<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 33-76306
GREAT AMERICAN COOKIE COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-1295221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4685 FREDERICK DRIVE, S.W.
ATLANTA, GEORGIA 30336
(Address of principal executive offices)
(404) 696-1700
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
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<PAGE> 2
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
INDEX
<TABLE>
<CAPTION>
PART I . FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheet as of September 29, 1996 and June 30, 1996
Statement of Operations for the thirteen week periods ended September 29, 1996 and September 28, 1995
Statement of Changes in Stockholder's Equity for the thirteen week period ended September 29, 1996
Statement of Cash Flows for the thirteen week periods ended September 29, 1996 and September 28, 1995
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II . OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
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<PAGE> 3
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1996 1996
------------ ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,346,942 $ 3,301,627
Accounts receivable - trade 1,700,630 1,675,584
Inventory 1,563,093 1,443,811
Prepaid expenses 39,773 1,175,309
Income tax receivable 204,234 155,789
Current deferred tax benefit 81,360 81,360
Current portion of notes receivable 970,438 198,085
Other receivables 3,288 33,899
----------- -----------
Total current assets 7,909,758 8,065,464
----------- -----------
Property and equipment, net of accumulated depreciation 7,534,496 8,325,726
Construction in progress, net of construction deposits received from franchisees 73,403 29,258
----------- -----------
7,607,899 8,354,984
----------- -----------
Other assets
Deferred loan costs, net of accumulated amortization
of $1,607,200 and $1,464,100, respectively 2,465,858 2,608,958
Notes receivable, net of current portion 73,118 19,963
Deferred tax benefit 1,419,143 1,419,143
Deposits 61,001 61,386
Accrued straight-line minimum rent receivable for subleases to franchisees 1,287,474 1,300,872
----------- -----------
5,306,594 5,410,322
Cost in excess of fair value of net assets acquired (goodwill), net of
accumulated amortization of $2,451,451 and $2,233,851, respectively 32,500,874 32,718,474
----------- -----------
$53,325,125 $54,549,244
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 252,385 $832,044
Sales taxes payable 119,012 129,974
Accrued interest payable 910,470 1,996,681
Accrued expenses 950,959 839,479
Income taxes payable 333,107 225,564
Deposits 792,833 738,542
Dividends payable 125,000 125,000
----------- -----------
Total current liabilities 3,483,766 4,887,284
----------- -----------
Capital lease obligations, net 62,241 67,036
----------- -----------
Accrued straight-line minimum rent payable 2,130,929 2,176,523
----------- -----------
Long-term debt 40,000,000 40,000,000
----------- -----------
Commitments and contingencies
Stockholder's equity
Common stock, no par value, 2,000 shares authorized:
210 shares issued and outstanding 13,500,000 13,500,000
Additional paid-in capital 336,063 336,063
Accumulated deficit (6,187,874) (6,417,662)
----------- -----------
7,648,189 7,418,401
----------- -----------
$53,325,125 $54,549,244
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE THIRTEEN
WEEK PERIOD ENDED WEEK PERIOD ENDED
SEPTEMBER 29, 1996 SEPTEMBER 28, 1995
------------------ ------------------
<S> <C> <C>
Revenue:
Cookie and beverage sales $ 5,823,952 $ 5,853,223
Batter sales to franchisees 2,422,004 2,201,943
Franchise royalties 1,098,734 1,035,842
Franchise sales - existing and new stores 785,308 154,537
Other - net (29,154) 28,307
------------ ------------
Total revenue 10,100,844 9,273,852
------------ ------------
Operating expenses:
Cost of sales 4,578,432 4,391,187
Retail store occupancy7,588,158 1,748,064 1,739,894
Other retail store expenses 249,003 272,632
Selling, general and administrative expenses 1,820,711 1,681,433
------------ ------------
Total operating expenses 8,396,210 8,085,146
------------ ------------
Other (income) expenses, net
Interest income (32,830) (14,314)
Interest expense 1,090,370 1,104,059
Amortization of deferred loan costs 143,100 143,100
------------ ------------
Total other expenses, net 1,200,640 1,232,845
------------ ------------
Income (loss) before taxes 503,994 (44,139)
State and federal income tax expense 274,206 118,367
------------ ------------
Net income (loss) $ 229,788 $ (162,506)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
STATEMENT OF CHANGES IN STOCKHOLDER S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEK PERIOD ENDED SEPTEMBER 29, 1996
