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): FEBRUARY 1, 1999
(NOVEMBER 19, 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 Pretzelmaker Holdings, Inc. (i) Reports of
Independent Certified Public Accountants, (ii) Consolidated Balance
Sheets as of December 31, 1996 and 1997 and September 30, 1998
(Unaudited), (iii) Consolidated Statements of Operations for the
period from February 24, 1995 (Inception) to December 31, 1995, and
the years ended December 31, 1996 and 1997 and the nine months
ended September 30, 1997 (Unaudited) and 1998 (Unaudited), (iv)
Consolidated Statements of Stockholders' Equity for the period from
February 24, 1995 (Inception) to December 31, 1995, the years ended
December 31, 1996 and 1997 and the nine months ended September 30,
1998 (Unaudited), (v) Consolidated Statements of Cash Flows for the
period from February 24, 1995 (Inception) to December 31, 1995, the
years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1997 (Unaudited) and 1998 (Unaudited), and (vi) Notes
to Consolidated 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 Balance
Sheet as of October 3, 1998 and Statements of Operations for the 53
weeks ended January 3, 1998 and the 39 weeks ended October 3, 1998,
and the notes thereto. These unaudited pro forma financial
statements are being filed in accordance with Item 7(a)(4).
ITEM 7(c) EXHIBITS
Exhibit
2.1* Stock Purchase Agreement, dated as of November 19, 1998, among Mrs.
Fields' Original Cookies, Inc., as Buyer, Pretzelmaker Holdings,
Inc., and the holders of all the outstanding stock of Pretzelmaker
Holdings, Inc., collectively as Sellers (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: February 1, 1999 /s/ L. TIM PIERCE
--------------------------------------
L. TIM PIERCE, CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT INDEX
ITEM 7(c) EXHIBITS
Exhibit
2.1* Stock Purchase Agreement, dated as of November 19, 1998, among Mrs.
Fields' Original Cookies, Inc., as Buyer, Pretzelmaker Holdings,
Inc., and the holders of all the outstanding stock of Pretzelmaker
Holdings, Inc., collectively as Sellers (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 10 1/8 % 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 7/8 %
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 Cookie Conglomerate
acquisition was funded with financing provided by T&W Financial Services, L.L.C.
and such funding is secured by the assets of the acquired stores.
On November 19, 1998, Mrs. Fields, pursuant to a Stock Purchase Agreement
(the "Stock Purchase Agreement") among Pretzelmaker Holdings, Inc.
("Pretzelmaker") the holders of all outstanding capital stock of Pretzelmaker,
(collectively the "Sellers") and the Company, acquired all of the outstanding
capital stock of the Sellers for $5,739,000, including $5,419,000 related to
outstanding capital stock and $320,000 related to severance payments in lieu of
outstanding stock options, and assumed liabilities totaling $1,299,000. The
transaction was financed with Sellers' Notes that were paid by the Company in
installments through January 4, 1999. Of the assumed indebtedness, $722,000 was
paid by the Company in installments through January 4, 1999.
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, Cookie Conglomerate, and
Pretzelmaker. 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, Cookie Conglomerate, and Pretzelmaker 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 acquisitions of Cookies Conglomerate and Pretzelmaker
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 fiscal 1997) 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.
<PAGE>
THE COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF OCTOBER 3, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Cookie Adjustments Pro Forma
Mrs. Fields Conglomerate Pretzelmaker (See Note 1) Combined
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 5,146 $ 136 $ 216 $ (1,236)(a) $ 4,262
Accounts receivable, net........................ 1,896 - 511 - 2,407
Amounts due from franchisees and licensees, net. 5,616 - 25 - 5,641
Inventories..................................... 4,790 72 47 (72)(a) 4,837
Prepaid rent and other.......................... 7,077 2 23 (2)(a) 7,100
----- - -- -- -----
TOTAL CURRENT ASSETS......................... 24,525 210 822 (1,310) 24,247
PROPERTY AND EQUIPMENT, net.......................... 35,003 436 566 365 (b) 36,370
GOODWILL AND OTHER INTANGIBLES, net.................. 159,419 111 1,141 7,244 (c) 167,915
OTHER................................................ 3,710 34 184 (34)(a) 3,894
----- -- --- --- -----
TOTAL ASSETS......................................... $222,657 $ 791 $ 2,713 $ 6,265 $232,426
======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations..................... $ 558 $ 122 $ 531 $ 378 (d) $ 1,589
Promissory notes................................ - - - 4,638 (d) 4,638
Accounts payable................................ 8,669 101 331 (101)(a) 9,000
Accrued liabilities............................. 17,574 91 568 (91)(a) 18,142
------ -- --- --- ------
TOTAL CURRENT LIABILITIES.................... 26,801 314 1,430 4,824 33,369
------ --- ----- ----- ------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion............. 139,598 29 720 2,271 (d) 142,618
------- -- --- ----- -------
OTHER LONG-TERM LIABILITIES.......................... 4,648 - 181 - 4,829
----- --- -----
MINORITY INTEREST IN SUBSIDIARY...................... 308 - - - 308
--- ---
MANDATORILY REDEEMABLE PREFERRED STOCK 1,171 - - - 1,171
----- -----
STOCKHOLDERS' EQUITY:
Common stock.................................... - 2 - (2)(e) -
Additional paid-in capital...................... 59,899 474 1,071 (1,545)(e) 59,899
Partner capital................................. - 24 - (24)(e) -
Accumulated deficit............................. (9,768) (52) (689) 741 (e) (9,768)
------ --- ---- --- ------
TOTAL STOCKHOLDERS' EQUITY................... 50,131 448 382 (830) 50,131
------ --- --- ---- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $222,657 $ 791 $ 2,713 $ 6,265 $ 232,426
======== ========= ======== ========= =========
</TABLE>
See accompanying notes to pro forma condensed combined
financial statements.
