INDEPENDENT AUDITORS' REPORT
To the Stockholders
Bagels Unlimited, Inc.
Milwaukee, Wisconsin
We have audited the accompanying balance sheets of Bagels Unlimited, Inc. as of
February 29, 1996 and February 28, 1995 and the related statements of operations
and retained earnings (accumulated deficit) and cash flows for the periods then
ended. We have also audited the accompanying statements of operations and
retained earnings (accumulated deficit) and cash flows for the period since
inception (August 11, 1993) to February 28, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully discussed in Note 2, certain sales were not recorded by the
Company's accounting records at the time the transactions took place. Management
has estimated this amount to be approximately $29,000 which has been recorded in
the February 29, 1996 financial statements. Due to lack of supporting records
relating to the ultimate amount and timing of these sales, we were not able to
form an opinion on them.
In our opinion, except for the item noted in the preceding paragraph, the
financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of Bagels Unlimited, Inc. as of
February 29, 1996 and February 28, 1995 and the results of its operations and
its cash flows for the periods ending February 29, 1996, February 28, 1995, and
February 28, 1994 in conformity with generally accepted accounting principles.
/s/ Muehl, Steffes & Krueger, S.C.
Milwaukee, Wisconsin
June 13, 1996
BAGELS UNLIMITED, INC.
Balance Sheets
February 29, 1996 and February 28, 1995
(See Independent Auditors' Report)
ASSETS 1996 1995
- -------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Inventories $ 34,986 $ 15,497
Prepaid income taxes 6,242 --
Prepaid expenses 6,891 1,421
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 48,119 16,918
- -------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Construction in progress 2,530 59,320
Machinery and equipment 314,981 183,854
Leasehold improvements 358,527 239,427
- -------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTY AND EQUIPMENT 676,038 482,601
Less: Accumulated Depreciation and Amortization (97,845) (35,417)
- -------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 578,193 447,184
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Franchise fees net of accumulated amortization of
$11,084 and $4,230 as of February 29, 1996
and February 28, 1995 58,916 65,770
Organization costs net of accumulated amortization of $288
and $160 as of February 29, 1996 and February 28, 1995 1,630 1,758
Prepaid franchise fees 10,000 10,000
Deferred tax asset 28,000 --
Investment, at cost 3,500 3,500
Deposits 1,350 1,350
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 103,396 82,378
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 729,708 $ 546,480
===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
BAGELS UNLIMITED, INC.
Balance Sheets
February 29, 1996 and February 28, 1995
(See Independent Auditors' Report)
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Checks issued, but not yet presented for payment $ 2,027 $ 11,815
Line of credit 10,000 12,500
Notes payable 167,684 --
Due to franchiser 10,000 10,000
Due to officers 246,365 126,511
Accounts payable 291,266 159,069
Accrued liabilities 112,297 27,038
Accrued income taxes -- 9,248
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 839,639 356,181
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Deferred rent 16,348 9,685
Accrued interest -- 7,502
Notes payable -- 144,000
- -------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 16,348 161,187
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 855,987 517,368
- -------------------------------------------------------------------------------------------------------------------
LEASE COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 9,000 shares
authorized, 2,000 shares issued and outstanding 2,000 2,000
Stock subscription receivable (2,000) (2,000)
Retained earnings (accumulated deficit) (126,279) 29,112
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (126,279) 29,112
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY (DEFICIT) $ 729,708 $ 546,480
===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
BAGELS UNLIMITED, INC.
Statements of Operations and Retained Earnings
(Accumulated Deficit) For the years ended February 29,
1996 and February 28, 1995 and
for the period from inception (August 11, 1993) to February 28, 1994
(See Independent Auditors' Report)
===================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
SALES $ 2,746,415 $ 1,430,573 $ 92,719
COST OF SALES 2,338,541 1,111,214 72,855
- -------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 407,874 319,359 19,864
SELLING AND ADMINISTRATIVE EXPENSES 517,251 236,932 25,618
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (109,377) 82,427 (5,754)
INTEREST EXPENSE (79,123) (37,602) (1,326)
OTHER 109 837 30
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (CREDIT) (188,391) 45,662 (7,050)
INCOME TAXES (CREDIT) (33,000) 9,500 --
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (155,391) 36,162 (7,050)
- -------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (ACCUMULATED DEFICIT):
BALANCE - BEGINNING OF PERIOD 29,112 (7,050) --
- -------------------------------------------------------------------------------------------------------------------
BALANCE - END OF PERIOD $ (126,279) $ 29,112 $ (7,050)
===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
BAGELS UNLIMITED, INC.
