U.S. SECURITIES AND
EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-KSB
(Mark
one)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the year ended: November 30, 2008
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£
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from ______ to ______
Commission
file number: 0-31555
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BAB,
Inc.
(Name of
small business issuer in its charter)
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Delaware
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36-4389547
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(State
or other jurisdiction of incorporation)
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(IRS
Employer or organization Identification No.)
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500 Lake
Cook Road, Suite 475 Deerfield, Illinois 60015
(Address
of principal executive offices) (Zip Code)
Issuer's
telephone number: (847) 948-7520
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of exchange on which registered
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Common Stock
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NASDAQ/OTC
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Securities
registered pursuant to Section 12(g) of the Act:
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.
£
C
heck 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 small
business issuer was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
T
Yes
£
No
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
T
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
£
Yes
T
No
State
issuer's revenues for its most recent fiscal year: $3,777,810
The
aggregate market value of the voting common equity held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such common equity, as of a specified date within the
past 60 days: $2,594,192 based on 3,653,792 shares held by nonaffiliates as of
February 5, 2009; Closing price ($.71) for said shares in the NASDAQ OTC
Bulletin Board as of such date.
State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 7,263,508
shares of Common Stock,
as of February 5, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
See index
to exhibits
Transitional
Small Business Disclosure Format (check one):
£
Yes
T
No
FORM
10-KSB IN
DE
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PART
I
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Item
1
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3
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Item
2
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7
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Item
3
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7
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Item
4
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7
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PART
II
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Item
5.
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8
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Item
6.
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9
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Item
7.
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14
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Item
8.
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32
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Item
8A.
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32
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Item
8B.
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32
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PART
III
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Item
9.
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33
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Item
10.
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33
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Item
11.
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35
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Item
12.
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36
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Item
13.
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37
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Item
14.
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37
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Exhibits
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PART
I
ITEM
1.
DESCRI
PTION OF BUSINESS OVERVIEW
BAB, Inc.
(the "Company") was incorporated under the laws of the State of Delaware on July
12, 2000. The Company currently operates franchises and licenses
bagel and muffin retail units under the Big Apple Bagels ("BAB"), My Favorite
Muffin ("MFM") and Brewster's Coffee trade names. At November 30, 2008, the
Company had 118 units in operation in 26 states, including 3 International units
in United Arab Emirates. The Company additionally derives income from the sale
of its trademark bagels, muffins and coffee through nontraditional channels of
distribution including under licensing agreements with Mrs. Fields Famous Brands
(Mrs. Fields), Kohr Bros. Frozen Custard and through direct home delivery of
specialty muffin gift baskets and coffee.
The BAB
brand franchised and Company-owned stores feature daily baked bagels, flavored
cream cheeses, premium coffees, gourmet bagel sandwiches and other related
products. Licensed BAB units serve the Company's par-baked frozen bagel and
related products baked daily. BAB units are primarily concentrated in
the Midwest and Western United States. The MFM brand consists of
units operating as "My Favorite Muffin," featuring a large variety of freshly
baked muffins, coffees and related products, and units operating as "My Favorite
Muffin and Bagel Cafe," featuring these products as well as a variety of
specialty bagel sandwiches and related products. MFM units are
primarily in the Middle Atlantic States. Although the Company
doesn't actively market Brewster's stand-alone franchises, Brewster's coffee
products are sold in the Company-owned store and most franchised
units. In addition, the Company’s franchised and Company-owned stores
derive income from wholesale of Jacobs Bros. Bagels, also registered as a
trademark of the Company.
The
Company has grown significantly since its initial public offering through growth
in franchise units and the development of alternative distribution channels for
its branded products. The Company is leveraging on the natural
synergy of distributing muffin products in existing BAB units and,
alternatively, bagel products and Brewster's Coffee in existing MFM units. The
Company expects to continue to realize efficiencies in servicing the combined
base of BAB and MFM franchisees.
Operating
Income
The
Company reported net income of $623,000 for the year ended November 30, 2008,
and net income of $1,244,000 for the year ended November 30,
2007. The Company believes that with its continued focus on
franchising and licensing operations it will continue to be
profitable. The Company will also continue to review and institute
cost controls where deemed necessary.
