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| BABB.OB > SEC Filings for BABB.OB > Form 10-Q on 14-Oct-2009 | All Recent SEC Filings |
14-Oct-2009
Quarterly Report
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 is within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because such statements include risks and uncertainties, actual results could differ materially from those expressed or implied by such forward-looking statements as set forth in this report, the Company's Annual Report on Form 10-KSB and other reports that the Company files with the Securities and Exchange Commission. 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 franchisees 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 has 1 Company-owned store, 106 franchised and 3 licensed units at August 31, 2009. Units in operation at August 31, 2008 included 1 Company-owned store, 118 franchised and 3 licensed units. System-wide revenues for the nine months ended August 31, 2009 were $28.8 million as compared to August 31, 2008 which were $33.3 million.
The Company's revenues are derived primarily from ongoing royalties paid to the Company by its franchisees, from the operation of Company-owned stores and receipt of franchise fees. Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese and Brewster's coffee), and through licensing agreements (Kohr Bros. and Mrs. Fields Famous Brands).
The Company had 17 employees at the Corporate level to oversee operations of the franchise, licensed and Company-owned store operations at August 31, 2009 and 18 at August 31, 2008.
Results of Operations
Three Months Ended August 31, 2009 versus Three Months Ended August 31, 2008
For the three months ended August 31, 2009, the Company reported net income of $115,000 versus net income of $162,000 for the same period in 2008. Total revenue of $824,000 decreased $108,000, or 11.6%, for the three months ended August 31, 2009, as compared to total revenue of $932,000 for the three months ended August 31, 2008.
Royalty fee revenue of $461,000, for the quarter ended August 31, 2009, decreased $71,000, or 13.3%, from the $532,000 for quarter ended August 31, 2008. The Company had 106 franchise locations at August 31, 2009 as compared to 118 locations at August 31, 2008. The current general economic downturn has negatively impacted our franchise network resulting in reduced royalty revenue.
Franchise fee revenue of $25,000, for the quarter ended August 31, 2009, increased $5,000, or 25.0%, from $20,000 for the quarter ended August 31, 2008. One store opened and one transferred during the quarter ended August 31, 2009, versus one store opening in the same quarter of 2008.
Licensing fee and other income of $217,000, for the quarter ended August 31, 2009, decreased $27,000, or 11.1%, from $244,000 for the quarter ended August 31, 2008. The general economic downturn is responsible for the decreased franchise network which in turn is responsible for the $25,000 decrease in license fee revenue in 2009 compared to 2008.
Company-owned store sales of $121,000, for the quarter ended August 31, 2009, decreased $15,000, or 11.0%, from $136,000 for the quarter ended August 31, 2008.
Total operating expenses of $709,000 decreased $64,000, or 8.3%, for the quarter ended August 31, 2009, from $773,000 in 2008. The $64,000 decrease in total operating expenses was primarily due to payroll expenses decreasing $20,000, due to one less employee, Company-owned store expenses, including cost of goods sold, decreasing $16,000, travel expenses decreasing $15,000 and advertising and promotional expenses decreasing $11,000 in 2009 compared to 2008.
Interest income of $3,000 decreased $3,000, or 50.0% for the quarter ended August 31, 2009, from $6,000 for the same period in 2008, due to lower cash balances and interest rates in 2009.
Interest expense for the third quarters 2009 and 2008 was $3,000.
Net income per share, as reported for basic and diluted outstanding shares for three months ended August 31, 2009 and August 31, 2008 was $0.02 per share.
Nine Months Ended August 31, 2009 versus Nine Months Ended August 31, 2008
For the nine months ended August 31, 2009, the Company reported a net loss of $2,168,000 versus net income of $483,000 for the same period in 2008. This loss was due to an impairment charge for goodwill and other intangibles in the first quarter 2009 of $2,399,000 (See Note 6). Total revenue of $2,399,000 decreased $450,000, or 15.8%, for the nine months ended August 31, 2009, as compared to total revenue of $2,849,000 for the nine months ended August 31, 2008.
Royalty fee revenue of $1,388,000, for the nine months ended August 31, 2009, decreased $217,000, or 13.5%, from the $1,605,000 for the nine months ended August 31, 2008. The Company had 106 franchise locations at August 31, 2009 as compared to 118 locations at August 31, 2008. The current general economic downturn has negatively impacted our franchise network resulting in reduced royalty revenue.
Franchise fee revenue of $75,000, for the nine months ended August 31, 2009, decreased $85,000, or 53.1%, from $160,000 for the nine months ended August 31, 2008. Three stores opened and two transferred during the nine months ended August 31, 2009, versus seven stores opening, including one BAB Xpress and one satellite, and nine transferring in the same period of 2008.
Licensing fee and other income of $589,000, for the nine months ended August 31, 2009, decreased $105,000, or 15.1%, from $694,000 for the nine months ended August 31, 2008. The general economic downturn is responsible for the decreased franchise network which in turn is responsible for a $92,000 decrease in license fee revenue in 2009 compared to 2008.
Company-owned store sales of $348,000, for the nine months ended August 31, 2009, decreased $42,000, or 10.8%, from $390,000 for the same period of 2008.