Statements of Cash Flows For the
years ended February 29, 1996 and February 28, 1995 and
for the period from inception (August 11, 1993) to February 28, 1994
(See Independent Auditors' Report)
===================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (155,391) $ 36,162 $ (7,050)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 69,410 36,267 3,540
Deferred income taxes (credit) (28,000) -- --
Deferred rent 6,663 7,946 1,739
INCREASE (DECREASE) IN CASH DUE TO CHANGES IN:
Inventories (19,489) (8,248) (7,249)
Prepaid expenses (5,470) (1,421) --
Prepaid income taxes (6,242) -- --
Accounts payable 182,321 75,014 22,932
Accrued liabilities 77,757 27,212 7,328
Accrued income taxes (9,248) 9,248 --
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 112,311 182,180 21,240
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (243,561) (295,381) (126,097)
Cash paid for investment -- -- (3,500)
Deposit for leasehold improvements -- (26,599) 25,249
Payment of organizational costs -- -- (1,918)
Payment of franchise fees -- (52,500) (17,500)
- -------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (243,561) (374,480) (123,766)
- -------------------------------------------------------------------------------------------------------------------
(continued)
===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
BAGELS UNLIMITED, INC.
Statements of Cash Flows - continued For
the years ended February 29, 1996 and February 28, 1995 and
for the period from inception (August 11, 1993) to February 28, 1994
(See Independent Auditors' Report)
===================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit (2,500) 12,500 --
Net borrowing on amounts due to officers 119,854 21,661 104,850
Proceeds from the issuance note payable 30,000 150,000 --
Principal payments on long-term debt (6,316) (6,000) --
- -------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 141,038 178,161 104,850
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (CHECKS ISSUED,
BUT NOT YET PRESENTED FOR PAYMENT) 9,788 (14,139) 2,324
- -------------------------------------------------------------------------------------------------------------------
BALANCE - BEGINNING OF PERIOD (11,815) 2,324 --
- -------------------------------------------------------------------------------------------------------------------
BALANCE - END OF PERIOD $ (2,027) $ (11,815) $ 2,324
===================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest $ 43,379 $ 31,426 $ --
Income taxes 10,490 259 --
- -------------------------------------------------------------------------------------------------------------------
TOTAL CASH PAID FOR INTEREST AND INCOME TAXES $ 53,869 $ 31,685 $ --
===================================================================================================================
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Purchase of property and equipment through
accounts payable $ 10,999 $ 61,123 $ --
===================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
BAGELS UNLIMITED, INC.
Notes to Financial Statements For
the years ended February 29, 1996 and February 28, 1995 and
for the period from inception (August 11, 1993) to February 28, 1994
(See Independent Auditors' Report)
===============================================================================
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bagels Unlimited, Inc. d/b/a Big Apple Bagels (the Company) operates
bagel stores in southeastern Wisconsin in accordance with franchise
agreements with a regional franchiser. The Company began operating
the stores on the following dates:
COMMENCEMENT
STORE LOCATION DATE OF OPERATIONS
-------------- ------------------
Hales Corners December 1993
Brookfield July 1994
Milwaukee - Marquette University September 1994
Kenosha April 1995
INVENTORIES
Inventories consist principally of perishable food supplies.
Inventories are valued at the lower of cost or market using the
first-in, first-out (FIFO) method.
CREDIT POLICY
Substantially all of the Company's revenues are from retail cash
sales. Accordingly, the Company generally does not provide credit in
the normal course of business.
