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 27, 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.
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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: 2,237,557 shares of Common
Stock, as of April 11, 2000.
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
BAB Holdings, Inc.
Condensed Consolidated Balance Sheet
February 27, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $ 109,099 $ 214,411
Receivables
Accounts receivable, net of allowance for
doubtful accounts of $816,333 1,165,385
National Marketing Fund contributions receivable
from franchisees and stores 442,363
Notes receivable, net of allowance for
doubtful accounts of $181,529 465,847
Inventory 233,752
Assets held for sale 1,191,236
Prepaid and other current 305,290
Deferred income taxes 530,005
------------
Total current assets 4,548,289
Property and equipment, net of
accumulated depreciation of $1,514,695 1,904,984
Notes receivable 439,848
Patents, trademarks and copyrights, net of accumulated
amortization of $216,202 960,270
Goodwill, net of accumulated amortization of $250,031 2,493,233
Franchise contract rights, net of accumulated
amortization of $293,573 1,790,392
Other, net of accumulated amortization of $330,253 461,687
------------
$ 12,598,703
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 912,348
Accrued liabilities 903,704
Liability for store conversions 133,200
Accrued professional and other services 226,083
Unexpended National Marketing Fund contributions 586,083
Current portion of long-term debt 1,658,210
Deferred franchise fee revenue 152,410
------------
Total current liabilities 4,572,038
Noncurrent liabilities:
Deferred revenue 356,180
Deferred income taxes 350,005
Long-term debt, net of portion included
in current liabilities 1,204,338
-----------
Total noncurrent liabilities 1,910,523
-----------
Stockholders' equity:
Common stock 13,507,669
Additional paid-in capital 1,187,696
Treasury stock (43,963)
Accumulated deficit (8,535,260)
-----------
Total stockholders' equity 6,116,142
------------
$ 12,598,703
============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
BAB Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED
FEBRUARY 27 FEBRUARY 28
2000 1999
--------------------------
REVENUES
Net sales by Company-owned stores $ 2,265,392 $ 2,086,087
Royalty fees from franchised stores 752,096 815,080
Licensing fees and other income 245,737 237,273
Franchise and area development fees 239,400 130,500
-------------------------
3,502,626 3,268,940
OPERATING COSTS AND EXPENSES
Food, beverage, and paper costs 655,840 704,807
Store payroll and other operating expenses 1,560,043 1,196,353
Selling, general, and administrative expenses
Payroll-related 506,450 553,179
Occupancy 83,351 61,814
Advertising and promotion 52,817 77,714
Professional service fees 78,856 105,095
Franchise-related expenses 18,842 55,408
Depreciation and amortization 212,354 292,449
Travel 33,980 55,019
Other 212,763 232,586
--------------------------
Total Operating Costs and Expenses 3,415,295 3,334,423
--------------------------
Income (loss) before interest 87,330 ( 65,483)
Interest expense ( 82,556) ( 39,022)
Interest income 15,881 31,099
--------------------------
Net income (loss) 20,655 (73,406)
Preferred stock dividends accumulated - (45,699)
---------- -------
Net income (loss) attributable to
common shareholders $ 20,655 $ (119,105)
===========================
Basic and diluted loss
per common share $ 0.01 $ (0.09)
==========================
Average number of shares outstanding-
basic and diluted 2,237,557 1,394,210
===========================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
BAB Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
FEB 27 FEB 28
2000 1999
-------------------------
Cash Flows from Operating Activities
Net income (loss) $ 20,655 $ (73,406)
----------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 212,355 292,449
(Increase) decrease in
Trade accounts receivable (59,375) (206,674)
National Marketing Fund contributions
receivable (27,046) (40,810)
Inventories 60,086 (22,203)
Deferred franchise costs - 10,590
Notes receivable (125,000) 59,969
Prepaid expenses and other assets (28,574) (134,777)
Increase (decrease) in
Accounts payable (27,439) (14,466)
Accrued professional and other services ( 3,070) 1,413
Reserve for closed store expenses (35,520) -
Accrued liabilities 55,141 13,988
Unexpended National Marketing Fund
franchisee contributions 41,456 43,253
Jacobs Bros. non-compete agreement (27,000) -
Deferred franchise fee revenue (115,090) (125,500)
Other deferred revenue 46,392 ( 52,121)
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Total Adjustments (32,684) (174,889)
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Net Cash (Used in)
Operating Activities (12,029) (248,295)
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Cash Flows from Investing Activities
Purchases of property and equipment $ - $ (184,745)
Sale of property and equipment 143,522 -
Collection of notes receivable 131,327 4,647
Acquisition of Jacobs Bros. Bagels - (950,000)
Sale of Assets held for sale 132,500 450
Other ( 327) 34,453
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Net Cash Provided (Used in)
Investing Activities 407,022 (1,095,195)
----------- -----------
Cash Flows from Financing Activities
(Repayments)Borrowing on line of credit (159,876) (109,465)
Borrowings to finance Acquisition - 1,100,000
Debt repayments (51,524) (25,707)
----------- ----------
Net Cash (Used in) Provided
by Financing Activities (211,400) 964,828
----------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 183,593 (378,662)
Cash and Cash Equivalents, Beginning of Year 30,818 700,162
----------- ---------
Cash and Cash Equivalents, End of Quarter $ 214,411 $ 321,500
=========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
BAB Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
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 February 27, 2000 are as follows:
Stores opened:
Company-owned 20
Franchisee-owned 179
Licensed 60
---
259
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 February 27, 2000.
