UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K / A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 21, 1996
BAB Holdings, Inc.
(Name of small business issuer in its charter)
Illinois 0-27068 36-3857339
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631
(Address of principal executive offices) Zip Code)
Issuer's telephone number (312) 380-6100
(Former name, former address and former fiscal year, if changed since
last report.)
TABLE OF CONTENTS
Page
Item 1. Changes in Control of Registrant.......................................1
Item 2. Acquisition or Disposition of Assets...................................1
Item 3. Bankruptcy or Receivership.............................................2
Item 4. Changes in Registrant's Certifying Accountant..........................2
Item 5. Other Events...........................................................2
Item 6. Resignations of Registrant's Directors.................................2
Item 7. Financial Statements and Exhibits......................................2
Item 8. Change in Fiscal Year..................................................7
SIGNATURE .....................................................................7
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 21, 1996, BAB Holdings, Inc. (Holdings or the Company), an Illinois
corporation, completed the acquisition of the assets of Strathmore Bagels
Franchise Corp. (Strathmore), a New York corporation. Strathmore is engaged in
the business of distributing bagels and related products, at wholesale, and the
collection of royalties on the related retail sale of those products pursuant to
a license agreement, dated November 30, 1995 with Host International, Inc. (Host
Marriott). (See Licensing Agreement filed as an exhibit hereto.) At the time of
the acquisition, Strathmore had entered into individual contracts pursuant to
the Licensing Agreement for 19 bagel-deli units and 15 bagel cart / display
units in several major airports and travel plazas in the United States. These
bagel-deli and display units are owned and operated by Host Marriott.
The assets acquired by Holdings include the licensing contracts with
Host Marriott and the individual contracts for each facility, supply contracts,
equipment leases and other contractual arrangements with vendors. Additionally,
Holdings acquired the machinery, equipment and improvements owned by Strathmore
and located in the Host Marriott facilities.
The purchase of the assets was completed in exchange for the following
consideration: (a) $850,000 in cash paid at closing; (b) an option to purchase
625,000 shares of Holdings' common stock, no par value, exercisable during a
period commencing on May 21, 1997 and ending on May 21, 1999 (312,500 shares
exercisable from May 21, 1997 and all shares exercisable from May 21, 1998) at
an exercise price of $6.17 per share (see Stock Option Agreement filed as an
exhibit hereto); and (c) additional consideration based on the number of and
gross sales volumes of additional units opening, as follows:
(i) $5,000 for every bagel-deli unit operated under the Host Marriott
agreement opened during the two years following the closing of
this acquisition,
(ii) A percentage of annual gross sales of the units identified in (i)
above, which result in royalty payments to Holdings, at a rate of
5% of sales from $250,000.01 and $350,000, plus 3% of sales from
$350,000.01 to $450,000, plus 1% of sales from $450,000.01 to
$650,000, measured for a twelve month period,
(iii)3% of annual gross sales, which result in royalty payments to
Holdings, for each cart / display unit opened during the year
following the closing of this acquisition, measured for a
twelve-month period commencing 60 days after the unit is placed in
operation, and
(iv) Options to purchase 1,500 shares of Holdings common stock, no par
value, for each bagel / deli unit opened during the first two
years following the closing of this acquisition, at an exercise
price of $6.17 per share. Options earned during the first year
will be issued within 30 days following the end of that year and
will be exercisable for a period of one year beginning with the
date of issuance. Additionally, options earned during the second
year will be issued within 30 days following the end of that year
and will be exercisable for a period of one year beginning with
the date of issuance.
All shares issued pursuant to the options identified above have been
given certain rights to registration under the Securities Act of 1933 (see
Registration Rights Agreement filed as an exhibit hereto).
The Company financed this transaction using a portion of the net
proceeds from its November 27, 1995 initial public offering of securities.
