Form 8-K reporting the acquisition of Specialty Bagels on May 22, 1996 an
amended by Form 8-KA.
Form 8-K reporting the June 20, 1996 announcement of the finding of
improper accounting procedures and bookkeeping records at the I&J
subsidiary.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANHATTAN BAGEL COMPANY, INC.
(Small Business Issuer)
Dated: August 19, 1996 By: S/N Jack Grumet
-----------------------
Jack Grumet,
Chairman of the Board and
Chief Executive Officer
Dated: August 19, 1996 By: S/N Leonard Johnson
--------------------
Leonard Johnson
Chief Financial Officer
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