The actual and planned conversions resulted in a pre-tax loss of $1,600,406
during the fourth quarter of 1999. As of February 27, 2000, $133,200 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 80% of accounts receivable under 90 days and 40% or 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 and
requires, among other things, that the Company maintain minimum net worth of
$6 million. Maximum borrowing terms under the Line are identical to the
previously expired agreement. See Exhibit 10.17 that is attached to this
filing. The interest rate on this new line of credit is prime plus 4%
(12.75% at February 27, 2000). As of February 27, 2000, the Company had
borrowed $1,497,617 on the Line. The new Line expires on April 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:
THREE MONTHS ENDED
FEB 27 FEB 28
2000 1999
---------- --------
Numerator:
Net income (loss) $ 20,655 $ (73,406)
Preferred stock dividend accumulated - (45,699)
---------- ----------
Numerator for basic and diluted loss
per share- loss attributable to common
shareholders $ 20,655 $(119,105)
========== ==========
Denominator:
Denominator for basic and diluted
loss per share--weighted
average shares 2,237,557 1,394,210
========== ==========
Basic and diluted loss per share $ 0.01 $ (0.09)
========= ==========
Options to purchase 81,310 shares of common stock at varying prices are
outstanding at February 27, 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 February 27, 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
February 27, 2000 and February 28, 1999 and the conversion of convertible
securities outstanding during the quarter ended February 28, 1999 is not
assumed as the result is antidilutive to the reported loss per share.
8. Acquisitions and Dispositions
During the first quarter of fiscal 2000, the Company sold three stores
identified as part of the restructuring. 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 February 27, 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
Since its inception in November 1992, the Company has grown to 20
Company-owned stores and 239 franchised and licensed units at
February 27, 2000. Units in operation at February 28, 1999 included 27
Company owned stores and 266 franchised and licensed units. System-wide
revenues in the first quarter 2000 reached $18.8 million compared to $19.9
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 with the remaining eleven stores expected to be sold during 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 February 27,
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 February 28, 1999. Selling, general and
administrative expenses, net of depreciation and amortization, are
significantly below the first quarter 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 28.2% in 2000 compared to 34.9% in 1999 which was achieved with a 7.2%
increase in revenue. On an absolute basis, selling, general and administrative
expenses were $154,000 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 fiscal
2000.
Results of Operations
Three Months Ended February 27, 2000 versus Three Months Ended February 28,
1999.
Total revenues increased 7% to $3,503,000 in the first quarter 2000 from
$3,269,000 in the prior year quarter. The number of Company stores in
operation in the three months ended February 27, 2000 were 20 stores in
operation for the full three months and 3 additional stores open for varying
portions of the three month period. For the three months ended February 28,
1999 there were 18 stores owned and operated for 2 months and 27 stores owned
and operated for one month. In addition, severe weather in the Midwest
during the month of January 1999 greatly decreased Company owned store sales
which resulted in lower company store sales revenue than would have been
expected during the first quarter of fiscal 1999.
There was an 8% decrease in royalty revenues, which were $63,000 lower than
that generated in the year-ago quarter. This decrease is attributed to the
overall decrease in the number of franchised units open during the current
year period. Licensing fees and other income in total increased $8,000 to
$246,000 from the year-ago period. Finally, franchise and area development fee
revenue increased 83% to $239,000 from the year-ago period because of the
number of store openings and one international deal.
Costs associated with Company-owned store operations as a percentage of sales
increased 7% in the first quarter 2000 versus 1999. However, stores that have
been identified as part of the restructuring program contributed a combined
loss of $62,000 for the most recent quarter ended.