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.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed using the straight line
method (half year convention) over the estimated useful lives of the
assets as follows:
=====================================================
Machinery and equipment 5 - 7 years
Leasehold improvements Length of the Lease
=====================================================
Other assets are being amortized using the straight line method
over the following terms:
=====================================================
Franchise fees 10 Years
Organizational costs 15 Years
=====================================================
INVESTMENT
During the period ended February 28, 1994, the company purchased
nominal number of shares of stock of B.A.B. Holdings for $3,500. The
investment is carried at cost.
INCOME TAXES
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes related to differences between the bases of
certain assets and liabilities for financial and income tax
reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are
recovered or settled. If full realization of the deferred tax asset
is not expected, a deferred tax valuation allowance will be recorded.
Deferred taxes also are recognized for operating losses that are
available to offset future taxable income and tax credits that are
available to offset future federal and state income taxes.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
NOTE 2 RELATED PARTY TRANSACTIONS
DUE TO OFFICERS
As February 29, 1996 and February 28, 1995 the following amounts were
due to the two corporate officers / stockholders of the Company:
======================================================================================================
February 29, 1996 February 28, 1995
------------------------------------------------------------------------------------------------------
Unsecured advances due to officers. Interest is
charged at 8%. The advances are due on demand. $ 246,365 $ 126,511
======================================================================================================
During the year ended February 29, 1996, management determined that
amounts collected directly by two of the Company's officers related
to sales of Company product were not reflected in the Company's
accounting records at the time the transactions took place.
Management's analysis of the transactions in question revealed
amounts totaling approximately $29,000. This amount has been
reflected in the accompanying February 29, 1996 financial statements
as an increase in sales and a reduction in the amount due to
officers.
OFFICE LEASE PAYMENTS
During the period ended February 29, 1996, approximately $2,500 of
rent was paid to an affiliated company for office rent. The payments
were made under a verbal month to month lease with the affiliated
company.
NOTE 3 LINE OF CREDIT / NOTES PAYABLE
===========================================================================================================
February 29, 1996 February 28, 1995
-----------------------------------------------------------------------------------------------------------
LINE OF CREDIT
The Company has a $10,000 ($15,000 as of February 28, 1995)
line-of-credit with a bank which is due on demand. The line bears
interest at the bank's prime rate plus 2.50%, (effective rate of
10.75% as of February 29, 1996). The line is unsecured. $ 10,000 $ 12,500
===========================================================================================================
Notes payable, as of February 29, 1996 and February 28, 1995, consist
of the following:
-----------------------------------------------------------------------------------------------------------
February 29, 1996 February 28, 1995
-----------------------------------------------------------------------------------------------------------
Unsecured note payable due to an affiliated Company.
The note is due on demand and bears interest at 8%. $ 30,000 $ --
Note payable, bearing interest at 1.0% above the prime rate
(effective rate of 9.25% at February 28, 1996), payable monthly.
The entire outstanding principal balance was paid in May 1996.
Under the terms of the note payable, additional interest is due
based upon 2% of the net sales of one of the four franchise stores
operated by the Company. The additional interest is payable
monthly and continues for an additional six months after the note
is paid in full. 91,218 94,000
Note payable, bearing interest at .5% above the prime rate
(effective rate of 8.75% at February 29, 1996), payable monthly.
The entire outstanding principal balance was paid in May 1996.
Under the terms of the note payable, additional interest is due
based upon 1% of the net sales of one of the four franchise stores
operated by the Company. The additional interest is payable
monthly and continues for an additional six months after the note
is paid in full. 46,466 50,000
-----------------------------------------------------------------------------------------------------------
TOTAL 167,684 144,000
Less: Current Portion (167,684) --
-----------------------------------------------------------------------------------------------------------
LONG-TERM PORTION $ -- $ 144,000
===========================================================================================================
Interest charged to operations for related party obligations was
approximately as follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE $ 21,000 $ 9,000 $ 1,000
===========================================================================================================
Included in accrued interest on the accompanying balance sheet is the
estimated net present value of the additional interest due for six
months after the related notes have matured.
