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Previous: HEMISPHERX BIOPHARMA INC, 8-K, 2000-07-12 |
Next: MUNICIPAL INVESTMENT TR FD INTERM TERM SER 313 DEF ASSET FDS, 485BPOS, 2000-07-12 |
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: May 28, 2000 |
| [ ] | 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.
(Name of small business issuer in its charter)
Illinois |
36-3857339 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer 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
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 __
As July 6, 2000, BAB Holdings, Inc. had : 2,237,557 shares of Common Stock outstanding.
TABLE OF CONTENTS
| PART I | |
| Item 1. | Financial Information |
| 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 INFORMATION |
BAB Holdings, Inc. Condensed Consolidated Balance Sheet
May 28, 2000
(Unaudited)
| ASSETS | |
| Current assets | |
| Cash and cash equivalents, including restricted cash of $ 153,668 | $ 365,924 |
| Receivables | |
| Accounts receivable, net of allowance for doubtful accounts of $898,339 | 943,004 |
| National Marketing Fund contributions receivable from franchisees and stores | 366,837 |
| Notes receivable, net of allowance for doubtful accounts of $201,000 | 376,297 |
| Inventory | 218,429 |
| Assets held for sale | 1,068,736 |
| Prepaid and other current | 349,476 |
| Deferred income taxes | 530,005 |
| -------------- | |
| Total current assets | 4,218,708 |
| -------------- | |
| Property and equipment, net of accumulated depreciation of $1,753,939 | 1,671,075 |
| Notes receivable | 457,806 |
| Patents, trademarks and copyrights, net of accumulated amortization of $226,257 | 943,254 |
| Goodwill, net of accumulated amortization of $267,177 | 2,476,087 |
| Franchise contract rights, net of accumulated amortization of $319,477 | 1,764,488 |
| Other, net of accumulated amortization of $330,253 | 478,967 |
| ---------------- | |
| Total Assets | $ 12,010,385 |
| ========= | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities | |
| Accounts payable | $ 745,198 |
| Accrued liabilities | 933,867 |
| Liability for store conversions | 113,736 |
| Accrued professional and other services | 196,584 |
| Unexpended National Marketing Fund contributions | 604,679 |
| Current portion of long-term debt | 1,464,021 |
| Deferred franchise fee revenue | 179,475 |
| -------------- | |
| Total current liabilities | 4,237,560 |
| -------------- | |
| Noncurrent liabilities | |
| Deferred revenue | 339,334 |
| Deferred income taxes | 350,005 |
| Long-term debt, net of portion included in current liabilities | 1,161,959 |
| -------------- | |
| Total noncurrent liabilities | 1,851,298 |
| -------------- | |
| Stockholders' Equity | |
| Common stock | 13,507,669 |
| Additional paid-in capital | 1,187,696 |
| Treasury stock | (43,963) |
| Accumulated deficit | (8,729,875) |
| ---------------- | |
| Total stockholders' equity | 5,921,527 |
| ---------------- | |
| Total Liabilities and Stockholders' Equity | $ 12,010,385 |
| ========= |
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
| 3 months ended | 6 months ended | |||
| May 28, 2000 | May 31, 1999 | May 28, 2000 | May 31, 1999 | |
| REVENUES | ||||
| Net sales by Company-owned stores | $ 2,323,088 | $ 2,744,937 | $ 4,588,480 | $ 4,831,024 |
| Royalty fees from franchised stores | 770,343 | 770,299 | 1,522,439 | 1,585,379 |
| Licensing fees and other income | 275,657 | 272,001 | 521,394 | 509,274 |
| Franchise and area development fees | 31,468 | 79,000 | 270,868 | 209,500 |
| ------------ | ------------ | ------------ | ------------ | |
| TOTAL REVENUES | 3,400,556 | 3,866,237 | 6,903,181 | 7,135,177 |
| ------------ | ------------ | ------------ | ------------ | |
| OPERATING COSTS AND EXPENSES | ||||
| Food, beverage, and paper costs | 722,632 | 800,748 | 1,378,472 | 1,505,555 |
| Store payroll and other operating expenses | 1,523,572 | 1,787,151 | 3,083,615 | 2,983,504 |
| Selling, general, and administrative expenses | ||||
| Payroll-related | 517,793 | 658,305 | 1,024,243 | 1,211,484 |
