UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 13, 1997
BAB Holdings, Inc.
- ------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Illinois 0-27068 36-3857339
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (773) 380-6100
--------------
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
TABLE OF CONTENTS
Page
----
Item 1. Changes in Control of Registrant
Item 2. Acquisition or Disposition of Assets
Item 3. Bankruptcy or Receivership
Item 4. Changes in Registrant's Certifying Accountant
Item 5. Other Events
Item 6. Resignation of Registrant's Directors
Item 7. Financial Statements and Exhibits
Item 8. Change in Fiscal Year
SIGNATURE
INDEX TO EXHIBITS
Item 1. Changes in Control of Registrant
Not applicable.
Item 2. Acquisition or Disposition of Assets
On May 13, 1997 BAB Holdings, Inc. (the "Company") completed the
acquisition by merger of My Favorite Muffin Too, Inc. ("MFM"), a New
Jersey corporation. MFM franchises and operates muffin and bagel
specialty retail stores concentrated primarily in the Eastern United
States and Florida. At May 13, 1997, MFM had 60 franchise and 5
company-operated units in operation. MFM was merged into BAB
Acquisition Corporation, a wholly-owned subsidiary of the Company,
with MFM being the surviving entity.
The Company acquired substantially all the assets of MFM
including all of MFM's right, title and interest in all leased real
property, trademarks, recipes, equipment, machinery, furniture and
fixtures, leasehold improvements, franchise and other operating
contracts, current assets and other assets of the MFM. Additionally,
the Company has assumed liabilities of MFM including accounts
payable, accrued liabilities, lease obligations and obligations under
franchise and operating contracts. The Company intends to continue
using the assets of MFM in the franchising and operation of muffin
and bagel specialty retail stores.
The acquisition through merger was completed by exchanging 150
shares of MFM stock held equally by Owen Stern, Ruth Stern and Illona
Stern (the "Sellers"), for 432,608 shares of the Company's common
stock, restricted as to transfer until January 1, 1999, and $260,000
in cash to the Sellers. In addition to the other liabilities
assumed, the Company has additionally assumed approximately $350,000
of existing bank debt. Additionally, the Company has retained the
Sellers as employees of the Company pursuant to employment contracts,
through May 8, 2001 for Owen Stern, and through May 8, 2000 for Ruth Stern
and Illona Stern.
Item 3. Bankruptcy or Receivership
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not applicable.
Item 5. Other Events
None.
Item 6. Resignation of Registrant's Directors
Not applicable.
Item 7. Financial Statements and Exhibits
BAB HOLDINGS, INC.
PRO FORMA STATEMENT OF OPERATIONS
Year ended November 30, 1996
(Unaudited)
The following unaudited pro forma statement of operations reflects
the acquisition by the Company of Bagels Unlimited, Inc. ("BUI"), Strathmore
Bagels Franchise Corporation ("Strathmore") and MFM as if they had occurred
on December 1, 1995. Such pro forma information is based upon the historical
results of operations of the Company for the year ended November 30, 1996,
the historical results of operations of BUI for the five months ended April
30, 1996, the historical results of operations of Strathmore for the six
months ended May 21, 1996 and the historical results of operations of MFM
for the year ended December 31, 1996 giving effect to the acquisitions and
the pro forma adjustments set forth in the accompanying notes to pro forma
financial statements. Unaudited pro forma adjustments are based upon
historical information, estimates and certain assumptions that the Company
deems appropriate. The unaudited pro forma financial statements are not
necessarily indicative of either future results of operations or results that
might have been obtained if the foregoing transactions had been consummated
as of the indicated date. This pro forma statement of operations should be
read in conjunction with the historical financial statements and notes
thereto of the Company, BUI, Strathmore and MFM.
