UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
----------
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Act of 1934
Bakery Acquisition Corporation
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 59-3657447
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2101 W. State Road 434, Suite 100, Longwood, FL 32779
-----------------------------------------------------
(Address of principal executive offices)
(407) 682-6363
-------------------------------
(Registrant's telephone number)
Securities registered or to be registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered or to be registered pursuant to Section 12(g) of
the Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
----------------------------------------
(Title of Class)
On September 30, 2000 the Registrant had outstanding 1,500 shares of
Common Stock, par value $0.001 per share.
<PAGE>
Bakery Acquisition Corporation
------------------------------
FORM 10-SB
----------
PART I PAGE
------ ----
ITEM 1 DESCRIPTION OF BUSINESS 3
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 4
ITEM 3 DESCRIPTION OF PROPERTIES 11
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 11
OWNERS AND MANAGEMENT
ITEM 5 DIRECTORS, OFFICERS, PROMOTERS & CONTROL PERSONS 12
ITEM 6 EXECUTIVE COMPENSATION 14
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
ITEM 8 DESCRIPTION OF SECURITIES 15
PART II
-------
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S 16
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2 LEGAL PROCEEDINGS 16
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 16
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES 16
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS 16
PART F/S
--------
FINANCIAL STATEMENTS 18
PART III
--------
ITEM I INDEX TO EXHIBITS 18
ITEM 2 DESCRIPTION OF EXHIBITS 18
SIGNATURES 20
<PAGE> 2
PART l
------
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
We were incorporated in the State of Delaware in July 2000
and are a wholly owned subsidiary of Ultimate Franchise Systems,
Inc. ("UFSI"), which was formerly known as JRECK Subs Group, Inc.
In August 2000 we merged with Pastry Product Producers, LLC
("Pastry"), a New York Limited Liability Company that was also a
wholly owned subsidiary of UFSI. We are the surviving entity from
that transaction.
Pastry is a bakery in Watertown, New York that commenced
operations in the second quarter of 1996 and consists of a plant,
offices and equipment. Although Pastry produces various baked
goods, such as bagels and cookies, over 99% of Pastry's sales are
to franchisees of JRECK Subs in upstate New York. Among other
products supplied to JRECK's franchisees, Pastry produces the
JRECK signature roll that is supplied fresh (never frozen) to the
franchisees. JRECK Subs is also a wholly owned subsidiary of
UFSI. In 1997 JRECK franchisees committed to purchase their sub
rolls exclusively from Pastry for a ten (10) year period. .
UFSI concluded a reverse acquisition in which its capital
stock was acquired by Circa Media, Inc., a Colorado corporation
("Circa"), which was incorporated on July 19, 1995. Pursuant to
an Agreement and Plan of Reorganization between JRECK Subs, Inc.
and Circa, Circa changed its name to JRECK Subs Group, Inc. on May
7, 1996. JRECK Subs Group, Inc. changed its name to Ultimate
Franchise Systems, Inc. on May 16, 2000. UFSI's common stock is
traded on the OTC Bulletin Board under the symbol UFSI. UFSI
began filing with the Securities and Exchange Commission in August
1998 and has filed in a timely manner all reports required to be
filed during the twelve months prior to the filing of this
registration statement.
Employees
---------
We presently have twenty (20) full time employees, inclusive
of our executive officers; none of whom are covered by collective
bargaining agreements. We believe that our relationship with our
employees is good.
Dependence on JRECK Subs
------------------------
As disclosed above, approximately 99% of our sales are
currently made to the franchisees of JRECK Subs. It is our opinion
that this number will reduce in the future as we acquire other
bakeries. Although the JRECK franchisees have entered into a
contract to purchase all of their baked goods from us through 2007,
the results of our operations are presently very closely tied to the
results of operations of these franchisees. There can be no
assurance that these franchisees will grow their businesses or even
that they will be able to maintain present levels of business. Any
event adversely affecting their sales would have a material adverse
<PAGE> 3
effect on the results of our operations.
