U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27148
NEW WORLD RESTAURANT GROUP, INC.
(formerly, New World Coffee - Manhattan Bagel, Inc.)
(Exact name of registrant 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) (Zip Code)
(732) 544-0155
(Registrant `s telephone number, including area code)
Indicate by check mark 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 preceding 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, $.001 par value per share, outstanding:
As of May 8, 2001: 16,443,447
NEW WORLD COFFEE - MANHATAN BAGEL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
April 1, 2001
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balanced Sheets as of April 1, 2001 and
December 31, 2000....................................................3
Condensed Consolidated Statements of Operations for the three months
ended April 1, 2001 and March 26, 2000...............................4
Condensed Consolidated Statements of Cash Flows for the three months
ended April 1, 2001 and March 26, 2000...............................5
Notes to Consolidated Financial Statements................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Three Months ended April 1, 2001...9
PART II: OTHER INFORMATION..................................................12
SIGNATURES.........................................................12
2
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED BALANCE SHEETS
April 1, 2001 December 31,
(Unaudited) 2000
------------- ------------
(Revised)
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 4,227,062 $ 2,271,107
Franchise and other receivables, net............. 3,465,456 3,067,765
Current maturities of notes receivables.......... 676,768 676,768
Inventories...................................... 1,608,166 1,436,124
Prepaid expenses and other current assets........ 653,417 621,030
Deferred income taxes - current portion........ 500,000 500,000
Investment in debt securities.................. 39,961,233 13,888,784
Assets held for resale......................... 4,911,243 5,141,491
------------ ------------
Total current assets......................... 56,003,345 27,603,069
Property, plant and equipment, net................. 6,600,048 6,969,731
Notes and other receivables, net................... 971,640 1,221,861
Trademarks, net.................................... 15,594,013 15,724,086
Goodwill, net...................................... 2,300,561 2,325,959
Deferred income taxes.............................. 8,933,740 9,100,178
Deposits and other assets.......................... 3,131,813 2,753,470
------------ ------------
Total Assets................................. $93,535,160 $65,698,354
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................. $ 1,717,058 $ 2,708,398
Accrued expenses................................. 1,972,830 3,730,501
Current portion of long-term debt................ 4,885,155 4,422,522
Current portion of obligations under
capital leases................................ 218,858 199,887
Other current liabilities........................ 23,275 14,190
------------ ------------
Total current liabilities..................... 8,817,176 11,075,498
Long-term debt..................................... 10,177,288 13,689,957
Obligations under capital leases................... 224,618 362,896
Other liabilities.................................. 1,535,565 1,828,641
------------ ------------
Total Liabilities............................. 20,754,647 26,956,992
Series D Preferred Stock, $.001 par value;
25,000 shares -- 12,008,314
Series F Preferred Stock, $.001 par value;
65,000 shares authorized; 42,564 and
0 shares issued and outstanding............... 29,294,267 --
Minority interest.................................. 6,645,844 --
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000
shares authorized; 0 issued and outstanding
Series A convertible preferred stock, $.001
par value; 400 shares authorized; 0 shares
issued and outstanding.......................
Series B convertible preferred stock, $.001
par value; 225 shares authorized, 0 shares
outstanding..................................
Series C convertible preferred stock, $.001
par value; 500,000 shares authorized,
0 shares outstanding.........................
Common stock, $.001 par value; 50,000,000 shares 16,123 15,405
Authorized; 16,122,691 and 15,404,828
shares issued and outstanding................