<PAGE>
THE COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Mrs. Fields Pre-Acquisition
Pre-
Pretzel Pro Forma Acquisition
H&M Time Adjustments Pro Forma
Mrs. Fields (See Note 3) (See Note 4) (See Note 2) Combined
<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 11)........................... $ 18,818 $ 552 $ 661 $ 750 $ 20,781
Ratio of earnings to fixed charges (See Note 13) -- -- 4.53x -- --
Deficiency of earnings to fixed charges
(See Note 13)................................ $ (319) $ (508) $ -- $ -- $ (3,205)
</TABLE>
See accompanying notes to pro forma
condensed combined financial
statements.
<PAGE>
THE COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Mrs. Fields Post-Acquisition
Great Chocolate Karp Cookie
American Deblan Chip Entities Conglomerate
(See Note 5) (See Note 6) (See Note 7) (See Note 8) (See Note 9)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net store and batter sales..................... $ 32,307 $ 9,503 $ 2,789 $ 2,500 $ 4,203
Franchising, net............................... 5,391 -- -- -- --
Licensing, net................................. -- -- -- -- --
Other, net..................................... 167 21 -- -- --
--- --
Total revenues............................... 37,865 9,524 2,789 2,500 4,203
------ ----- ----- ----- -----
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............. 13,548 5,891 1,396 1,635 2,278
Food cost of sales............................. 10,578 1,675 654 683 1,097
General and administrative..................... 6,664 1,169 510 238 326
Depreciation and amortization.................. 2,725 255 51 121 183
----- --- -- --- ---
Total operating costs and expenses........... 33,515 8,990 2,611 2,677 3,884
------ ----- ----- ----- -----
Income (loss) from operations................. 4,350 534 178 (177) 319
INTEREST EXPENSE.................................. (6,219) (73) (5) (18) (40)
INTEREST INCOME................................... 307 26 5 -- --
OTHER INCOME (EXPENSE), net....................... 1,264 -- -- -- --
-----
Income (loss) before provision for income taxes (298) 487 178 (195) 279
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) 279
PREFERRED STOCK ACCRETION AND
DIVIDENDS OF SUBSIDIARIES......................... -- -- -- -- --
MINORITY INTEREST................................. -- -- -- -- --
Income (loss) from continuing operations...... $ (521) $ 292 $ 135 $ (210) $ 279
========= ======== ======== ======== =========
OTHER DATA:
Cash flows from operating activities.......... $ 1,674 $ 787 $ 240 $ (20) $ 461
Cash flows from investing activities.......... 299 (690) (184) 17 (32)
Cash flows from financing activities.......... (105) 193 (32) -- (387)
EBITDA (See Note 11).......................... $ 7,075 $ 789 $ 229 $ (56) $ 502
Ratio of earnings to fixed charges (See Note 13) -- 7.67x 36.60x -- 7.95x
Deficiency of earnings to fixed charges
(See Note 13)............................... $ (1,090) $ -- $ -- $ (195) $ --
</TABLE>
See accompanying notes to pro forma
condensed combined financial
statements.
<PAGE>
THE COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Continued)
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Mrs. Fields Post-Acquisition
Post
Pro Acquisition
Pretzelmaker Forma Pro Forma
(See Note 10) Adjustments Combined
(See Note 2)
<S> <C> <C> <C>
REVENUES:
Net store and batter sales..................................... $ 1,819 $ (2,886)(g) $ 183,852
Franchising, net............................................... 2,804 (1,329)(f) 11,929
Licensing, net................................................. -- -- 2,028
Other, net..................................................... 1,442 -- 2,765
----- -----
Total revenues............................................... 6,065 (4,215) 200,574
----- ------ -------
.OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.............................. 1,816 (1,329)(f) 97,818
Food cost of sales............................................. 921 (2,886)(g) 42,278
General and administrative..................................... 3,175 (2,670)(h) 28,335
Depreciation and amortization.................................. 403 3,931 (i) 19,405
--- ----- ------
Total operating costs and expenses........................... 6,315 (2,954) 187,836
----- ------ -------
Income (loss) from operations................................ (250) (1,261) 12,738
INTEREST EXPENSE.................................................. (224) 1,659 (j) (16,097)
INTEREST INCOME................................................... -- -- 584
OTHER INCOME (EXPENSE), net....................................... -- -- 896
---
Income (loss) before provision for income taxes ............. (474) 398 (1,879)
PROVISION FOR INCOME TAXES........................................ -- (323)(k) 808
---- ---
Income (loss) before preferred stock accretion and dividends
of subsidiaries and minority interest .................. (474) 721 (2,687)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES........... -- -- (644)
MINORITY INTEREST................................................. -- -- (307)
----
Income (loss) from continuing operations .................... $ (474) $ 721 $ (3,638)
========= ========= ==========
OTHER DATA:
Cash flows from operating activities......................... $ (114) $ -- $ 4,658
Cash flows from investing activities......................... (63) -- (16,214)
Cash flows from financing activities......................... 197 -- 23,555
EBITDA (See Note 11)......................................... $ 153 $ 2,670 $ 32,143
Ratio of earnings to fixed charges (See Note 13)............. -- -- --
Deficiency of earnings to fixed charges (See Note 13)....... $ (474) $ -- $ (3,623)
</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)
(Dollars in thousands)
<TABLE>
<CAPTION>
Great Chocolate Karp Cookie Pro Forma
American Deblan Chip Entities Conglomerate Pretzelmaker Adjustments Pro Forma
(See (See (See (See (See (See (See Combined