Competition
-----------
Substantially all of our existing and potential competitors
have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and
marketing resources than we have. Such competitors are able to
undertake more extensive marketing campaigns for their brands and
services, adopt more aggressive advertising pricing policies and
make more attractive offers to potential employees, distribution
partners, commerce companies, advertisers and third-party content
providers. There can be no assurance that we will be able to
compete successfully against our current or future competitors or
that competition will not have a material adverse effect on our
business, results of operations and financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
-----------------------------------------------------------
The following is a discussion of our financial condition and results
of operation as of the date of this Registration Statement. This
discussion and analysis should be read in conjunction with our
predecessor company's audited Financial Statements including the Notes
thereto that are included elsewhere in this Form 10-SB.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 12 Months Ended September 30, 2000 and 1999
-----------------------------------------------------------------
Transition Period Due to Change in Fiscal Year
----------------------------------------------
During 1999, the Company changed its fiscal period from December 31 to
September 30. Accordingly, the audited financial statements included
herein reflect operating results and cash flows for a twelve month
period and a nine month period ended September 30, 2000 and September
30, 1999, respectively. Management has elected to present this
discussion and analysis on a twelve month comparative. Readers are
suggested to supplement a reading of this discussion and analysis with
a review of those financial statements as well as review the following
comparative table of results of operations and cash flows:
<TABLE>
<CAPTION>
Account Description Twelve Months Ended Twelve Months Ended
Sept 30, 2000 Sept 30, 1999
------------- -------------
<S> <C> <C>
Sales $ 887,079 $ 763,689
Less cost of sales 451,023 366,092
----------- -----------
Gross profit 436,056 397,597
Operating expenses:
Salaries and benefits 117,218 107,603
Delivery expenses 94,054 137,846
Building occupancy 42,599 60,271
Operating costs 83,753 56,460
Depreciation and amortization 72,076 77,759
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Contd...
Account Description Twelve Months Ended Twelve Months Ended
Sept 30, 2000 Sept 30, 1999
------------- -------------
<S> <C> <C>
Provision for bad debts 13,152 23,384
----------- -----------
Total operating expenses 422,852 463,323
Profit (Loss) from operations 13,204 (65,726)
Other income (expense):
Other income (expense), net 18,750 -
Interest income (expense), net (13,618) 9,608
----------- -----------
Net profit (loss) $ 18,336 (56,118)
=========== ===========
Cash provided (used) by operating activities $ 46,483 $ 13,393
Cash provided (used) by investing activities (17,419) (3,743)
Cash provided (used) by financing activities (23,402) (18,588)
----------- -----------
Net Change in Cash $ 5,662 $ (8,938)
=========== ===========
</TABLE>
Forward Looking Statements
--------------------------
The following discussion contains certain forward-looking statements
subject to the safe harbor created by the "Private Securities
Litigation Reform Act of 1995". These statements use such words as
"may," "will," "expect," "believe," "plan," "anticipate" and other
similar terminology. These statements reflect management's current
expectations and involve a number of risks and uncertainties. Actual
results could differ materially due to changes in global and local
business and economic conditions; the potential effect on business
from year 2000 issues; legislation and government regulation;
competition; success of operating initiatives including advertising
and promotional efforts; changes in product, labor and other operating
costs; availability and cost of land and construction; adoption of new
or changes in accounting policies and practices; changes in consumer
preferences, spending patterns and demographic trends and changes in
the political or economic climate.
<PAGE> 5
Overview
--------
The majority of the Company's revenues are derived through sales to a
submarine sandwich subsidiary of the Company's parent (Ultimate
Franchise Systems, Inc. "UFSI"). This subsidiary franchises and
operates approximately 45 submarine sandwich restaurants in the
greater upstate New York area. The primary uncertainty that the
Company faces is its ability to continue selling its products to the
UFSI subsidiary and locating third-party sources for its products.
The Company believes that it has taken the steps necessary to minimize
these risks.
Sales
-----
Revenues from bakery products are recognized upon the sale of the
products. The Company extends credit to its various customers based
on the customer's ability to pay.
Twelve Months Ended September 30, 2000 Compared to Twelve Months Ended
September 30, 1999
----------------------------------------------------------------------
Total sales increased $123,390 or 16.2% to $887,079 in 2000 from
$763,689 in 1999 as the total number of submarine sandwich restaurants
franchised and operated by UFSI's subsidiary increased and the sales
from those restaurants increased.
Costs and Expenses
------------------
The Company's cost of sales increased $84,931 or 23.2% to $451,023 in
2000 from $366,092 in 1999. The cost of sales as a percentage of
sales increased to 50.8% in 2000 compared to 47.9% in 1999 reflecting
higher raw materials costs.
Total operating expenses decreased $40,471 or 8.7% to $422,852 in 2000
from $463,323 in 1999. Salaries and benefits increased $9,615 or 8.9%
to $117,218 in 2000 from $107,603 in 1999 as the Company increased its
accounting staff. Delivery expenses and operating costs decreased
$16,499 or 8.5% to $177,807 in 2000 from $194,306 in 1999. Building
occupancy decreased $17,672 or 29.3% to $42,599 in 2000 from $60,271
in 1999 as the Company subleased part of its office space to the
Company's parent.