----------------------------------------------------------------------
ADDITIONAL
COMMON PAID IN ACCUMULATED TOTAL
STOCK CAPITAL DEFICIT EQUITY
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 $13,500,000 $ 336,063 $(6,417,662) $ 7,418,401
Current period net income - - 229,788 229,788
----------- ---------- ----------- ------------
$13,500,000 $ 336,063 $(6,187,874) $ 7,648,189
=========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE THIRTEEN
WEEK PERIOD WEEK PERIOD
ENDED ENDED
SEPTEMBER 29, 1996 SEPTEMBER 28, 1995
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 229,788 $ (162,506)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation 461,385 374,716
Amortization of cost in excess of fair value of net assets acquired 217,600 216,751
(goodwill)
Amortization of deferred loan costs 143,100 143,100
Net gain on sales and disposals of property and equipment (564,497) (48,460)
Net (decrease) increase in accrued straight-line minimum rent
receivable and payable (32,196) 19,122
Changes in assets and liabilities
Increase in accounts receivable (25,046) (50,258)
Increase in inventory (119,282) (184,768)
Decrease (increase) in prepaid expenses 1,135,536 (67,295)
Increase in income tax receivable (48,445) 0
Decrease in current deferred tax benefit 0 157,225
Decrease in other receivables 30,611 22,290
Increase in deferred tax benefit 0 (38,845)
Decrease (increase) in deposits 385 (2,112)
Decrease in accounts payable (579,659) (595,986)
Decrease in sales taxes payable (10,962) (8,681)
Decrease in accrued interest payable (1,086,211) (1,075,413)
Increase (decrease) in accrued expenses 111,480 (435,768)
Increase in income taxes payable 107,543 69,000
Increase (decrease) increase in deposits 54,291 (54,573)
---------- -----------
Net cash provided by (used for) operating activities 25,421 (1,722,461)
---------- -----------
Cash flows from investing activities
Acquisitions of property and equipment, including net increase in
construction in progress, net of construction deposits received from franchises (142,679) (637,691)
Proceeds from sales and disposals of property and equipment 159,523 95,575
Proceeds from collection of notes receivable 7,845 260,154
---------- -----------
Net cash provided by (used for) investing activities 24,689 (281,962)
---------- -----------
Cash flows from financing activities
Principal repayments under capital lease obligations (4,795) (3,165)
Dividends paid 0 (202,900)
---------- -----------
Net cash used for financing activities (4,795) (206,065)
---------- -----------
Net increase (decrease) in cash and cash equivalents during period 45,315 (2,210,488)
---------- -----------
Cash and cash equivalents, beginning of period 3,301,627 4,251,780
---------- -----------
Cash and cash equivalents, end of period $3,346,942 $ 2,041,292
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 7
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE THIRTEEN
WEEK PERIOD WEEK PERIOD
ENDED ENDED
SEPTEMBER 29, 1996 SEPTEMBER 28, 1995
------------------ ------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the period for:
Interest $ 2,176,581 $ 2,179,471
============ ===========
State and federal income taxes $ 250,750 $ 3,550
============ ===========
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
- -----------------------------------------------------------------------
During the thirteen weeks ended September 29, 1996, notes receivable with face
amounts totaling $842,752 were received from unrelated franchisees in
connection with the sale of 4 Company-operated stores.
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Great American Cookie Company, Inc. is an operator and franchisor of
mall-based specialty retail cookie outlets and manufacturer of cookie
batter which is sold to Company-operated and franchised retail stores.
The accompanying financial statements of Great American Cookie
Company, Inc. (the "Company") for the thirteen weeks ended September
29, 1996 have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. These financial statements
include all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair
presentation of the financial position of the Company, and the results
of its operations and its cash flows for the periods presented.
However, these results are not necessarily indicative of the results
for any other interim period or the full year.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Management believes that the
disclosures included in the accompanying interim financial statements
and footnotes are adequate to make the information not misleading, but
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the fiscal year ended
June 30, 1996. Earnings per share is not presented, as the Company is
wholly-owned.