| Occupancy | 123,595 | 100,628 | 206,946 | 162,442 |
| Advertising and promotion | 71,928 | 70,766 | 124,745 | 148,480 |
| Professional service fees | 85,651 | 62,287 | 164,506 | 167,382 |
| Franchise-related expenses | 10,553 | 38,648 | 29,395 | 94,056 |
| Depreciation and amortization | 243,683 | 338,097 | 489,037 | 630,545 |
| Travel | 33,615 | 52,849 | 67,595 | 107,868 |
| Other | 194,371 | 95,766 | 374,134 | 328,352 |
| ------------ | ------------ | ------------ | ------------ | |
| Total Operating Costs and Expenses | 3,527,393 | 4,005,245 | 6,942,688 | 7,339,668 |
| ------------ | ------------ | ------------ | ------------ | |
| ( Loss) before interest | (126,837) | (139,008) | (39,507) | (204,491) |
| Interest expense | ( 85,505) | ( 92,510) | ( 168,061) | (131,532) |
| Interest income | 17,727 | 66,668 | 33,608 | 97,767 |
| ------------ | ------------ | ------------ | ------------ | |
| Net (loss) | (194,615) | (164,850) | (173,960) | (238,256) |
| Preferred stock dividends accumulated | - | ( 31,397) | - | (77,096) |
| ------------ | ------------ | ------------ | ------------ | |
| Net (loss) attributable to common shareholders | $ (194,615) | $ (196,247) | $(173,960) | $ (315,352) |
| Basic and diluted loss per common share | ($ 0.09) | $ (0.14) | ($ 0.08) | $ (0.22) |
| ------------ | ------------ | ------------ | ------------ | |
| Average number of shares outstanding- basic and diluted | 2,237,557 | 1,419,051 | 2,237,557 | 1,406,774 |
| ======== | ======== | ======== | ======== | |
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
6 months ended |
| May 28, 2000 | May 31, 1999 | |
| Cash Flows from Operating Activities | ||
| Net income (loss) | $ (173,960) | $ (238,256) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||
| Depreciation and amortization | 489,037 | 630,545 |
| (Increase) decrease in | ||
| Trade accounts receivable | 163,006 | (434,658) |
| National Marketing Fund contributions receivable | 48,480 | (130,920) |
| Inventories | 75,409 | (56,442) |
| Deferred franchise costs | - | 6,640 |
| Notes receivable | (155,000) | 122,942 |
| Prepaid expenses and other assets | (72,758) | ( 29,724) |
| Increase (decrease) in | ||
| Accounts payable | (194,588) | 159,743 |
| Accrued professional and other services | ( 32,569) | - |
| Reserve for closed store expenses | (54,984) | - |
| Accrued liabilities | 102,304 | |
| Unexpended National Marketing Fund franchisee contributions | 60,052 | 174,471 |
| Jacobs Bros. non-compete agreement | (44,000) | - |
| Deferred franchise fee revenue | (88,025) | ( 53,500) |
| Other | 29,545 | ( 4,013) |
| ---------- | ---------- | |
| Total Adjustments | 325,907 | 385,084 |
| ---------- | ---------- | |
| Net Cash Provided by Operating Activities | 151,947 | 146,828 |
| Cash Flows from Investing Activities | ||
| Purchases of property and equipment | (21,137) | (293,260) |
| Collection of notes receivable | 207,941 | 18,289 |
| Sale of property and equipment | 189,321 | |
| Sale of assets held for sale | 255,000 | |
| Other | (161,416) | |
| ---------- | ---------- | |
| Net Cash Provided (Used in) Investing Activities | 631,125 | ( 436,387) |
| Cash Flows from Financing Activities | ||
| Debt repayments | (442,935) | (323,925) |
| Borrowings | - | 180,453 |
| Other | (5,034) | ( 7,897) |
| ---------- | ---------- | |
| Net Cash (Used in) Financing Activities | (447,969) | (151,369) |
| ---------- | ---------- | |
| Net Increase (Decrease) in Cash and Cash Equivalents | 335,103 | (440,928) |
| Cash and Cash Equivalents, Beginning of Year | 30,818 | 700,162 |
| Cash and Cash Equivalents, End of Quarter | 365,921 | 259,234 |
| ====== | ====== |
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