The Company had net interest expense of $13,618 in 2000 compared to
net interest income of $9,608 in 1999. The primary reason for the
difference was that the Company had overallocated debt payments made
in 1998 to interest instead of to principal which was corrected in
1999.
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities was $46,483 in 2000 after
adding back $72,076 in depreciation and amortization and $13,152 in
bad debt expense. Net cash of $17,419 was used by investing
activities as the Company purchased property and equipment. Net cash
of $23,402 was used by financing activities as the Company reduced its
long-term debt.
<PAGE> 6
Net cash provided by operating activities was $13,393 in 1999 after
adding back $77,759 in depreciation and amortization and $23,384 in
bad debt expense. Net cash of $18,588 was used by financing
activities as the Company reduced its long-term debt.
At September 30, 2000, the Company's working capital (deficit) was
$(34,367) compared to a working capital deficit of $(86,448) at
September 30, 1999. The Company had a total of $101,634 in third
party debt. The Company believes that cash flow from operations will
continue to fund its operations as well as generate most of the
capital necessary to meet the Company's obligations of $20,696 in the
current portion of its long term debt.
<PAGE> 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations Nine Months Ended September 30, 1999 and 1998
-------------------------------------------------------------------
Transition Period Due to Change in Fiscal Year
----------------------------------------------
During 1999, the Company changed its fiscal period from December 31 to
September 30. Accordingly, the audited financial statements included
herein reflect operating results and cash flows for a twelve month
period and a nine month period ended December 31, 1998 and September
30, 1999, respectively. Management has elected to present this
discussion and analysis on a nine month comparative. The Company's
financial statements for the nine month period ended September 30, 1998
have not been audited. Readers are suggested to supplement a reading
of this discussion and analysis with a review of those financial
statements as well as review the following comparative table of results
of operations and cash flows:
<TABLE>
<CAPTION>
Account Description Nine Months Ended Nine Months Ended
Sept. 30, 1999 Sept 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Sales $ 571,844 $ 566,329
Less cost of sales 275,744 271,043
----------- -----------
Gross profit 296,100 295,286
Operating expenses:
Salaries and benefits 86,962 61,924
Delivery expenses 98,315 118,592
Building occupancy 45,842 43,286
Operating costs 33,633 68,482
Depreciation and amortization 62,481 45,835
Provision for bad debts 23,384 0
----------- -----------
Total operating expenses 350,617 338,119
Loss from operations (54,517) (42,833)
Other income (expense):
Interest income (expense), net 2,921 (20,061)
----------- -----------
Net loss $ (51,596) (62,894)
=========== ===========
Cash provided (used) by operating activities $ 26,043 $ (37,949)
Cash used by investing activities 0 (14,972)
Cash provided (used) by financing activities (36,915) 54,980
----------- -----------
Net Change in Cash $ (10,872) $ 2,059
=========== ===========
</TABLE>
Forward Looking Statements
--------------------------
The following discussion contains certain forward-looking statements
subject to the safe harbor created by the "Private Securities
Litigation Reform Act of 1995". These statements use such words as
"may," "will," "expect," "believe," "plan," "anticipate" and other
similar terminology. These statements reflect management's current
expectations and involve a number of risks and uncertainties. Actual
results could differ materially due to changes in global and local
business and economic conditions; the potential effect on business
from year 2000 issues; legislation and government regulation;
competition; success of operating initiatives including advertising
<PAGE> 8
and promotional efforts; changes in product, labor and other operating
costs; availability and cost of land and construction; adoption of new
or changes in accounting policies and practices; changes in consumer
preferences, spending patterns and demographic trends and changes in
the political or economic climate.
<PAGE> 9
Overview
--------
The majority of the Company's revenues are derived through sales to a
submarine sandwich subsidiary of the Company's parent (Ultimate
Franchise Systems, Inc. "UFSI"). This subsidiary franchises and
operates approximately 45 submarine sandwich restaurants in the
greater upstate New York area. The primary uncertainty that the
Company faces is its ability to continue selling its products to the
UFSI subsidiary and locating third-party sources for its products.
The Company believes that it has taken the steps necessary to minimize
these risks.
Sales
-----
Revenues from bakery products are recognized upon the sale of the
products. The Company extends credit to its various customers based
on the customer's ability to pay.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998 (Unaudited)
------------------------------------------------------------------
Total sales increased $5,515 or 1.0% to $571,844 in 1999 from $566,329
in 1998 as the total number of submarine sandwich restaurants
franchised and operated by UFSI's subsidiary was relatively unchanged.