Mrs. Fields Note 5) Note 6) Note 7) Note 8) Note 9) Note 10) Note 2)
<S> <C> <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 $ 1,039 $ (1,330)(g) $121,217
Franchising, net......... 3,884 3,449 --- --- --- --- 1,724 (606)(f) 8,451
Licensing, net........... 1,081 --- --- --- --- --- --- --- 1,081
Other, net............... 1,056 82 --- --- --- --- 598 --- 1,736
----- -- --- -----
Total revenues......... 95,959 22,463 6,370 1,873 1,489 2,906 3,361 (1,936) 132,485
------ ------ ----- ----- ----- ----- ----- ------ -------
Selling and store
occupancy costs........ 52,357 7,645 3,523 1,000 914 1,580 992 (606)(f) 67,405
Food cost of sales....... 21,588 6,428 1,108 454 373 733 121 (1,330)(g) 29,475
General and
administrative......... 12,621 5,288 1,067 421 141 303 1,656 (1,735)(h) 19,762
Depreciation and
amortization........... 9,707 1,510 182 22 82 118 627 3,077 (i) 15,325
----- ----- --- -- -- --- --- ----- ------
Total operating costs
and expenses........... 96,273 20,871 5,880 1,897 1,510 2,734 3,396 (594) 131,967
------ ------ ----- ----- ----- ----- ----- ---- -------
Income (loss) from
operations............. (314) 1,592 490 (24) (21) 172 (35) (1,342) 518
INTEREST EXPENSE........... (9,001) (4,077) (43) (2) (8) (17) (152) 502 (j) (12,798)
INTEREST INCOME............ 550 258 24 4 --- --- --- --- 836
OTHER INCOME (EXPENSE)..... (256) (149) 40 11 --- 32 --- --- (322)
---- ---- -- -- -- ----
Income (loss) before
provision for income
taxes ................. (9,021) (2,376) 511 (11) (29) 187 (187) (840) (11,766)
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 (187) (840) (11,944)
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 $ (187) $ (840) $(12,545)
======== ======= ======= ======== ======= ======= ======= ======== ========
OTHER DATA:
Cash flows from operating
activities.............. $ 676 $(1,517) $ 372 $ (40) $ (54) $ 64 $ 713 $ --- $ 214
Cash flows from investing
activities.............. (34,315) (310) (72) (7) (2) (64) 89 --- (34,681)
Cash flows from financing
activities.............. 22,498 (18) (205) (72) 12 (91) (702) --- 21,422
EBITDA (See Note 12)..... $ 9,393 $ 3,102 $ 672 $ (2) $ 61 $ 290 $ 592 $ 1,735 $ 15,843
Ratio of earnings to
fixed charges (See
Note 13)................ --- --- 12.88x --- --- 12.00x --- --- ---
Deficiency of earnings to
fixed charges (See
Note 13) .............. $ (9,622) $(2,888) $ --- $ (11) $ (29) $ --- $ (187) $ --- $(12,879)
</TABLE>
See accompanying notes to pro forma condense combined
financial statements.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) Adjustments to eliminate the assets and liabilities that the Company did
not acquire or assume from Cookie Conglomerate as part of the acquisition,
and $1,100,000 cash paid to the stockholders of Pretzelmaker on the
acquisition date.
(b) Adjustments to record acquired property and equipment at their estimated
fair values.
(c) Adjustment to record goodwill totaling approximately $7,256,000, off-set
by the write-off of existing intangible assets. Goodwill is being
amortized over 15 years. Adjustment records a covenant not to compete at
$100,000 that is being amortized over one year.
(d) Adjustments to record the acquisition financing of $2,800,000, offset by
the elimination of existing obligations not assumed. A portion of the
financed amount is recorded as capital lease obligations and a portion is
recorded as long-term debt. Adjustment to promissory notes relates to the
acquisition financing of Pretzelmaker.
(e) Adjustments to eliminate Cookie Conglomerate's and Pretzelmaker's
stockholders' equity accounts.
2. UNAUDITED PRO FORMA COMBINED STATEMENTS 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.
(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 of 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 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 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.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 operations of 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, Cookie Conglomerate and Pretzelmaker 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 $77,717,000
which was recorded in connection with the purchase of Great American, Deblan,
Chocolate Chip, the Karp Entities, Cookie Conglomerate and Pretzelmaker.
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.
(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 additional
amortization related to approximately $5,007,000 of new deferred loan costs
amortized over a seven-year period; and (vi) net interest expense on the
$40,000,000 of Series C Senior Notes and amortization of $600,000 of assumed
discount; (vii) net interest expense on $2,800,000 of financing related to the
acquisition of Cookie Conglomerate, and (viii) net interest expense on
$4,682,000 of financing related to the acquisition of Pretzelmaker.
(k) Adjustment to reflect the change in provision for income taxes due
to the consolidated results of operations of the entities before provision for
income taxes.
3. 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 offering of $100,000,000 of Series A 10 1/8 % Senior Notes due 2004 ("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>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. 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.
5. GREAT AMERICAN ACQUISITION
On August 24, 1998, Mrs. Fields acquired all of the outstanding
capital stock and subordinated indebtedness of Cookies USA, Inc., the owner
of Great American, for an aggregate purchase price of $18,400,000. Cookies
USA, Inc. was merged with and into Mrs. Fields, with the result that Great
American became a direct, wholly owned subsidiary of Mrs. Fields. 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.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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>
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.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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>