Food Service
Industry
Food
service businesses are often affected by changes in consumer tastes; national,
regional, and local economic conditions; demographic trends; traffic patterns;
and the type, number and location of competing restaurants. Multi-unit food
service chains, such as the Company's, can also be substantially adversely
affected by publicity resulting from problems with food quality, illness, injury
or other health concerns or operating issues stemming from one store or a
limited number of stores. The food service business is also subject to the risk
that shortages or interruptions in supply caused by adverse weather or other
conditions could negatively affect the availability, quality and cost of
ingredients and other food products. In addition, factors such as inflation,
increased food and labor costs, regional weather conditions, availability and
cost of suitable sites and the availability of experienced management and hourly
employees may also adversely affect the food service industry in general and the
Company's results of operations and financial condition in
particular.
CUS
TOMERS
The
Company-owned store sells to the general public; therefore, the Company is not
dependent on a particular customer or small group of
customers. Regarding the Company's franchising operation, the
franchisees represent a varied geographic and demographic
group. Among some of the primary services the Company provides to its
franchisees are marketing assistance, training, time-tested successful recipes,
bulk purchasing discounts, food service knowledgeable personnel and brand
recognition.
SUP
PLIER
S
The
Company's major suppliers are Coffee Bean International, Dawn Food Products,
Inc., Schreiber Foods, Hawkeye Foodservice and
Coca-Cola. The Company is not dependent on any of these suppliers for
future growth and profitability since the products purchased from these
suppliers are available from other sources.
LO
CATION
S
The
Company has 114 franchised locations, 3 licensees and 1 Company-owned
store. Of the 114 locations, 111 are located
in 26 states and 3
International units are located in the United Arab Emirates.
STORE
OP
ER
ATIONS
BIG APPLE
BAGELS--BAB franchised and Company-owned stores daily bake a variety of fresh
bagels and offer up to 11 varieties of cream cheese
spreads. Stores also offer a variety of breakfast and lunch
bagel sandwiches, salads, soups, various dessert items, fruit smoothies, gourmet
coffees and other beverages. A typical BAB store is in an area with a mix of
both residential and commercial properties and ranges from 1,500 to 2,000 square
feet. The Company's current store design is approximately 2,000 square feet,
with seating capacity for 30 to 40 persons, and includes 750 square feet devoted
to production and baking. A satellite store is typically smaller than a
production store, averaging 600 to 1,000 square feet. Although franchise stores
may vary in size from the Company-owned store and from other franchise stores,
store layout is generally consistent.
MY
FAVORITE MUFFIN--MFM franchised stores bake 20 to 25 varieties of muffins daily,
from over 250 recipes, plus a variety of bagels. They also serve gourmet
coffees, beverages and, at My Favorite Muffin and Bagel Cafe locations, a
variety of bagel sandwiches and related products. While some MFM units are
located in shopping mall locations with minimal square footage of 400 to 800
square feet, the typical retail center prototype unit is approximately 2,000
square feet with seating for 30 to 40 persons. A typical MFM franchise store is
located within a three-mile radius of at least 25,000 residents in an area with
a mix of both residential and commercial properties.
BREWSTER'S
COFFEE--Although the Company doesn't have, or actively market, Brewster's
stand-alone franchises, Brewster's coffee products are sold in the Company-owned
store and most of the franchised units.
FR
ANC
HISING
The
Company requires payment of an initial franchise fee per store, plus an ongoing
5% royalty on net sales. Additionally, BAB and MFM franchisees are members of a
marketing fund requiring an ongoing 3% contribution, consisting of 1% for
general system-wide marketing, and 2% for the local advertising and marketing.
The Company currently requires a franchise fee of $25,000 on a franchisee's
first BAB or MFM store. The fee for subsequent production stores is $20,000,
$15,000 for a satellite location and $10,000 for a kiosk.
The
Company's current Franchise Disclosure Document (“FDD”) provides for, among
other things, the opportunity for prospective franchisees to enter into a
preliminary agreement for their first production store. This agreement enables a
prospective franchisee a period of 60 days in which to locate a site. The fee
for this preliminary agreement is $10,000. If a site is not located and approved
by the franchiser within the 60 days, the prospective franchisee will receive a
refund of $7,000. If a site is approved, the entire $10,000 will be applied
toward the initial franchise fee. See also last paragraph under
"Government Regulation" section in this 10-KSB.