Costs and Expenses
------------------
The Company's cost of sales increased $4,701 or 1.7% to $275,744 in
1999 from $271,043 in 1998. The cost of sales as a percentage of
sales was relatively consistent at 48.2% in 1999 compared to 47.9% in
1998.
Total operating expenses increased $12,498 or 3.7% to $350,617 in 1999
from $338,119 in 1998. The primary reason for the increase was a
$23,384 provision for bad debt expense that the Company determined was
necessary for uncollectable account receivable.
The Company had net interest income of $2,921 in 1999 compared to net
interest expense of $20,061 in 1998. The primary reason for the
difference was that the Company had overallocated debt payments made
in 1998 to interest instead of to principal which was corrected in
1999.
Liquidity and Capital Resources
-------------------------------
Net cash provided by operating activities was $26,043 in 1999 after
adding back $62,481 in depreciation and amortization and $23,384 in
bad debt expense. Net cash of $36,915 was used by financing
activities as the Company reduced its long-term debt.
Net cash used in operating activities was $37,949 in 1998 after adding
back $45,835 in depreciation and amortization. Accounts payable,
accrued expenses and other liabilities decreased $11,972. Net cash of
$14,972 was used in investing activities from the purchase of property
and equipment. Net cash of $54,980 was provided by financing
activities. This was primarily the result borrowings from related
parties partially offset by payment on long-term debt.
<PAGE> 10
At September 30, 1999, the Company's working capital (deficit) was
$(86,448) compared to a working capital deficit of $(71,951) at
December 31, 1998. The Company had a total of $122,085 in third party
debt. The Company believes that cash flow from operations will
continue to fund its operations as well as generate most of the
capital necessary to meet the Company's obligations of $22,915 in the
current portion of its long term debt.
ITEM 3. DESCRIPTION OF PROPERTIES
-------------------------
We presently lease our bakery plant at 24685 New York State
Route 37, Watertown, New York 13601 from UFSI under a twenty (20)
year lease arrangement. The lease calls for an initial lease
payment of $2,000 per month which increases every five (5) years by
ten (10) percent. We are in the process of consolidating all of our
administrative operations into this space from the office in
Longwood, Florida. The land and building that comprise this facility
include 2,064 square feet of office space and 8,651 square feet of
bakery facilities.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
-----------------------------------------------
The following tables set forth certain information
regarding the beneficial ownership of our common stock as of
September 30, 2000 by (i) each person (or group of affiliated
persons who, to the knowledge of the Company, is the beneficial
owner of five percent or more of the Company's outstanding
common stock, (ii) each director and each named executive
officer of the Company and (iii) all directors and executive
officers of the Company as a group. Except as otherwise noted,
the Company believes that the persons listed in this table have
sole voting and investment power respecting all shares of
Common Stock owned by them.
<TABLE>
<CAPTION>
Table 1. Security Ownership of Certain Beneficial Owners
---------------------------------------------------------
------------------------------------------------------------------------------------
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNER CLASS
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Ultimate Franchise Systems, Inc. 1,500 100%
2101 W. State Road 434 Suite 100,
Longwood, FL 32779
------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
Table 2. Security Ownership of Management
------------------------------------------
All of our Common Stock is presently owned by Ultimate Franchise
Systems, Inc. and accordingly none is held by any member of
management.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The following table sets forth certain information as of the
date of this Registration Statement with respect to the directors
and executive officers of the Company. A summary of the
background and experience of each of these individuals is set
forth after the table. Each director holds such position until the
next annual meeting of the Company's shareholders and until his
respective successor has been elected and qualifies. Any of the
Company's directors may be removed with or without cause at any
time by the vote of the holders of not less than a majority of the
Company's then outstanding Common Stock. Other than as otherwise
provided in an employment agreement, officers are elected annually
by the Board of Directors. Any of the Company's officers may be
removed with or without cause at any time by the Company's Board
of Directors although, in such event, the Company may incur
certain liabilities under an applicable employment agreement.
Name and Address Age Positions with the Company
---------------- --- --------------------------
Christopher M. Swartz 30 Chairman, President and Chief
Executive Officer
Eric T. Swartz 33 Secretary
Michael F. Cronin 45 Chief Financial Officer/Treasurer
Christopher M. Swartz has been our and UFSI's Chairman, President and
Chief Executive Officer of the Company since April 1996 and Chairman,
President and Chief Executive Officer of JRECK Subs, Inc. since
September 1995. From 1992 to 1995, he was Director of Operations of
Lox, Stox & Bagels of Liverpool, Inc. Mr. Swartz is a graduate of
Syracuse University. He is the second generation of his family to be
involved with JRECK. Mr. Swartz is also the President of Tri-Emp
Enterprises, Inc. and the brother of Eric Swartz.
