<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
---------------
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): DECEMBER 21, 1998
(OCTOBER 5, 1998)
MRS. FIELDS' ORIGINAL COOKIES, INC.
-----------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 333-45179 87-0552899
- --------------------------- --------------------------- ----------------------
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Incorporation) Identification No.)
2855 EAST COTTONWOOD PARKWAY, SUITE 400
SALT LAKE CITY, UTAH 84121-7050
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 736-5600
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- -----------------------------------------
ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
-----------------------------------------
Filed herewith as a part of this report are the following financial
statements for The Cookie Conglomerate, Inc. and Affiliates: (i)
Independent Auditors' Report, (ii) Combined Balance Sheets as of
December 31, 1997 and 1996 and as of September 30, 1998 (Unaudited),
(iii) Combined Statements of Operations for the years ended December
31, 1997 and 1996 and for the nine months ended September 30, 1998
(Unaudited) and 1997 (Unaudited), (iv) Combined Statements of Changes
in Stockholders' Deficit and Partners' Capital [Deficit], (v) Combined
Statements of Cash Flows for the years ended December 31, 1997 and
1996 and for the nine months ended September 30, 1998 (Unaudited) and
1997 (Unaudited), and (vi) Notes to Combined Financial Statements.
These financial statements are being filed in accordance with
Item 7(a)(4).
ITEM 7(b) PRO FORMA FINANCIAL INFORMATION
-------------------------------
Filed herewith as a part of this report are Mrs. Fields' Original
Cookies, Inc.'s Unaudited Pro Forma Condensed Combined Statements of
Operations for the 53 weeks ended January 3, 1998 and the 39 weeks
ended October 3, 1998, and the notes thereto. These pro forma
financial statements are being filed in accordance with Item 7(a)(4).
ITEM 7(c) EXHIBITS
--------
Exhibit
2.1* Asset Purchase Agreement, dated as of October 5, 1998, by and among
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, LLP, as
Sellers, Ronald A. Eichel and Alan M. Kuehn, as Seller Related
Parties, and Mrs. Fields' Original Cookies, Inc. (schedules and
exhibits to the agreement have been omitted from this filing and will
be furnished to the Securities and Exchange Commission upon request.)
* Previously filed
<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 hereunto duly authorized.
MRS. FIELDS' ORIGINAL COOKIES, INC.
DATE: DECEMBER 21, 1998 /s/ L. TIM PIERCE
--------------------------------------
L. TIM PIERCE, CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT INDEX
ITEM 7(c) EXHIBITS
--------
Exhibit
2.1* Asset Purchase Agreement, dated as of October 5, 1998, by and among
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, LLP, as
Sellers, Ronald A. Eichel and Alan M. Kuehn, as Seller Related
Parties, and Mrs. Fields' Original Cookies, Inc. (schedules and
exhibits to the agreement have been omitted from this filing and will
be furnished to the Securities and Exchange Commission upon request.)
* Previously Filed
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 24, 1998, Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields")
sold $40,000,000 in aggregate principal amount of Series C Senior Notes due 2004
(the "Offering"). The net proceeds of the Offering and the equity infusion of
the net proceeds of a separate Senior Notes offering by Mrs. Fields' Holding
Company, Inc., the parent company of Mrs. Fields, (the "MFH Equity Infusion")
together with existing Company cash were used to: (i) finance the acquisition of
all of the outstanding capital stock of Great American Cookie Company, Inc.
("Great American"); (ii) finance the tender offer to repurchase all of Great
American's $40,000,000 aggregate principal amount of 10.875 Senior Secured Notes
due 2001, including accrued but unpaid interest and a premium of $1,600,000;
(iii) finance the repayment of all of Great American's $10,000,000 aggregate
principal amount of 12.5% Subordinated Notes, including accrued but unpaid
interest; (iv) finance the retirement of Great American's Senior Redeemable
Preferred Stock and Junior Redeemable Preferred Stock at an aggregate discounted
purchase price of $8,400,000; (v) finance the acquisition of all of the
outstanding capital stock of Deblan Corporation ("Deblan") and Chocolate Chip
Cookies of Texas, Inc. ("Chocolate Chip"), two franchisees of Great American,
including the repayment of assumed debt; and (vi) finance the asset purchase of
eight stores controlled by another Great American franchisee (the "Karp
Entities").
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores ("Cookie
Conglomerate") for an aggregate purchase price of $2,800,000. The sellers were
franchisees of Great American. The acquisition was funded with financing
provided by T&W Financial Services Company, L.L.C and such financing is secured
by the asset's of the aquired Stores.
The unaudited pro forma condensed combined financial statements are based
upon the historical financial statements of Mrs. Fields and its subsidiaries,
H&M Concepts Ltd. Co. ("H&M"), Pretzel Time, Inc. ("Pretzel Time"), Great
American, Deblan, Chocolate Chip, the Karp Entities, and Cookie Conglomerate.
The combined operations of these entities are collectively referred to herein as
the "Company." The unaudited pro forma condensed combined financial statements
have been prepared using the purchase method of accounting. Mrs. Fields, H&M and
Pretzel Time operate using a 52/53-week year ending near December 31. Great
American operates using a 52/53-week year ending near June 30. Deblan, the Karp
Entities and Cookie Conglomerate operate using a year ending December 31, and
Chocolate Chip operates using a year ending September 30.
The unaudited pro forma condensed combined balance sheet as of October 3,
1998 assumes that the acquisition of Cookie Conglomerate occurred on that date.
The unaudited pro forma condensed combined statements of operations for the 53
weeks ended January 3, 1998 and the 39 weeks ended October 3, 1998 assume that
the above transactions occurred as of December 29, 1996 (the first day of the
most recently completed fiscal year) and combine the historical results of
operations of the entities for those periods with pro forma adjustments to give
effect to the acquisitions and related financings.
The unaudited pro forma condensed combined financial statements are for
illustrative purposes only. Such information does not purport to be indicative
of the results which would actually have been effected on the date and for the
periods indicated, nor is it indicative of actual or future operating results or
financial position that may occur.