Additional paid-in capital...................... 59,571,483 45,180,828
Accumulated deficit............................. (22,747,204) (18,463,185)
------------ ------------
Total stockholders' equity................... 36,840,402 26,733,048
------------ ------------
Total liabilities and stockholders' equity... $93,535,160 $65,698,354
============= ============
3
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED APRIL 1, 2001 AND MARCH 26, 2000
(UNAUDITED)
April 1, 2001 March 26, 2000
------------- --------------
(Revised)
Revenues:
Manufacturing revenues....................... $ 5,149,755 $ 6,150,638
Franchise related revenues................... 1,653,352 1,774,944
Retail sales................................. 3,672,075 1,220,500
------------- -------------
Total revenues............................. 10,475,182 9,146,082
Cost of sales................................ 7,366,535 5,860,051
General and administrative expenses.......... 2,209,167 1,585,173
Depreciation and amortization................ 786,695 571,915
------------ -------------
Income from operations..................... 112,785 1,128,943
Interest expense, net.......................... 444,053 478,178
Gain from sale of investments.................. 240,601 --
------------ -------------
Income (loss) before income taxes and
minority interest......................... (90,667) 650,765
Provision for income taxes..................... 166,438
Minority interest.............................. 723,385
------------ -------------
Net (loss) income.............................. (980,490) 650,765
Dividends and accretion on preferred stock..... 3,316,559 --
------------ -------------
Net (loss) income available to common
stockholders.............................. ($4,297,049) $650,765
============= =============
Net (loss) income per common share - Basic..... ($ .27) $.06
============= =============
Net (loss) income per common share - Diluted... ($ .27) $.06
============= =============
Weighted average number of common shares
outstanding:
Basic........................................ 15,896,836 11,386,777
============= =============
Diluted...................................... 15,896,836 11,684,286
============= =============
4
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTER ENDED APRIL 1, 2001 AND MARCH 26, 2000
(UNAUDITED)
April 1, 2001 March 26, 2000
------------- --------------
(Revised)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... ($ 980,490) $ 650,765
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization............. 786,695 571,915
Minority interest......................... 723,385 --
Gain on sale of debt securities........... (240,601) --
Stock issued as compensation.............. 506,763 --
Deferred income tax asset................. 166,438 --
Increase/(decrease) in cash as a result
of changes in operating assets and
liabilities:
Receivables............................... (397,691) (271,807)
Inventories............................... (172,042) (198,435)
Prepaid expenses.......................... (32,387) 3,580
Deposits and other assets................. 246,039 2,785
Receipts of notes receivable.............. 260,036 84,745
Additions to notes receivable............. (9,815)
Accounts payable.......................... (991,340) 44,415
Accrued expenses.......................... (832,569) (424,302)
Other liabilities......................... (159,629) (110,302)
-------------- -------------
Net cash provided by/(used in)
operating activities................. (1,127,208) 353,359
-------------- -------------
SH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (31,293) (101,975)
Addition to assets held for resale........... -- (15,437)
Deferred acquisition costs................... (624,382) --
Investment in debt securities................ (28,911,364) --
Proceeds from the sale of debt
securities................................ 3,884,994 --
-------------- -------------
Net cash provided by/(used in)
investing activities................. (25,682,045) (117,412)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock, net......... 23,755,148 161,999
Minority owners' capital contributions
to affiliated entity...................... 9,165,989
Payment of liabilities in connection
with acquired assets...................... (986,586) (787,833)
Repayments of capital leases................. (119,307) (120,842)
Repayment of notes payable................... (3,050,036) (18,235)
-------------- -------------
Net cash provided by/(used in)
financing activities................. 28,765,208 (764,911)
-------------- -------------
Net increase /(decrease) in cash........ 1,955,955 (528,964)
CASH, beginning of period...................... 2,271,107 2,880,342
-------------- -------------
CASH, end of period............................ $ 4,227,062 $ 2,351,378
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest................................ 683,789 857,921
============== =============
Non-cash Investing and Financing Activities:
Non-cash Dividends and accretion on
preferred stock........................... 3,316,559
============== =============
Stock issued to extinguish liabilities....... 62,878
============== =============
Stock issued in exchange for debt securities.. 805,478
============== =============
5
NEW WORLD COFFEE - MANHATTAN BAGEL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principals for interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the unaudited
interim consolidated financial statements furnished herein include all
adjustments necessary for a fair presentation of the Company's financial
position at April 1, 2001 and March 26, 2000 and the results of its operations
and its cash flows for the three-month periods then ended. All such adjustments
are of a normal recurring nature. Interim financial statements are prepared on a
basis consistent with the Company's annual financial statements. Results of
operations for the three-month period ended April 1, 2001 are not necessarily
indicative of the operating results that may be expected for future periods. The
consolidated balance sheet as of December 31, 2000 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000 on file with the Securities and Exchange Commission.