The
Company's franchise agreement provides a franchisee with the right to develop
one store at a specific location. Each franchise agreement is for a term of 10
years with the right to renew. Franchisees are expected to be in operation no
later than 10 months following the signing of the franchise
agreement.
The
Company currently advertises its franchising opportunities in directories,
newspapers, the internet and business opportunity magazines
worldwide. In addition, prospective franchisees contact the Company
as a result of patronizing an existing store.
CO
MPETI
TION
The quick
service restaurant industry is intensely competitive with respect to product
quality, concept, location, service and price. There are a number of national,
regional and local chains operating both owned and franchised stores which
compete with the Company on a national level or solely in a specific market or
region. The Company believes that because the industry is extremely fragmented,
there is a significant opportunity for expansion in the bagel, muffin and coffee
concept chains.
The
Company believes the primary direct competitors of its bagel concept units are
Bruegger's Bagel Bakery and New World Coffee-Manhattan Bagel Inc., which
operates under Einstein Bros. Bagels, Noah's NY Bagel and Manhattan Bagel Bakery
brands. There are several other regional bagel chains with fewer than
50 stores, all of which may compete with the Company. There is not a major
national competitor in the muffin business, but there are a number of local and
regional operators. Additionally, the Company competes directly with a number of
national, regional and local coffee concept stores and brand names.
The
Company competes against numerous small, independently owned bagel bakeries, and
national fast food restaurants, such as Dunkin' Donuts, McDonald's, Panera and
Starbucks, that offer bagels, muffins, coffee and related products as part of
their product offerings. In the supermarket bakery sections, the
Company's bagels compete against Thomas' Bagels and other brands of fresh and
frozen bagels. Certain of these competitors may have greater product and name
recognition and larger financial, marketing and distribution capabilities than
the Company. In addition, the Company believes the startup costs
associated with opening a retail food establishment offering similar products on
a stand-alone basis are competitive with the startup costs associated with
opening its concept stores and, accordingly, such startup costs are not an
impediment to entry into the retail bagel, muffin or coffee
businesses.
The
Company believes that its stores compete favorably in terms of food quality and
taste, convenience, customer service and value, which the Company believes are
important factors to its targeted customers. Competition in the food
service industry is often affected by changes in consumer taste, national,
regional and local economic and real estate conditions, demographic trends,
traffic patterns, the cost and availability of labor, consumer purchasing power,
availability of product and local competitive factors. The Company
attempts to manage or adapt to these factors, but not all such factors are
within the Company's control and such factors could cause the Company and some,
or all, of its franchisees to be adversely affected.
The
Company competes for qualified franchisees with a wide variety of investment
opportunities in the restaurant business, as well as other industries.
Investment opportunities in the bagel bakery cafe business include franchises
offered by New World Coffee-Manhattan Bagel Inc. The Company's
continued success is dependent to a substantial extent on its reputation for
providing high quality and value with respect to its service, products and
franchises. This reputation may be affected not only by the performance of the
Company-owned store but also by the performance of its franchise stores, over
which the Company has limited control.
TRADE
MAR
KS AND SERVICE MARKS
The
trademarks, trade names and service marks used by the Company contain common
descriptive English words and thus may be subject to challenge by users of these
words, alone or in combination with other words, to describe other services or
products. Some persons or entities may have prior rights to these names or marks
in their respective localities. Accordingly, there is no assurance that such
names and marks are available in all locations. Any challenge, if successful, in
whole or in part, could restrict the Company's use of the names and marks in
areas in which the challenger is found to have used the name or mark prior to
the Company's use. Any such restriction could limit the expansion of the
Company's use of the names or marks into that region, and the Company and its
franchisees may be materially and adversely affected.
The
trademarks and service marks "Big Apple Bagels," "Brewster's Coffee" and "My
Favorite Muffin" are registered under applicable federal trademark law. These
marks are licensed by the Company to its franchisees pursuant to franchise
agreements. In February 1999, the Company acquired the
trademark of "Jacobs Bros. Bagels" upon purchasing certain assets of Jacobs
Bros. The "Jacobs Bros. Bagels" mark is also registered under applicable federal
trademark law.