<TABLE>
<CAPTION>
Pro Pro
Forma Forma
Strath- Adjust- as
Company BUI more MFM ments Adjusted
---------- --------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Net sales
by Company-
owned stores $3,484,319 $1,152,522 $1,310,663 $5,947,504
Royalty fees
from
franchised
stores 1,402,839 896,002 $(59,524)(1) 2,239,317
Franchise
and area
development
fees 1,023,331 235,250 1,258,581
Licensing
fees and
other
revenues 413,109 $278,268 269,450 960,827
---------- ---------- ---------- ---------- -------- ---------
Total
revenues 6,323,598 1,152,522 278,268 2,711,365 (59,524) 10,406,229
OPERATING
COSTS AND
EXPENSES:
Food,
beverage
and paper
costs 1,221,826 417,213 426,333 2,065,372
Store payroll
and other
operating
expenses 1,753,397 608,981 823,301 3,185,679
Costs of
uncompleted
business
acquisition 650,922 650,922
Depreciation
and
amortization 379,266 28,920 16,835 84,600 151,266(2) 660,887
Selling,
general and
adminis-
trative
expenses 2,938,806 198,060 319,209 1,269,420 (59,524)(1)4,665,971
---------- --------- --------- ---------- --------- ---------
Total
operating
costs and
expenses 6,944,217 1,253,174 336,044 2,603,654 91,742 11,228,831
---------- --------- --------- ---------- --------- ----------
Income (loss)
from
operations (620,619) (100,652) (57,776) 107,711 (151,266) (822,602)
Interest and
other income
(expense), net 299,775 (20,318) (25,927) 253,530
---------- --------- --------- ----------- -------- ----------
Income(loss)
before taxes (320,844) (120,970) (57,776) 81,784 (151,266) (569,072)
Provision for
income taxes -- -- 12,462 47,993 -- 60,455
---------- --------- --------- ----------- -------- ----------
Net income
(loss)
attributable
to common
shareholders $(320,844) $(120,970) $ (70,238) $ 33,791 $(151,266) $(629,527)
========== ========== ========== ========== ========= ==========
Net income
(loss)
attributable
to common
share, fully
diluted $(0.04) $(0.08)
========== =========
Average number
of shares
used fully
diluted(3) 7,420,538 7,873,979
========== =========
</TABLE>
(1) Elimination of franchise royalty revenue of the Company
and related expense recognized by BUI.
(2) Amortization of BUI goodwill over 40 years ($7,576),
amortization of BUI non-competition agreement over six
years ($6,945), amortization of Strathmore goodwill over
40 years ($27,616), Strathmore contract rights over
102 months ($28,818) and amortization of MFM franchise
contract rights over 20 years ($83,167), reduced by
elimination of BUI initial franchise fee amortization ($2,856).
(3) Adjusted for 432,608 shares of common stock issued in
MFM transaction.
BAB HOLDINGS, INC.
PRO FORMA STATEMENT OF OPERATIONS
Six months ended May 31, 1997
(Unaudited)
The following unaudited pro forma statement
of operations reflects the acquisition by the Company
of MFM as if it had occurred on December 1, 1996. Such
pro forma information is based upon the historical results
of operations of the Company for the six months ended
May 31, 1997 and the historical results of operations of
MFM for the period from December 1, 1996 through May 13,
1997 (date of MFM acquisition) giving effect to the
acquisition and the pro forma adjustments set forth in the
accompanying notes to pro forma financial statements.
Unaudited pro forma adjustments are based upon historical
information, estimates and certain assumptions that the
Company deems appropriate. The unaudited pro forma financial
statements are not necessarily indicative of either future
results of operations or results that might have been
obtained if the foregoing transaction had been consummated
as of the indicated date. This pro forma statement of
operations should be read in conjunction with the historical
financial statements and notes thereto of the Company and
MFM.
<TABLE>
<CAPTION>
Pro Pro
Forma Forma
Adjust- as
Company MFM ments Adjusted
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
REVENUES:
Net sales
by Company-
owned stores $4,087,363 $ 658,683 $4,746,046
Royalty fees
from
franchised
stores 958,744 408,441 1,367,185
Franchise
and area
development
fees 647,900 56,250 704,150
Licensing
fees and
other
revenues 570,827 130,957 701,784
---------- ---------- -------- ---------
Total
revenues 6,264,834 1,254,331 7,519,165
OPERATING
COSTS AND
EXPENSES:
Food,
beverage
and paper
costs 1,350,415 276,455 1,626,870
Store payroll
and other
operating
expenses 2,262,798 359,769 2,622,567
Depreciation
and
amortization 562,946 50,356 37,335(1) 650,637
Selling,
general and
adminis-
trative
expenses 1,949,368 599,522 2,548,890
---------- ---------- --------- ---------
Total
operating
costs and
expenses 6,125,527 1,286,102 37,335 7,448,964
---------- ---------- --------- ---------
Income (loss)
from
operations 139,307 (31,771) (37,335) 70,201
Interest and
other income
(expense), net 34,678 (22,839) 11,839
---------- ---------- ---------- ---------
Net Income
(loss) 173,985 (54,610) (37,335) 82,040
Preferred stock
dividend
accumulated (222,715) -- -- (222,715)
---------- ----------- --------- --------
Net income
(loss)
attributable
to common
shareholders $ (48,730) $ (54,610) $(37,335) $(140,675)
========== ========= ========== =========
Net income
(loss)
attributable
to common
share, fully
diluted $(0.01) $(0.02)
========== ==========
Average number
of shares
used fully
diluted(2) 7,194,725 7,389,398
========= =========
</TABLE>
(1) Amortization of MFM franchise contract rights over 20 years.