Eric T. Swartz has been a Director and Secretary of ours and of UFSI's
since April 1996. He was awarded his J.D. degree and undergraduate
degree from Syracuse University College of Law and Syracuse
University respectively. From October 1993 to the present he has
been a partner in the Swartz Law Firm, P.C. and was associated with
the law firm of Pease and Willer after graduating from law school
in 1992. Mr. Swartz is the brother of Christopher M. Swartz.
<PAGE> 12
Michael F. Cronin has been our and UFSI's Chief Financial Officer
since March 8, 1998 and Treasurer since January 1, 1999. He is a
Certified Public Accountant who has managed his own practice,
specializing in S.E.C audits and business and tax planning, since
February 1985. He has been licensed in New York State for 19 years.
Mr. Cronin is a graduate of St. John Fisher College. From 1979 to 1985
Mr. Cronin was employed as a staff accountant and partner in a
regional public accounting firm in Rochester, NY. Mr. Cronin served in
the United States Marine Corps for three years and was honorably
discharged in 1976.
<PAGE> 13
ITEM 6. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the compensation received by
officers. It does not include any compensation received from
UFSI, our parent corporation, for services to the parent.
Summary Compensation Table
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payout
---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted
Other Stock Securities
Name and Principal Salary Bonus Annual Awards Underlying LTIP All Other
Position Year ($) ($) Compensation ($) Options Payout Compensation
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher M. Swartz, 1999 -0- -0- -0- -0- -0- -0- -0-
CEO 1998 -0- -0- -0- -0- -0- -0- -0-
---------------------------------------------------------------------------------------------------------------
</TABLE>
As of the date of this Registration Statement, no employees of the
company receive in excess of $100,000 annual compensation.
<PAGE> 14
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
ITEM 8. DESCRIPTION OF SECURITIES
-------------------------
General
-------
Set forth below is a description of the material terms and
provisions of our capital stock, which should be read in
conjunction with our Certificate of Incorporation, as amended,
(the "Certificate of Incorporation"), and our By-Laws (the
"By-Laws"), both of which will be provided to prospective
investors upon request at no charge.
Common Stock
------------
Our Certificate of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $0.001 par value per share. At
September 30, 2000, there were 1,500 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote
at all meetings of stockholders for each share held by them with
respect to all matters upon which they have a right to vote.
Shares of Common Stock have no preemptive rights and have no other
rights to subscribe for additional shares, nor do the shares of
Common Stock have any conversion rights or rights of redemption.
All shares of Common Stock will participate equally in dividends,
when, as and if declared by the Board of Directors, out of funds
legally available therefor, and in net assets upon liquidation,
subject to the rights of holders of preferred stock, if any. All
shares of Common Stock currently outstanding are duly authorized,
validly issued, fully paid and nonassessable.
Preferred Stock
---------------
Our Certificate of Incorporation authorizes the issuance of
10,000,000 shares of Preferred Stock, $0.001 par value per share,
none of which are issued and outstanding. The Board of Directors
and without further action by our stockholders, has the authority
to issue shares of Preferred Stock from time to time in one or
more series and to fix the number of shares and the relative
rights, conversion rights, voting rights, and terms of redemption,
liquidation preferences and any other preferences, special rights
and qualifications of any such series. An issuance of Preferred
Stock could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock.
TRANSFER AGENT
--------------
Transfer Agent. Our transfer agent is Atlas Stock Transfer,
5899 South State Street, Salt Lake City, UT 84107
<PAGE> 15
PART II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON AND
OTHER STOCKHOLDER MATTERS
------------------------------------------------------------
There is no public trading market for the registrant's
securities at this time. As of the date of filing there was
one holder of record of our common stock.
NO DIVIDENDS ANTICIPATED TO BE PAID
-----------------------------------
We have never paid any cash dividends on our common stock
and do not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent
upon our future earnings, our financial requirements and other
factors to be determined by our Board of Directors, in its sole
discretion. For the foreseeable future, it is anticipated that
any earnings that may be generated from our operations will be
used to finance our growth, and that cash dividends will not be
paid to Common Stockholders.