NOTE 4 AGREEMENTS WITH FRANCHISER / SUBSEQUENT EVENT
The Company has entered into various agreements with B.A.B. Holdings,
Inc. (the franchiser) to own and operate "Big Apple Bagel"
franchises. Under the terms of the agreements, the Company will
purchase the rights for each franchise location for $17,500. The
agreements require the Company to remit weekly royalty payments to
the franchiser based on 5% of sales.
Amounts expensed for royalties are approximately as follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
ROYALTY EXPENSE $ 136,000 $ 72,000 $ 6,000
===========================================================================================================
The agreements also require the Company to remit advertising payments
weekly to a fund for the benefit of the Company. The Company is
reimbursed from the fund for qualified advertising expenditures.
Amounts paid into the fund are expensed as the qualified expenditure
is incurred. Included in prepaid expenses as of February 29, 1996 and
February 28, 1995 were approximately $4,000 and $1,000, respectively,
for amounts due from the fund .
Amounts expensed for advertising were approximately as follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
ADVERTISING EXPENSE $ 61,000 $ 16,000 $ 4,000
===========================================================================================================
The franchise agreements contain, among other things, guidelines for
operations and conditions and restrictions on the sale and transfer
of the franchises. Under certain conditions, the Franchiser has the
option to purchase the assets of a location from the Company. Also,
the Company may be required to remodel its franchise locations. The
cost of the required remodeling may not exceed 2% of the cumulative
sales of the franchise.
The franchise agreements expire at the end of 10 years or at the end
of the lease for the location of the franchise, which ever is
shorter. The agreements may be extended if the leases are further
extended or a new location acceptable to the Franchiser is secured
within 120 days of the expiration of the lease.
Franchise fee amortization was as follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
AMORTIZATION $ 6,854 $ 3,792 $ 438
===========================================================================================================
The Company and the Franchiser are parties to an Area Development
Agreement. Under the terms of the agreement and for a fee of $25,000,
the Company was granted the exclusive right to develop "Big Apple
Bagel" franchises in southeastern Wisconsin. The agreement further
specifies that the first five franchises can be purchased for a
$5,000 discount. As of February 29, 1996, three franchises have been
purchased under this agreement. The full amount of the agreement was
capitalized and applied to the net amount paid for the franchises as
they were purchased and amortized accordingly.
All of the amounts due to the Franchiser have been personally
guaranteed by the stockholders' of the Company.
On May 1, 1996, the Company sold substantially all of its assets to
the Franchiser for approximately $770,000 in cash and publicly traded
stock of the Franchiser. At the time of the sale, the remaining
unpaid balance on the Area Development Agreement was deducted from
the sales proceeds and the remaining balance in the prepaid franchise
fees was charged to operations in May 1996. The Franchiser has also
assumed all of the lease commitments of the Company.
NOTE 5 LEASE COMMITMENTS
The Company leases its franchise locations from third parties under
operating leases. The leases call for average monthly payments
ranging from approximately $1,200 to $2,600. In addition to the
monthly lease payments, the Company is responsible for its share
(based on square feet leased) of common area expenses and real estate
taxes. The Company is responsible for all other operating costs. The
basic rent expense is being recorded on a straight line basis.
The terms of the leases expire in terms ranging from September 1998
to May 2006. Certain leases contain options to extend the terms of
the leases for an additional 5 years. One lease contains an option to
extend the lease for two five year periods after the original term.
The Company also leases two vehicles under operating leases which
call for monthly payments of approximately $1,300.