BAB Holdings, Inc. (the Company) is an Illinois corporation incorporated on November 25, 1992. The Company has 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. Systems has a wholly owned subsidiary, Systems Investments, Inc. (Investments), which was created to operate the first Company-owned "Big Apple Bagels" store which, until December 1995, also operated as the franchise training facility. Investments also owned a 50% interest in a joint venture which operated a franchise satellite store. During fiscal 1997, the stores operated by Investments and by the joint venture were sold and are currently operating as franchised stores. As of November 1998, Investments was dissolved and merged into the parent company, Systems. Operations was formed on August 30, 1995, primarily to operate Company-owned stores, currently "Big Apple Bagels" and "Brewster's Coffee" concept stores including one which currently serves as the franchise training facility. BFC was established on February 15, 1996, to franchise "Brewster's Coffee" concept coffee stores. MFM, a New Jersey corporation, was acquired on May 13, 1997. MFM franchises and operates Company-owned "My Favorite Muffin" concept muffin stores. The assets of Jacobs Bros. Bagels (Jacobs Bros.) were acquired on February 1, 1999. See Note 8. The Company continues to operate four stores with the Jacob Bros. name. 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 statements 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 at May 28, 2000 are as follows:
| Stores opened: | ||
| Company-owned | 18 | |
| Franchisee-owned | 172 | |
| Licensed | 57 | |
| ---- | ||
| Total | 247 |
3. Special Charge
During the fourth quarter of 1999, the Company made the decision to refranchise certain Company-owned stores, in order to concentrate on franchising and marketing and building equity in the branding of its trademarked names and products. The Company-owned stores, which were to be converted to franchised units were written down to fair value based upon actual selling prices or, if not sold prior to year-end, upon management's judgment based upon the previous sale of such assets. Management's judgment is inherent in the estimated fair value determinations and, accordingly, actual results could vary significantly from such estimates. The estimated fair value of the remaining assets to be sold totaled $1,191,236 and was recorded as a current asset as of May 28, 2000. The actual and planned conversions resulted in a pre-tax loss of $1,600,406 during the fourth quarter of 1999. As of May 28, 2000, $113,736 of the charge, primarily for severance and lease termination costs, remains as a liability for store conversions.
4. Preferred Stock - Series A Convertible Preferred Stock
On October 21, 1999 the remaining 60,000 shares of the Company's Series A convertible preferred stock plus accumulated dividends were converted in accordance with the terms of the preferred stock to an aggregate of 818,491 shares of common stock by the holder of the preferred stock, Holdings Investments, LLC an Illinois limited liability company (the "LLC"). (See Schedule 13D filed on behalf of the LLC on October 29, 1999.) No cash or other consideration was required or paid in connection with the conversion. The Common Stock was issued to one investor (the LLC) in a non-public offering in reliance on Section 4(2) of the Securities Act of 1933.
5. Line of Credit Agreement
The Company had a secured $1.75 million line-of-credit facility (Line) with a bank which expired December 31, 1999. Maximum borrowing under the Line was limited to 75% of accounts receivable under 90 days and 40% of original cost of equipment, furniture and fixtures. Interest was payable monthly at prime plus 1% with principal due upon maturity on December 31, 1999. In December 1999, the Company entered into a new bank credit facility for $1.5 million. This new credit line is secured by substantially all of the assets of the Company excluding those acquired through the Jacobs Bros. acquisition. Maximum borrowing terms under the Line are identical to the previously expired agreement. The interest rate on this new line of credit is prime plus 4% (13.50% at May 28, 2000). As of May 28, 2000, the Company had borrowed $1,296,000 on the Line. The new Line expires on July 29, 2000, however, it is management's expectation that this agreement will be renewed by the bank or that a similar arrangement with another lender will be concluded.