Certain fiscal year 1996 accounts have been reclassified to conform to
fiscal year 1997 presentation.
2. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1996 1996
----------- ----------
<S> <C> <C>
Notes receivable $ 1,043,556 $ 218,048
Less: current portion 970,438 198,085
----------- ----------
Notes receivable, net of current portion $ 73,118 $ 19,963
=========== ==========
</TABLE>
Notes receivable are due from various franchisees and principally
result from the sale of existing Company stores to franchisees. Each
note for the sale of a store is guaranteed by the purchaser and
collateralized by the assets sold. Most notes are due in monthly
installments of principal and interest, with the interest rates
ranging from 9% to 12.5% per annum.
-8-
<PAGE> 9
GREAT AMERICAN COOKIE COMPANY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COOKIES USA, INC.)
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
Land $ 240,000 $ 240,000
Building 760,795 760,795
Building and leasehold improvements 7,290,795 7,724,036
Furniture, fixtures, and equipment 3,110,187 3,227,210
Vehicles 12,779 12,779
------------ ------------
11,414,556 11,964,820
Less: accumulated depreciation (3,880,060) (3,639,094)
------------ ------------
Property and equipment -- net $ 7,534,496 $ 8,325,726
============ ============
</TABLE>
4. LONG-TERM DEBT
Notes payable as of September 29, 1996 and June 30, 1996
represent notes issued in connection with the acquisition of the
Company on December 10, 1993. Notes payable are described as follows:
<TABLE>
<S> <C>
10.875% senior secured notes payable due January 15, 2001, Series B.
Interest accrues daily and is payable semi-annually on January 15
and July 15, commencing July 15, 1994 $ 40,000,000
============
</TABLE>
The notes are secured by certain tangible and intangible assets,
including, but not limited to, the equipment constituting the
Company's batter production facility, the capital stock of all current
and future subsidiaries of the Company, intellectual property rights
and other intangible assets of the Company.
The Company is subject to certain covenants provided for under the
debt offering including limitations on restricted payments,
limitations on incurrence of indebtedness and issuances of preferred
stock, limitations on asset sales, limitations on liens, limitations
on granting liens and restrictions on subsidiary dividends,
maintenance of a fixed charge coverage ratio, limitations on mergers,
consolidations or sale of assets, limitations on transactions with
affiliates, and various reporting requirements to the holders of the
Notes and the Securities and Exchange Commission. If a violation of a
covenant occurs, the holders of at least 25% in principal amount of
the then outstanding Notes may declare all outstanding Notes to be due
and payable immediately.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of the results of operations of
Great American Cookie Company, Inc. (the "Company") for the thirteen weeks
ended September 29, 1996 compared to the results of operations for the thirteen
weeks ended September 28, 1995 is below. The factors cited in the following
discussion as contributing to changes in operating results are listed in order
of importance; however, unless otherwise indicated in such discussion, the
quantitative importance of any such factors cannot be determined by management
and is not stated.
THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 (FIRST QUARTER OF FISCAL 1997) COMPARED
TO THIRTEEN WEEKS ENDED SEPTEMBER 28, 1995 (FIRST QUARTER OF FISCAL 1996)
Company and Franchise Store Activity
As of September 29, 1996 there were 101 Company-operated stores and
229 franchised stores in operation. The store activity for the first quarter of
fiscal 1997 and first quarter of fiscal 1996 is summarized as follows:
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
OF FISCAL 1997 OF FISCAL 1996
-------------- --------------
COMPANY- COMPANY-
OPERATED FRANCHISED OPERATED FRANCHISED
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Stores open as of beginning of the quarter 104 225 108 215
Stores opened (including relocations) 0 2 4 6
Stores closed (including relocations) 0 (1) (1) (1)
Stores sold to franchisees (5) 5 (1) 1
Stores acquired from franchisees 2 (2) 0 0
---- ----- ---- ----
Stores open as of the end of the quarter 101 229 110 221
Satellite locations as of the end of the quarter 10 29 13 36
---- ----- ---- ----
Total outlets as of the end of the quarter 111 258 123 257
==== ===== ==== ====
</TABLE>
The above activity results in 1,358 Company-operated equivalent store
weeks and 2,919 franchisee-operated equivalent store weeks during the thirteen
week period ended September 29, 1996 compared to 1,401 Company-operated
equivalent store weeks and 2,833 franchisee-operated equivalent store weeks
during the thirteen week period ended September 28, 1995.