THE COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 3, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
COOKIE Adjustments Pro Forma
Mrs. Fields CONGLOMERATE (See Note 1) Combined
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 5,146 $136 $ (136) (a) $ 5,146
Accounts receivable, net......................... 1,896 - - 1,896
Amounts due from franchisees and licensees, net.. 5,616 - - 5,616
Inventories...................................... 4,790 72 (72) (a) 4,790
Prepaid rent and other........................... 7,077 2 (2) (a) 7,077
-------- ---- ------ --------
TOTAL CURRENT ASSETS.......................... 24,525 210 (210) 24,525
PROPERTY AND EQUIPMENT, net........................... 35,003 436 365 (b) 35,804
GOODWILL AND OTHER INTANGIBLES........................ 159,419 111 1,888 (c) 161,418
OTHER................................................. 3,710 34 (34) (a) 3,710
-------- ---- ------ --------
TOTAL ASSETS.................................. $222,657 $791 $2,009 $225,457
======== ==== ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations................................. $ 558 $122 $ 378 (d) $ 1,058
Accounts payable................................. 8,669 101 (101) (a) 8,669
Accrued liabilities.............................. 17,574 91 (91) (a) 17,574
-------- ---- ------ --------
TOTAL CURRENT LIABILITIES 26,801 314 186 27,301
-------- ---- ------ --------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion.............. 139,598 29 2,271 (d) 141,898
-------- ---- ------ --------
----
OTHER LONG-TERM LIABILITIES........................... 4,648 - - 4,648
-------- ---- ------ --------
MINORITY INTEREST IN SUBSIDIARY....................... 308 - - 308
-------- ---- ------ --------
MANDATORILY REDEEMABLE PREFERRED STOCK 1,171 - - 1,171
-------- ---- ------ --------
STOCKHOLDER'S EQUITY:
Common stock..................................... - 2 (2) (e) -
Treasury stock................................... - - - -
Additional paid-in capital....................... 59,899 474 (474) (e) 59,899
Excess of purchase price over predecessor basis.. - - - -
Partner capital.................................. - 24 (24) (e) -
Retained earnings (Accumulated deficit).......... (9,768) (52) 52 (e) (9,768)
-------- ---- ------ --------
TOTAL STOCKHOLDER'S EQUITY.................... 50,131 448 (448) 50,131
-------- ---- ------ --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $222,657 $791 $2,009 $225,457
======== ==== ====== ========
</TABLE>
See accompanying notes to pro forma condensed
combined financial statements.
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
(a) Adjustments reflect that the Company did not acquire or assume the related
assets or liabilities of Cookie Conglomerate as part of the acquisition.
(b) Represents adjustments to record acquired property and equipment at
estimated fair values.
(c) Represents an adjustment to record the excess of the purchase price over
the estimated fair values of identified assets totaling approximately
$1,899,000 off-set by the write-off of existing intangible assets. Goodwill
will be amortized over 15 years. Also includes an adjustment to reflect a
covenant not to compete recorded at $100,000 that will be amortized over
one year.
(d) Adjustments reflect the acquisition financing of $2,800,000 off-set by the
elimination of existing obligations not assumed. A portion of the financed
amount will be recorded as capital lease obligations and a portion will be
recorded as long-term debt.
(e) Adjustments eliminate Cookie Conglomerate's stockholder's equity accounts.
<PAGE>
THE COMPANY
-----------
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MRS. FIELDS PRE-ACQUISITION
PRE-
PRETZEL PRO FORMA ACQUISITION
H&M TIME ADJUSTMENTS PRO FORMA
MRS. FIELDS (SEE NOTE 2) (SEE NOTE 3) (SEE NOTE 4) COMBINED
------------ ------------ ------------ --------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net store and batter sales........................... $123,987 $9,328 $ 302 $ -- $133,617
Franchising, net..................................... 3,574 -- 2,142 (653)(a) 5,063
Licensing, net....................................... 2,028 -- -- -- 2,028
Other, net........................................... 918 36 181 -- 1,135
-------- ------ ------ ------- --------
Total revenues...................................... 130,507 9,364 2,625 (653) 141,843
-------- ------ ------ ------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................... 66,832 6,120 284 (653)(a) 72,583
Food cost of sales................................... 28,127 1,366 63 -- 29,556
General and administrative........................... 16,730 1,326 1,617 (750)(b) 18,923
Depreciation and amortization........................ 10,403 690 118 525 (c) 11,736
-------- ------ ------ ------- --------
Total operating costs and expenses.................. 122,092 9,502 2,082 (878) 132,798
-------- ------ ------ ------- --------
Income (loss) from operations....................... 8,415 (138) 543 225 9,045
INTEREST EXPENSE...................................... (7,830) (370) (120) (2,857)(d) (11,177)
INTEREST INCOME....................................... 246 -- -- -- 246
OTHER INCOME (EXPENSE), net........................... (368) -- -- -- (368)
-------- ------ ------ ------- --------
Income (loss) before provision for income
taxes.............................................. 463 (508) 423 (2,632) (2,254)
PROVISION FOR INCOME TAXES............................ 655 -- -- -- 655
-------- ------ ------ ------- --------
Income (loss) before preferred stock accretion
and dividends of subsidiaries and minority
interest........................................... (192) (508) 423 (2,632) (2,909)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES............................ (644) -- -- -- (644)
MINORITY INTEREST..................................... (138) -- -- (169)(e) (307)
-------- ------ ------ ------- --------
Income (loss) from continuing operations............ $ (974) $ (508) $ 423 $(2,801) $ (3,860)
======== ====== ====== ======= ========
OTHER DATA:
Cash flows from operating activities................ $ 919 $ (94) $ 805 $ -- $ 1,630
Cash flows from investing activities................ (15,505) (32) (24) -- (15,561)
Cash flows from financing activities................ 24,164 (489) 14 -- 23,689
EBITDA (See Note 10)................................ 18,818 552 661 750 20,781
Ratio of earnings to fixed charges (See Note 12).... -- -- 4.53x -- --
Deficiency of earnings to fixed charges
(See Note 12)...................................... $ (319) $ (508) $ -- $ -- $ (3,205)
</TABLE>
THE COMPANY
-----------
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MRS. FIELDS POST-ACQUISITION
GREAT CHOCOLATE KARP
AMERICAN DEBLAN CHIP ENTITIES
(SEE NOTE 5) (SEE NOTE 6) (SEE NOTE 7) (SEE NOTE 8)
-------------- -------------- ---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Net store and batter sales........................... $32,307 $9,503 $2,789 $2,500
Franchising, net..................................... 5,391 -- -- --
Licensing, net....................................... -- -- -- --
Other, net......................................... 167 21 -- --
------- ------ ------ ------
Total revenues................................. 37,865 9,524 2,789 2,500
------- ------ ------ ------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................. 13,548 5,891 1,396 1,635
Food cost of sales................................. 10,578 1,675 654 683
General and administrative......................... 6,664 1,169 510 238
Depreciation and amortization...................... 2,725 255 51 121
------- ------ ------ ------