6. Notes Payable
In June 1999, the Company obtained an amortizing loan in the amount of $170,000 from a finance company. Proceeds were used to purchase two stores from a franchisee in Wisconsin. In February 1999, the Company obtained a series of amortizing loans in the amount of $1,350,000 from a finance company. Loan proceeds were used to purchase certain assets of Jacobs Bros. Bagels, equipment and fund remodeling required on the units acquired in the purchase.
7. Earnings (Loss) per Share
The following tables sets forth the computation of basic and diluted loss per share:
| 3 months ended | 6 months ended | |||
May 28, 2000 |
May 31, 1999 |
May 28, 2000 |
May 31, 1999 |
|
| Numerator | ||||
| Net income (loss) | $ (194,615) | $ (164,850) | $ (173,960) | $ (238,256) |
| Preferred stock dividend accumulated | (31,397) | (77,096) | ||
| ----------- | -------------- | ----------- | -------------- | |
| Numerator for basic and diluted losss per share - loss attributable to common shareholders | $ (194,615) | (196,247) | $ (173,960) | (315,352) |
| Denominator | ||||
| Denominator for basic and diluted loss per share - weighted average shares | 2,237,557 | 1,419,051 | 2,237,557 | 1,406,774 |
| Basic and diluted loss per share | $ (0.09) | $ (0.14) | $ (0.08) | $ (0.22) |
Options to purchase 77,648 shares of common stock at varying prices are outstanding at May 28, 2000 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 May 28, 2000 was a warrant sold in connection with the Company's initial public offering to the underwriter to purchase 42,498 shares of common stock at $19.20 per share. Additionally, in connection with various acquisitions, the Company issued options to purchase 83,333 shares of common stock issuable at varying exercise prices ranging from $7.50 per share to $9.00 per share. Further, a warrant issued to the placement agent of the Preferred Stock to purchase 2,219 shares of common stock at $19.74 per share was outstanding. The exercise of options and warrants outstanding during the quarters ended May 28, 2000 and May 31, 1999 and the conversion of convertible securities outstanding during the quarter ended May 31, 1999 is not assumed as the result is antidilutive to the reported loss per share.
8. Acquisitions and Dispositions
During the first half of fiscal 2000, the Company sold six stores identified as part of the restructuring described in Note 3 above. The stores were sold at or near their estimated fair market value as determined in the fourth quarter of 1999. Consequently, the sale of the stores had no material impact on earnings. The Company-owned stores were converted to franchised units. During the fourth quarter of 1999, the Company acquired a store from a franchisee as consideration for forgiveness of a note receivable. The Company operated the store until it was sold during the first quarter of fiscal 2000. In addition, the Company accepted a prepayment at a discount on a note receivable during the first quarter of 2000. The notes receivable were adequately reserved for and, consequently, the transactions had no impact on earnings. On February 1, 1999, the Company purchased certain assets of a related group of entities doing business as Jacobs Bros. Bagels (Jacobs Bros.), a chain operating retail bagel stores in the Chicago, Illinois area. The assets acquired include eight retail locations and a central commissary facility in exchange for $950,000 in cash and warrants to acquire 83,333 shares of the Company's common stock. The warrants provide for the purchase of 45,833 shares and 37,500 shares of common stock at an exercise price of $7.50 and $9.00 per share, respectively. The warrants are first exercisable on February 1, 2000 and expire on January 31, 2006. None of the warrants were exercised as of May 28, 2000. Further, the Company entered into noncompetition agreements with two principals of Jacobs Bros. totaling $210,000 to be paid over varying periods. Finally, the Company issued 26,666 shares of the Company's common stock to the investment banker for services in connection with the acquisition, valued at $140,000.