(2) Adjusted for 432,608 shares of common stock issued in
MFM transaction.
Exhibits
The following exhibits are filed herewith.
Exhibit
No. Description of Exhibit
- ------- ---------------------------------------------------
2.5* Acquisition Agreement dated May 1, 1997 by and among
BAB Holdings, Inc., BAB Acquisition Corp., My Favorite
Muffin Too, Inc., Muffin Holdings of Pennsylvania,
a limited partnership, Ruth Stern, Owen Stern and Illona
Stern (without schedules)
4.6* Registration Rights Agreement dated as of May 1, 1997,
between BAB Holdings, Inc. and Owen Stern, Ruth Stern,
Illona Stern and Pierce W. Hance
99.1 Report of BDO Seidman, L.L.P., independent auditors, on
the Combined Financial Statements of My Favorite Muffin
Too, Inc. and My Favorite Muffin, Inc., as of December 31,
1996 and for the year then ended
99.2 Historical Combined Financial Statements of My Favorite
Muffin Too, Inc., and My Favorite Muffin, Inc., for the
year ended December 31, 1996
99.3 Historical Combined Condensed Financial Statements of My
Favorite Muffin Too, Inc. and My Favorite Muffin, Inc.,
for the interim period January 1, 1997 through
May 13, 1997 (unaudited)
* Incorporated by reference to exhibits bearing same exhibit
numbers filed as part of report on Form 8-K concerning this
transaction on May 28, 1997.
Item 8. Change in Fiscal Year
Not applicable.
SIGNATURE
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.
BAB HOLDINGS, INC.
Dated: July 23, 1997 By:/s/ THEODORE P. NONCEK
--------------------------
Theodore P. Noncek, Chief Financial
Officer,Secretary and Treasurer
(Principal accounting and financial officer)
Index
Number Description Page #
- --------- ------------------------------------------------- ------
2.5* Acquisition Agreement dated May 1, 1997 by and
among BAB Holdings, Inc., BAB Acquisition Corp.,
My Favorite Muffin Too, Inc., Muffin Holdings of
Pennsylvania, a limited partnership, Ruth Stern,
Owen Stern and Illona Stern (without schedules)
4.6* Registration Rights Agreement dated as of May 1,
1997, between BAB Holdings, Inc. and Owen Stern,
Ruth Stern, Illona Stern and Pierce W. Hance
99.1 Report of BDO Seidman, L.L.P., independent
auditors, on the Combined Financial Statements of
My Favorite Muffin Too, Inc. and My Favorite
Muffin, Inc., as of December 31, 1996 and for the
year then ended
99.2 Historical Combined Financial Statements of My
Favorite Muffin Too, Inc., and My Favorite Muffin,
Inc., for the year ended December 31, 1996
99.3 Historical Combined Condensed Financial Statements of
My Favorite Muffin Too, Inc. and My Favorite Muffin,
Inc., for the interim period January 1, 1997 through
May 13, 1997 (unaudited)
* Incorporated by reference to exhibits bearing same exhibit
numbers filed as part of report on Form 8-K concerning this
transaction on May 28, 1997.
Exhibit 99.1 Independent Auditors' Report
Independent Auditors' Report
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Cranbury, New Jersey
We have audited the accompanying combined balance sheet of My
Favorite Muffin Too, Inc. and My Favorite Muffin, Inc. as of
December 31, 1996, and the related combined statements of income
and retained earnings, and cash flows for the year then ended.
These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these combined 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
combined financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements.
An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to
above present fairly, in all material respects, the financial
position of My Favorite Muffin Too, Inc. and My Favorite Muffin,
Inc. as of December 31, 1996 and the results of their operations
and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 8 to the combined financial statements, in
May 1997 the Companies were acquired by BAB Holdings, Inc.
BDO Seidman, L.L.P.