Total operating costs and expenses............. 33,515 8,990 2,611 2,677
------- ------ ------ ------
Income (loss) from operations.................. 4,350 534 178 (177)
INTEREST EXPENSE...................................... (6,219) (73) (5) (18)
INTEREST INCOME....................................... 307 26 5 --
OTHER INCOME (EXPENSE), net........................... 1,264 -- -- --
------- ------ ------ ------
Income (loss) before provision for income
taxes........................................ (298) 487 178 (195)
PROVISION FOR INCOME TAXES............................ 223 195 43 15
------- ------ ------ ------
Income (loss) before preferred stock accretion
and dividends of subsidiaries and minority
interest..................................... (521) 292 135 (210)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES............................ -- -- -- --
MINORITY INTEREST..................................... -- -- -- --
------- ------ ------ ------
Income (loss) from continuing operations....... $ (521) $ 292 $ 135 $ (210)
======= ====== ====== ======
OTHER DATA:
Cash flows from operating activities........... $ 1,674 $ 787 $ 240 $ (20)
Cash flows from investing activities........... 299 (690) (184) 17
Cash flows from financing activities........... (105) 193 (32) --
EBITDA (See Note 10)........................... 7,075 789 229 (56)
Ratio of earnings to fixed charges (See Note
11)........................................... -- 7.67x 36.60x --
Deficiency of earnings to fixed charges
(See Note 12)................................... $(1,090) $ -- $ -- $ (195)
</TABLE>
THE COMPANY
-----------
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MRS. FIELDS POST-ACQUISITION
COOKIE PRO FORMA POST-
CONGLOMERATE ADJUSTMENTS ACQUISITION
(SEE NOTE 9) (SEE NOTE 4) PRO FORMA
--------------- -------------------- -------------
<S> <C> <C> <C>
REVENUES:
Net store and batter sales......................... $4,203 $(2,887) (f) $182,032
Franchising, net................................... -- (1,329) (g) 9,125
Licensing, net..................................... -- -- 2,028
Other, net......................................... -- -- 1,323
------ ------- --------
Total revenues................................. 4,203 (4,216) 194,508
------ ------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................. 2,278 (1,329) (g) 96,002
Food cost of sales................................. 1,097 (2,887) (f) 41,356
General and administrative......................... 326 (2,258) (h) 25,572
Depreciation and amortization...................... 183 3,658 (i) 18,729
------ ------- --------
Total operating costs and expenses............. 3,884 (2,816) 181,659
------ ------- --------
Income (loss) from operations.................. 319 (1,400) 12,849
INTEREST EXPENSE...................................... (40) 1,704 (j) (15,828)
INTEREST INCOME....................................... -- -- 584
OTHER INCOME (EXPENSE), net........................... -- -- 896
------ ------- --------
Income (loss) before provision for income
taxes......................................... 279 304 (1,499)
PROVISION FOR INCOME TAXES............................ -- (323) (k) 808
------ ------- --------
Income (loss) before preferred stock accretion
and dividends of subsidiaries and minority
interest...................................... 279 627 (2,307)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES............................ -- -- (644)
MINORITY INTEREST..................................... -- -- (307)
------ ------- --------
Income (loss) from continuing operations....... $ 279 $ 627 $ (3,258)
====== ======= ========
OTHER DATA:
Cash flows from operating activities........... $ 461 $ -- $ 4,772
Cash flows from investing activities........... (32) -- (16,151)
Cash flows from financing activities........... (387) -- 23,358
EBITDA (See Note 10)........................... 502 2,258 31,578
Ratio of earnings to fixed charges (See Note 12) 7.95x -- --
Deficiency of earnings to fixed charges
(See Note 12)................................... $ -- $ -- $ (3,180)
</TABLE>
See accompanying notes to pro forma condensed
combined financial statements.
<PAGE>
THE COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Great Chocolate Karp Cookie Pro Forma
American Deblan Chip Entities Conglomerate Adjustments Pro Forma
Mrs. Fields (See Note 5) (See Note 6) (See Note 7) (See Note 8) (See Note 9) (See Note 4) Combined
----------- ------------ ------------ ------------ ------------ ------------ ------------ --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net store and batter sales $ 89,938 $ 18,932 $ 6,370 $ 1,873 $ 1,489 $ 2,906 $ (1,330) (f) $120,178
Franchising, net.......... 3,884 3,449 -- -- -- -- (606) (g) 6,727
Licensing, net............ 1,081 -- -- -- -- -- -- 1,081
Other, net................ 1,056 82 -- -- -- -- -- 1,138
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Total Revenues........... 95,959 22,463 6,370 1,873 1,489 2,906 (1,936) 129,124
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
OPERATING COSTS AND EXPENSES:
Selling and store
occupancy costs........... 52,357 7,645 3,523 1,000 370 1,580 (606) (g) 65,869
Food cost of sales........ 21,588 6,428 1,108 454 297 733 (1,330) (f) 29,278
General and administrative 12,621 5,288 1,067 421 754 303 (1,469) (h) 18,985
Depreciation and
amortization........... 9,707 1,510 182 22 89 118 2,873 (i) 14,501
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Total operating costs
and expenses............ 96,273 20,871 5,880 1,897 1,510 2,734 (532) 128,633
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Income (loss) from
operations.............. (314) 1,592 490 (24) (21) 172 (1,404) 491
INTEREST EXPENSE, net....... (9,001) (4,077) (43) (2) (8) (17) 546 (j) (12,602)
INTEREST INCOME............. 550 258 24 4 -- -- -- 836
OTHER INCOME (EXPENSE), net (256) (149) 40 11 -- 32 -- (322)
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Income (loss) before
provision for income
taxes.................. (9,021) (2,376) 511 (11) (29) 187 (858) (11,597)
PROVISION (BENEFIT) FOR
INCOME TAXES.............. 68 (38) 115 27 6 -- -- 178
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Income (loss) before
preferred stock accretion
and dividends of
subsidiaries and minority
interest................. (9,089) (2,338) 396 (38) (35) 187 (858) (11,775)
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES (333) -- -- -- -- -- -- (333)
MINORITY INTEREST........... (268) -- -- -- -- -- -- (268)
----------- ------------ ------------ ------------ ------------ ------------ ---------- --------
Income (loss) from
continuing operations.... $ (9,690) $(2,338) $ 396 $ (38) $ (35) $ 187 $ (858) $(12,376)
=========== ============ ============ ============ ============ ============ ========== ========
OTHER DATA:
Cash flows from operating
activities............... $ 676 $(1,517) $ 372 $ (40) $ (54) $ 64 $ -- $ (499)
Cash flows from investing
activities............... (34,315) (310) (72) (7) (2) (64) -- (34,770)
Cash flows from financing
activities............... 22,498 (18) (205) (72) 12 (91) -- 22,124
EBITDA (See Note 11)..... 9,393 3,102 672 (2) 68 290 1,469 14,992
Ratio of earnings to
fixed charges (See Note 12) -- -- 12.88x -- -- 13.00x -- --
Deficiency of earnings
to fixed charges
(See Note 12)........... $ (9,397) $(2,888) $ -- $ (11) $ (29) $ -- $ -- $ (12,468)
</TABLE>
6
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
2. H&M
MFH, through its wholly owned subsidiary, MFPC, acquired the net assets and
certain debt of H&M on July 25, 1997, and concurrent with the completion of the
Prior Offering contributed the net assets of H&M and related debt to Mrs.
