FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number: 0-27068
BAB Holdings, Inc.
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(Name of small business issuer in its charter)
Illinois 36-3857339
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (773) 380-6100
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(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 7,744,302 shares of Common
Stock, as of April 10,1998.
TABLE OF CONTENTS
PART I
Item 1. Financial Statements ...................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ..................
PART II
Item 1. Legal Proceedings.......................................
Item 2. Changes in Securities...................................
Item 3. Defaults Upon Senior Securities.........................
Item 4. Submission of Matters to a Vote of Security Holders.....
Item 5. Other Information.......................................
Item 6. Exhibits and Reports on Form 8-K........................
SIGNATURE ........................................................
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Balance Sheet
February 28, 1998
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $148,701 $ 438,288
Other current assets 2,643,894
------------
Total current assets 3,082,182
Property, plant, and equipment, net of
accumulated depreciation of $1,084,891 4,725,484
Goodwill, net of accumulated amortization of $118,480 2,582,542
Franchise contract rights, net of accumulated
amortization of $86,346 1,985,938
Other assets and intangible assets, net of
accumulated amortization of $522,126 2,225,944
------------
$ 14,602,090
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,007,206
Deferred franchise fee revenue 562,500
Current portion of long-term debt 2,005,858
Other current liabilities 479,653
------------
Total current liabilities 6,055,217
Long-term debt, less current portion 25,082
Shareholders' equity:
Common stock 10,934,937
Additional paid-in capital 1,346,707
Preferred stock 1,890,268
Accumulated deficit ( 5,650,121)
------------
Total shareholders' equity 8,521,791
------------
$ 14,602,090
============
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
--------------------------
REVENUES
<S> <C> <C>
Net sales by Company-owned stores $ 2,427,150 $ 1,807,277
Royalty fees from franchised stores 787,527 406,221
Franchise and area development fees 212,000 234,900
Licensing fees and other income 283,287 169,874
Sale of store units 19,876 155,848
--------------------------
3,729,840 2,774,120
OPERATING COSTS AND EXPENSES
Food, beverage, and paper costs 820,614 600,421
Store payroll and other operating expenses 1,513,552 1,058,621
Selling, general, and administrative expenses 1,501,148 1,109,880
--------------------------
3,835,314 2,768,922
--------------------------
(Loss) income before interest (105,474) 5,198
Interest expense ( 46,581) (45)
Interest income 19,096 20,172
--------------------------
Net (loss) income (132,959) 25,325
Preferred stock divided accumulated ( 50,696) -
--------------------------
Net (loss) income attributable to
common shareholders $ (183,655) $ 25,325
==========================
Basic and diluted (loss)earnings
per common share $ (0.02) $ -
==========================
Average number of shares outstanding 7,723,610 7,143,069
==========================
Average number of shares outstanding - diluted 7,723,610 7,274,943
==========================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
BAB Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash (used for) provided by
operating activities $ (369,970) $ 116,475
INVESTING ACTIVITIES
Note repayments 122,727 -
Business acquisitions - ( 374,134)
Purchases of property, plant and equipment ( 36,438) ( 996,917)
Other 4,171 ( 85,249)
-----------------------
Net cash provided by (used for)
investing activities 90,460 (1,456,300)
FINANCING ACTIVITIES
Borrowings under line of credit 337,500 -
Repayment of long-term debt ( 9,598) ( 7,593)
----------------------
Net cash provided by (used for)
financing activities 327,902 ( 7,593)
----------------------
Net increase (decrease)in
cash and cash equivalents 48,392 (1,347,418)
Cash and cash equivalents at beginning of period 389,896 2,163,293
----------------------
Cash and cash equivalents at end of period $ 438,288 $ 815,875
======================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
BAB Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
represent the financial activity of BAB Holdings, Inc. (the "Company" or
"Holdings"), an Illinois corporation incorporated on November 25, 1992, and
its four wholly-owned subsidiaries, BAB Operations, Inc. ("Operations"), BAB
Systems, Inc. ("Systems"), Brewster's Franchise Corporation ("BFC") and My
Favorite Muffin Too, Inc. ("MFM"). Systems was incorporated on December 2,
1992, and was primarily established to franchise "Big Apple Bagels" specialty
bagel retail stores. Operations was formed on August 30, 1995, primarily to
operate Company-owned stores, including one which currently serves as the
franchise training facility. BFC was established on February 15,1996, to
franchise "Brewster's Coffee" concept retail coffee stores. MFM was acquired
on May 13, 1997. MFM franchises and operates "My Favorite Muffin" specialty
muffin retail stores.