Philadelphia, Pennsylvania
May 19, 1997
Exhibit 99.2 Historical Combined Financial Statements
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Combined Balance Sheet
December 31, 1996
<S> <C>
ASSETS (Pledged) (Notes 3 and 4)
Current assets:
Cash $ 122,395
Accounts Receivable (less allowance for
doubtful accounts of $7,768) 306,677
Inventory 57,640
Prepaid expenses 38,451
Deferred income taxes (Note 5) 2,319
Other 7,433
----------
Total current assets 534,915
----------
Property and equipment
Furniture and fixtures 122,066
Equipment 351,471
Leasehold improvements 445,605
Transportation equipment 23,279
----------
942,421
Less accumulated depreciation
and amortization 436,412
----------
Net Property and equipment 506,009
----------
Other Assets
Intangibles, primarily goodwill, net 123,434
Security deposits 23,086
----------
Total other assets 146,520
----------
$1,187,444
==========
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Combined Balance Sheet (continued)
December 31, 1996
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 250,429
Current maturities of
long-term debt (Note 3) 137,799
Line of Credit (Note 4) 44,000
Deferred revenue 152,873
Incomes taxes payable (Note 5) 11,947
Accrued expenses 27,318
Current maturities of loans
payable, related parties (Note 2) 27,170
----------
Total current liabilities 651,536
Deferred income taxes (Note 5) 5,406
Long-term debt, net of
current maturities (Note 3) 252,666
Loans payable, related parties,
net of current maturities (Note 2) 20,795
----------
Total Liabilities 930,403
----------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock (Note 7) 15,000
Additional paid-in capital 24,376
Retained earnings 217,665
----------
Total shareholders' equity 257,041
----------
$1,187,444
==========
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and My Favorite Muffin, Inc.
Combined Statement of Income and Retained Earnings
Year Ended December 31, 1996
<S> <C>
Revenues
Sales of franchises $ 235,250
Sales 1,310,663
Franchise fees 896,002
Advertising fees 170,040
Other 99,410
----------
Total revenues 2,711,365
Cost of Revenues
Advertising 165,346
Cost of Sales 1,003,334
Franchise 90,254
Other 12,306
----------
Total cost of revenues 1,271,240
----------
Gross Profit 1,440,125
----------
Operating expenses
(including interest expense of $44,349) 1,376,763
----------
Income before minority interest in loss of
subsidiary and taxes on income 63,362
Minority interest(acquired during
October 1996) in loss of
subsidiary(Note 2) 18,422
----------
Income before taxes on income 81,784
Taxes on income (Note 5) 47,993
----------
Net Income 33,791
Retained earnings, beginning of year 183,874
----------
Retained earnings, end of year $ 217,665
==========
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and My Favorite Muffin, Inc.
Combined Statement of Cash Flows
Year Ended December 31, 1996
<S> <C>
Cash flows from operating activities
Net Income $ 33,791
Adjustments to reconcile net income
to net cash provided by
operating activities
Deferred income recognition (1,948)
Provision for doubtful accounts (7,377)
Deferred income taxes 2,906
Minority interest in subsidiary 18,422
Depreciation and Amortization 99,548
Changes in assets and liabilities
(Increase) in accounts receivable (12,436)
Decrease in prepaid expenses 14,523
Decrease in inventory 17,422
Decrease in other 9,673
Increase in accounts payable 20,387
Increase in income taxes 11,947
(Decrease) in accrued expenses (25,918)
----------
Net cash provided by operating activities 180,940
----------
Cash flow from investing activities
Purchase of property and equipment (19,737)
Purcahse of minority interest in subsidiary (26,282)
----------
Net cash (used in) investing activities (46,019)
----------
Cash flows from financing activities
Increase in loans payable, related party 20,928
Borrowings on line of credit 25,000
Repayments of long-term debt (123,051)
----------
Net cash (used in) financing activities (77,123)
----------
Net increase in cash 57,798
Cash, at beginning of year 64,597
----------
Cash, at end of year $ 122,395
==========
Supplemental disclosures of
cash flow information
Cash paid for
Interest $ 55,672
==========
Income Taxes $ 33,140
==========
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS
</TABLE>
My Favorite Muffin Too, Inc. and My Favorite Muffin, Inc.
Notes to Combined Financial Statements
1. Summary of Significant Accounting Policies
Principles of Combined Financial Statements
The combined financial statements include the accounts of My
Favorite Muffin Too, Inc. and subsidiaries and My Favorite
Muffin, Inc. (the "Company"). Significant intercompany balances
and transactions have been eliminated in combination.
Description of Business and Income Recognition
Sale of franchises: Revenue from the initial sale of a
franchise is recognized at the time the store is opened.