10. PRETZELMAKER HOLDINGS, INC.
On November 19, 1998, Mrs Fields acquired all of the outstanding
capital stock of Pretzelmaker for $5,739,000, including $5,419,000 related to
outstanding capital stock and $320,000 related to severance payments in lieu of
outstanding stock options. Mrs. Fields paid $1,100,000 in cash upon closing of
the acquisition and signed a promissory note for the remaining $4,639,000, which
was paid in three installments through January 4, 1999. Accordingly, in the
accompanying pro forma condensed combined financial statements of operations for
the 39 weeks ended October 3, 1998, Pretzelmaker's results of operations from
January 1, 1998 to September 30, 1998 are included under the "Pretzelmaker"
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 liabilities assumed............................................................. $ (759,000)
Goodwill acquired................................................................................. 6,498,000
-----------
Total purchase price.............................................................................. $ 5,739,000
===========
</TABLE>
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
11. 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 PRETZELMAKER ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss)
from operations $ 9,045 $4,350 $534 $178 $(177) $319 $(250) $(1,261) $12,738
Add:
Depreciation and
amortization... 11,736 2,725 255 51 121 183 403 3,931 19,405
------ ----- --- -- --- --- --- ----- ------
EBITDA....... $20,781 $7,075 $789 $229 $ (56) $502 $153 $ 2,670 $32,143
======= ====== ==== ==== ===== ==== ==== ======== =======
</TABLE>
12. 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 PRETZELMAKER ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss)
from
operations..... $ (314) $1,592 $490 $(24) $(21) $172 $ (35) $(1,342) $ 518
Add:
Depreciation and
amortization... 9,707 1,510 182 22 82 118 627 3,077 15,325
----- ----- --- -- -- --- --- ----- ------
EBITDA........... $ 9,393 $3,102 $672 $ (2) $ 61 $290 $592 $ 1,735 $15,843
======= ====== ==== ===== ===== ==== ==== ======= =======
</TABLE>
13. 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.
<PAGE>
THE COMPANY
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 to cover fixed charges by $278,000 and Pretzelmaker's earnings were
insufficient to cover fixed charges by $474,000. Mrs. Fields' post-acquisition
pro forma combined earnings were insufficient to cover fixed charges for the 53
weeks ended January 3, 1998 by $3,623,000.
For the 39 weeks ended October 3, 1998, Mrs. Fields' earnings were
insufficient to cover fixed charges by $9,622,000. 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 $187,000 and Pretzelmaker's earnings were insufficient
to cover fixed charges by $187,000. Mrs. Fields' pro forma combined earnings
were insufficient to cover fixed charges for the 39 weeks ended October 3, 1998
by $12,879,000.
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants (AJ. Robbins, PC) F-2
Report of Independent Certified Public Accountants (BDO Seidman, LLP) F-3
Consolidated Balance Sheets as of
December 31, 1996 and 1997
and September 30, 1998 (Unaudited) F-4
Consolidated Statements of Operations
For the Period from February 24 (Inception) to December 31,
1995 and the Years Ended December 31, 1996 and 1997 and the
Nine Months Ended September 30, 1997 (Unaudited)
and 1998 (Unaudited) F-6
Consolidated Statements of Stockholders' Equity
For the Period from February 24 (Inception) to December 31,
1995 and the Years Ended December 31, 1996 and 1997 and
the Nine Months Ended September 30, 1998 (Unaudited) F-7
Consolidated Statements of Cash Flows
For the Period from February 24 (Inception) to December 31,
1995 and the Years Ended December 31,1996 and 1997 and the
Nine Months Ended September 30, 1997 (Unaudited)
and 1998 (Unaudited) F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, during 1997 the
Company's subsidiary became non-compliant with the covenants under its bank debt
agreements and the lender has not agreed to provide waivers. Accordingly, such
debt has been reclassified as a current liability since, due to the covenant
default, the lender has the right to accelerate the repayment of the loans.
AJ. ROBBINS, PC
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
December 11, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (February 24, 1995) to December 31, 1995 and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company'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 audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1996, and the results of its
operations and its cash flows for the period from inception (February 24, 1995)
to December 31, 1995 and for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 7, 1997
F-3
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(substantially all pledged)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997 1998
----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 95,914 $ 115,805 $ 216,261
Accounts receivable, net of allowance for doubtful
accounts of $10,000, $10,000 and $45,000 485,002 642,821 510,904
Due from affiliates 77,904 46,129 24,809
Refundable income taxes - 56,524 -
Inventories 31,583 74,226 47,400
Prepaid expenses and supplies 14,126 237 22,677
----------------- ----------------- -----------------
Total Current Assets 704,529 935,742 822,051
----------------- ----------------- -----------------
PROPERTY AND EQUIPMENT:
Store fixtures and equipment 719,509 872,864 646,598
Leasehold improvements 336,301 416,631 267,233
Computer equipment 54,346 71,761 70,811
Furniture and fixtures 54,264 54,134 34,959
----------------- ----------------- -----------------
1,164,420 1,415,390 1,019,601
Less accumulated depreciation and amortization 150,336 341,523 453,193
----------------- ----------------- -----------------
Net Property and Equipment 1,014,084 1,073,867 566,408
----------------- ----------------- -----------------
OTHER ASSETS:
Intangible assets, net of accumulated amortization 1,414,628 1,258,470 1,141,351
Deferred tax asset 62,000 62,000 62,000
Other assets 122,762 46,880 62,533
Restricted cash - 64,575 59,112
----------------- ----------------- -----------------
Total Other Assets 1,599,390 1,431,925 1,324,996
----------------- ----------------- -----------------
$ 3,318,003 $ 3,441,534 $ 2,713,455
================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997 1998
----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank debt $ - $ 732,916 $ 443,742
9% Notes payable in 1998 - 215,587 38,500
Accounts payable 367,904 461,124 330,541
Accruals and other payables 47,810 138,065 185,213
Income taxes payable 70,000 23,449 -
Deferred initial franchise fees 357,760 151,500 214,950
Current maturities of long-term debt 151,797 45,647 49,141
Current portion of non-compete agreements 130,416 151,418 168,082
----------------- ----------------- -----------------
Total Current Liabilities 1,125,687 1,919,706 1,430,169
----------------- ----------------- -----------------
LONG-TERM OBLIGATIONS:
Long-term debt, less current maturities 288,639 237,130 180,555