Selling, general and administrative expenses, net of depreciation and
amortization, are significantly below the first quarter 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 28.2% of revenue in 2000 compared to 34.9% in
1999 which was achieved with a 7.2% increase in revenue. On an absolute
basis, selling, general and administrative expenses were $154,000 lower in 2000
than in 1999.
Income from operations was $87,00 in the first quarter of fiscal 2000 versus
a loss of ($65,000) generated in the prior year period. Interest expense
increased to $83,000 in the three months ended February 27, 2000.
This was due to additional debt relating to the Jacobs Bros. acquisition.
Net income was $21,000 in the quarter ended February 27, 2000 versus a loss of
($119,000) in the year-ago quarter. Dividends on the Preferred Stock of
$46,000 were accumulated during the year ago period.
Net income per share for the quarter ended February 27, 2000 was $0.01 versus a
loss per share for the year-ago quarter of ($0.09) on both a basic and diluted
basis. Average shares outstanding increased by 843,000 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 used by operating activities totaled $12,000 during the first
quarter of fiscal 2000. Cash used represents the net income, adjusted for
depreciation and amortization of $212,000, and is offset principally by an
increase in notes receivable of $125,000, an increase in accounts receivable of
$59,000 and a decrease in deferred franchise fee revenue of $115,000.
Inventories were reduced by $60,000 versus the year ago period. The net cash
used in operating activities in the year-ago quarter totaled $248,000.
Investing activities provided $407,000 during the three months ended February
27, 2000, and consisted of sales of Company stores and collection of notes
receivable. In the year ago period, investing activities used $1,095,000
because of the Jacobs Bros. acquisition.
Cash used in financing activities was $211,000 during the three months
ended February 27, 2000 and relates to repayments under the Company's Line of
Credit and other borrowings. During the quarter ended February 28, 1999, cash
provided by financing activities of $965,000 relates primarily to the
borrowings received to finance the Jacobs Bros. acquisition.
The net increase in cash and equivalents was $184,000 in fiscal 2000 versus a
decrease in cash and equivalents of $379,000 in the quarter ended February
28, 1999.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs written to
identify the applicable year with two digits rather than four. As
written, these programs may identify the year "00" as 1900 rather than
2000, which could result in system miscalculations or systems failure
leading to potentially substantial business disruptions. The Company
had no material problems with the Year 2000 issue subsequent to year end.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
On February 1, 1999 the Company issued warrants for purchase of an
aggregate of 83,333 shares of the Company's Common Stock in connection
with the acquisition of certain assets of Jacobs Bros. These warrants
are exercisable at an exercise price of $7.50 per share as to 45,833
shares and $9.00 per share as to 37,500 shares commencing February 1,
2000 and ending on January 31, 2006. The warrants were offered and sold
without registration under the Act in reliance upon Section 4(2) of the
Act.
On February 26, 1999 the Company issued a total of 26,666 shares of
Common Stock in connection with services rendered in the Jacobs Bros.
acquisition, including 10,833 shares which may be deemed to be
beneficially owned by David Epstein, a member of the Board of Directors
of the Company. Such securities were offered and sold without
registration under the Act in reliance upon Section 4(2) of the Act.
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 special meeting
Of shareholders held on December 8, 1999. Each of the proposals passed.
1. Amendment of the Articles of Incorporation to effect a Common Stock
Combination of both the authorized and outstanding Common Stock in a
ratio not to exceed 6:1 (each six shares will become one share.)
For 11,520,349 Against 1,403,182 Abstain 14,995 Non-vote 0
2. Amendment of the Articles of Incorporation to increase the authorized
Capital stock to its pre-combination level.
For 11,310,685 Against 1,588,246 Abstain 18,251 Non-vote 21,344
Broker non votes were not counted as "present and entitled to vote."
The Common Stock combination of 6:1 was effected on December 10, 1999.
ITEM 5. OTHER INFORMATION
On April 10, 2000 the Company announced that it executed a letter of intent to
merge with a leading New York-based Internet incubator. See press release
attached as Exhibit 99.1.
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.
[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
INDEX TO EXHIBITS
INDEX NUMBER DESCRIPTION
10.17 Loan document- CIB Line of Credit dated 12/31/99.
99.1 Letter of intent press release dated 04/10/00.
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 12, 2000 By: /s/ MARK E. MAJEWSKI
--------------------
Mark E. Majewski
Chief Financial Officer
(Principal financial and
accounting officer)