The Company will be assigning the activities of the sale of bagels and
other products to the Host Marriott operated facilities and the collection of
royalty on the retail sales thereon, to its wholly owned subsidiary, BAB
Operations, Inc. (Operations). Operations will continue to maintain the units
currently in operation and develop additional units in facilities operated by
Host Marriott.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
None.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following unaudited pro forma combined statements of operations
give effect to the acquisition by Holdings of certain assets of (i) Bagels
Unlimited, Inc. (BUI) on May 1, 1996 and (ii) Strathmore on May 21, 1996 as if
both acquisitions had occurred on the first day of the period presented. The
unaudited pro forma combined statement of operations for the year ended November
30, 1995 is based on and should be read in conjunction with the following
historical financial statements and the related notes thereto: (i) the audited
consolidated statements of operations of Holdings for its fiscal year ended
November 30, 1995 which was filed as part of Form 10-KSB for that fiscal year,
(ii) the audited statement of operations of BUI for its fiscal year ended
February 29, 1996 which was included in the Form 8-K/A filed in connection with
the BUI transaction on or about July 12, 1996, and (iii) the audited statement
of operations of Strathmore for the year ended December 3, 1995 which was
included as Schedule 7A in the Form 8-K filed on or about June 5, 1996. The
unaudited pro forma interim combined statement of operations for the six months
ended May 31, 1996 is based on and should be read in conjunction with the
unaudited historical interim consolidated statement of operations of Holdings
for the six months ended May 31, 1996 and the related notes thereto, which was
filed as part of Form 10-QSB for the fiscal quarter ended May 31, 1996. The
unaudited pro forma interim combined statement of operations is also based on
(i) the unaudited interim statement of operations of BUI for the five months
ended April 30, 1996 and (ii) the unaudited interim statement of operations of
Strathmore for the six months ended May 21, 1996.
This unaudited pro forma condensed combined financial information is
not necessarily indicative of what the actual results of operations would have
been had the acquisition of assets been completed as set forth above, nor does
it purport to represent the results of operations of Holdings for future
periods.
HISTORICAL HISTORICAL
---------- ---------- PRO FORMA
HOLDINGS BUI ---------
-------- ---
FISCAL YEAR ENDED FISCAL YEAR ENDED
NOVEMBER 30, 1995 FEBRUARY 29, 1996 ADJUSTMENTS COMBINED
-------------------------------------------------------------------
REVENUES:
Net sales by Company-owned
stores $ 563,211 $2,746,415 $ -- $3,309,626
Franchise fees 700,000 -- -- 700,000
Royalty fees from franchised
stores 767,064 -- (136,000)(1) 631,064
Sales to licensed units -- -- -- --
Other 2,728 -- -- 2,728
-------------------------------------------------------------------
2,033,003 2,746,415 (136,000) 4,643,418
OPERATING COSTS AND EXPENSES:
Company-owned stores 566,588 2,338,541 -- 2,905,129
Other operating costs -- -- -- --
Selling, general and
administrative:
Payroll-related expenses 874,718 -- -- 874,718
Professional service fees 396,358 -- -- 396,358
Other 615,917 517,251 18,183 (2) --
-- -- (136,000)(1) --
-- -- (6,854)(3) --
-- -- 16,667 (4) 1,025,164
-------------------------------------------------------------------
1,886,993 517,251 (108,004) 2,296,240
-------------------------------------------------------------------
2,453,581 2,855,792 (108,004) 5,201,369
-------------------------------------------------------------------
Income (loss) from operations (420,578) (109,377) (27,996) (557,951)
Other expense, net 15,182 46,014 -- 61,196
-------------------------------------------------------------------
Income (loss) before taxes (435,760) (155,391) (27,996) (619,147)
Provision for income taxes -- -- -- --
-------------------------------------------------------------------
Net income (loss) (435,760) (155,391) (27,996) (619,147)
Preferred stock dividend
accumulated 4,000 -- -- 4,000
-------------------------------------------------------------------
Net income (loss) attributable