Unsecured promissory notes 534,000 540,000 540,000
Non-compete agreements payable 327,221 175,803 -
Deferred revenues - - 180,906
----------------- ----------------- ----------------
Total Liabilities 2,275,547 2,872,639 2,331,630
----------------- ----------------- -----------------
COMMITMENTS AND CONTINGENCIES
(Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; shares authorized
1,000,000; shares issued and outstanding 135,155 135 135 135
Additional paid-in capital 1,070,814 1,070,814 1,070,814
Accumulated deficit (28,493) (502,054) (689,124)
----------------- ----------------- -----------------
Total Stockholders' Equity 1,042,456 568,895 381,825
----------------- ----------------- -----------------
$ 3,318,003 $ 3,441,534 $ 2,713,455
================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 24 Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ------------------------------------ -------------------------------------
1995 1996 1997 1997 1998
---------------- ------------------ ------------------ ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Franchising $ 706,410 $ 1,663,846 $ 2,026,385 $ 1,415,632 $ 1,538,486
Net company-owned store sales 254,124 1,061,889 1,818,919 1,222,149 1,038,775
Initial franchise fees 435,988 893,099 778,294 593,285 186,202
Product and equipment 329,523 1,795,262 1,441,815 1,322,613 598,068
---------------- ----------------- ---------------- ---------------- ----------------
revenue
Total Revenues 1,726,045 5,414,096 6,065,413 4,553,679 3,361,531
---------------- ----------------- ---------------- ---------------- ----------------
COSTS AND EXPENSES:
General and administrative expenses 1,088,763 2,588,832 2,685,646 2,007,944 1,546,513
Company-owned stores expenses 275,163 1,104,908 1,815,775 1,370,404 992,336
Product and equipment costs 209,910 1,173,866 921,131 895,829 121,254
Losses on store closings
and asset dispositions - - 340,491 153,611 108,858
Litigation settlement - - 148,702 148,702 -
Depreciation and amortization 156,382 291,862 402,693 288,566 627,337
Interest expense 89,247 157,242 224,536 171,316 152,303
---------------- ----------------- ---------------- ---------------- ----------------
Total Costs and Expenses 1,819,465 5,316,710 6,538,974 5,036,372 3,548,601
---------------- ----------------- ---------------- ---------------- ----------------
INCOME (LOSS)BEFORE TAXES ON INCOME (93,420) 97,386 (473,561) (482,693) (187,070)
TAXES ON INCOME - 32,459 - - -
---------------- ----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070)
================ ================= ================ ================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balances at February 24,
1995 (Inception) - $ - $ - $ - $ -
Issuance of Capital Stock 135,155 135 1,070,814 - 1,070,949
Net loss for the period - - - (93,420) (93,420)
---------------- ---------------- ---------------- ----------------- -----------------
Balances at December 31, 1995 135,155 135 1,070,814 (93,420) 977,529
Net income for the year - - - 64,927 64,927
---------------- ---------------- ---------------- ----------------- -----------------
Balances at December 31, 1996 135,155 135 1,070,814 (28,493) 1,042,456
Net loss for the year - - - (473,561) (473,561)
---------------- ---------------- ---------------- ----------------- -----------------
Balances at December 31, 1997 135,155 135 1,070,814 (502,054) 568,895
Net loss for the period
(unaudited) - - - (187,070) (187,070)
---------------- ---------------- ---------------- ----------------- -----------------
Balances at September 30,
1998 (unaudited) 135,155 $ 135 $ 1,070,814 $ (689,124) $ 381,825
================ ================ ================ ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 24, Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ---------------------------------- ----------------------------------
1995 1996 1997 1997 1998
------------- ---------------- ---------------- ---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 156,382 291,862 402,693 288,566 627,337
Loss on disposal of equipment - - 108,890 6,795 (76,601)
Interest accretion 73,637 69,974 51,884 38,904 23,161
Deferred revenues - - - - 180,906
Deferred income taxes (22,000) (40,000) - - -
Accounts receivable allowance 5,000 5,000 - - 35,000
Changes in operating assets
and liabilities:
Accounts receivable (172,836) (211,469) (81,319) (52,693) 71,917
Refundable income taxes (23,000) 23,000 (56,524) - 56,524
Inventories (11,254) (18,779) (42,643) (60,727) 26,826
Due from affiliates - (77,904) 31,775 51,565 21,320
Prepaid expenses and supplies (14,126) - 13,889 (24,722) (22,440)
Accounts payable 147,000 184,788 72,520 255,828 (130,583)
Accruals and other payables 62,995 (86,315) 110,955 52,476 23,699
Income taxes payable - 70,000 (46,551) (70,000) -
Deferred initial franchise fees 90,679 16,561 (206,261) (147,910) 63,450
---------------- ---------------- ---------------- -------------- ---------------
Net Cash Provided by (Used in) 199,057 291,645 (114,253) (144,611) 713,446
---------------- ---------------- ---------------- -------------- ---------------
Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (445,612) (665,948) (278,529) (161,209) (75,296)
Proceeds from sale of property and
equipment - - 199,564 191,064 166,361
Purchase of business, net of cash
acquired (333,784) - - - -
Other assets (63,003) (70,451) 80,335 49,972 (7,876)
Restricted cash - - (64,575) (69,560) 5,463
----------------- ---------------- ---------------- -------------- ---------------
Net Cash Provided by (Used in) (842,399) (736,399) (63,205) 10,267 88,652
---------------- ---------------- ---------------- -------------- ---------------
Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock 795,000 - - - -
Proceeds from notes payable 399,000 593,878 518,426 406,728 -
Principal payments on notes payable - (49,727) (128,928) (84,804) (466,261)
Principal payments on non-compete
agreements (360,000) (182,300) (182,300) (182,300) (182,300)
Principal payments on capital
lease obligations (3,165) (8,676) (9,849) (3,830) (53,081)
---------------- ---------------- ---------------- -------------- ---------------
Net Cash Provided by (Used in) 830,835 353,175 197,349 135,794 (701,642)
---------------- ---------------- ---------------- -------------- ---------------
Financing Activities
NET INCREASE (DECREASE) IN CASH 187,493 (91,579) 19,891 1,450 100,456
CASH BALANCE, beginning of period - 187,493 95,914 95,914 115,805
---------------- ---------------- ---------------- -------------- ---------------
CASH BALANCE, end of period $ 187,493 $ 95,914 $ 115,805 $ 97,364 $ 216,261
================ ================ ================ ============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-8
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Pretzelmaker Holdings, Inc. and Subsidiaries (the Company), was incorporated on
February 24, 1995 and acquired all the issued and outstanding common stock of
Pretzelmaker, Inc. (Pretzelmaker) on March 28, 1995. Pretzelmaker holds legal
title to certain trademarks and recipes for specialty bakery products.