Fields. Accordingly, in the accompanying unaudited pro forma condensed combined
statement of operations for the 53 weeks ended January 3, 1998, H&M's results of
operations from December 29, 1996 to July 24, 1997 are included under the "H&M"
column heading. Also, in the accompanying unaudited pro forma condensed combined
statement of operations for the 39 weeks ended October 3, 1998, H&M's results of
operations are included under the "Mrs. Fields" column heading. The purchase
price of $13,750,000 paid by MFH was allocated based on the estimated fair
values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net assets acquired................................................. $ 4,132,000
Goodwill acquired................................................................. 9,618,000
----------
Total purchase price.......................................................... $ 13,750,000
==========
</TABLE>
3. PRETZEL TIME
MFH acquired 56.0% of the common stock of Pretzel Time, a $500,000 note
receivable from Pretzel Time's founder and contract rights on September 2, 1997.
Concurrent with the completion of the Prior Offering, MFH contributed its 56.0%
interest to Mrs. Fields. Accordingly, in the accompanying unaudited pro forma
condensed combined statements of operations for the 53 weeks ended January 3,
1998, Pretzel Time's results of operations from December 29, 1996 to September
1, 1997 are included under the "Pretzel Time" column heading. Also, in the
accompanying unaudited pro forma condensed combined statement of operations for
the 39 weeks ended October 3, 1998, Pretzel Time's results of operations are
included under the "Mrs. Fields" column heading.
MFH paid $4,200,000 in cash to acquire 56.0% of the common stock of
Pretzel Time and made a $500,000, five-year maturity loan, with an interest rate
of 10.0%, to a minority stockholder and founder of Pretzel Time. Of the
$4,200,000 paid by MFH, $750,000 was paid to Pretzel Time to be used for working
capital purposes. Pretzel Time's stockholders' deficit of $425,000 at the date
of acquisition was eliminated and goodwill of $5,882,000 was recorded.
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
PRE-ACQUISITION
(a) Adjustment to reflect the elimination of franchise fees and related
costs as a result of consolidating H&M and Pretzel Time.
(b) Adjustment to reflect the impact of the reduction in salaries and
payroll expenses related to employees of H&M and Pretzel Time terminated at the
date of the acquisitions assuming that the acquisitions were consummated as of
December 29, 1996. The terminations occurred concurrent with and were a direct
result of the acquisitions. These terminations will have a continuing impact, as
the positions occupied by the terminated employees have been eliminated. The
terminated employees will not be replaced as the Company has sufficient
resources with existing staff to fulfill the applicable responsibilities. Other
costs will not be incurred that will offset these reductions. The impact is
factually supportable as the employees were terminated at the time of the
acquisitions.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(c) Adjustment to reflect amortization of goodwill totaling $15,500,000,
which was recorded in connection with the purchase of the net assets of H&M and
the majority ownership of Pretzel Time. Goodwill is being amortized over a 15-
year period. Also includes adjustment to reflect a reduction in depreciation
expense as a result of reducing H&M's property and equipment to estimated fair
market value in connection with the acquisition. The average estimated
depreciable lives for these assets are seven years.
(d) Adjustment to reflect additional interest expense that would have been
incurred on the $100,000,000 10 1/8 % Series A and Series B Senior Notes due
2004. Adjustment also reflects a reduction in interest expense related to: (i)
the retirement of $64,098,000 of Mrs. Fields debt with interest rates ranging
from 8.78% to 10.0%; (ii) the retirement of $8,250,000 of H&M debt with interest
rates ranging from 8.0% to 16.0%; (iii) the assumed conversion of $4,643,000 of
a Mrs. Fields note payable with an interest rate of 9.78%; (iv) the additional
amortization related to approximately $5,976,000 of deferred loan costs assumed
to be amortized over a seven-year period; and (v) net of interest income on a
$500,000 loan to a minority stockholder of Pretzel Time with an interest rate of
10.0%.
(e) Adjustment to reflect the recording of the minority interest in
Pretzel Time's income from continuing operations.
POST-ACQUISITION
(f) Adjustment to reflect the elimination of franchise fees and related
costs as a result of combining operations of Great American, Deblan, Chocolate
Chip, the Karp Entities and Cookie Conglomerate.
(g) Adjustment to reflect the elimination of batter sales and batter cost
of sales as a result of combining Great American, Deblan, Chocolate Chip, the
Karp Entities and Cookie Conglomerate.
(h) Adjustment to reflect the impact of the reduction in salaries and
payroll expenses related to employees of Great American, Deblan, Chocolate Chip,
the Karp Entities and Cookie Conglomerate terminated at the date of the
acquisitions assuming that the acquisitions were consummated at December 29,
1996. The terminations were a contractual component of the acquisition
agreements and occurred concurrent with and were a direct result of the
acquisitions. These terminations will have a continuing impact, as the positions
occupied by the terminated employees have been eliminated. The terminated
employees will not be replaced as the Company has sufficient resources with
existing staff to fulfill the applicable responsibilities. Other costs will not
be incurred that will offset these reductions. The impact is factually
supportable as the employees were terminated at the time of the acquisitions.
(i) Adjustment to reflect amortization of goodwill totaling $71,289,000
which was recorded in connection with the purchase of Great American, Deblan,
Chocolate Chip, the Karp Entities and Cookie Conglomerate. Goodwill is being
amortized over a 15-year period. Also includes an adjustment to reflect a net
reduction in depreciation expense as a result of reducing Great American's
property and equipment and increasing Cookie Conglomerate's property and
equipment to estimated fair market values in connection with each respective
acquisition. The average estimated depreciable lives for these assets is seven
years.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(j) Adjustment to reflect the reduction in interest expense related to: (i)
the retirement of $40,000,000 of Great American 10.875% Senior Secured Notes;
(ii) the retirement of $10,000,000 of Great American 12.5% Subordinated Notes;
(iii) the elimination of Great American's original issue discount; (iv) the
elimination of Great American's deferred loan costs; (v) net of the additional
amortization related to approximately $5,007,000 of new deferred loan costs
amortized over a seven-year period; and (vi) net of interest expense on the
$40,000,000 of Series C Senior Notes and amortization of $600,000 of assumed
discount; and (vii) net of interest expense on $2,800,000 of financing related
to the acquisition of Cookie Conglomerate.