| 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 wholly or partially 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; consumer acceptance of the Company's products in new and existing markets; fluctuation in development and operating costs; brand awareness; availability and terms of capital; adverse publicity; acceptance of new product offerings; availability of locations and terms of sites for store development; food, labor and employee benefit costs; changes in government regulation (including increases in the minimum wage; regional economic and weather conditions; the hiring, training, and retention of skilled corporate and restaurant management; and the integration and assimilation of acquired concepts. Accordingly, 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
The Company was started in November 1992, and now includes 18 Company-owned stores and 239 franchised and licensed units at May 28, 2000. Units in operation at May 31, 1999 included 26 Company owned stores and 253 franchised and licensed units. System-wide revenues in the first six months of fiscal 2000 reached $37.5 million compared to $39.5 million in the year ago period. 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 derives revenue from the sale of licensed products as a result of purchasing trademarks (My Favorite Muffin and Brewster's) and licensing contracts (licenses with Host Marriott), and by directly entering into licensing agreements (Mrs. Fields Cookies). The increase in overall revenues has reduced the dependence on the initial franchise fees as a source of income. During the fourth quarter of fiscal 1999, management identified thirteen under-performing stores which were operating at a loss and which, based on the estimated future cash flows, were considered to be impaired. 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 $1,600,000. Approximately $1,236,000 represents a noncash write-down of property and equipment, $113,000 is related to the write down of intangible assets and the remainder represents a reserve for severance and other costs. One store was closed and one store was sold during fiscal 1999, while six stores were sold during the first six months of fiscal 2000. The remaining five stores are expected to be sold during the latter half of fiscal year 2000. In addition the Company wrote down and reserved $1,044,000 of franchise-related receivables pertaining to closed stores. Despite the increase in both franchise and licensed operations and the acquisition of Jacobs Bros., the Company has controlled expenses in payroll, occupancy and overhead costs in the corporate offices. At May 28, 2000, the Company had 32 employees at the corporate level who oversee operations of the franchise, licensed and Company-owned store operations, down from 43 at May 31, 1999. Selling, general and administrative expenses, net of depreciation and amortization, are significantly below the first half of fiscal 1999 both as a percentage of revenue and also in absolute dollars. Efficiencies have resulted in selling, general and administrative expenses, net of depreciation and amortization, decreasing to 28.8% in 2000 compared to 31.1% in 1999. On an absolute basis, selling, general and administrative expenses, net of depreciation and amortization, were $229,000 lower in 2000 than in 1999. Management expects that these costs, as a percentage of revenue, will continue to decline as additional franchise and non-traditional sources of revenue are added. The Company believes it is in a position to continue to leverage selling, general and administrative expenses against increased revenues anticipated in the second half of fiscal 2000.
Results of Operations
Three Months Ended May 28, 2000 versus Three Months Ended May 31, 1999.
Total revenues decreased 12% to $3,401,000 in the second quarter 2000 from $3,866,000 in the prior year quarter. Net sales by Company stores totaled $2,323,000 during the second quarter of fiscal 2000 compared to $2,745,000 in the second quarter of fiscal 1999. The change in company store sales relates to the number of stores in operation. The number of Company stores in operation in the three months ended May 28, 2000 were 18 stores in operation for the full three months and 2 additional stores open for varying portions of the three month period. For the three months ended May 31, 1999 there were 26 stores owned and operated for 3 months. Royalties, licensing fees and other income in total remained at essentially the same level increasing by .4% versus the year-ago period. Finally, franchise and area development fee revenue decreased 60% to $31,000 from the year-ago period because of the timing of store openings and international deals. Costs associated with Company-owned store operations as a percentage of sales increased 2% in the first quarter 2000 versus 1999. However, stores that have been identified as part of the restructuring program contributed a combined loss of $74,000 for the most recent quarter ended. On an absolute basis, selling, general and administrative expenses net of depreciation and amortization were $42,000 lower in 2000 than in 1999. Loss from operations was ($127,000) in the second quarter of fiscal 2000 versus a loss of ($139,000) generated in the prior year period. Interest expense decreased to $85,000 from $93,000 in the year ago period as the Company continues to reduce its borrowings under its line of credit. Net loss was ($195,000) in the quarter ended May 28, 2000 versus a loss of ($165,000) in the year-ago quarter. Dividends on the Preferred Stock of $31,000 were accumulated during the year ago period. Net loss per share for the quarter ended May 28, 2000 was ($0.09) versus a loss per share for the year-ago quarter of ($0.14) on both a basic and diluted basis. Average shares outstanding increased by 819,000 shares due to the conversion of 60,000 shares of Preferred Stock to 818,000 shares of Common Stock on October 21, 1999.