Pretzelmaker licenses use of the trademarks and recipes to qualified third
parties for the establishment and operation of Pretzelmaker stores. In
connection with these licensing activities, Pretzelmaker will require
third-party-licensees to use certain business formats, systems, methods,
procedures, designs, layouts, specifications, tradenames and trademarks. There
are licensed locations located throughout the United States and Canada,
as well as in Korea. Pretzelmaker also operates company-owned stores and
sports venues for the sale of its bakery products.
On September 26, 1996, Pretzelmaker Canada, Inc. (Canada) was incorporated.
Pretzelmaker owns all the issued and outstanding stock of Canada. Canada has a
master franchise agreement with Pretzelmaker which covers all locations in
Canada.
Basis of Presentation
The Consolidated financial statements include the accounts of the Company,
Pretzelmaker and Canada, its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The acquisition of
Pretzelmaker has been accounted for as a purchase and accordingly these
consolidated financial statements include the results of Pretzelmaker from the
date of acquisition forward.
Unaudited Information
The accompanying consolidated financial statements as of September 30, 1998 and
for the nine months ended September 30, 1997 and 1998 are unaudited and have
been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of September 30, 1998 and for such
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-9
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company places its
cash in what it believes to be highly rated financial institutions. The balance
in each cash account maintained in the United States is insured by the Federal
Deposit Insurance Corporation up to $100,000. From time to time, balances in
these accounts may exceed the insured limits.
Concentrations of credit risk with respect to accounts receivable are limited
due to a broad franchisee base and generally short payment terms.
Cash and Equivalents
For the purposes of the statement of cash flows, the Company considers cash and
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories consisting of food products, ovens, belts and promotional materials
are stated at the lower of cost or market, cost being determined on a first-in,
first-out basis.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets as follows:
Store fixtures and equipment 5-7 years
Leasehold improvements Term of lease
Computers and equipment 5 years
Furniture and fixtures 7 years
Intangible Assets
Intangible assets consist primarily of goodwill and non-compete agreements,
which arose in connection with the acquisition of Pretzelmaker by the Company in
1995. The goodwill and non-compete agreements are being amortized over periods
of fifteen and nine years, respectively.
Revenue Recognition
Revenue generated from company-owned stores are recognized at the point of sale.
Initial franchise fees are recognized after the Company has completed
performance of its initial licensing obligations. A portion of the franchise
fee revenue is deferred until the commencement of operations of the licensee's
location.
Advance payments received from suppliers are recorded as deferred revenues and
recognized as income over the life of the related supply agreement.
F-10
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized. Valuation
allowances will be established when necessary, to reduce deferred tax assets to
the amount expected to be realized.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the applicable
local currency. The translation of the applicable foreign currency into U.S.
dollars is computed for balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate during the period. The gains and losses resulting
from such translation are immaterial.
Recent Accounting Pronouncement
During the nine months ended September 30, 1998, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires an "all-inclusive" income presentation approach
which specifies that all revenues, expenses, gains and losses recognized during
the period be reported in income, regardless of whether they are considered to
be results of operations of the period. The adoption of SFAS No. 130 had no
material impact on the Company's financial statement presentation.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
Year 2000 Issues
Management of the Company has assessed the year 2000 issue and has determined
that its financial software and related corporate systems and retail sales data
collecting systems are not year 2000 compliant. As a result of the acquisition
of the Company (Note 12) all of the Company's year 2000 non-compliant systems
will be converted to Mrs. Fields' systems by early 1999.
NOTE 2 - BANK DEBT
During April 1997, the Company through Pretzelmaker established a $300,000
line-of-credit with a bank and subsequently finalized a term loan facility to
repay then outstanding term debt as well as to provide financing for expansion
equipment and fixtures. Advances under the line-of-credit were made based upon
75% of eligible accounts receivable and 30% of allowable inventories. Advances
under the term loan facility are repayable in 36 monthly installments, plus
interest. Interest on amounts outstanding on the bank debt is computed at the
bank's prime rate plus 1% and the debt is collateralized by the Company's
accounts receivable, inventories, intangibles and property and equipment.
F-11
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 2 - BANK DEBT (Continued)
The following amounts were outstanding under the bank debt agreements:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------------------- ---------------
(Unaudited)
<S> <C> <C>
Line-of-credit $ 300,000 $ 279,692
Term loans, payable $14,114 monthly, plus interest 432,916 164,050
---------------------- ----------------------
Total $ 732,916 $ 443,742
====================== ======================
</TABLE>
Under the terms of the agreements, the Company is subject to certain debt
covenants, which include, among other items, limitations on capital
expenditures, minimum tangible net worth and debt coverage ratio amounts and
maximum leverage ratio (all as defined under the agreements). As of December 31,
1997 and September 30, 1998 the Company was not in compliance with the covenant
requirements and the lender has not agreed to provide waivers of such
violations. Accordingly, the term debt which by its original terms would have
been classified as a long-term obligation, has been reclassified as a current
liability due to the default, as the lender has the right to accelerate the
repayment of the loans. Subsequent to the acquisition as discussed in Note 12,
Mrs. Fields is in discussions with the lender regarding repayment or
refinancing.