The
Company is aware of the use by other persons and entities in certain geographic
areas of names and marks which are the same as or similar to the Company's names
and marks. Some of these persons or entities may have prior rights to those
names or marks in their respective localities. Therefore, there is no assurance
that the names and marks are available in all locations. It is the Company's
policy to pursue registration of its names and marks whenever possible and to
vigorously oppose any infringement of its names and marks.
GO
VERN
MENT REGULATION
The
Company is subject to the Trade Regulation Rule of the Federal Trade Commission
(the "FTC") entitled “Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures'' (the "FTC Franchise Rule") and
state and local laws and regulations that govern the offer, sale and termination
of franchises and the refusal to renew franchises. Continued compliance with
this broad federal, state and local regulatory network is essential and costly;
the failure to comply with such regulations may have a material adverse effect
on the Company and its franchisees. Violations of franchising laws and/or state
laws and regulations regulating substantive aspects of doing business in a
particular state could limit the Company's ability to sell franchises or subject
the Company and its affiliates to rescission offers, monetary damages,
penalties, imprisonment and/or injunctive proceedings. In addition, under court
decisions in certain states, absolute vicarious liability may be imposed upon
franchisers based upon claims made against franchisees. Even if the Company is
able to obtain insurance coverage for such claims, there can be no assurance
that such insurance will be sufficient to cover potential claims against the
Company.
The
Company and its franchisees are required to comply with federal, state and local
government regulations applicable to consumer food service businesses, including
those relating to the preparation and sale of food, minimum wage requirements,
overtime, working and safety conditions, citizenship requirements, as well as
regulations relating to zoning, construction, health and business licensing.
Each store is subject to regulation by federal agencies and to licensing and
regulation by state and local health, sanitation, safety, fire and other
departments. Difficulties or failures in obtaining the required licenses or
approvals could delay or prevent the opening of a new Company-owned or franchise
store, and failure to remain in compliance with applicable regulations could
cause the temporary or permanent closing of an existing store. The Company
believes that it is in material compliance with these provisions. Continued
compliance with these federal, state and local laws and regulations is costly
but essential, and failure to comply may have an adverse effect on the Company
and its franchisees.
The
Company's franchising operations are subject to regulation by the FTC under the
Uniform Franchise Act which requires, among other things, that the Company
prepare and periodically update a comprehensive disclosure document known as a
FDD in connection with the sale and operation of its franchises. In addition,
some states require a franchiser to register its franchise with the state before
it may offer a franchise to a prospective franchisee. The Company believes its
FDD, together with any applicable state versions or supplements, comply with
both the FTC guidelines and all applicable state laws regulating franchising in
those states in which it has offered franchises.
The
Company is also subject to a number of state laws, as well as foreign laws (to
the extent it offers franchises outside of the United States), that regulate
substantive aspects of the franchiser-franchisee relationship, including, but
not limited to, those concerning termination and non-renewal of a
franchise.
E
MP
LOYEES
As of
November 30, 2008, the Company employed 28 persons, consisting of 10 working in
the Company-owned store, of which 8 are part-time employees. The
remaining employees are responsible for corporate management and oversight,
advertising and franchising. None of the Company's employees are
subject to any collective bargaining agreements and management considers its
relations with its employees to be good.
ITEM
2. DES
CRIP
TION OF PROPERTY
The
Company's principal executive office, consisting of approximately 7,150 square
feet, is located in Deerfield, Illinois and is leased pursuant to a lease
expiring February 28, 2011. Additionally, the Company leases space
for its Company-owned store. The first option to renew the Company-owned store
lease was executed on January 1, 2007 for a term of five years with one
additional five year renewal option available.
ITEM
3. LE
GA
L PROCEEDINGS
None
ITEM
4. SUB
MISS
ION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART
II
ITEM
5. MAR
KE
T FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth the quarterly high and low sale prices for the
Company's Common Stock, as reported in the Nasdaq Small Cap Market for the two
years ended November 30, 2008. The Company's Common Stock is traded
on the NASDAQ OTC-Bulletin Board under the symbol "BABB."