2. Revised Financial Statements (Original Amendment). As of April 1, 2001, the
Company accounted for the accretion of the warrant issued based on the Bond
Purchase Agreement (the Bond Purchase Agreement) with Green Light Capital, L.P.,
Green Light Capital Qualified, L.P and Green Light Capital Offshore Ltd. (see
Footnote 4) as a charge to retained earnings instead of operations. In addition,
accretion of issuance costs, as well as other provisions provided by the Bond
Purchase Agreement, were not initially reflected in the Company's financial
statements. The amended financial statements reflect these charges.
The result of these changes has been that net income for the three months ended
April 1, 2001 has been decreased to ($473,727) from $249,658; Basic Income Per
Share has been decreased to ($0.25) from ($0.22); and Diluted Income Per Share
has been decreased to ($0.25) from ($0.22).
3. Revised Financial Statements (Second Amendment). In previously filed Revised
Financial Statements (See Note 2), the Company failed to account for the
issuance of 717,863 shares of its common stock that were issued during the
quarter ended April 1, 2001. The amended financial statements reflect the
issuance of these shares.
The result of these changes has been that net income for the three months ended
April 1, 2001 has been decreased to ($980,490) from ($473,727), as previously
reported; Basic Income Per Share has been decreased to ($0.27) from ($0.25), as
previously reported; and Diluted Income Per Share has been decreased to ($0.27)
from ($0.25), as previously reported.
4. Income (loss) Per Share. Basic income (loss) per share is calculated by
dividing net income (loss) attributable to common shareholders by the weighted
average number of shares of common stock outstanding during the period. Diluted
income (loss) per share is calculated by dividing net income (loss) attributable
to common shareholders by the weighted average number of common shares
outstanding, adjusted for potentially dilutive securities. The following table
summarizes the equivalent number of common shares assuming the related
securities that were outstanding as of April 1, 2001 had been exercised, but not
included in the calculation of diluted loss per share as such shares are
antidilutive:
Warrants.................... 17,837,843
Options..................... 1,959,729
Total....................... 19,797,572
6
5. Investment in Debt Securities. Investments in debt securities are reported at
fair value. Unrealized gains and losses from those securities, which are
classified as available-for-sale are reported as unrealized holding gains and
losses as a separate component of stockholders' equity. At April 1, 2000, the
cost of debt securities approximate their fair value and, accordingly, no
unrealized gain or loss has been recorded.
6. Recent developments. On January 22, 2001, the Company consummated a sale of
20,000 shares of its authorized but unissued Series F Preferred Stock to Halpern
Denny III, L.P. (Halpern Denny) in exchange for the sum of $20 million. At such
time the Company entered into a Series F Preferred Stock and Warrant Purchase
Agreement with Halpern Denny. The Series F Preferred Stock accrues dividends
payable in shares of Series F Preferred Stock at the rate of 16% per annum for
the first year, which rate increases semi-annually thereafter at the rate of 2%
per annum. The Series F Preferred Stock, including accrued dividends, is
redeemable at such time as there is a combination between the Company and
Einstein or three years from the date of issue, whichever is sooner. If a
redemption takes place prior to the end of such three-year period, the Company
is entitled to redeem the Series F Preferred Stock by issuing subordinated
senior notes (the Notes) to the holder of the Series F Preferred Stock. The
Notes would bear interest at a rate comparable to the dividend rate under the
Series F Preferred Stock and are due and payable three years from the date of
the initial issuance of the Series F Preferred Stock (January 22, 2004). In
connection with the Series F Purchase Agreement, the Company issued Halpern
Denny a warrant to purchase 8,484,112 shares of the Company's common stock at an
exercise price of $0.01 per share. The fair value of the warrants at the date of
grant was recorded as a reduction in the carrying amount of the Series F
Preferred Stock and is being accreted over the three year period to the earliest
fixed redemption date. The Series F Purchase Agreement provides that for so long
as the Series F Preferred Stock has not been redeemed for cash (including
payment of the Notes, if any), or until there is a combination between the
Company and Einstein and a redemption of the Series F Preferred Stock, including
delivery of the Notes (but not payment of the same), Halpern Denny shall receive
additional warrants equal to 1.5% of the fully diluted common stock of the
Company (excepting certain options and warrants) on January 22, 2002 and on each
succeeding June 30 and December 31. This warrant has a term of five years. The
warrant further provides that it would be exercisable for additional shares
under certain events, as set forth in the warrant. The Certificate of
Designation of the Series F Preferred Stock requires the vote or written consent
by the holders of at least 67% of the then outstanding shares of the Series F
Preferred Stock, voting together as a single class for certain events and
transactions. Under the Certificate of Designation, the holders of Series F
Preferred Stock, except as otherwise required under the laws of Delaware or as
set forth in the Certificate of Designation, are not entitled or permitted to
vote on any matter required or permitted to be voted upon by the stockholders of
the Company.