Six Months Ended May 28, 2000 versus Six Months Ended May 31, 1999
Total revenues decreased 3% to $6,903,000 in the first half of fiscal 2000 from $7,135,000 in the prior year period. Net sales by Company stores totaled $4,588,000 during the second quarter of fiscal 2000 compared to $4,831,000 in the second quarter of fiscal 1999. The change in company store sales relates to the number of stores in operation. The number of Company stores in operation in the six months ended May 28, 2000 were 18 stores in operation for the full six months and 6 additional stores open for varying portions of the six month period. For the six months ended May 31, 1999 there were 18 stores owned and operated for six months and 8 additional stores open for four months of the six month period. Royalties are 4% lower in 2000 due primarily to the number of franchised stores in operation for the six months of 2000 versus fiscal 1999. Licensing fees and other income in total increased $12,000 to $521,000 from the year-ago period as the Company continues to leverage its three strong brands. Finally, franchise and area development fee revenue increased 29% to $271,000 from the year-ago period because of the timing of store openings and international deals. Costs associated with Company-owned store operations as a percentage of sales increased 4% in the first six months of fiscal 2000 versus 1999. However, stores that have been identified as part of the restructuring program contributed a combined loss of $175,000 for the most recent six month period. On an absolute basis, selling, general and administrative expenses net of depreciation and amortization were $229,000 lower in 2000 than in 1999. While on a percentage basis, S,G&A expenses net of depreciation and amortization were at 28.8% in 2000 versus 31.1% in 1999. Loss from operations was ($40,000) in the six months of fiscal 2000 versus a loss of ($204,000) generated in the prior year period. Interest expense increased to $168,000 from $132,000 in the year ago period as the Company increased its long term debt to finance the purchase of the Jacobs Bros. assets in February 1999. This is partially mitigated as the Company continues to reduce its borrowings under its line of credit. Net loss was ($174,000) in the six months ended May 28, 2000 versus a loss of ($238,000) in the year-ago period. Dividends on the Preferred Stock of $77,000 were accumulated during the year ago period. Net loss per share for the six months ended May 28, 2000 was ($0.08) versus a loss per share for the year-ago period of ($0.22) on both a basic and diluted basis. Average shares outstanding increased by 831,000 shares due to the conversion of 60,000 shares of Preferred Stock to 818,000 shares of Common Stock on October 21, 1999.
Liquidity and Capital Resources
The net cash provided by operating activities totaled $152,000 during the first six months of fiscal 2000. Cash provided represents the net loss, adjusted for depreciation and amortization of $489,000, and is offset principally by an increase in notes receivable of $155,000, a decrease in accounts payable of $195,000 and a decrease in deferred franchise fee revenue of $88,000. Accounts receivable and inventories were reduced by $163,000 and $75,000. The net cash provided in operating activities in the year-ago quarter totaled $147,000. Investing activities provided $631,000 during the six months ended May 28, 2000, and consisted of sales of Company stores and collection of notes receivable. In the year ago period, investing activities used $436,000 because of the Jacobs Bros. acquisition. Cash used in financing activities was $448,000 during the six months ended May 28, 2000 and relates to repayments under the Company's Line of Credit and other borrowings. During the period ended May 31, 1999, cash used by financing activities of $151,000 relates primarily to debt repayments offset by the borrowings received to finance the Jacobs Bros. acquisition. The net increase in cash and equivalents was $335,000 in fiscal 2000 versus a decrease in cash and equivalents of $441,000 in the period ended May 31, 1999.
PART II
| ITEM 1. | LEGAL PROCEEDINGS |
A legal dispute exists between BAB Operations, Inc., a subsidiary of the Company, and the landlord of a Big Apple Bagels store in Cincinnati, Ohio. The landlord claims that BAB Operations is in default under the lease. BAB Operations denies the allegations and has countersued for reimbursement of capital improvements made by it which it claims were the landlord's responsibility.
| ITEM 2. | CHANGES IN SECURITIES |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The following matters were voted upon at the registrant's annual meeting of shareholders held on May 11, 2000. Each of the proposals passed.