to common shareholders $ (439,760) $ (155,391) $ (27,996) $ (623,147)
===================================================================
Net loss attributable to
common share:
Primary $ (0.13) $ (0.18)
================= ===========
Fully diluted $ (0.12) $ (0.17)
================= ===========
Average number of shares used:
Primary 3,382,917(5) 50,000(6) 3,432,917
================= ==========================
Fully diluted 3,560,256(5) 50,000(6) 3,610,256
================= ==========================
WIDE TABLE CONTINUED FROM ABOVE
HISTORICAL
---------- PRO FORMA
STRATHMORE ---------
----------
FISCAL YEAR ENDED
DECEMBER 31, 1995 ADJUSTMENTS COMBINED
-------------------------------------------------
REVENUES:
Net sales by Company-owned
stores $ -- $ -- $3,309,626
Franchise fees -- 700,000
Royalty fees from franchised
stores -- -- 631,064
Sales to licensed units 440,944 -- 440,944
Other 75,000 -- 77,728
-------------------------------------------------
515,944 -- 5,159,362
OPERATING COSTS AND EXPENSES:
Company-owned stores -- -- 2,905,129
Other operating costs 274,439 -- 274,439
Selling, general and
administrative:
Payroll-related expenses 40,131 -- 914,849
Professional service fees 75,068 -- 471,426
Other 74,318 55,232(8) --
-- 57,635(9) --
-- -- 1,212,349
-------------------------------------------------
189,517 112,867 2,598,624
-------------------------------------------------
463,956 112,867 5,778,192
-------------------------------------------------
Income (loss) from operations 51,988 (112,867) (618,830)
Other expense, net 30,920 -- 92,116
-------------------------------------------------
Income (loss) before taxes 21,068 (112,867) (710,946)
Provision for income taxes 4,707 -- 4,707
-------------------------------------------------
Net income (loss) 16,361 (112,867) (715,653)
Preferred stock dividend
accumulated -- -- 4,000
-------------------------------------------------
Net income (loss) attributable
to common shareholders $ 16,361 $ (112,867) $ (719,653)
=================================================
Net loss attributable to
common share:
Primary $ (0.21)
===========
Fully diluted $ (0.20)
===========
Average number of shares used:
Primary 3,432,917
===========
Fully diluted 3,610,256
===========
HISTORICAL HISTORICAL
---------- ---------- PRO FORMA
HOLDINGS BUI ---------
-------- ---
SIX MONTHS ENDED FIVE MONTHS ENDED
MAY 31, 1996 APRIL 30, 1996 ADJUSTMENTS COMBINED
----------------------------------------------------------------
Revenues:
Net sales by Company-owned stores $ 784,999 $1,152,522 $ -- $1,937,521
Franchise fees 491,500 -- -- 491,500
Royalty fees from franchised stores 634,073 -- (59,524)(1) 574,549
Sales to licensed units -- -- -- --
Other 29,938 -- -- 29,938
----------------------------------------------------------------
1,940,510 1,152,522 (59,524) 3,033,508
Operating Costs and Expenses:
Company-owned stores 746,410 1,026,194 -- 1,772,604
Other operating costs -- -- -- --
Selling, general and administrative:
Payroll-related expenses 584,467 -- -- 584,467
Professional service fees 203,720 -- -- 203,720
Other 451,458 226,980 7,576 (2)
(59,524)(1)
(2,856)(3)
-- -- 6,945 (4) 630,579
----------------------------------------------------------------
1,239,645 226,980 (47,859) 1,418,766
----------------------------------------------------------------
1,986,055 1,253,174 (47,859) 3,191,370
----------------------------------------------------------------
Income (loss) from operations (45,545) (100,652) (11,665) (157,862)
Other income (expense), net 189,189 (20,318) -- 168,871
----------------------------------------------------------------
Income (loss) before taxes 143,644 (120,970) (11,665) 11,009
Provision for income taxes -- -- -- --
----------------------------------------------------------------
Net income (loss) attributable to common
shareholders $ 143,644 $ (120,970) $ (11,665) $ 11,009
================================================================
Net loss attributable to common share:
Primary $ 0.02 $ 0.00
================ ==========
Fully diluted $ 0.02 $ 0.00
================ ==========
Average number of shares used:
Primary 7,178,219(5) 55,513(7) 7,233,732
================ ========================
Fully diluted 7,232,153(5) 59,876(7) 7,292,029
================ ========================
WIDE TABLE CONTINUED FROM ABOVE
HISTORICAL
---------- PRO FORMA
STRATHMORE ---------
----------