The accompanying condensed consolidated 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 periods presented include all adjustments necessary to
fairly present the results of such interim periods 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. Stores Open and Under Development
Stores which have been opened and unopened stores for which an agreement has
been executed and franchise or area development fees collected at February 28,
1998 are as follows:
Stores opened:
Company-owned 27
Franchisee-owned 185
Licensed 53
---
265
Unopened franchised stores for
which an agreement has been sold:
Franchise agreement 22
Area development agreement 25
---
47
---
Total 312
===
3. Acquisitions and Dispositions
In January 1998, the Company sold one store located in Lincoln, Nebraska to a
franchisee in exchange for $30,000 and a $177,000 note receivable which bears
interest at a rate of 8.5% per annum. Principal and interest payments are
payable monthly until March 1, 2003 when the remaining unpaid principal
balance is due in full.
During 1997, the Company acquired and sold several stores. Stores purchased
are operated as Company-owned units for a period of time prior to resale as a
franchised unit.
In January 1997, the Company completed the acquisition of JBI, and affiliate,
franchisees of the Company, operating a total of four stores in southern
California. The total purchase price paid was $770,000, including $120,000
related to a noncompetition agreement with the former owners of JBI. In
October 1997, management closed one of the stores and it closed the remaining
three stores in January 1998. All of the long-lived assets associated with
this purchase were considered impaired as of November 30, 1997. See Note 4.
In May 1997, the Company acquired MFM. At the time of acquisition, MFM had 5
company-owned and 60 franchised units in operation and its 1996 revenues
exceeded $2.7 million. The Company acquired MFM by exchanging 432,608 shares
of the Company's Common Stock, restricted as to transfer until January 1,
1999, and $259,000 in cash in exchange for 150 shares of MFM stock. The
Company assumed all assets, including approximately $143,000 in cash, and
liabilities of MFM. The Company borrowed approximately $356,000 on its credit
facility to repay MFM bank debt and other borrowings assumed in the
acquisition.
4. Impairment of Long-Lived Assets and Store Closures
As a result of operating losses incurred during the fiscal year ended November
30, 1997, management identified seven Company-owned stores as impaired and
recorded a provision for impairment of long-lived assets and store closures of
approximately $1,837,000, including a reserve for closed store operating
leases and other store closing costs of approximately $504,000. One store was
closed by November 30, 1997 and the remaining six stores were closed by
February 28, 1998. Operating losses incurred by these six stores during the
three months ended February 28, 1998 totaled approximately $90,000 and are
included in results of Company-owned store operations. At February 28, 1998,
the reserve for closed store operating leases and other store closing costs is
approximately $425,000.
5. Preferred Stock - Series A Convertible Preferred Stock
In April 1997, the Company completed the sale of 87,710 shares of $25.00
Series A Convertible Preferred Stock (the "Preferred Stock") in a private
placement to institutional investors. The Preferred Stock carries an 8% annual
dividend payable in cash or, at the option of the Company, in shares of common
stock; provided that during a Conversion Suspension Period (defined below),
dividends will accrue at a rate of 15% per annum. Dividends are payable only
when shares are converted to shares of common stock. The holders have no
voting rights and have a liquidation preference of $25.00, plus accrued
dividends, out of assets of the Company available for distribution to
shareholders.
Commencing August 1, 1997 through July 31, 1999, subject to certain
extensions, the shareholders may elect to convert each preferred stock share
into that number of common shares determined by dividing the $25 purchase
price by the lesser of $5.64 or 85% of the average closing bid price of the
common stock for the 30 trading days immediately preceding the conversion
date. In addition, if the Company engages in an underwritten public offering,
for any holder who has given notice of participation in such offering, the
conversion rate shall be 85% of the public offering price, if less than the
amount calculated in the immediately preceding sentence.
A Conversion Suspension Period takes effect if the closing bid price of the
common stock is less than $2.325 for 30 consecutive trading days. The
Conversion Suspension Period continues until the first trading day thereafter
that the closing bid price for the common stock has exceeded $2.325 for 30
consecutive trading days; provided, however, that a Conversion Suspension
Period shall not continue for more than sixty (60) days in any period of 365
days. The Company is not required to recognize or accept any conversion of
Preferred Stock during a Conversion Suspension Period. During any Conversion
Suspension Period, the Company, at its option, may redeem any or all of the
Preferred Stock by payment to the holders of $28.75 per share, plus all
accrued and unpaid dividends. The Company entered into a sixty day Conversion
Suspension Period during November 1997. Preferred dividends of approximately
$51,000 accumulated during the quarter ended February 28, 1998.