(k) Adjustment to reflect the change in provision for income taxes due to
the consolidated results of amortization of the entities before provision for
income taxes.
5. GREAT AMERICAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital
stock and subordinated indebtedness of Great American for an aggregate purchase
price of $18,400,000. The purchase price was allocated based on the estimated
fair values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net liabilities assumed............................................. $(37,233,000)
Goodwill acquired................................................................. 55,633,000
----------
Total purchase price.......................................................... $ 18,400,000
==========
</TABLE>
Because Great American operates using a 52/53-week year ending near June
30, its results of operations for the 53 weeks ended January 3, 1998, in the
accompanying pro forma condensed combined statements of operations, do not agree
with Great American's historical results of operations for either the 52 weeks
ended June 29, 1997 or June 28, 1998. Additionally, in the accompanying pro
forma condensed combined statement of operations for the 39 weeks ended October
3, 1998, Great American's results of operations from December 29, 1997 to August
23, 1998 are included under the "Great American" column heading. Great
American's results of operations from August 24, 1998 to October 3, 1998 are
included under the "Mrs. Fields" column heading.
6. DEBLAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Deblan for an aggregate purchase price of $10,465,000. Accordingly, in
the accompanying pro forma condensed combined statement of operations for the 39
weeks ended October 3, 1998, Deblan's results of operations from January 1, 1998
to August 23, 1998 are included under the "Deblan" column heading. Deblan's
results of operations from August 24, 1998 to October 3, 1998 are included under
the "Mrs. Fields" column heading. The purchase price was allocated based on the
estimated fair values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net assets acquired................................................. $ 2,239,000
Goodwill acquired................................................................. 8,226,000
----------
Total purchase price.......................................................... $10,465,000
==========
</TABLE>
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. CHOCOLATE CHIP ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Chocolate Chip for an aggregate purchase price of $3,965,000. The
purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net assets acquired................................................. $ 217,000
Goodwill acquired................................................................. 3,748,000
---------
Total purchase price.......................................................... $ 3,965,000
=========
</TABLE>
Because Chocolate Chip operates using a year ending September 30, its
results of operations for the 53 weeks ended January 3, 1998, in the
accompanying pro forma condensed combined statement of operations, do not agree
with Chocolate Chip's historical results of operations for the year ended
September 30, 1997. Additionally, in the accompanying pro forma condensed
combined statement of operations for the 39 weeks ended October 3, 1998,
Chocolate Chip's results of operations from January 1, 1998 to August 23, 1998
are included under the "Chocolate Chip" column heading. Chocolate Chip's
results of operations from August 24, 1998 to October 3, 1998 are included under
the "Mrs. Fields" column heading.
8. KARP ENTITIES ACQUISITION
On September 9, 1998, Mrs. Fields acquired the Karp Entities, consisting of
eight Great American stores and related net assets, from a Great American
franchisee for an aggregate purchase price of $1,750,000. Accordingly, in the
accompanying pro forma condensed combined statement of operations for the 39
weeks ended October 3, 1998, the Karp Entities' results of operations from
January 1, 1998 to September 9, 1998 are included under the "Karp Entities"
column heading. The Karp Entities' results of operations from September 10, 1998
to October 3, 1998 are included under the "Mrs. Fields" column heading. The
purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net assets acquired................................................. $ 970,000
Goodwill acquired................................................................. 780,000
---------
Total purchase price.......................................................... $1,750,000
=========
</TABLE>
9. COOKIE CONGLOMERATE ACQUISITION
On October 5, 1998, Mrs. Fields acquired Cookie Conglomerate, consisting
of 11 Great American stores and related net assets, from two Great American
franchisees for an aggregate purchase price of $2,800,000. Accordingly, in the
accompanying pro forma condensed combined statement of operations for the 39
weeks ended October 3, 1998, Cookie Conglomerate's results of operations from
January 1, 1998 to September 30, 1998 are included under the "Cookie
Conglomerate" column heading. The purchase price was allocated based on the
estimated fair values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Fair value of net assets acquired................................................. $ 801,000
Goodwill acquired................................................................. 1,999,000
---------
Total purchase price.......................................................... $ 2,800,000
=========
</TABLE>
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. PRO FORMA COMBINED EBITDA FOR THE 53 WEEKS ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
THE
COMPANY
MRS. FIELDS POST-
PRE-ACQUISITION ACQUISITION
PRO FORMA GREAT CHOCOLATE KARP COOKIE PRO FORMA PRO FORMA
COMBINED AMERICAN DEBLAN CHIP ENTITIES CONGLOMERATE ADJUSTMENTS COMBINED
-------------- -------- ------ --------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss)
from operations..... $ 9,045 $4,350 $534 $178 $(177) $319 $(1,337) $12,912
Add:
Depreciation and
amortization....... 11,736 2,725 255 51 121 183 3,595 18,666
------- ------ ---- ---- ----- ---- ------- -------
EBITDA............. $20,781 $7,075 $789 $229 $ (56) $502 $ 2,258 $31,578
======= ====== ==== ==== ===== ==== ======= =======
</TABLE>
11. PRO FORMA COMBINED EBITDA FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
<TABLE>
<CAPTION>
THE COMPANY
POST-
ACQUISITION
GREAT CHOCOLATE KARP COOKIE PRO FORMA PRO FORMA
MRS. FIELDS AMERICAN DEBLAN CHIP ENTITIES CONGLOMERATE ADJUSTMENTS COMBINED
------------ -------- ------ ---------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
operations........ $ (314) $1,592 $490 $(24) $(21) $172 $(1,404) $ 491
Add:
Depreciation and
amortization...... 9,707 1,510 182 22 89 118 2,873 14,501
------- ------ ---- ---- ----- ---- ------- -------
EBITDA............ $9,393 $3,102 $672 $ (2) $ 68 $290 $ 1,469 $14,992
======= ====== ==== ==== ===== ==== ======= =======
</TABLE>
12. RATIO OF EARNINGS TO FIXED CHARGES
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges consist
of interest expense on all indebtedness (whether paid or accrued and net of debt
premium amortization), including the amortization of debt issuance costs and
original issue discount, noncash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with capital lease obligations, letter of credit commissions, fees or
discounts and the product of all dividends and accretion on mandatorily
redeemable cumulative preferred stock multiplied by a fraction, the numerator of
which is one and the denominator of which is one minus the current combined
federal, state and local statutory tax rate.