All required payments under the terms of the debt are current and on March 5,
1998, by mutual agreement with the lender, the Company made a $200,000
prepayment on the term loan portion of the debt. Subsequent to December 31,
1997, advances under the line-of-credit were frozen and an agreement was reached
to extend the repayment of the line-of-credit balance to January 31, 1999.
As of December 31, 1996 there was approximately $409,000 outstanding in 10.1% to
10.25% term loans, payable to a bank in monthly installments through October
1999. Such amounts, which at that time totaled approximately $360,000 were
repaid out of proceeds from the Company's new term loan facility discussed
above.
NOTE 3 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Articles of Incorporation authorize $0.001 par value, non-voting
preferred stock in series A (300,000 shares authorized) and series B (800 shares
authorized). In connection with the 1995 acquisition of Pretzelmaker by the
Company, there were 275,942 share of series A and 800 shares of series B
preferred shares issued. The series A and B shares contained dividends and
liquidation preferences, cumulative dividend rights and were convertible into
common stock of the Company under terms as defined in the agreements. No
dividends were paid on the preferred shares. In connection with the acquisition
of the Company discussed in Note 12, the 275,942 shares of series A and 800
shares of series B preferred stock were converted into 35,155 shares of common
stock. The accompanying financial statements retroactively reflect the
conversion (which has no affect on total stockholders' equity amounts) for all
periods presented.
F-12
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 3 - STOCKHOLDERS' EQUITY (Continued)
Stock Options
The Company has 35,000 shares of common stock reserved for issuance under three
stock option plans (Incentive Stock Option Plan, Non-Qualified Stock Option Plan
and Stock Bonus Plan) collectively referred to as the "Plan". Through December
31, 1997, options to acquire 13,250 shares had been granted at exercise prices
ranging from $13.20 to $25.00 per share. There were no options granted in 1998.
The Company applies APB Opinion No. 25, Accounting for Stock Issues to
Employees, in accounting for its plans. FASB Statement No. 123, Accounting for
Stock-Basis Compensation, requires the Company to provide pro forma information
regarding net income as if compensation cost for the Company's stock option
plans has been determined in accordance with the fair value based method
prescribed in FASB Statement No. 123. Under the accounting provisions of FASB
Statements No. 123 the Company's reported net income (loss) would not have been
materially impacted for the periods presented under FASB Statement No. 123.
As part of the acquisition of the Company discussed in Note 12, all of the stock
options were cancelled in connection with the consulting, bonus and service
agreements.
NOTE 4 - NON-COMPETE AGREEMENTS
In connection with the 1995 acquisition of Pretzelmaker, the Company entered
into non-compete agreements with the two principal former owners of
Pretzelmaker. The non-interest bearing obligations have been recorded as a
liability on a discounted present value basis using an imputed interest rate of
15%. The agreements require annual payments of $182,300 and as of December 31,
1997, future minimum payments under the obligations are summarized as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
<S> <C>
1998 $ 182,300
1999 182,300
-----------
Total Payments 364,600
Less: Amounts Representing Interest (37,379)
-----------
Present Value of Payments 327,221
Less: Current Portion (151,418)
-----------
$ 175,803
===========
</TABLE>
NOTE 5 - UNSECURED PROMISSORY NOTES
During 1995 the Company issued 15% unsecured promissory notes due September 30,
2000 to various parties, who at the time, were also shareholders of the Company.
In addition to the stated interest, which is payable quarterly, the notes also
contain a net profits interest, as defined, in all Pretzelmaker company-owned
stores and sports venues. Through September 30, 1998, there has been no net
profit interest due under the agreements.
F-13
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 5 - UNSECURED PROMISSORY NOTES (Continued)
In connection with the acquisition of the Company during November 1998 (as
discussed in Note 12), the acquirer has agreed to repay the outstanding
unsecured promissory notes in January, 1999.
NOTE 6 - CAPITAL LEASE OBLIGATIONS
At December 31, 1997 included with long-term debt are capitalized lease
obligations incurred for store equipment, fixtures and improvements. The
obligations bear implicit interest rates of 16.9% to 21.6% and require total
monthly payments of approximately $6,800, decreasing as the leases are paid off
through October 2001.
Total future payments required under the lease obligations at December 31, 1997
are approximately $78,600 in 1998, $76,300 in 1999, $66,800 in 2000 and
$67,300 in 2001. As of December 31, 1997, property and equipment includes
$197,469 acquired through capital leases. Accumulated depreciation related
to these assets was $19,183.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases retail store facilities and corporate office space under
long-term non-cancelable operating lease agreements requiring monthly payments
over their remaining terms which expire through 2007. Certain of the retail
store leases also provide for contingent rentals based upon gross revenue of the
store as well as adjustments for operating costs. Additionally, as a result of
master franchise agreements in Canada and former company-owned stores which have
been franchised, the Company is contingently liable under lease guarantees or
assignment agreements.
Total rent expense, including lease termination costs for closed company-owned
stores is summarized as follows:
<TABLE>
<CAPTION>
February 24
(Inception) to Nine Months Ended
December 31, Years Ended December 31, September 30,
---------------- --------------------------------- ---------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Rent expense $ 77,100 $ 256,900 $ 446,100 $ 308,700 $ 256,200
Lease termination
expense - - 109,200 103,600 186,600
----------------- --------------------------------- ------------------- ------------
$ 77,100 $ 256,900 $ 555,300 $ 412,300$ 442,800
================ ================ =============== =================== ============
</TABLE>
F-14
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
As of December 31, 1997, future minimum lease payments due under operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
<S> <C>
1998 $ 242,000
1999 248,000
2000 216,000
2001 151,000
2002 130,000
Thereafter 356,000
-----------
$ 1,343,000
===========
</TABLE>
During September 1998, the Company entered into a sub-lease agreement for its
corporate office space providing for sub-rental income to the Company of
approximately $8,000 monthly to July 2000. Such amounts are not reflected in the
table above.