During fiscal 1997, 9,000 shares of Preferred Stock, plus dividends accrued
thereon, were converted into 110,342 shares of common stock. In January 1998,
1,000 shares of Preferred Stock, plus dividends accrued thereon, were
converted into 32,672 shares of common stock.
6. Line of Credit Agreement
In April 1997, the Company entered a $2 million line of credit agreement with
a bank expiring on December 31, 1998. Maximum borrowing under the line is
limited to a borrowing base of 80% of accounts receivable under 90 days and
40% of equipment costs. Interest is payable monthly at prime plus one percent
(currently 9.5%), with principal due upon the maturity of the note. At
February 28, 1998, the Company had borrowed $1,995,000 on the line of credit
and the balance is classified as a current liability. The Company is
currently in the process of renewing the line of credit with the bank and
transferring a portion of the borrowings to a secured note payable.
In February 1998, the Company fell below the compensating cash balance
requirement of $250,000 and obtained a waiver from the bank to lower the
requirement to $150,000 for 60 days expiring April 25, 1998. Management has
implemented a plan to increase the cash balance with improved cash flow
resulting from store closures, proceeds from the sale of stores and other
assets, reduction in general and administrative expenses and increased
collection efforts. The Company is currently in compliance of the $250,000
compensating cash balance covenant and management believes it will remain in
compliance for the foreseeable future.
7. (Loss) Earnings per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted (loss)
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
1998 1997
-------------------
<S> <C> <C>
Numerator:
Net (loss) income $(132,959) $25,325
Preferred stock dividend accumulated ( 50,696) -
-------------------
Numerator for basic and diluted (loss) earnings
per share --(loss) income attributable
to common shareholders $(183,655) $25,325
===================
Denominator:
Denominator for basic (loss) earnings per share --
weighted average shares 7,723,610 7,143,069
Effect of dilutive securities:
Underwriters warrant - 97,722
Options issued in connection with acquisitions - 22,903
Options issued under Directors Plan
and Incentive Plan - 11,249
-------------------
Denominator for diluted (loss) earnings per share --
weighted average shares 7,723,610 7,274,943
===================
Basic (loss) earnings per share $ (0.02) $ -
===================
Diluted (loss) earnings per share $ (0.02) $ -
===================
</TABLE>
Options to purchase 298,000 shares of common stock at varying prices are
outstanding at February 28, 1998 under the Company's 1995 Long-Term Incentive
and Stock Option Plan (the Incentive Plan) and the 1995 Outside Directors
Stock Option Plan (the Directors Plan). Also outstanding during the period
ended February 28, 1998 was a warrant sold in connection with the Company's
initial public offering to the underwriter to purchase 255,000 shares of
common stock at $3.20 per share. Additionally, in connection with various
acquisitions during 1996 and 1997, the Company issued options to purchase
658,000 shares of common stock issuable at varying exercise prices ranging
from $4.00 per share to $8.00 per share. Further, warrants issued to each
preferred shareholder of the Preferred Stock were outstanding to purchase
175,420 shares of common stock at $2.35 per share. Finally, common shares are
issuable pursuant to the terms of the Company's convertible Preferred Stock
(see Note 5.)
The exercise of options and warrants outstanding or conversion of convertible
securities outstanding during the quarter ended February 28, 1998 is not
assumed as the result is antidilutive to the reported loss per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, including statements regarding
the development of the Company's business, the markets for the Company's
products, anticipated capital expenditures, and the effects of completed and
proposed acquisitions, and other statements contained herein regarding matters
that are not historical facts, are forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995). Because such
statements include risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Certain risks and uncertainties are outside the control of the Company and its
management including its ability to attract new franchisees, the continued
success of current franchisees, the effects of competition on franchisee and
Company-owned store results and consumer acceptance of the Company's products
in new and existing markets. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
- -------
From its inception in November 1992, the Company has grown to 27 Company-owned
and 238 franchised and licensed units at February 28, 1998. System-wide
revenues in the quarter ended February 28, 1998 approached $20 million, a 74%
increase from the year-ago quarter. This rapid expansion, which includes
significant increases in Company-owned store revenues and related expenses and
the May 1997 acquisition of MFM, significantly affects the comparability of
results of operations of the Company in several ways.