For the 53 weeks ended January 3, 1998, Mrs. Fields' earnings were
insufficient to cover fixed charges by $319,000. For the period December 29,
1996 to July 24, 1997, H&M's earnings were insufficient to cover fixed charges
by $508,000. For the period December 30, 1996 to September 1, 1997, Pretzel
Time's earnings were sufficient to cover fixed charges by $423,000. For the 53
weeks ended January 3, 1998, Great American's and the Karp Entities' earnings
were insufficient to cover fixed charges by $1,090,000 and $195,000,
respectively. For the same period, Deblan's and Chocolate Chip's earnings were
sufficient to cover fixed charges by $487,000 and $178,000, respectively. For
the period ended December 31, 1997, Cookie Conglomerate's earnings were
sufficient
12
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
to cover fixed charges by $278,000. Mrs. Fields' post-acquisition pro forma
combined earnings were insufficient to cover fixed charges for the 53 weeks
ended January 3, 1998 by $3,180,000.
For the 39 weeks ended October 3, 1998, Mrs. Fields' earnings were
insufficient to cover fixed charges by $9,397,000. For the period from December
29, 1997 to August 23, 1998, Great American's earnings were insufficient to
cover fixed charges by $2,888,000. For the period from January 1, 1998 to
August 23, 1998, Deblan's earnings were sufficient to cover fixed charges by
$511,000 and Chocolate Chip's earnings were insufficient to cover fixed charges
by $11,000. For the period from January 1, 1998 to September 9, 1998, the Karp
Entities' earnings were insufficient to cover fixed charges by $29,000. For the
period ended September 30, 1998, Cookie Conglomerate's earnings were sufficient
to cover fixed charges by $204,000. Mrs. Fields' pro forma combined earnings
were insufficient to cover fixed charges for the 39 weeks ended October 3, 1998
by $12,468,000.
<PAGE>
THE COOKIE CONGLOMERATE, INC.
AND AFFILIATES
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
TABLE OF CONTENTS
-----------------
PAGE
----
Independent auditors' report 1
Financial statements:
Balance sheets 2
Combined statements of operations 3
Combined statements of changes in equity [deficit] 4
Combined statements of cash flows 5
Note to financial statements 6 - 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners
The Cookie Conglomerate, Inc., Cookie Conglomerate, L.L.P.,
and The Cookie Conglomerate of Carolina Place, Inc.
We have audited the accompanying combined balance sheets of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES (The Cookie Conglomerate, L.L.P. and The
Cookie Conglomerate of Carolina Place, Inc.) as of December 31, 1997 and 1996
and the related combined statements of operations, changes in equity [deficit]
and cash flows for the years then ended. These financial statements are the
responsibility of the Companies' and Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Atlanta, Georgia
November 12, 1998
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current assets
- --------------
Cash $ 227,385 $ 184,963
Advances -0- -0-
Inventories 52,029 61,909
Prepaid expenses 26,993 33,064
--------- ---------
Total current assets 306,407 279,936
--------- ---------
Property and equipment, at cost
- ----------------------
Equipment 720,050 688,156
Fixtures 174,103 174,103
Leasehold improvements 679,892 679,892
--------- ---------
1,574,045 1,542,151
Accumulated depreciation [1,099,171] [ 938,942]
--------- ---------
474,874 603,209
--------- ---------
Other assets
- ------------
Deposits 34,450 34,450
Franchise costs, net of accumulated
amortization of $61,456 for 1997 and
$49,122 for 1996 73,544 85,936
Organizational costs, net of accumulated
amortization of $4,004 for 1997 and
$6,832 for 1996 1,854 3,026
Intangible assets, net of accumulated
amortization of $13,394 for 1997 and
$9,474 for 1996 45,406 49,326
Loan costs, net of accumulated amortization
of $6,999 for 1997 and $1,729 for 1996
4,708 9,978
--------- ---------
159,962 182,716
--------- ---------
$ 941,243 $1,065,861
========= =========
</TABLE>
<PAGE>
LIABILITIES AND EQUITY
----------------------
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current liabilities
- -------------------
Accounts payable $ 156,264 $ 191,219
Accrued expenses 160,482 139,164
Line-of-credit 40,000 80,000
Current portion of long-term debt 155,107 176,098
------- ---------
Total current liabilities 511,853 586,481
------- ---------
Other liabilities
- -----------------
Long-term debt, net of current portion 108,671 268,664
Deferred rent payable 81,998 84,182
------- ---------
190,669 352,846
------- ---------
Equity [deficit]
- ----------------
Common stock, $1 par value, 20,000
shares of Class A [voting] authorized
and 10,000 shares of Class B
[nonvoting] authorized; 2,357 shares
of Class A issued and outstanding 2,357 2,357
Additional paid-in capital 473,643 473,643
Accumulated deficit [239,117] [ 330,174]
Partner capital [deficit] 1,838 [ 19,292]
------- ---------
238,721 126,534
------- ---------
$ 941,243 $1,065,861
======= =========
</TABLE><>
See auditors' report and accompanying notes
-2-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales $4,202,799 $3,651,231
- -----
Food cost of sales 1,097,277 1,042,314
- ------------------ --------- ---------
Gross profit 3,105,522 2,608,917
--------- ---------
Selling, general, and administrative expenses 2,787,260 2,519,005
- --------------------------------------------- --------- ---------
Interest expense 40,075 56,762
- ---------------- --------- ---------
Net income $ 278,187 $ 33,150
========= =========
</TABLE>
See auditors' report and accompanying notes
-3-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Partners'
Common Paid-In Accumulated Capital
Stock Capital Deficit [Deficit] Total
------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1995 $2,357 $473,643 $[255,382] $[ 60,217] $160,401
Net income [loss] [ 71,792] 104,942 33,150
Dividends paid [ 3,000] [ 64,017] [ 67,017]
----- -------- ------- ------- -------
Balances,
December 31, 1996 2,357 473,643 [330,174] [19,292] 126,534
Net income 91,057 187,130 278,187
Dividends paid -0- [166,000] [166,000]
----- -------- ------- ------- -------
Balances,
December 31, 1997 $2,357 $473,643 $[239,117] $ 1,838 $238,721
===== ======= ======= ======= =======
</TABLE>
See auditors' report and accompanying notes
-4-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase [Decrease] In Cash
<TABLE>
<CAPTION>
1997 1996
-------- --------
Cash flows from operating activities
- ------------------------------------
<S> <C> <C>
Net income $278,187 $ 33,150
Adjustments to reconcile net income to net cash ------- -------
provided by operating activities
Depreciation 160,229 198,535
Amortization 22,754 25,882
Changes in assets and liabilities
Decrease in advances -0- 1,600
Decrease in inventories 9,880 10,915
Decrease [Increase] in prepaid expenses 6,071 [ 6,793]
Decrease in deposits -0- 8,767
Decrease in accounts payable [ 34,955] [ 56,024]
Increase in accrued expenses 21,318 34,500
Increase [Decrease] in deferred rent payable [2,184] 16,830
------- -------
Total adjustments 183,113 234,212
------- -------
Net cash provided by operating
activities 461,300 267,362
------- -------
Cash flows from investing activities
- ------------------------------------
Acquisition of property and equipment [ 31,894] [ 87,109]
Franchise costs reimbursed -0- 8,000
Loan costs incurred -0- [ 9,462]
------- -------
Net cash used by investing activities [ 31,894] [ 88,571]
------- -------
Cash flows from financing activities
- ------------------------------------
Net proceeds from [payments on] line-of-credit [ 40,000] 55,000
Payments on long-term debt [180,984] [161,252]
Dividends paid [166,000] [ 67,017]
------- -------
Net cash used by financing activities [386,984] [173,269]
------- -------
Net increase in cash 42,422 5,522
Cash, beginning of year 184,963 179,441
------- -------
Cash, end of year $227,385 $184,963
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
Cash paid during the years for
Interest $ 36,616 $ 55,347
</TABLE>
See auditors' report and accompanying notes
-5-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Combination Policy:
------------------
The accompanying combined financial statements include the accounts of The
Cookie Conglomerate Inc., The Cookie Conglomerate, L.L.P., and The Cookie
Conglomerate of Carolina Place, Inc.