BET and Brookwood had invested the sum of $15 million for substantially the same
purpose as that contemplated by the Series F Purchase Agreement, which
investment was made in August 2000, and BET and Brookwood were then holding
Series D Preferred Stock, which had a right to approve the creation of the
Series F Preferred Stock. Therefore, the Company considered it appropriate to
restructure the investment documents relating to the August 2000 investment by
BET and Brookwood. Accordingly, the Company, BET and Brookwood entered into an
Exchange Agreement, whereby they exchanged all of their outstanding Series D
Preferred Stock, including accrued but unpaid dividends (all of which were
retired) for a total of 16,398.33 shares of Series F Preferred Stock. The
closing of the exchange of Series F Preferred Stock for the Series D Preferred
Stock took place on or about January 22, 2001. BET and Brookwood also exchanged
the warrants received by them in August 2000 for warrants to purchase an
aggregate of 6,526,356 shares of common stock of the Company at an exercise
price of $0.01 per share. The form of these warrants is substantially identical
to the form of the warrant issued to Halpern Denny including the provisions
thereof relating to the increase of the warrant shares, except that the
semi-annual increases are an aggregate of 1.154% of the fully diluted common
stock of the Company (excepting certain options and warrants). The fair value of
the warrants at the date of grant was recorded as a reduction in the carrying
amount of the Series F Preferred Stock and is being accreted over the three year
period to the earliest fixed redemption date. The difference in the fair value
of securities exchanged was charge to accumulated deficit. In connection with
the Series F Purchase Agreement and the Exchange Agreement, the parties entered
into an Amended and Restated Registration Rights Agreement. In addition, the
parties entered into a Stockholders Agreement, which relates principally to the
composition of the Board of Directors of the Company. The Stockholders Agreement
also contains provisions giving Halpern Denny, BET and Brookwood certain rights
of first refusal to provide financing and certain co-sale rights for the common
stock they may purchase upon exercise of their warrants. Also in connection with
the Series F Purchase Agreement and the Exchange Agreement, the Company amended
its bylaws to provide (a) for a Board of Directors composed of nine members and
(b) to provide that any filing by the Company under the United States Bankruptcy
Code shall require the approval of 75% of the full Board of Directors.
7
On or about January 17, 2001, the Company entered into the Bond Purchase
Agreement (the Bond Purchase Agreement) with Greenlight Capital, L.P.,
Greenlight Capital Qualified, L.P. and Greenlight Capital Offshore, Ltd. (the
Greenlight Entities). Pursuant to the Bond Purchase Agreement, the Greenlight
Entities formed a limited liability company (Bondco) and funded the same with
$10 million for the purchase of Bonds. The Company is the exclusive manager of
Bondco. Accordingly, the Company has consolidated Bondco since its inception. At
such time as there is a combination of the Company with Einstein, Bondco may
sell its Bonds and the Company will share in the profits or exclusively bear the
losses in relation thereto, based upon an agreed to accretion in the Greenlight
Entities' investment. Alternatively, Bondco may retain its Bonds or securities
issued in lieu thereof or may sell the same to the Company in exchange for a
newly created Class of Series E Preferred Stock. The Series E Preferred Stock
provides for the payment of dividends at the rate of 15% per annum increasing by
2% each 6 months after the first year following the initial investment by the
Greenlight Entities. These dividends are payable in Series E Preferred Stock.