The Company's revenues are derived primarily from the operation of Company-
owned stores, initial franchise fees and ongoing royalties paid to the Company
by its franchisees. Additionally, the Company has significantly increased
revenue derived from the sale of licensed products as a result of purchasing
trademarks (Brewster's), licensing contracts (Host Marriott) and by directly
entering licensing agreements (Choice Picks Food Courts, Oberweis Dairy and
Mrs. Fields Cookies). Additionally, the Company has generated other revenue
through the sale of Company-owned units to franchisees of the Company.
During the fourth quarter of fiscal 1997, management identified certain under-
performing stores which were operating at a loss and which, based on the
estimated future cash flows, were considered to be impaired. Four of the
seven stores which were considered to be impaired were located in the Southern
California market. In accordance with the Financial Accounting Standards
Board Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and the Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition of Costs to Exit an Activity",
management recorded a provision for impairment of assets and store closures
which totaled approximately $1,837,000. One store was closed during fiscal
1997 and the remaining units were closed during the first quarter of 1998.
The six stores incurred operating losses of approximately $90,000 during the
three months ended February 28, 1998. Management has successfully completed
negotiations to terminate its obligations under three of the seven non-
cancelable lease obligations and anticipates that the remainder will be
completed during fiscal 1998. Management believes that the reserves
established for closed store operating leases and other store closing costs at
November 30, 1997 are sufficient and that the store closings will result in
improved profitability and cash flow from store operations.
Results of Operations
- ---------------------
Three Months Ended February 28, 1998 versus Three Months Ended February 28,
1997
Total revenues increased 34% to $3,730,000 in the first quarter 1998 from
$2,774,000 in the prior year quarter. This increase was driven primarily by
the increase in Company-owned store revenues which were $620,000 greater than
that generated in the year-ago quarter. The Company ended the quarter with
27 Company-owned units as compared to 22 at February 28, 1997. Royalty fees
from franchised stores increased to $788,000 in the first quarter of fiscal
1998 from $406,000 in the year-ago quarter principally due to the addition of
the 60 MFM franchised units in May 1997. This 94% increase in royalty
revenues is a result of the increase in the number of franchised store open
for operation -- 185 at February 28, 1998 versus 107 at February 28, 1997, an
increase of 73%. Franchise and area development fee revenue remained
relatively flat from the year-ago period. Finally, licensing fees and other
income increased 67% from the first quarter of fiscal 1997 as the Company
continued to develop various nontraditional channels of distribution,
including commissions received on the sale of Brewster's Coffee to its
franchisees and licensees, fees paid by Host Marriott licensed units based on
retail sales, and commissions received from a third party commercial baker on
sales of par-baked Big Apple Bagels to all licensed units.
Costs associated with Company-owned store operations increased relative to
sales in the first quarter 1998 versus 1997 -- 96% of store sales in 1998
versus 92% in 1997. Management attributes this increase to the results of
operations of stores which were closed during the first quarter. Company-
owned stores which were closed during the first quarter of 1998 generated
operating losses of over $90,000 and required significant attention of
management, a cost which is not factored into this amount. Management
believes that the closure of the Southern California and other unprofitable
stores will result in a continued improvement in the profitability of Company-
owned store operations.
Selling, general and administrative expenses increased by $391,000 to
$1,501,000. Payroll-related expenses increased by $133,000 and represent 43%
of the total increase in administrative overhead. This is attributable to the
overall increase in headcount associated with the acquisition of MFM. While
payroll costs have increased over the year-ago quarter, the Company has
decreased its headcount at the corporate headquarters from its fiscal year-end
of November 30, 1997 from 54 to 40 at February 28, 1998. Depreciation and
amortization increased by 35% due to the significant increase in Company-owned
store depreciation and amortization and the amortization of intangible assets
acquired including goodwill, franchise contract and other contract rights,
non-competition agreements, and trademarks acquired in the Company's various
acquisitions. Other selling, general and administrative expenses increased
66% due to the increase in office space at the corporate headquarters as well
as insurance and other expenses associated with the support of the increased
corporate headcount.
Loss from operations was $105,000 in the first quarter of fiscal 1998 versus
income from operations of $5,000 generated in the first quarter of fiscal
1997. Excluding losses generated from stores closed during the quarter, the
loss from operations is $14,000 in the quarter ended February 28, 1998. While
there was no significant change in interest income generated between the two
quarters, interest expense increased by $47,000 as a result of the borrowings
on the Company's credit facility.
The net loss totaled $133,000 in the quarter ended February 28, 1998 versus
net income of $25,000 in the year-ago quarter. Preferred dividends on the
Preferred Stock of $51,000 were accumulated during the first quarter of 1998.