1. Election of directors (Management's nominees):
| For | Withheld | Broker non-vote | |
| Michael W. Evans | 1,961,963 | 31,638 | |
| Michael K. Murtaugh | 1,962,363 | 31,238 | |
| David L. Epstein | 1,962,596 | 31,005 | |
| Robert B. Nagel | 1,962,480 | 31,121 |
2. Amendment of the 1995 Long-Term Incentive and Stock Option Plan to increase the number of shares authorized for issuance under the Incentive Plan from 165,833 to 275,000.
| For | 1,790,131 |
| Against | 128,937 |
| Abstain | 10,262 |
| Non-Vote | 0 |
3. Appointment of Blackman Kallick Bartlestein, LLP as independent auditors for the fiscal year ended November 26, 2000.
| For | 1,973,520 |
| Against | 15,051 |
| Abstain | 5,030 |
| Non-Vote | 0 |
| ITEM 5. | OTHER INFORMATION |
On May 4, 2000 the Company announced that it entered into a merger agreement with Planet Zanett Corporate Incubator. The merger agreement is omitted and will be supplied to the commission upon request.
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K |
None.
EXHIBITS
The following exhibits are filed herewith.
Exhibit No. |
Description of Exhibit |
| [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. |
| [viii] | 2.5a | Letter of intent to merge with Planet Zanett Corporate Incubator |
| 2.5b | Merger agreement with Planet Zanett Corporate Incubator dated May 4, 2000 | |
| [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
[viii] Incorporated by reference to the Company's Report on Form 10-QSB for the quarter ended February 27, 2000
INDEX TO EXHIBITS INDEX NUMBER DESCRIPTION
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: July 7, 2000 | /s/ MARK E. MAJEWSKI |
| Mark E. Majewski | |
| Chief Financial Officer | |
EX-27.1
FINANCIAL DATA SCHEDULE 5 THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF BAB HOLDINGS, INC. FOR THE SIX MONTH PERIOD ENDED MAY 28, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
| <PERIOD-TYPE> | 6-MOS | |
| <FISCAL YEAR-END> | NOV-26-2000 | |
| <PERIOD-START> | NOV-29-1999 | |
| <PERIOD-END> | MAY-28-2000 | |
| <CASH> | 365,924 | |
| <SECURITIES> | ||
| <RECEIVABLES> | 1,841,343 | |
| <ALLOWANCES> | (898,339) | |
| <INVENTORY> | 218,429 | |
| <CURRENT ASSETS> | 4,218,708 | |
| <PP&E> | 3,425,014 | |
| <DEPRECIATION> | (1,753,939) | |
| <TOTAL-ASSETS> | 12,010,385 | |
| <CURRENT-LIABILITIES> | 4,237,560 | |
| <BONDS> | 2,625,980 | |
| <PREFERRED-MANDATORY> | ||
| <PREFERRED> | ||
| <COMMON> | 13,507,669 | |
| <OTHER-SE> | (7,586,142) | |
| <TOTAL-LIABILITY-AND-EQUITY> | 12,010,385 | |
| <SALES> | 4,588,480 | |
| <TOTAL-REVENUES> | 6,903,181 | |
| <CGS> | 1,378,472 | |
| <TOTAL-COSTS> | 6,942,688 | |
| <OTHER-EXPENSES> | ||
| <LOSS-PROVISION> | ||
| <INTEREST-EXPENSE> | 168,061 | |
| <INCOME-PRETAX> | (173,960) | |
| <INCOME-TAX> | ||
| <INCOME-CONTINUING> | (173,960) | |
| <DISCONTINUED> | ||
| <EXTRAORDINARY> | ||
| <CHANGES> | ||
| <NET-INCOME> | (173,960) | |
| <EPS-BASIC> | (0.08) | |
| <EPS-DILUTED> | (0.08) |
|
|