Total operating expenses of $4,570,000 included a noncash impairment charge of $2,399,000 recorded in the first quarter 2009 (See Note 6). Operating expenses excluding the noncash impairment charge were $2,171,000, which decreased $212,000, or 8.9%, for the nine months ended August 31, 2009, from $2,383,000 in 2008. The $212,000 decrease in 2009 total operating expenses excluding the impairment charge was primarily due to payroll expenses decreasing $77,000, due to decreased employee awards and one less employee, advertising and promotional expense decreasing $57,000, Company-owned store expenses, including cost of goods sold decreasing $33,000 and legal and accounting expenses decreasing $21,000 in 2009 compared to 2008.
Interest income of $11,000 decreased $15,000, or 57.7% for the nine months ended August 31, 2009, from $26,000 for the same period in 2008, due to lower cash balances and interest rates in 2009.
Interest expense of $8,000 decreased $1,000, or 11.1% for the nine months ended August 31, 2009, $9,000 for the same period 2008.
Net loss per share, as reported for outstanding shares for nine months ended August 31, 2009 was ($0.30) versus net income per share for basic and diluted of $0.07 for the nine months ended August 31, 2008.
Liquidity and Capital Resources
The net cash provided by operating activities totaled $154,000 for the nine months ended August 31, 2009, versus cash provided by operating activities of $314,000 for the same period in 2008. Cash provided by operating activities principally represents a net loss of $2,168,000, plus depreciation and amortization of $25,000, goodwill and intangible impairment of $2,399,000, share-based compensation of $8,000 and the provision for uncollectible accounts of $7,000, plus changes in trade accounts and notes receivable of $1,000, restricted cash of $64,000, inventories of $12,000, prepaid expenses and other assets of $14,000, less changes in Marketing Fund contributions receivable of $2,000, accounts payable of $14,000, accrued liabilities of $20,000, unexpended Marketing Fund contributions of $62,000 and deferred revenue of $110,000. Operating activities in 2008 provided $314,000, represented by net income of $483,000, plus depreciation and amortization of $28,000 and share-based compensation of $19,000, plus changes in Marketing Fund contributions receivable of $19,000, prepaid expenses and other assets of $19,000 and unexpended Marketing Fund contributions of $22,000, less changes in trade and notes receivable of $10,000, restricted cash of $50,000, inventories of $2,000, accounts payable of $12,000, accrued liabilities of $49,000 and deferred revenue of $151,000.
Cash used in investing activities during the nine months ended August 31, 2009 totaled $20,000 with $19,000 for trademark renewal expenditures and $1,000 for purchase of equipment. Cash used during 2008 totaled $39,000 and included the purchase of equipment of $1,000 and trademark renewal expenditures of $38,000.
Financing activities used $291,000 and $581,000 during the nine months ended August 31, 2009 and 2008, respectively for the payment of cash dividends.
Dividend Policy
It is the Company's intent that future dividends will be considered after reviewing returns to shareholders, profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. Due to the general economic downturn and its impact on the Company, there can be no assurance that the Company will generate sufficient earnings to pay out future dividends. The Company will continue to analyze its ability to pay dividends on a quarterly basis.
The Company believes execution of this policy will not have any material adverse effects on its ability to fund current operations or future capital investments.
The Company has no financial covenants on any of its outstanding debt.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces FASB Statement No. 141. SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008 (Company's Fiscal 2010). The Company does not believe adoption of SFAS No. 141R will have a material effect on the Company's current consolidated financial statements, but would impact any future business combinations entered into after adoption of the pronouncement.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin 51, which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent's ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 (Company's Fiscal 2010). The Company does not believe adoption of SFAS No. 160 will have a material effect on the Company's consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date-that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009 and shall be applied prospectively. As the requirements under SFAS 165 are consistent with its current practice, the implementation of this standard did not have an impact on the Company's consolidated financial statements. The Company has evaluated subsequent events from September 1, 2009 through October 14, 2009 and has included all required disclosures as of the date it filed this quarterly report on Form 10-Q.
In June 2009, the FASB issued SFAS No. 168, "The 'FASB Accounting Standards Codification' and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162" ("SFAS 168"). SFAS 168 establishes the "FASB Accounting Standards Codification" ("Codification"), which is effective for financial statements for periods ended after September 15, 2009. SFAS 168 does not alter current U.S. generally accepted accounting principles, but rather integrates existing accounting standards with other authoritative guidance. As a result of the integration, SFAS 168 will be a single source of authoritative guidance for non-governmental entities and will also supersede all other previously issued non-SEC accounting and reporting guidance. The Company does not believe adoption of SFAS No. 168 will have a material effect on the Company's consolidated financial statements.
Critical Accounting Policies
The Company has identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The Company's most critical accounting policies are related to the following areas: revenue recognition, long-lived and intangible assets, deferred tax assets and the related valuation allowance. Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 2008, filed with the Securities and Exchange Commission on February 20, 2009. There have been no material changes to the Company's critical accounting policies that impact the Company's financial condition, results of operations or cash flows for the nine months ended August 31, 2009.
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