The Preferred Stock was issued in April 1997.
Net loss per share for the quarter ended February 28, 1998 was $0.02 per share
on both a basic and diluted basis. The Company's earnings per share for the
year-ago quarter was less than $0.01.
Liquidity and Capital Resources
- -------------------------------
During the three months ended February 28, 1998, cash used in operating
activities was $370,000 as compared with $116,000 provided by operating
activities during the comparable last year period. Cash used in operating
activities was attributable an to increase in accounts receivable and a
decrease in accounts payable.
Investing activities provided $90,000 during the first quarter 1998 and is
primarily attributable to the collection of a note receivable from a
franchisee. Cash used for investing activities during the first quarter 1997
totaled $1,456,000 of which $997,000 was used in the purchase of property,
plant and equipment related to new Company-owned store construction.
Financing activities during the first quarter 1998 totaled $328,000 and
primarily represented additional borrowings made on the Company's Credit
Facility to fund cash used in operating activities. Financing activities used
$8,000 in the year-ago quarter. At February 28, 1998, the Company had
borrowed $1,995,000 on the Credit Facility which is due on December 31, 1998
and the balance is classified as a current liability. The Company is
currently in the process of renewing the line of credit with the bank and
transferring a portion of the borrowings to a secured note payable.
In February 1998, the Company fell below the compensating cash balance
requirement of $250,000 and obtained a waiver from the bank to lower the
requirement to $150,000 for 60 days expiring on April 25, 1998. Management
believes that the closure of underperforming stores, the results of
the negotiations of four of the seven closed store operating leases,
commitments obtained on the sale of equipment at closed stores, increased
collection efforts and reductions in headcount at the corporate headquarters
have positively impacted the conditions necessary for improved cash flow from
operations. Additionally, management believes that the Company will continue
to remain in compliance with covenants on its Credit Facility and will
successfully negotiate a renewal or restructuring of the Credit Facility on
terms favorable to the Company.
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 16, 1996, the Company filed an arbitration action against a
franchisee alleging breach of its franchise agreement for refusal to submit
required sales reports and pay royalty fees and contributions to the national
marketing fund. The franchisee filed suit in the Circuit Court of Cook County,
Illinois against the Company and its officers and directors on April 19, 1996.
The franchisee alleged that the Company misrepresented the initial investment
required to establish a store and made untrue and unauthorized earnings claims
in violation of the Illinois Franchise Disclosure Act. Plaintiffs sought
rescission of the franchise agreement, damages of $600,000 and punitive
damages in the amount of $6,000,000. On May 28, 1996, management filed a
motion to stay litigation in order to compel the plaintiffs to have their
claims heard in arbitration as required by the provisions of the franchise
agreement. The hearing was held over seven days and resulted in an award in
favor of the Company. In January 1998, the Company was awarded all past due
royalty fees and amounts owed to the national marketing fund plus accrued
interest thereon and the franchisees counterclaim was rejected. The Company
is in the process of enforcing the award in court.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The Company has received notice from Nasdaq that the Company's stock price is
not in compliance with the new minimum bid price requirement. The Company has
until June 24, 1998 in order to regain compliance with this requirement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
EXHIBITS
The following exhibits are filed herewith.
Exhibit No. Exhibit Description
- ----------- -------------------------------------------------------------
[i] 2.1 Asset Purchase Agreement dated February 2, 1996
between the Company, Brewster's Coffee Company, Inc.
and Peter D. Grumhaus
[ii] 2.2a Asset Purchase Agreement by and among BAB Systems,
Inc., Bagels Unlimited, Inc.(''BUI''), and Donald Nelson
and Mary Ann Varichak dated May 1, 1996
[ii] 2.2b Non-Competition Agreement by and among the Company and
Donald Nelson and Mary Ann Varichak dated May 1, 1996
[ii] 2.2c Stock Option Agreement between the Company and BUI
dated May 1, 1996
[ii] 2.2d Registration Rights Agreement between the Company
and BUI dated May 1, 1996
[iii] 2.3a Asset Purchase Agreement by and between the Company
and Strathmore Bagels Franchise
Corp. (''Strathmore'') dated May 21, 1996
[iii] 2.3b Stock Option Agreement dated May 21, 1996 between
the Company and Strathmore
[iii] 2.3c Registration Rights Agreement dated May 21, 1996
between the Company and Strathmore
[iii] 2.3d Non-Competition Agreement dated May 21, 1996 among
the Company, Strathmore, Jack Freedman and Glen Steuerman
[iii] 2.3e Memorandum of Understanding Regarding Form of
License Agreement effective November 30, 1995,
between Strathmore and Host International, Inc.