SIX MONTHS ENDED
MAY 21, 1996 ADJUSTMENTS COMBINED
-----------------------------------------------
Revenues:
Net sales by Company-owned stores $ -- $ -- $1,937,521
Franchise fees -- -- 491,500
Royalty fees from franchised stores -- -- 574,549
Sales to licensed units 248,268 -- 248,268
Other 30,000 -- 59,938
----------------- -------------------------
278,268 -- 3,311,776
Operating Costs and Expenses:
Company-owned stores -- -- 1,772,604
Other operating costs 160,318 -- 160,318
Selling, general and administrative:
Payroll-related expenses 37,147 -- 621,614
Professional service fees 91,743 -- 295,463
Other 46,836 27,616(8)
-- 28,818(9) --
-- -- 733,849
----------------- -------------------------
175,726 56,434 1,650,926
----------------- -------------------------
336,044 56,434 3,583,848
----------------- -------------------------
Income (loss) from operations (57,776) (56,434) (272,072)
Other income (expense), net -- -- 168,871
----------------- -------------------------
Income (loss) before taxes (57,776) (56,434) (103,201)
Provision for income taxes 12,462 -- 12,462
----------------- -------------------------
Net income (loss) attributable to common
shareholders $ (70,238) $ (56,434) $ (115,663)
================= =========================
Net loss attributable to common share:
Primary $ (0.02)
==========
Fully diluted $ (0.02)
==========
Average number of shares used:
Primary (175,518)(10) 7,058,214
=========================
Fully diluted (225,220)(10) 7,066,809
=========================
Notes to pro forma condensed combined financial information:
(1.) Elimination of royalty fee revenue of Holdings and the related expense
of BUI.
(2.) Amortization of the preliminary estimate of goodwill of approximately
$727,000 associated with the BUI acquisition over a 40-year period.
(3.) Elimination of franchise fee amortization by BUI associated with the
initial franchise fees paid to Holdings.
(4.) Amortization of non-competition agreement entered into with the
principals of BUI over a 6-year period.
(5.) Average number of shares reported have been adjusted to retroactively
give effect of 50% stock dividend payable to shareholders of record of
Holdings on April 12, 1996.
(6.) Reflects the issuance of 50,000 shares of Holdings common stock as
partial consideration for purchase of BUI.
(7.) Reflects the effect of the issuance of 50,000 shares and the option to
purchase an additional 100,000 shares of Holdings common stock as
partial consideration in the acquisition of BUI.
(8.) Amortization of the preliminary estimate of goodwill of approximately
$2,210,000 associated with the Strathmore acquisition over a 40-year
period.
(9.) Amortization of the preliminary estimate of the value of certain
contract rights of approximately $490,000 acquired in connection with
the Strathmore acquisition over an estimated remaining useful life of
102 months.
(10.) Adjusted to recognize the antidilutive impact of common stock
equivalents under a loss position in the pro forma condensed combined
financial information.
EXHIBITS
The following exhibits are filed herewith.
Exhibit
No. Description of Exhibit
10.21 Asset Purchase Agreement by and between BAB Holdings, Inc. and
Strathmore Bagels Franchise Corp. dated May 21, 1996 (without
schedules)
10.22 Stock Option Agreement dated May 21, 1996 between BAB Holdings, Inc.
and Strathmore Bagels Franchise Corp. dated May 21, 1996
10.23 Registration Rights Agreement dated May 21, 1996 between BAB Holdings,
Inc. and Strathmore Bagels Franchise Corp. dated May 21, 1996
10.24 Non-Competition Agreement dated May 21, 1996 between BAB Holdings, Inc.
and Strathmore Bagels Franchise Corp., Jack Freedman and Glenn Stuerman
dated May 21, 1996
10.25 Memorandum of Understanding Regarding Form of License Agreement
effective November 30, 1995 between Strathmore Bagels Franchise Corp.
and Host International, Inc.
10.26 Consent to Assignment between Strathmore Bagels Franchise Corp. and
Host International, Inc. dated March 13, 1996 (as amended May 21, 1996)
(Exhibits listed above have been incorporated by reference to exhibits bearing
the same numbers filed as part of the report on Form 8-K concerning this
transaction on June 5, 1996.)
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BAB HOLDINGS, INC.
Dated: August 5, 1996 By: /s/ Theodore P. Noncek
Theodore P. Noncek, Chief Financial Officer