Intercompany transactions and balances have been eliminated in the
combination.
Nature of Operations:
--------------------
The Companies and Partnership operate retail cookie stores in North
Carolina, South Carolina, and Ohio. The stores are franchised from Great
American Cookie Company, Inc., now a subsidiary of Mrs. Fields' Original
Cookies, Inc.
Inventories:
-----------
Inventories are valued at the lower of cost or market with cost determined
on the first-in, first-out method.
Property and Equipment:
----------------------
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed of, and the related allowance for
depreciation, are eliminated from the accounts, and any resulting gain or
loss is recognized.
Depreciation is provided using both the straight-line and accelerated
methods over the estimated useful lives of the assets which are as follows:
Equipment 5 years
Fixtures 7 years
Leasehold improvements Life of related lease
Franchise Costs:
---------------
Franchise costs represent amounts paid to open the stores and for operating
under the name of Great American Cookie Company, Inc., now a subsidiary of
Mrs. Fields' Original Cookies, Inc. These costs are being amortized over
eight to fifteen years using the straight-line method of amortization.
-6-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENT [CONTINUED]
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Organizational Costs:
--------------------
Organizational costs are carried at cost. Amortization is provided using
the straight-line method over a period of sixty months.
Intangible Assets:
-----------------
Intangible assets include goodwill and restrictive convenant fees. Goodwill
represents the excess of the cost of the Carolina Place franchise over the
fair value of its net assets at the date of acquisition. Restrictive
convenant fees represent the costs of a non-compete agreement with the
previous owners of the Carolina Place franchise. These assets are being
amortized on the straight-line method over fifteen years.
Loan Costs:
----------
Loan costs represent bank loan and closing fees incurred in connection with
the procurement of long-term debt. These costs are being amortized over the
terms of the related loan agreements, which are two to five years.
Income Taxes:
------------
The Cookie Conglomerate, Inc. and The Cookie Conglomerate of Carolina
Place, Inc. elected by unanimous consent of its stockholders to be taxed
under the provisions of subchapter S of the Internal Revenue Code. Under
those provisions, the Companies do not pay corporate income taxes on their
taxable income. Instead, the stockholders are liable for individual income
taxes on their respective shares of the Company's taxable income.
The Cookie Conglomerate, L.L.P. is also not subject to income tax. Income
is taxed directly to its partners. On December 30, 1997, the partners
elected to become a limited liability partnership pursuant to the Georgia
Uniform Partnership Act.
Compensated Absences:
--------------------
Employees of the Companies and Partnership are entitled to paid vacation,
paid sick days and personal days off, depending on job classification,
length of service, and other factors. It is impractical to estimate the
amount of compensation for future absences, and accordingly, no liability
has been recorded in the accompanying financial statements. The Companies'
and Partnership's policy is to recognize the costs of compensated absences
when actually paid to employees.
-7-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Estimates:
---------
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
B. LINES-OF-CREDIT:
---------------
A summary of the lines-of-credit is as follows:
<TABLE>
<CAPTION>
Collateral 1997 1996
------------ ------ ------
<S> <C> <C> <C>
Riverside Bank - $100,000 note payable Guarantee
dated September 30, 1996 with of Ronald
interest payable monthly at prime Eichel, Alan
plus 1%. Principal payable at Kuehn, and
maturity on September 30, 1997. Cookie
Conglomerate,
Inc. $ -0- $80,000
Riverside Bank - $100,000 note Inventory,
payable dated November 4, 1997 accounts receivable,
with interest payable monthly at equipment, general
prime plus 1%. Principal payable intangibles,
at maturity on November 4, 1998. corporate
guarantee of
Cookie
Conglomerate
Partnership,
personal
guarantees of
Ronald Eichel,
Nancy Eichel, and
Alan Kuehn. 40,000 -0-
------ ------
$40,000 $80,000
====== ======
</TABLE>
-8-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
C. LONG-TERM DEBT:
--------------
Long-term debt consists of the following at December 31,:
<TABLE>
<CAPTION>
Collateral 1997 1996
------------------- ------ ------
<S> <C> <C> <C>
Tony Hege - $160,000 note payable Notes and
dated July 18, 1994. Principal accounts receivable,
payments of $1,905 plus interest inventory,
at 9% per annum payable monthly fixtures and
beginning August 10, 1994 until equipment.
July 10, 1998 when remaining $ 77,778 $104,762
principal due.
Alan Kuehn (stockholder) - $20,000 Notes and
note payable at 9%. Interest only accounts receivable,
payable through December of 1995. inventory,
Principal payments of $417 plus fixtures and
interest due monthly through July equipment.
10, 1998 when remaining principal
due. Interest expense incurred for 20,000 20,000
each year totals $3,600.