ITEM 2. LEGAL PROCEEDINGS
-----------------
There are no pending or threatened legal proceedings to which
we are a party or of which any of our property is the subject or,
to our knowledge, any proceedings contemplated by governmental
authorities.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
-----------------------------------------------------------
Gary E. Rowe, C.P.A., is our independent auditor at the
present time. Pender, Newkirk and Company was our independent
auditor for the year ended December 31, 1998 and the nine
months ended September 30, 1999. We terminated our relationship
with Pender, Newkirk and Company in October 2000. We have no
disagreements with the reports issued by the auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
None.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
We will, to the fullest extent permitted by Section 145 of
the DGCL, indemnify our directors, officers, agents and employees.
Section 145 empowers a Delaware corporation to indemnify any
person who is, or is threatened to be made, a party to any
<PAGE> 16
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative) other
than an action by or in the right of such corporation) by reason
of the fact that such person is or was an officer or director of
such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of any other
corporation or enterprise. The indemnity may include expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by
or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable for
negligence or misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses
that he actually and reasonably incurred in connection therewith.
The indemnification provided is not deemed to be exclusive of any
other rights to which an officer or director may be entitled under
a corporation's by-laws, by agreement, vote, or otherwise.
Insofar as indemnification arising under the Act may be
permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
<PAGE> 17
PART F/S
--------
Our predecessor company's (Pastry Product Producers, LLC)
financial statements for the fiscal year ended September 30,
1999 have been examined to the extent indicated in the reports
by the firm of Pender, Newkirk and Company, independent
certified public accountants, and have been prepared in
accordance with generally accepted accounting principles and
pursuant to Regulation SB as promulgated by the SEC and are
included herein. Our predecessor company's financial
statements for the fiscal year ended September 30, 2000 have
been examined to the extent indicated in the reports by Gary E.
Rowe, C.P.A. independent certified public accountant, and have
been prepared in accordance with generally accepted accounting
principles and pursuant to Regulation SB as promulgated by the
SEC and are included herein.
PART III
--------
ITEMS 1 AND 2. INDEX TO AND DESCRIPTION OF EXHIBITS
------------------------------------
EXHIBIT No. EXHIBIT NAME
----------- ------------
2(i) Certificate of Incorporation of Bakery Acquisition
Corporation
2(ii) Restated Certificate of Incorporation of Bakery
Acquisition Corporation
2(iii) Bylaws of Bakery Acquisition Corporation
6(a)(i) Merger Agreement dated August 28, 2000 between Bakery
Acquisition Corporation and Pastry Product Producers LLC.
6(a)(ii) Lease Agreement dated October 1, 2000 between Bakery
Acquisition Corporation and Ultimate Franchise
Systems, Inc.
10(i) Consent of Pender Newkirk & Company
10(ii) Consent of Gary E. Rowe, C.P.A.,
Index to Financial Statements
DESCRIPTION PAGE
----------- ----
Independent Auditors' Report F-3 - F-4
<PAGE> 18
Financial Statements:
Balance sheets F-5
Statement of operations F-6
Statements of change in stockholders' equity (deficit) F-7
Statements of cash flows F-8
Notes to Financial Statements F-9 - F-15
<PAGE> 19
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Bakery Acquisition Corporation
By:____/s/Chris Swartz____________
Chris Swartz, President and CEO
Date: December 19, 2000
<PAGE> 20
Financial Statements
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
For the Year Ended September 30, 2000 and Nine Months
ended September 30, 1999
<PAGE> F-1
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
Financial Statements
For the Year Ended September 30, 2000 and Nine Months
ended September 30, 1999
Contents
Independent Auditor's Report..................................... 1
Financial Statements:
Balance Sheets.............................................. 2
Statements of Operations.................................... 3
Statements of Members' Capital.............................. 4
Statements of Cash Flows.................................... 5
Notes to Financial Statements............................... 6 - 9
<PAGE> F-2
Independent Auditor's Report
Board of Directors and Stockholders
Of Pastry Products Producers, LLC
Longwood, Florida
I have audited the accompanying balance sheets of Pastry Products
Producers, LLC as of September 30, 2000 and the related consolidated
statements of income, retained earnings and cash flows for the year
then ended. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
The consolidated financial statements of Pastry Products Producers,
LLC, as of September 30, 1999 were audited by other auditors whose
report dated May 3, 2000, expressed an unqualified opinion on those
statements.