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Year
Ended: November 30, 2008
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Low
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High
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First
quarter
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0.76
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1.00
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Second
quarter
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0.80
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1.00
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Third
quarter
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0.78
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0.95
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Fourth
quarter
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0.62
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1.10
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Year
Ended: November 30, 2007
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Low
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High
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First
quarter
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0.85
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1.01
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Second
quarter
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0.88
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1.02
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Third
quarter
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0.98
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1.15
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Fourth
quarter
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0.90
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1.02
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As of
February 5, 2009, the Company's Common Stock was held by 176 holders of
record.
Registered
ownership includes nominees who may hold securities on behalf of multiple
beneficial owners. The Company estimates that the number of beneficial owners of
its common stock at February 5, 2009, is approximately 1,450 based upon
information provided by a proxy services firm.
STOCK
OPTIONS
In May
2001, the Company's Board of Directors approved a Long-Term Incentive and Stock
Option Plan (Plan), with an amendment in May 2003 to increase the Plan from the
reserve of 1,100,000 shares to 1,400,000 shares of Common Stock for
grant. A total of 1,400,000 stock options have been granted to
directors, officers and employees. In 2008 and 2007, no options were
granted. As of February 4, 2009, there were 1,030,627 stock options
exercised or forfeited under the Plan. (See Note 6 of the audited
consolidated financial statements included herein.)
DIVIDEND
POLICY
The Board
of Directors of the Company declared quarterly cash dividends of $.02 per share
on March 5, 2008, June 13, 2008 and September 10, 2008. These
dividends were payable on April 10, 2008, July 8, 2008 and October 6, 2008,
respectively, in the amount of $145,270 each. On December 4, 2008,
the Board of Directors authorized a $0.02 per share quarterly cash
dividend. The dividend was paid January 2, 2009 to shareholders of
record as of December 18, 2008.
The Board
of Directors of the Company declared quarterly cash dividends of $.02 per share
on March 9, 2007, June 5, 2007, September 5, 2007, and November 26,
2007. A $.02 per share special dividend was also declared on November
26, 2007. These dividends were payable on April 10, 2007, July 2,
2007, October 2, 2007, and January 4, 2008, respectively, in the amounts of
$145,262, $145,262, $145,270, and $290,540.
Although there can be no assurances
that the Company will be able to pay dividends in the future, 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. It is the Company’s
intent going forward to declare and pay cash dividends on a quarterly
basis.
ITEM
6. MAN
AGE
MENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
selected financial data contained herein has been derived from the consolidated
financial statements of the Company included elsewhere in this Report on Form
10-KSB. The data should be read in conjunction with the consolidated financial
statements and notes thereto. 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 and disclosures contained herein and throughout this Annual Report
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). In such cases, we may use words such as "believe," "intend," "expect,"
"anticipate" and the like. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Certain risks and uncertainties are
wholly or partially outside the control of the Company and its management,
including its ability to attract new franchisees; the continued success of
current franchisees; the effects of competition on franchisee and Company-owned
store results; consumer acceptance of the Company's products in new and existing
markets; fluctuation in development and operating costs; brand awareness;
availability and terms of capital; adverse publicity; acceptance of new product
offerings; availability of locations and terms of sites for store development;
food, labor and employee benefit costs; changes in government regulation
(including increases in the minimum wage); regional economic and weather
conditions; the hiring, training, and retention of skilled corporate and
restaurant management; and the integration and assimilation of acquired
concepts. Accordingly, readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no
obligation to publicly release the results of any revision to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.
GENERAL
The
Company has 114 franchised, 3 licensed units, and 1 Company-owned store as of
the end of 2008. Units in operation at the end of 2007 included 126 franchised,
2 licensed and 1 Company-owned store. System-wide revenues in 2008
were $44 million compared to $46 million in 2007.
The
Company's revenues are derived primarily from the ongoing royalties paid to the
Company by its franchisees, from the operation of the Company-owned store and
receipt of initial 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). Also included in licensing fees and
other income is Operation’s Sign Shop which provides the majority of signage to
franchisees and the Company-owned store, including but not limited to, posters,
menu panels, build charts, outside window and counter signs for franchisee
consistency and convenience.
YEAR
2008 COMPARED TO YEAR 2007
Total
revenues from all sources decreased $217,000, or 5.4%, to $3,778,000 in 2008
from $3,995,000 in the prior year primarily due to a decrease in royalty and
franchise revenue and other non-traditional sources of income.