Rent, common area charges, and related taxes paid related to the
above leases were approximately as follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
TOTAL $ 148,000 $ 81,000 $ 6,000
===========================================================================================================
Future minimum lease payments, which have been guaranteed by the
Company's stockholders, excluding adjustments for inflation, for the
above leases is as follows:
=================================================
Years ending February
-------------------------------------------------
1997 $ 129,000
1998 127,000
1999 124,000
2000 80,000
2001 30,000
Thereafter 175,000
=================================================
NOTE 6 INCOME TAXES EXPENSE (CREDIT)
Income taxes (credit) consists of the following:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
Current -
Federal $ (5,000) $ 6,000 $ --
State -- 3,500 --
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT (5,000) 9,500 --
DEFERRED TAXES (CREDIT) (28,000) -- --
-----------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES (CREDIT) $ (33,000) $ 9,500 $ --
===========================================================================================================
The deferred tax balance as of February 29, 1996 consists of the
following:
===========================================================================================================
1996
-----------------------------------------------------------------------------------------------------------
Accelerated depreciation for income tax purposes $ (3,900)
Non-deductible deferred rent 3,400
Non-deductible accrued interest 4,100
Federal net operating loss carryforward 18,400
State tax loss and credit carryforwards 8,200
Other temporary differences, net 2,100
Deferred tax valuation allowance (4,300)
-----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET - LONG-TERM $ 28,000
===========================================================================================================
The deferred tax balances as of February 28, 1995 were immaterial.
The provision for income taxes (credit) differs from the amount
computed by applying the U.S. federal statutory income tax rate of
approximately 15% to income (loss) before income taxes (credit) as
follows:
===========================================================================================================
February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
Income taxes (credit) at U.S. statutory rate $ (28,300) $ 6,800 $ (1,100)
INCREASE IN TAXES RESULTING FROM:
State taxes, net of federal benefit (11,300) 2,700 (400)
Permanent differences 700 100 --
Change in deferred tax valuation
allowance 4,300 -- --
Other 1,600 (100) 1,500
-----------------------------------------------------------------------------------------------------------
INCOME TAXES (CREDIT) $ (33,000) $ 9,500 $ --
===========================================================================================================
The Company has carryforwards for income tax purposes as of February
29, 1996 approximately as follows:
===========================================================================================================
Federal Net Operating Loss Wisconsin Net Operating
Expiring in Periods Ending Loss
-----------------------------------------------------------------------------------------------------------
2011 $ 123,000 $ 117,000
===========================================================================================================
NOTE 7 PRIOR PERIOD ADJUSTMENTS
The following is the approximate impact on the financial statements
for errors subsequently discovered and retroactively corrected in the
accompanying financial statements.
===========================================================================================================
Periods Ended February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
Net income (loss) as previously
reported on the Company's compiled
financial statements $ (164,000) $ 64,000 $ 8,000
Unrecorded cash sales collected by
corporate officers 29,000 -- --
Reversal of prior year accruals 17,000 15,000 --
Corrections to accounts payable (9,000) (12,000) (15,000)
Corrections to prepaid expenses (14,000) 1,000 --
Unrecorded vacation accruals (2,000) (4,000) --
Correction of accrued interest (16,000) (8,000) --
Recording rent expense on a
straight-line basis (4,000) (10,000) (1,000)
Corrections to useful lives of
franchise fees and leasehold
improvements (25,000) (14,000) 1,000
Income tax impact of various adjustments 33,000 4,000 --
-----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (155,000) $ 36,000 $ (7,000)
===========================================================================================================
The corrections had the following impact on the balance sheets as
previously presented:
===========================================================================================================
Increase (Decrease) February 29, 1996 February 28, 1995 February 28, 1994
-----------------------------------------------------------------------------------------------------------
Current Assets $ (17,000) $ (12,000) $ (2,000)
Deferred Tax Asset 28,000 -- --
Property, Equipment and Other Assets (23,000) 58,000 26,000
Current Liabilities 6,000 72,000 37,000
Long-Term Liabilities 16,000 17,000 2,000
Retained Earnings (Accumulated Deficit) (34,000) (43,000) (15,000)
===========================================================================================================
NOTE 8 CONCENTRATIONS
Substantially all of the Company's revenues are derived from retail
sales in four locations located in southeastern Wisconsin.
BAGELS UNLIMITED, INC.
TABLE OF CONTENTS
===============================================================================
PAGE
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2 - 3
Statements of Operations and Retained Earnings
(Accumulated Deficit) 4
Statements of Cash Flows 5 - 6
Notes to Financial Statements 7 - 17
===============================================================================
===========================
BAGELS UNLIMITED, INC.
Audited Financial
Statements
For the periods ended
February 29, 1996
February 28, 1995
February 28, 1994
===========================