Total Revenue
Total revenue increased $827,000 or approximately 8.9% during the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. Each
of the Company's revenue sources is discussed below:
- Cookie and beverage sales at Company-operated retail stores
decreased $29,000, or approximately 0.5%, during the first
quarter of fiscal 1997 compared to the first quarter of fiscal
1996. The decrease in revenue from Company-operated retail
stores was attributable to (a) an approximately 3.1% decrease
in Company-operated equivalent store weeks, offset by (b) an
increase in the average retail sales volume for
Company-operated stores. Specifically, the average retail
sales volume for Company-operated stores increased 2.6%. On a
comparable store basis, for those stores which were
Company-operated in fiscal 1997 and 1996, sales volumes
increased 4.7% during the quarter.
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<PAGE> 11
- Batter sales to franchisees increased $220,000, or
approximately 10.0%, during the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996. The increase in
batter sales to franchisees was primarily attributable to (a)
a 7.0% increase in the volume of batter sold per
franchisee-operated equivalent store week and (b) an
approximately 3.0% increase in franchisee-operated equivalent
store weeks.
- Franchise royalties increased $63,000, or approximately 6.1%,
during the first quarter of fiscal 1997 compared to the first
quarter of fiscal 1996. The increase in franchise royalties
was attributable to (a) an approximately 3.0% increase in
franchisee-operated equivalent store weeks, and (b) an
increase in the average retail sales volume per
franchisee-operated store of 3.0%. On a comparable store
basis, for those stores which were franchisee-operated in
fiscal 1997 and 1996, management estimates franchisees' sales
volumes increased 2.3% during the quarter.
- Revenue from franchise sales increased $631,000, or
approximately 408%, during the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996. Revenue from
selling existing and new stores to franchisees is summarized
as follows (rounded):
<TABLE>
<CAPTION>
FIRST QUARTER FIRST QUARTER
FISCAL 1997 FISCAL 1996
------------- -------------
<S> <C> <C>
Number of licenses sold to franchisees
- existing stores 5 1
- new stores 2 4
Cash and notes from sale of existing stores $ 1,127,000 $ 107,000
Less: net book value of existing stores sold (397,000) (52,000)
------------ ------------
Revenue from sale of existing stores 730,000 55,000
------------ ------------
Revenue from license fees for new stores 50,000 100,000
Revenue from other fees 5,000 0
------------ ------------
Revenue from license fees
for new stores and other fees 55,000 100,000
------------ ------------
Total revenue from sale of existing
and new stores to franchisees $ 785,000 $ 155,000
============ ============
</TABLE>
- Other revenue decreased $57,000, or approximately 203%, during
the first quarter of fiscal 1997 compared to the first quarter
of fiscal 1996. The decrease in other revenue is primarily
attributable to (a) non-recurring payments received from mall
developers in the first quarter of fiscal 1996, and (b) a
decrease in construction assistance revenue.
Cost of Sales
Cost of sales increased $187,000, or approximately 4.3%, during the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. The
increase in cost of sales was primarily attributable to (a) an increase in
batter sales to franchisees, (b) a decline in wholesale batter margins due to
higher ingredient costs, and (c) a decline in retail labor margins.
Retail Store Occupancy
Retail store occupancy costs increased $8,000, or approximately 0.5%,
during the first quarter of fiscal 1997 compared to the first quarter of fiscal
1996.
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<PAGE> 12
Other Retail Store Expenses
Other retail store expenses decreased $24,000, or approximately 8.7%,
during the first quarter of fiscal 1997 compared to the first quarter of fiscal
1996. The decrease in other retail store expenses was primarily attributable to
(a) a decrease in smallwares purchases due to the opening of 3 less Company
stores in the first quarter of fiscal 1997 versus the first quarter of fiscal
1996, offset by (b) an increase in in-store marketing expenses for
Company-operated stores.