I conducted our audits in accordance with generally accepted auditing
standards. Those standards require that I 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
consolidated 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. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Pastry Products Producers, LLC as of September 30, 2000, and the
results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Gary E. Rowe, CPA
Watertown, NY
November 29, 2000
<PAGE> F-3
Independent Auditor's Report
Board of Directors and Stockholders
Pastry Products Producers, LLC
Longwood, Florida
We have audited the accompanying balance sheets of Pastry Products
Producers, LLC (a wholly owned subsidiary of Ultimate Franchise
Systems, Inc.) as of September 30, 1999 and December 31, 1998 and the
related statements of operations, member's capital, and cash flows for
the nine months ended September 30, 1999 and the year ended December
31, 1998. These financial statements are the responsibility of the
management of Pastry Products Producers, LLC. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. These standards
require that we plan and perform the audits 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 financial statements referred to above present
fairly, in all material respects, the financial position of Pastry
Products Producers, LLC as of September 30, 1999 and the results of
operations and its cash flows for the nine months ended September 20,
1999 and the year ended December 31, 1998 in conformity with
accounting principles generally accepted in the United States of
America.
Pender Newkirk & Company
Certified Public Accountants
Tamp, Florida
May 3, 2000
<PAGE> F-4
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
Balance Sheets
As of September 30, 2000 and September 30, 1999
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Assets
------
Current assets:
Cash $ 5,862 $ 200
Accounts receivable - trade, net of
allowance for doubtful accounts of
$23,384 for 1999 and $36,536 for 2000 52,654 50,130
Other 479 -
--------------------------------------------------------------------------------------
Total current assets 58,995 50,330
Property and equipment, net 442,153 496,812
--------------------------------------------------------------------------------------
Total assets $ 501,148 $ 547,142
======================================================================================
Liabilities and Members' Capital
--------------------------------
Current liabilities:
Accounts payable $ 72,515 $ 55,979
Accrued expenses 421 55,322
Current portion of long-term debt 20,696 22,915
Other 2,562
--------------------------------------------------------------------------------------
Total current liabilities 93,632 136,778
Long-term debt, less current portion 80,938 99,170
Due to parent and affiliated companies 91,117 94,069
--------------------------------------------------------------------------------------
Total liabilities 265,687 330,017
--------------------------------------------------------------------------------------
Members' Capital:
Contributed capital 400,041 400,041
Accumulated deficit (164,580) (182,916)
--------------------------------------------------------------------------------------
Total members' capital 235,461 217,125
--------------------------------------------------------------------------------------
Total liabilities and members' capital $ 501,148 $ 547,142
======================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> F-5
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
Statements of Operations
For the Year Ended September 30, 2000 and Nine Months
ended September 30, 1999
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Sales $ 887,079 $ 571,844
Less: cost of sales 451,023 275,744
-------------------------------------------------------------------------------------
Gross profit 436,056 296,100
Operating expenses:
Salaries and benefits 117,218 86,962
Delivery expenses 94,054 98,315
Building occupancy 42,599 45,842
Operating costs 83,753 33,633
Depreciation and amortization 72,076 62,481
Provision for bad debts 13,152 23,384
--------------------------------------------------------------------------------------
Total operating expenses 422,852 350,617
--------------------------------------------------------------------------------------
Profit (Loss) from operations 13,204 (54,517)
Other income (expense):
Rental income (Received from UFSI) 18,750
Interest income (expense), net (13,618) 2,921
--------------------------------------------------------------------------------------
Net profit (loss) $ 18,336 $ (51,596)
======================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> F-6
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
Statements of Members' Capital
For the Year Ended September 30, 2000 and Nine Months
ended September 30, 1999
<TABLE>
<CAPTION>
Contributed Accumulated
Capital Deficit Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $ 400,041 $ (131,320) $ 268,721
Net loss for the nine months
ended September 30, 1999 - (71,584) (71,584)
---------------------------------------------------------------------------
Balance, September 30, 1999 400,041 (182,916) 217,125
Net profit for the year ended
September 30, 2000 - 18,336 18,336
---------------------------------------------------------------------------
Balance, September 30, 2000 $ 400,041 $ (164,580) $ 235,461
===========================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> F-7
Pastry Products Producers, LLC
(a wholly-owned subsidiary of Ultimate Franchise Systems, Inc.)