As of December 31, 1997, future minimum amounts due under operating leases where
the Company is contingently liable under lease guarantees or assignment
agreements are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
<S> <C>
1998 $ 390,000
1999 398,000
2000 405,000
2001 401,000
2002 352,000
Thereafter 1,262,000
-----------
$ 3,208,000
===========
</TABLE>
Approximately 51% of the above amounts relate to franchised locations which are
owned in whole or in part by individuals or entities which were stockholders of
the Company prior to the acquisition discussed in Note 12.
Legal Matters
From time to time the Company is the subject of legal actions or threatened
legal actions, which it considers routine to its business activities. Management
of the Company believes that the potential liability to the Company under such
matters would not have a material affect on the Company's consolidated financial
position, results of operations or cash flows.
F-15
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 8 - RELATED PARTY TRANSACTIONS
Since 1996, the Company has had business relationships with various entities
owned in whole or in part by its Chairman, President, and Chief Executive
Officer (the "Officer") summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997 1998
----------------- ----------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Franchise Fee Income from Related Entities $ 200,000 $ - $ -
Royalty and Advertising Fees from Related 25,400 55,000 37,765
Entities in Illinois
Accounts Receivable Outstanding at Period 77,904 46,129 24,809
End from Related Entities
</TABLE>
During 1997 Canada received loans totaling approximately $65,000 (U.S.) from the
two largest franchisees in Canada who are related to the Company through common
ownership. The proceeds are invested in a Canadian certificate of deposit and
the debt evidenced by non-interest bearing promissory notes. The certificate of
deposit is presented as restricted cash and the notes are included with
long-term debt. The advances were made to secure a limited loan guarantee made
by Canada on behalf of the franchisees. Subsequent to September 30, 1998 the
loan guarantee obligation was transferred to another corporation affiliated with
the franchisees and the certificate of deposit used to liquidate the related
debt obligations, thereby releasing Canada from any further obligations under
the agreements.
NOTE 9 - INCOME TAXES
Income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995 1996 1997
----------------- ----------------- ------------
<S> <C> <C> <C>
CURRENT:
Federal $ 19,000 $ 68,507 $ -
State 3,000 3,952 -
----------------- ----------------- -------------
22,000 72,459 -
----------------- ----------------- -------------
DEFERRED (BENEFIT):
Federal (20,000) (37,000) -
State (2,000) (3,000) -
----------------- ----------------- -------------
(22,000) (40,000) -
----------------- ----------------- -------------
Total $ - 32,459 $ -
================== ================= =============
</TABLE>
F-16
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 9 - INCOME TAXES (Continued)
The components of the net deferred tax assets (liabilities) are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1996 1997
----------------- ------------
<S> <C> <C>
Net operating loss carryforward $ - $ 55,000
Intangible assets 65,000 95,000
Accrued expenses - 21,000
Accounts receivable allowance 4,000 4,000
Other - 13,000
Accumulated depreciation (7,000) (17,000)
----------------- -----------------
62,000 171,000
----------------- -----------------
Valuation allowance - (109,000)
----------------- -----------------
$ 62,000 $ 62,000
================= =================
</TABLE>
As of December 31, 1997, the Company has a net operating loss carryforward for
income tax purposes of approximately $149,000, expiring in 2012.
A reconciliation of the effective tax rates to the federal statutory rate is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Federal Statutory Income
Tax Rate (Benefit) (34.0)% 34.0% (34.0)%
Amortization Of Non-Deductible Goodwill 18.2 % 21.6% 14.8%
Non-Deductible Expenses - - 18.7%
Other 15.8% (22.3)% 0.5%
----------------- ---------------- -----------------
Effective Income Tax Rate 0.0% 33.3% 0.0%
================= ================= =================
</TABLE>
NOTE 10 - LITIGATION SETTLEMENT
During 1997, the Company settled a lawsuit, which arose in 1996 in a case in
which the plaintiffs claimed that the Company breached the Franchise Agreement
by failing to grant a specific mall location. The plaintiffs sought damages of
approximately $600,000, plus punitive damages and attorney fees. The cost of the
settlement, including the Company's outside legal fees, was approximately
$149,000.
F-17
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended
September 30, 1997 and 1998 is unaudited)
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
February 25
(Inception) to Nine Months Ended
December 31, Years Ended December 31, September 30,
---------------- -------------------------------- ---------------------------------
1995 1996 1997 1997 1998
---------------- -------------------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure
of Cash Flow Information:
Cash paid for:
Interest $ 69,600 $ 87,900 $ 157,400 $ 106,700 $ 106,800
Income taxes 45,000 4,000 103,800 89,700 8,600
Supplemental Disclosure
of Non-Cash Investing
and Financing Activities:
Preferred Stock Issued
in Pretzelmaker
Acquisition 279,800 - - - -
Equipment Acquired
under Financing
Obligations 42,100 - 417,200 297,200 -
Company-owned Stores
Sold with Deferred Terms - - 76,500 76,500 25,000
</TABLE>
NOTE 12 - SUBSEQUENT EVENT - ACQUISITION OF COMPANY
During November 1998 the stockholders of the Company sold their shares to Mrs.
Field's Original Cookies, Inc. ("Mrs. Fields"). As a condition to closing, by
mutual agreement among the parties, all preferred shares previously outstanding
were converted to common shares, outstanding stock option agreements were
terminated, and the repayment terms under the non-compete agreements and
unsecured promissory notes were modified so that such obligations would be
repaid by Mrs. Fields by January 1999.
In connection with the acquisition of the Company, Pretzelmaker entered into
various consulting, bonus and severance agreements totaling $327,300 to be paid
during December 1998 and January 1999.
F-18