Selling, General and Administrative
Selling, general and administrative expenses increased $139,000, or
approximately 8.3%, during the first quarter of fiscal 1997 compared to the
first quarter of fiscal 1996. This increase was primarily attributable to (a)
an increase in marketing costs due to the development and rollout of new
holiday in-store advertising and point of sale materials, and (b) an increase
in professional service fees, offset by (c) a decrease in franchise sales
advertising.
Other Expenses, Net
Other expenses, net, decreased $32,000, or approximately 2.6%, during
the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996.
The decrease was attributable to (a) an increase in interest income, and (b) a
decrease in interest expense.
Net Income (Loss)
Net income increased $392,000, or approximately 241%, for the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996. The
increase in net income was primarily attributable to (a) an approximately 43.4%
increase in operating income, (b) a 2.6% decrease in other expenses, net,
offset by (c) a 132% increase in state and federal income tax expense.
-12-
<PAGE> 13
Fixed Charge Coverage
Earnings before interest, taxes, depreciation and amortization
("EBITDA") is presented below as management believes that certain investors
find it to be a useful tool for measuring the ability to service debt. EBITDA
does not represent net income or cash flows from operations as these terms are
defined by generally accepted accounting principles and does not necessarily
indicate whether cash flows have been or will be sufficient to fund cash needs.
Adjusted EBITDA includes adjustments to EBITDA used in the indenture for the
10.875% senior secured notes payable due January 15, 2001, Series B to
calculate compliance with the Fixed Charge Coverage Ratio per such indenture,
consisting of adding back interest income and the elimination of certain
non-cash charges, including losses on the sale or disposal of fixed assets and
accrual of lease expense in excess of cash paid. Unaudited EBITDA and Adjusted
EBITDA are calculated as follows (000's omitted):
<TABLE>
<CAPTION>
FOR THE FOR THE
THIRTEEN WEEK THIRTEEN WEEK
PERIOD ENDED PERIOD ENDED
SEPTEMBER 29, 1996 SEPTEMBER 28, 1995
(UNAUDITED) (UNAUDITED)
------------------ ------------------
<S> <C> <C>
Net income (loss) $ 230 $ (163)
Add:
Depreciation 461 375
Amortization of goodwill 218 217
Interest expense, net of interest income 1,058 1,090
Amortization of debt issue costs 143 143
Provision for income taxes 274 118
------- --------
EBITDA 2,384 1,780
Add:
Other non-cash items 19 30
Interest income 33 14
------- --------
Adjusted EBITDA $ 2,436 $ 1,824
======= ========
</TABLE>
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from
operations and the sale of Company-operated retail units to franchisees.
The working capital balance of the Company as of September 29, 1996
and as of June 30, 1996 was $3.3 million and $3.2 million, respectively. The
specialty retail cookie business does not require the maintenance of
significant receivables or inventories; therefore, it is not unusual for the
Company's working capital balance to be less than $5 million.
The Company continually invests in its business through the addition
of new Company-operated stores. These store additions are reflected as
long-term assets and not as part of working capital. The Company anticipates
that it will build approximately four Company-operated stores during fiscal
1997, requiring aggregate expenditures of approximately $600,000 for store
opening costs. The Company anticipates that such costs will be funded with cash
generated by operations and the sale of existing Company-operated stores to
franchisees, including initial license fees. The number of Company-operated
stores to be opened may be greater or less than anticipated depending upon a
number of factors including the Company's ability to obtain locations on
acceptable lease terms and/or the Company's ability to identify potential
franchisees and to license such locations to franchisees before construction
and store opening costs are incurred. The Company's future liquidity is
dependent upon its ability to sell stores to franchisees.
-13-
<PAGE> 14
During the thirteen week period ended September 29, 1996, the Company
incurred total capital expenditures of approximately $143,000, including a net
increase in construction in progress of $44,000. The Company estimates that to
adequately maintain the Atlanta batter production facility and existing
Company-operated retail units, approximately $300,000 to $400,000 of capital
expenditures are required annually.