Statements of Cash Flows
For the Year Ended September 30, 2000 and the Nine Months
ended September 30, 1999
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
September 30, September 30,
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net profit (loss) $ 18,336 $ (51,596)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 72,077 62,481
Provision for bad debts 13,152 23,384
(Increase) decrease in:
Accounts receivable (15,676) (22,040)
Prepaid expenses (479) 5,000
Increase (decrease) in:
Accounts payable and accrued expenses 16,536 8,958
Other liabilities (57,463) (144)
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,483 26,043
---------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment (17,419) -
---------------------------------------------------------------------------------------------
Net cash used by investing activities (17,419) -
---------------------------------------------------------------------------------------------
Financing activities:
Principal repayment of long-term debt (23,402) (36,915)
---------------------------------------------------------------------------------------------
Net cash used by financing activities (23,402) (36,915)
---------------------------------------------------------------------------------------------
Net increase (decrease) in cash 5,662 (10,872)
Cash, beginning of year 200 11,072
---------------------------------------------------------------------------------------------
Cash, end of year $ 5,862 $ 200
=============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> F-8
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Pastry Products Producers, LLC (the "Company") was incorporated in
the state of New York and in April 1996, the Company converted its
tax form of ownership from a "C" corporation to a limited liability
corporation. The Company operates a bakery in Watertown, New York.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
The significant accounting policies of the Company are as follows:
Change in Accounting Year
-------------------------
Beginning January 1, 1999, the Company changed its accounting
reporting period from a calendar year ending December 31st to a
fiscal year ending September 30th. Thus the financial statements
present results of operations, changes in members' equity and cash
flows for the year ended September 30, 2000 and the nine months
ended September 30, 1999, respectively.
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 period. Actual results could
differ from those estimates.
Revenue Recognition
-------------------
Revenues from bakery products are recognized upon the sale of the
products. The Company extends credit to its various customers based
on the customer's ability to pay. Based on management's review of
account receivable, an allowance of $39,908 at September 30, 2000
and $23,384 September 30, 1999 is considered adequate.
6
<PAGE> F-9
Related Party Transactions
--------------------------
UFSI rents office space from the Company. Amounts received totaled
$18,750 and $11,250 for the year ended September 30, 2000 and the
nine months ended September 30, 1999, respectively. These amounts
are not necessarily indicative of the amounts which would have been
incurred had comparable transactions been entered into with
independent parties.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Maintenance and
repairs are charged to operations as incurred. Betterments and
renewals are capitalized. When property and equipment are sold or
otherwise disposed of, the asset account and the related accumulated
depreciation accounts are relieved, and any gain or loss is included
in operations. Depreciation is calculated by the straight-line
method over the estimated useful lives of the assets, generally
ranging from 5 to 40 years. For income tax purposes, the Company
uses accelerated methods of depreciation for certain assets. For
the year ended September 30, 2000 and the nine months ended
September 30, 1999, depreciation expense amounted to $72,076 and
$62,481, respectively.
Asset Impairment
----------------
When the Company has long-lived assets, which have a possible
impairment indicator, the Company estimates the future cash flows
from the operation of these assets. If the estimated cash flows
recoup the recorded value of the assets, they remain on the books at
that value. If the net-recorded value cannot be recouped, the
assets are written down to their fair market value if lower than the
recorded value.
Income Taxes
------------
As a limited liability corporation, the Internal Revenue Service and
the state of New York taxes the Company as a partnership, and as
such, no provision for income tax expense has been made. Income of
the Company is taxed to their members on their respective individual
tax returns.
7
<PAGE> F-10
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at September
30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------
<S> <C> <C>
Land and building $ 457,561 $ 455,062
Bakery equipment 287,120 272,201
Vehicles 13,180 13,180
--------------------------------------------------------------------
757,861 740,443
Less accumulated depreciation (315,708) (243,631)
--------------------------------------------------------------------
Net property and equipment $ 442,153 $ 496,812
====================================================================
</TABLE>
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following at September 30, 2000 and
September 30, 1999:
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------
<S> <C> <C>
Mortgage note payable to former
owner of the Company; monthly payments
of $2,494 including principal and
interest at 10% due through November
2004, at which time any remaining
unpaid principal and interest is due;
collateralized by real property. $ 101,634 $ 120,369
Other - 1,716
--------------------------------------------------------------------
101,634 122,085
Less current portion (20,696) (22,915)
--------------------------------------------------------------------
Total long-term debt $ 80,938 $ 99,170
====================================================================
</TABLE>
8
<PAGE> F-11
The annual maturities of long-term debt for the five years
subsequent to September 30, 2000 are as follows:
2001 $ 20,696
2002 22,863
2003 25,257
2004 27,902
2005 4,916
-----------------------------------
$ 101,634
===================================
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company leases vehicles under certain operating leases, which
expire through 2001. Total lease expense for the year ended
September 30, 2000 and the nine months ended September 30, 1999 was
$36,253 and $23,517, respectively.
9
<PAGE> F-12