The Series E Preferred Stock, if issued, shall be redeemed three years from the
date of the investment in Bondco by the Greenlight Entities. In connection with
the Bond Purchase Agreement, the Company issued the Greenlight Entities warrants
to purchase an aggregate of 4,242,056 shares of the Company's common stock at
$0.01 per share. The fair value of the warrants at the date of grant was
recorded as a reduction of minority interest and is being accreted over the two
year period to the earliest fixed redemption date. The Bond Purchase Agreement
provides that for so long as there has not been a combination between the
Company and Einstein, or there has been a combination but the Series E Preferred
Stock was not issued to the Greenlight Entities, or the Series E Preferred Stock
was issued but has not been redeemed, the Greenlight Entities shall receive
additional warrants equal to 0.9375% of at the fully diluted common stock of the
Company (excepting certain options and warrants) on January 17, 2002 and at the
beginning of each succeeding three month period. This warrant has a term of five
years. In addition, warrants for an additional 1.5% of the fully diluted common
stock shall be issued at such time as the Series F Preferred Stock is redeemed.
The Company and the Greenlight Entities entered into a registration rights
agreement relating to the shares purchasable under the warrants.
On March 29, 2001, the Company consummated a sale of 5,000 additional shares of
its authorized, but unissued, Series F Preferred Stock to Halpern Denny in
exchange for the sum of $5,000,000. Pursuant to the terms of the Second Series F
Preferred Stock and Warrant Purchase Agreement (the Second Purchase Agreement)
with Halpern Denny, the Company also sold Halpern Denny warrants to purchase
2,121,028 shares of the Company's common stock at a price per share of $.01
(subject to adjustment as provided in the form of warrant). The fair value of
the warrants at the date of grant was recorded as a reduction in the carrying
amount of the Series F Preferred Stock and is being accreted over the three year
period to the earliest fixed redemption date. The rights, preferences and
designations of the Series F Preferred Stock are set forth in an Amended
Certificate of Designation, Rights and Preferences of Series F preferred Stock
(the Amended Certificate of Designation) which are identical to the Series F
Preferred Stock created in January 2001. In connection with the execution and
delivery of the Second Purchase Agreement, BET Associates, L.P. (BET) and
Brookwood New World Investors, LLC (Brookwood), each waived any preemptive
rights they may have had to the issuance of additional shares of Series of
Preferred Stock as provided for in the Second Purchase Agreement and consented
to the filing of the Amended Certificate of Designation to increase the number
of shares of Series F Preferred Stock the Company is authorized to issue to
73,000.
The Company used the proceeds from the initial financing by BET and Brookwood,
and the financings with Halpern Denny and the Greenlight entities to purchase
certain 7.25% subordinated convertible debentures due in June 2004 (the Bonds)
of Einstein/Noah Bagel Corporation (Einstein).
In April 2001 the Company entered into an agreement with the Trustee of the
Boston Chicken Plan Trust, the majority stockholder of Einstein, to support
confirmation of the Plan of Reorganization (the Plan) filed by the Trustee in
the Chapter 11 cases of ENBC and Einstein/Noah Bagel Partners, L.P. (ENBP), now
pending in the United States Bankruptcy Court for the District of Arizona (the
Court). Under the Plan, holders of ENBC's 7.25% Debentures due June 2004 shall
be given the option of converting to equity in the reorganized ENBC or having
their bonds reinstated through payment of all accrued interest and future
compliance with the terms of the Indenture. In April 2001, the Company also
entered into an agreement with one of the Trustee's proposed exit lenders for
the Plan, to confirm New World's support for the Plan, pursuant to which New
World would agreed to convert its Debentures to equity in reorganized ENBC.
Under the conversion price and formula in the Plan, New World would receive
approximately 3.9 million shares of reorganized ENBC's new common stock, which
the Company anticipates would
8
result in the Company becoming the largest stockholder in reorganized ENBC.
There is no assurance that the Plan will be confirmed.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q 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, believe, 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-Q or in the Company's Form 10-KSB for its
2000 fiscal year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
New World Coffee - Manhattan Bagel, Inc. is one of the largest franchisors of
bagel bakeries and coffee bars in the United States. It operates and franchises
bagel bakeries and coffee bars in 26 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.
(MBC). On August 31, 1999, the Company acquired the assets of Chesapeake Bagel
Bakery (CBB). At April 1, 2001, the Company's retail system consisted of
approximately 337 stores, including 42 Company-owned and 295 franchised and
licensed stores.
The Company is vertically integrated and has 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.