Ron Eichel (stockholder) - $20,000 note Notes and
payable at 9%. Interest only payable accounts receivable,
through December of 1995. Principal inventory,
payments of $417 plus interest due fixtures and
monthly through July 10, 1998 when equipment.
remaining principal due. Interest
expense incurred for each year 20,000 20,000
totals $3,600.
</TABLE>
-9-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
C. LONG-TERM DEBT: [Continued]
--------------
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- ------ ------
<S> <C> <C> <C>
Riverside Bank - $106,222 note payable Inventory,
dated September 30, 1996 with 50 equipment,
monthly installment payments of accounts
principal and interest of $2,574 receivable,
beginning on October 30, 1996. general
Interest at 9.25%. Matures intangibles.
November 30, 2000. Personal
guarantees of
Ronald Eichel,
Nanci Eichel,
Alan Kuehn and
corporate
guarantee of
Cookie
Conglomerate
Partnership. 76,000 100,000
Riverside Bank - $196,747 note payable Inventory,
dated September 30, 1996 with 25 equipment,
monthly installment payments accounts
beginning October 30, 1996 of receivable,
principal of $7,870 plus interest general
at prime plus 1%. Matures October intangibles.
30, 1998. Personal
guarantees of
Ronald Eichel
and Alan Kuehn
and corporate
guarantee
of Cookie
Conglomerate
Partnership. 70,000 173,000
</TABLE>
-10-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
C. LONG-TERM DEBT: [Continued]
--------------
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- ------ ------
<S> <C> <C> <C>
Riverside Bank - $30,837 note Inventory,
payable dated September 30, accounts
1996 with 25 monthly installment receivable,
payments beginning October 30, equipment,
1996 of principal of $1,233 plus general
interest at 9.25%. Matures intangibles.
October 30, 1998. Corporate
guarantee of
Cookie
Conglomerate
partnership,
personal
guarantees of
Ronald Eichel,
Nanci Eichel
and Alan
Kuehn. -0- 27,000
------- -------
263,778 524,762
Less: Current maturities 155,107 176,098
------- -------
$108,671 $348,664
======= =======
</TABLE>
Following are maturities of long-term debt for each of the next five years:
December 31,
------------
1998 $155,107
1999 49,907
2000 49,557
2001 9,207
2002 -0-
-------
$263,778
=======
D. COMMITMENTS:
-----------
The Cookie Conglomerate, Inc. and Affiliates are the lessee of store space
in various malls under sublease arrangements with Great American Cookie
Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc.
Minimum future lease payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997 for each of
the next five years and in aggregate are:
-11-
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1997 AND 1996
D. COMMITMENTS: [Continued]
-----------
December 31,
------------
1998 $ 481,036
1999 454,143
2000 297,246
2001 237,789
2002 195,536
Thereafter 353,804
---------
$2,019,554
=========
Additional rental payments are contingent on sales exceeding certain
breakpoint levels specified in each lease. Rent expense totaled $640,870
for 1997 and $620,355 for 1996.
Franchise agreements provide for the Companies and Partnership to pay
annual service fees equal to 7% of gross sales. The service fees due the
franchiser in connection with these agreements are due on a monthly basis.
The franchise agreements end simultaneously with the termination of the
lease of the premises in which the cookie facilities are located.
E. SUBSEQUENT EVENT:
----------------
The Cookie Conglomerate of Carolina Place, Inc. effectively merged with The
Cookie Conglomerate, Inc. on January 1, 1998.
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, L.L.P. entered
into an asset purchase agreement on October 5, 1998 with Mrs. Fields'
Original Cookies, Inc. to sell substantially all the assets of the Company
and Partnership.
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
September 30,
1998
-------------------
<S> <C>
Current assets
- --------------
Cash $135,749
Inventories 71,635
Other current assets 2,011
--------
Total current assets 209,395
Property and equipment, net 435,604
- ---------------------------
Intangibles, net 111,490
- ----------------
Other assets 34,451
- ------------ --------
$790,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
- -------------------
Accounts payable $101,243
Accrued expenses 91,213
Current portion of long-term debt 121,621
--------
Total current liabilities 314,077
Other liabilities
- -----------------
Long-term debt, net of current portion 29,366
--------
Total liabilities 343,443
--------
Stockholders' equity
- --------------------
Common stock, $1 par value, 20,000 shares of
Class A [voting] authorized and 10,000
Shares of Class B [nonvoting] authorized;
2,357 shares of Class A issued and
outstanding 2,357
Additional paid-in capital 473,643
Partner capital 23,629
Accumulated Deficit (52,132)
--------
447,497
--------
$790,940
========
</TABLE>
See footnote
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Sales $2,906,499 $2,926,659
- -----
Cost of sales 2,313,079 2,388,393
- ------------- ---------- ----------
Gross profit 593,420 538,266
Selling, general, and administrative expenses 389,462 380,901
- ---------------------------------------------
Interest expense 16,972 27,649
- ---------------- ---------- ----------
Net income $ 186,986 $ 129,716
========== ==========
</TABLE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
Increase [Decrease] In Cash
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income $ 186,985 $ 129,716
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation & amortization 117,584 125,688
Changes in assets and liabilities
Increase (decrease) in inventories (19,606) 7,908
Decrease in prepaid expenses 24,981 28,124
Decrease in accounts payable & accrued expenses (246,288) (212,000)
--------- ---------
Total adjustments (123,329) (50,280)
--------- ---------
Net cash provided by operating activities 63,656 79,436
--------- ---------
Cash flows from investing activities
- ------------------------------------
Acquisition of equipment (64,292) (25,003)
--------- ---------
Net cash used by investing activities (64,292) (25,003)
--------- ---------
Cash flows from financing activities
- ------------------------------------
Dividends paid (43,906) (43,365)
Payments on long-term debt and line-of-credit (47,095) (76,854)
--------- ---------
Net cash used by financing activities (91,001) (120,219)
--------- ---------
Net decrease in cash (91,637) (65,786)
Cash, beginning of period 227,385 184,963
--------- ---------
Cash, end of period $ 135,748 $ 119,177
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- --------------------------------------------------
1998 1997
---- ----
Cash paid during the years for
interest $ 16,972 $ 27,649
</TABLE>
See footnote
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying interim unaudited combined financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting
principles. In the opinion of management, these combined financial statements
reflect all adjustments, which consist only of normal recurring adjustments,
which are necessary to present fairly the Company's financial position as of
September 30, 1998 and results of operations and cash flows for the nine
months ended September 30, 1998 and September 30, 1997. These interim
unaudited combined financial statements should be read in conjunction with the
audited combined financial statements and notes thereto included in this
filing.
-12-