A portion of the consideration paid in connection with the acquisition
of the Company in December 1993 consisted of Cookies USA Senior Preferred Stock
and the cash provided by the sale by Cookies USA of Subordinated Notes, Junior
Class A Preferred Stock, Junior Class B Preferred Stock, and Common Stock. The
Company is the sole source of any cash to be paid as interest, principal
payments or dividends on such securities or to pay any other expenses,
including management fees, incurred by Cookies USA, and taxes. The Company
expects to pay dividends and tax payments to Cookies USA in amounts sufficient
to service the cash flow requirements of Cookies USA to the extent that such
payments are permitted by the terms of the Company's Senior Secured Notes and,
if additional indebtedness is incurred that restricts such payments, by the
terms of such additional indebtedness. During the thirteen week period ended
September 29, 1996 the Company did not pay or declare dividends to Cookies USA.
After giving effect to the acquisition and the issuance of the
Company's Senior Secured Notes, the Company will not have any mandatory debt
amortization requirements until the year 2001. The Senior Secured Notes require
semi-annual interest payments of approximately $2,175,000 on January 15 and
July 15. As of September 29, 1996 the Company had a cash balance of $3,347,000.
The Company anticipates that additional cash flow will be generated primarily
from the sale of existing retail stores to franchisees so that, with cash
generated from retail store and batter facility operations and royalties from
franchisees, the Company will be able to meet its debt service requirements as
well as its capital expenditure requirements for the foreseeable future. Not
withstanding this, the Company's liquidity is dependent upon its ability to
sell both existing and new stores to franchisees.
Seasonality and Inflation
The Company's sales and profitability are subject to slight seasonal
fluctuation and are traditionally higher during the Christmas holiday season
because of various factors such as increased mall traffic and holiday gift
purchases.
The Company does not believe that historically inflation has
materially affected earnings. Most of the leases for the Company's stores
contain rental escalation clauses based upon cost increases incurred by
lessors, and many of the Company's employees are paid hourly rates related to
the federal minimum wage. The federal minimum wage increased from $4.25 to
$4.75 on October 1, 1996 and will increase from $4.75 to $5.15 on September 1,
1997. The October 1, 1996 minimum wage increase may negatively impact the
Company's payroll costs in the short-term, but management believes this impact
can be negated in the long-term through increased efficiencies in its
operations and, as necessary, through retail price increases. Historically, the
Company has been able to increase prices sufficiently to match increases in its
operating costs, but there is no assurance that it will be able to do so in the
future.
Goodwill
In determining the value of the Company, management has considered
potential growth rates in both sales and EBITDA over the next five years.
Management ultimately became comfortable with such value based on potential
growth rates which are lower than those the Company has experienced in the five
years preceding the acquisition. The carrying value of goodwill is evaluated
for indications of possible impairment. The review is based on comparing the
carrying amount to the undiscounted cash flows from continuing operations over
the remaining amortization period. No impairment is indicated as of September
29, 1996.
-14-
<PAGE> 15
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is subject to claims and legal actions
in the ordinary course of its business. The Company is not a party to any
litigation that would have a material adverse effect on the Company or its
business and is not aware that such litigation is threatened.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the
quarter ended September 29, 1996.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GREAT AMERICAN COOKIE COMPANY, INC.
Date: November 13, 1996 By: /s/ David B. Barr
--------------------------------------
David B. Barr, President,
Chief Financial Officer, and Treasurer
(Principal Financial Officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AT SEPTEMBER 29, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEK PERIOD ENDED SEPTEMBER 29, 1996 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 3,346,942
<SECURITIES> 0
<RECEIVABLES> 2,671,068
<ALLOWANCES> 0
<INVENTORY> 1,563,093
<CURRENT-ASSETS> 7,909,758
<PP&E> 0
<DEPRECIATION> 3,880,060
<TOTAL-ASSETS> 53,325,125
<CURRENT-LIABILITIES> 3,483,766
<BONDS> 40,000,00
0
0
<COMMON> 13,500,000
<OTHER-SE> (5,851,811)
<TOTAL-LIABILITY-AND-EQUITY> 53,325,125
<SALES> 8,245,956
<TOTAL-REVENUES> 10,100,844
<CGS> 4,578,432
<TOTAL-COSTS> 8,396,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200,640
<INCOME-PRETAX> 503,994
<INCOME-TAX> 274,206
<INCOME-CONTINUING> 229,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,788
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