Commencing in August 2000, the Company acquired certain debentures of
Einstein/Noah Bagel Corp. (ENBC), a company engaged in the retail bagel bakery
business. ENBC has been operating under Chapter 11 of the Bankruptcy Code since
April 2000. The Company and its affiliate New World - Greenlight, LLC have
acquired in excess of $61,000,000 of face value of debentures, making the
Company ENBC's largest creditor. As ENBC's largest creditor, the Company has
been an active participant in ENBC's ongoing Bankruptcy proceedings.
On April 2, 2001, the Trustee (the Trustee) of the Boston Chicken Bankruptcy
Plan Trust, as holder of a majority of the outstanding common stock of ENBC,
filed a plan of reorganization (the Trustee Plan) with the Bankruptcy Court
providing for reinstatement of all the obligations of ENBC and providing for an
allocation of new common stock of ENBC to the holders of its old common stock,
including the Trustee. The Company agreed to support the Trustee's Plan and
committed, to the Trustee, and to the lead institution that had committed to
provide exit financing to ENBC pursuant to the Trustee's Plan, that the Company
would convert the debentures owned by it and its affiliate New World -
Greenlight LLC into new common stock of reorganized ENBC in accordance with the
Trustee's Plan.
In addition, on May 14, 2001 a deadline set by the Bankruptcy Court for
competing bids in order to preserve a right to bid on the assets of ENBC in the
event that the Trustee's Plan is not confirmed, Einstein Acquisition Corp., a
9
Delaware corporation which is an affiliate of the Company made a bid to purchase
the assets of ENBC. Such bid consisted of $151,000,000 in cash and the
assumption of Einstein trade indebtedness up to a total of $30,000,000.
The Company and Einstein Acquisition Corp. have received a highly confident
letter from a nationally recognized investment banking firm with respect to
financing necessary to consummate a transaction with ENBC. Bankruptcy Court
proceedings are ongoing both with respect to the issue of confirmation of the
Trustee's Plan and the bid for the assets of ENBC. There can be no assurance as
to the outcome of such Bankruptcy Court proceedings.
Fiscal Quarter Ended April 1, 2001 Compared to Fiscal Quarter Ended March 26,
2000
Revenues. Total revenues increased 14.5% to $10,475,182 for the fiscal quarter
ended April 1, 2001 from $9,146,082 for the comparable 2000 period. The increase
in revenues was attributable to additional retail sales from Company owned
stores acquired during 2000. Manufacturing revenues decreased 16.3% to
$5,149,755 or 49.2% of total revenues for the fiscal quarter ended April 1, 2001
from $6,150,638 or 67.2% of total revenues for the comparable 2000 period. The
decrease in manufacturing revenues was primarliy the result of the Company's
decision to outsource its low-margin distribution business (which had been
included in manufacturing revenues in the 2000 period.) In addition, the Company
experienced extreme weather in its core markets during the 2001 quarter, also
having a negative impact on manufacturing revenues. Franchise related revenues
decreased 6.9% to $1,653,352 or 15.8% of total revenues for the fiscal quarter
ended April 1, 2001 from $1,774,944 or 19.4% of total revenues for the
comparable 2000 period. The decrease in franchise related revenues was partially
attributable to extreme weather conditions experienced during the fiscal quarter
ended April 1, 2001 in the Company's core markets. In addition, the decline
reflects a lower store base in the fiscal quarter ended April 1, 2001, in part,
resulting from Management's decision to terminate certain franchisees who's
operations did not comply with the Company's policies. Retail sales increased
200.9% to $3,672,075 or 35.0% of total revenues for the fiscal quarter ended
April 1, 2001 from $1,220,500 or 13.3% of total revenues for the comparable 2000
period. The increase was attributable to additional company-owned stores that
were acquired during 2000.
Costs and Expenses.
Cost of Sales as a percentage of related manufacturing and retail sales
increased to 83.5% for the fiscal quarter ended April 1, 2001 from 79.5% for the
comparable 2000 period. The increase primarily resulted from a shift in sales
mix towards retail store revenues which generally have lower margins than
manufacturing revenues.
General and administrative expenses increased to $2,209,167 for the fiscal
quarter ended April 1, 2001 from $1,585,173 for the comparable 2000 period. The
increase was primarily attributable to operational staff additions required in
order to service the Company's additional company-owned stores. In addition, the
fiscal quarter ended April 1, 2001 reflects a compensation charge of $506,763
representing stock issued on behalf of an officer of the Company. General and
administrative expenses expressed as a percentage of total revenues increased to
21.1% of total revenues for the fiscal quarter ended April 1, 2001 from 17.3% of
total revenues for the comparable 2000 period. The increase primarily relates to
the above-noted compensation charge.