Receivables or collections prior to store opening are recorded
as deferred income. Commissions paid or accrued in connection
with the sale of a franchise are also deferred until the store
is opened.
Franchise fees: Fees charged to franchisees are based on a
percentage of monthly franchisee sales and are recognized when
earned.
Advertising fees: The Company charges its franchisees a
percentage of their sales to be used for advertising. The
Company defers these fees and recognizes them as revenue in an
amount equal to the actual expenditures on behalf of the
franchisees.
Sales of food items: The Company sells food items to its franchisees
as well as through company-owned locations and recognizes income when
a sale is made.
Inventory
Inventory consists primarily of food items available for sale
and is stated at the lower of cost (first-in, first-out method)
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using accelerated methods over the estimated useful
lives ranging from five to seven years which is not materially
different from those amounts computed on the straight-line
method. Leasehold improvements are amortized over the life of
the related lease.
Goodwill and Other Intangibles
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over a fifteen year
period. Amortization of goodwill was $3,710 for the year ended
December 31, 1996. The Company evaluates the recoverability of
the goodwill quarterly, or more frequently whenever events and
circumstances warrant revised estimates by assessing current and
future levels of income and cash flows, as well as other
factors, and considers whether goodwill should be completely or
partially written off or the amortization period accelerated.
Other intangibles are amortized over a period of 5-10 years.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist principally of trade
receivables.
Concentrations of credit risk, with respect to trade
receivables, are limited due to the large number of customers
compromising the Company's franchisees and their dispersion
across different geographic regions. As of December 31, 1996,
the Company had no significant concentrations of credit risk.
No single customer accounted for a significant amount of the
Company's sales in 1996.
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.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash,
accounts receivable, miscellaneous
receivables, accounts payable, accrued liabilities and short-
term debt approximate fair value because of the immediate or
short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair
value because the underlying instruments are at variable rates
which are repriced frequently.
Income Taxes
Income taxes are calculated using the liability method specified
by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
2. Related Party Transactions
As of December 31, 1996, the Company had a loan payable to an
officer in the amount of $4,627, payable in monthly installments
of $526. The loan is unsecured and bears interest at 8.855% per
annum.
As of December 31, 1996, the Company had loans payable to a
Partnership controlled by its officers/stockholders in the
amount of $43,338 payable in varying monthly principal
installments plus interest at 10%. The loans mature October
1999.
3. Long-Term Debt
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable in monthly installments of $1,667
plus interest at prime plus 1.5% (9.75% at
December 31, 1996) through October 1, 2000. The
debt is collateralized by substantially all of
the assets of the Company. $ 76,667
Unsecured note in connection with
minority interest acquisition payable in
monthly installments of $1,154, including
interest at 10%. The note is due November 1998. 24,055
Note payable in monthly installments of $2,091,
including interest at 14.5%. The note is
secured by property and equipment and is due
February 1998. 23,231
Note payable, bank, is collateralized by a
security interest in substantially all of the
assets of the Company. The stockholders have
guaranteed the note and assigned life insurance
policies on the corporate officers. The note is
payable in monthly principal installments of
$6,083 plus interest at prime plus 1% (10% at
December 31, 1996) through June 2000. 257,995
Other 8,517
--------
390,465
Less current maturities 137,799
--------
Long-term debt $252,666
========
</TABLE>
<TABLE>
Long-term debt maturities at December 31, 1996 are summarized as
follows:
<S> <C>
Year ended December 31,
1997 $137,799
1998 105,671
1999 93,000
2000 53,995
--------
$390,465
========
</TABLE>
4. Line of Credit
The Company has a $50,000 line of credit available with a bank.
Interest is at the bank's national commercial rate plus 1.5%
(9.75% at December 31, 1996). Advances under the line are
collateralized by a security interest in the Company's accounts
receivable and property and equipment. The outstanding balance
of $44,000 at December 31, 1996 is payable on demand.
5. Income Taxes
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The types of
temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise
to a significant portion of the deferred tax assets and deferred
tax liabilities are provisions for doubtful accounts and
depreciation, respectively.
The provision for Federal and state income taxes is detailed as
follows:
<TABLE>
<CAPTION>
<S> <C>
Taxes on income
Federal $ 29,546
State 15,541
Deferred 2,906
---------
$ 47,993
=========
</TABLE>
The Company has $103,000 of net operating loss carryforwards
to be used to offset future taxes. Such resultant tax asset
has a 100% valuation reserve. The difference between the statutory
tax rate and the effective tax rate is primarily due to non-deductible
losses.