[iii] 2.3f Consent to Assignment between Strathmore and Host
International, Inc., dated March 13, 1996,
as amended May 21, 1996
[iv] 2.4a 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 Ilona Stern
[iv] 2.4b Registration Rights Agreement dated as of May 1,
1997 between BAB Holdings, Inc., and
Owen Stern, Ruth Stern, Ilona Stern and Pierce W.
Hance.
[v] 3.1a Amended Articles of Incorporation of the Company
[vii] 3.1b Amended and Restated Statement of Designation,
Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock as filed with
the Secretary of State of Illinois on March 26, 1997
[v] 3.2 Bylaws of the Company, as amended
[v] 4.1 Form of Stock Certificate evidencing Common Stock,
no par value
[v] 4.2 Subscription Agreement with the Aladdin
International, Inc. dated August 31, 1995
[v] 4.3 Amended Form of Warrant Issued to Aladdin
International, Inc.
[v] 10.1 Form of Franchise Agreement
[v] 10.2 Form of Franchise Agreement-Satellite
[v] 10.3 Form of Franchise Agreement-Wholesale
[v] 10.4 Form of Area Development Agreement
[v] 10.5 Confidentiality and Non-Competition Agreement with
Franchisees
[v] 10.6 Form of Confidentiality Agreement with Employees
[v] 10.7 Licensing Agreement dated November 20, 1992 between
the Company and Big Apple Bagels, Inc.
[v] 10.8 Assignment of Royalty Mark & Trademark to the
Company by Big Apple Bagels, Inc. dated November 20, 1992
[v] 10.9 Agreement dated September 14, 1995 among the
Company, Big Apple Bagels, Inc. and Paul C. Stolzer
[i] 10.10 Consulting agreement dated February 16, 1996 between
Paul C. Stolzer and BAB Holdings, Inc.
[v] 10.11 Leases dated November 2, 1994 and February 14, 1995
for principal executive office
[v] 10.12 1995 Long-Term Incentive and Stock Option Plan
[v] 10.13 1995 Outside Directors Stock Option Plan
[v] 10.14 Settlement Agreement with Timothy Williams d/b/a Big
Apple Deli and Stipulated Dismissal with Prejudice
[i] 10.15 Program Agreement dated February 10, 1997 between
BAB Systems, Inc. a wholly owned subsidiary of
the Company, and Franchise Mortgage Acceptance
Company LLC
[iv] 10.16 Employment agreement between the Company and Owen
Stern dated May 8, 1997
___________________________________________
[i] Incorporated by reference to the Company's Report on Form 10-KSB for
the fiscal year ended November 30, 1995
[ii] Incorporated by reference to the Company's Report on Form 8-K dated
May 1, 1996
[iii] Incorporated by reference to the Company's Report on Form 8-K
dated May 21, 1996
[iv] Incorporated by reference to the Company's Report on Form 8-K dated
May 13, 1997
[v] Incorporated by reference to the Company's Registration Statement on
Form SB-2, effective November 27, 1995 (Commission File No. 33-98060C)
[vi] Incorporated by reference to the Company's Report on Form 10-KSB for
the fiscal year ended November 30, 1996
[vii] Incorporated by reference to the Company's Report on Form 10-QSB
for the quarter ended February 28, 1997
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BAB HOLDINGS, INC.
Dated: April 14, 1998 By: /s/ TOM J. FLETCHER
-------------------
Tom J. Fletcher
Chief Operating Officer
(Principal operating officer and
accounting and financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF BAB HOLDINGS, INC. FOR THE
THREE MONTH PERIOD ENDED FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 438,288
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,082,182
<PP&E> 4,725,484
<DEPRECIATION> 1,084,891
<TOTAL-ASSETS> 14,602,090
<CURRENT-LIABILITIES> 6,055,217
<BONDS> 25,082
0
1,890,268
<COMMON> 12,281,644
<OTHER-SE> (5,650,121)
<TOTAL-LIABILITY-AND-EQUITY> 14,602,090
<SALES> 2,427,150
<TOTAL-REVENUES> 3,729,840
<CGS> 820,614
<TOTAL-COSTS> 3,835,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,696
<INCOME-PRETAX> (132,959)
<INCOME-TAX> 0
<INCOME-CONTINUING> (132,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (183,655)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