Depreciation and amortization expenses increased by 37.6% to $786,695 or 7.5% of
total revenues for the fiscal quarter ended April 1, 2001 from $571,915 or 6.3%
of total revenues for the comparable 2000 period. The increase was primarily
attributable to depreciation on company-owned stores acquired during 2000.
Interest expense, net for the fiscal quarter ended April 1, 2001 decreased to
$444,053, or 4.2% of total revenues from $478,178 or 5.2% of total revenues for
the comparable 2000 period. This decrease is primarily the result of lower
average debt balances during the quarter ended April 1, 2000 as well as interest
earned invested cash balances.
Gain from sale of debt securities was $240,601 or 2.3% of total revenues for the
fiscal quarter ended April 1, 2001. There was no such gain in the comparable
2000 period.
Provision for income taxes increased to $166,438 or 1.6% of total revenues for
the fiscal quarter ended April 1, 2001 from $0 for the comparable 2000 period.
The increase was attributable to certain deferred tax benefits recognized in the
2000 period relating to the recognition of deferred tax assets.
10
Minority interest was $723,385 or 6.9% or total revenues for the fiscal quarter
ended April 1, 2001. This charge is attributable to accretion of the value
assigned to warrants and the guaranteed investment return to investors in
Greenlight New World, L.L.C.
Net Loss.
Net Loss for the fiscal quarter ended April 1, 2001 was ($980,490) compared to
net income of $650,765 for the comparable 2000 period. The decrease in net
income is primarily a result of the decrease in margins resulting from a change
in sales mix to lower margin retail sales, the compensation charge related to a
restricted stock award on behalf of an officer of the Company, the increase in
income tax expense recognized for the 2001 period and the allocation of earnings
to the minority interest.
Liquidity and Capital Resources
The Company plans to satisfy any of its capital requirements in 2001 through
cash flow from operations and the sale of Company-owned stores to franchisees
which should generate additional cash. The Company continually assesses its
ongoing capital needs and may consider the issuance of additional equity or debt
securities in order to raise capital should business conditions dictate that
such is necessary.
In January and March 2001, the Company issued 25,000 shares of newly authorized
Series F Preferred Stock as well as equity in a newly formed affiliate,
Greenlight New World, L.L.C. The proceeds, net of related offering expenses,
were $ 32,921,137. The proceeds from these stock sales were utilized to purchase
ENBC debt securities and pay certain related costs.
At April 1, 2001 the Company had a working capital surplus of $47,186,169
compared to a working capital surplus of $2,547,029 at March 26, 2000. This
increase is primarily a result of the Company's investment in ENBC debt
securities in exchange for the issuance of certain preferred stock.
The Company had net cash used in operating activities of $1,127,208 for the
first quarter of 2001 compared with net cash provided by operating activities of
$353,359 for the first quarter of 2000. The decrease in cash provided by
operating activities was attributable to the decrease in net income and
liquidation of certain current liabilities in the 2001 period.
The Company had net cash used in investing activities of $25,682,045 for the
first quarter of 2001 compared with net cash used in investing activities of
$117,412 for the first quarter of 2000. The increase in cash used in investing
activities was attributable to the Company's investment in debt securities.
The Company had net cash provided by financing activities of $28,765,208 for the
first quarter of 2001 compared with net cash used in financing activities of
$764,911 for the first quarter of 2000. The increase in cash provided by
financing activities relates to the issuance of preferred stock and proceeds
from sale of an interest in an affiliated entity during 2001.
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, if any, employees at the minimum wage level and
therefore believes that an increase in the minimum wage would have minimal
impact on its operations and financial condition.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
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
On February 1, 2001, the Company filed a Form 8-K relating to the issuance of
Series F Preferred Stock and related matters.
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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 Restaurant Group, Inc.
(formerly, New World Coffee - Manhattan Bagel, Inc.)
Date: May 31, 2002 By: /s/ Anthony Wedo
------------------------------
Anthony Wedo
Chief Executive Officer
(Principal Executive Officer and
Principal Accounting Officer)
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