6. Commitments and Contingencies
The Company leases its corporate office, warehouse and two
stores under various non-cancellable operating leases through
June 30, 2005. The leases contain provisions for escalation and
specific increased occupancy expenses. Rent expenses for the
year ended December 31, 1996 amounted to $113,300.
Future minimum payments remaining under the terms of the non-
cancellable leases are approximately as follows for the year
ended December 31,:
<TABLE>
<S> <C>
1997 $ 131,153
1998 141,944
1999 152,138
2000 115,898
2001 69,530
Thereafter 272,152
---------
$ 882,815
=========
</TABLE>
7. Common Stock
<TABLE>
<S> <C>
My Favorite Muffin Too, Inc.
Authorized 2,500 shares, no par value
Issued and outstanding 150 shares $ 7,500
My Favorite Muffin, Inc.
Authorized 1,500 shares, no par value
Issued and outstanding 150 shares 7,500
---------
$ 15,000
=========
</TABLE>
8. Subsequent Event
In May 1997, BAB Holdings, Inc. ("BAB") acquired the Company
from its stockholders in exchange for 432,608 shares of BAB
common stock (restricted unitl January 1, 1999) plus $260,000
cash consideration. Immediately preceding the acquisition by
BAB, the net assets of My Favorite Muffin, Inc. were acquired
by My Favorite Muffin Too, Inc.
Exhibit 99.3 Historical Interim Combined Financial Statements (unaudited)
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Condensed Combined Balance Sheet
May 13, 1997
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash $ 143,449
Other current assets 360,052
----------
Total current assets 503,501
Property, plant, and equipment,
net of accumulated depreciation of $479,677 464,562
Goodwill, net 144,157
Other assets 25,831
----------
$1,138,051
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 450,038
Deferred franchise fee revenue 120,565
Line of credit 44,000
Current portion of long-term debt 19,209
Other current liabilities 33,088
----------
Total current liabilities 666,900
Long-term debt, less current portion 316,586
Shareholders' equity:
Common stock 39,376
Retained earnings 115,189
----------
Total shareholders' equity 154,565
----------
$1,138,051
==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Condensed Combined Statement of Income
Period from January 1, 1997 through May 13, 1997
(Unaudited)
<S> <C>
REVENUES
Net sales by company-owned stores $ 521,595
Royalty fees from franchised stores 308,532
Franchise fees 26,250
Other income 89,121
---------
945,498
OPERATING COSTS AND EXPENSES
Costs of sales 407,993
Selling, general and administrative 620,459
---------
1,028,452
---------
Loss before interest and other, net (82,954)
Interest expense (16,562)
Other expense, net (2,960)
---------
Net loss $(102,476)
=========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Condensed Combined Statement of Cash Flows
Period from January 1, 1997 through May 13, 1997
(Unaudited)
<S> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities $ 96,751
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,818)
FINANCING ACTIVITIES
Repayment of borrowings (73,879)
--------
Net increase in cash 21,054
Cash at beginning of period 122,395
--------
Cash at end of period $143,449
========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS.
</TABLE>
My Favorite Muffin Too, Inc. and
My Favorite Muffin, Inc.
Notes to Condensed Combined Financial Statements
1. Basis of Presentation
The condensed combined financial statements include the accounts of My
Favorite Muffin Too, Inc. and subsidiaries and My Favorite Muffin, Inc.
(the "Company"). Significant intercompany balances and transactions
have been eliminated in combination.
The accompanying condensed combined financial statements are
unaudited. These financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statement prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. In the opinion of the Company's
management, the condensed consolidated financial statements for the
unaudited interim period presented include all adjustments necessary to
fairly present the results of such interim period and the financial
position as of the end of said period. These adjustments were of a
normal recurring nature and did not have a material impact on the
financial statements presented.
2. Sale of Company
On May 13, 1997, the Company was sold to BAB Holdings, Inc. Immediately
preceding the sale to BAB Holdings, Inc., the assets of My Favorite
Muffin Inc. were sold to My Favorite Muffin Too, Inc. for assumption of
all liabilities of My Favorite Muffin, Inc. The resulting My Favorite
Muffin Too, Inc., was sold to BAB Holdings, Inc. by exchanging the
outstanding shares of the Company for 432,608 shares of BAB Holdings,
Inc. common stock, plus cash of $260,000.