Royalty
revenue from franchise stores was down $102,000, or 4.6%, to $2,116,000 in 2008
as compared to $2,218,000 in 2007. Franchise fee revenue decreased
$70,000, or 29.8%, to $165,000 in 2008 versus $235,000 in 2007. The
Company opened 8 stores with 5 opened at reduced fees and there were 10
transfers in 2008 versus 6 opened stores and 15 transfers in 2007. At
November 30, 2008, the Company had 5 units under development, versus 7 at
November 30, 2007. More new franchises are opening in developing
centers which leads to longer timeframes between execution of franchise
agreements and occupancy. Company-owned store revenues increased
$36,000, or 7.4% to $520,000 from $484,000 in 2007. Licensing fees
and other income decreased $82,000, or 7.8%, to $976,000 in 2008 as compared to
$1,058,000 in 2007. The decline was due to Sign Shop revenue which
decreased $106,000 and nontraditional revenue decreased $59,000, offset by an
increase in defaulted and terminated franchise contract fees of $77,000 in
2008.
Total
operating expenses of $3,173,000, were 84.0% of total revenues for 2008 versus
$3,303,000, or 82.7%, for 2007. Total operating expenses decreased $130,000 in
2008 compared to 2007.
Corporate
office payroll and payroll related expenses decreased $38,000, or 2.5% in 2008,
to $1,491,000, from $1,529,000, in 2007. Advertising and promotion expense
increased $16,000, or 13.0% in 2008, to $139,000, from $123,000 in 2007
primarily due to updated menu panels paid for by BAB Systems and provided to the
franchisees. Professional fees increased $37,000, or 24.3%, to
$189,000 in 2008, from $152,000 in 2007, and Other expenses decreased $126,000,
or 21.5%, to $460,000 in 2008 from $586,000 in 2007, primarily due to a decrease
of $79,000 related to Sign Shop revenues which, as noted above, decreased
$106,000, a decrease of $15,000 in 2008 because there was no 401(k) match and a
decrease in franchise development expenses in 2008 of $19,000. There
was a reduction in depreciation and amortization expense of $6,000, or 13.3% in
2008, to $39,000, from $45,000, in 2007.
Income
from operations for the period ended November 30, 2008 was $605,000 as compared
to $692,000 in 2007.
Interest
income decreased $37,000, to $31,000, in 2008, compared to $68,000, in 2007, as
a result of lower interest rates and lower cash balances to invest.
Interest
expense decreased $4,000 to $12,000 in 2008, compared to $16,000 in 2007,
primarily due to a decrease in outstanding debt. The Company paid off
its outstanding bank debt in July, 2007.
Net
income totaled $623,000, or 16.5% of revenue in 2008 as compared to $1,244,000,
or 31.1% of revenue in the prior year. Included in 2007 net income
was a non-cash $500,000 deferred tax benefit recognized for a reduction in the
valuation reserve associated with the tax benefit of net operating loss
carryforwards for income tax purposes. The 2007 percentage of net
income to revenue without the $500,000 tax adjustment was 18.6%
LIQUIDITY
AND CAPITAL RESOURCES
The net
cash provided from operating activities totaled $503,000 during 2008. Cash
provided from operating activities is comprised of net income of $623,000, plus
depreciation and amortization of $39,000 and share-based compensation of $25,000
and bad debt of $2,000, plus changes in trade accounts receivable of $2,000,
marketing fund contributions receivable of $24,000, notes receivable of $2,000,
accounts payable of $9,000 and unexpended Marketing Fund contributions of
$1,000, less changes in restricted cash of $22,000, inventory of $7,000, prepaid
expenses and other of $16,000, accrued liabilities of $57,000 and deferred
revenue of $120,000. Cash provided from operating activities in 2007
totaled $673,000, comprised of net income of $1,244,000, plus depreciation and
amortization of $45,000 and share-based compensation of $34,000, less bad debt
of $5,000 and deferred tax benefit of $500,000, plus changes in notes receivable
of $12,000, inventory of $2,000 and unexpended Marketing Fund contributions of
$67,000, less changes in trade accounts receivable of $11,000, restricted cash
of $38,000, Marketing Fund contributions receivable of $7,000, prepaid expenses
and other of $29,000, accounts payable of $15,000, accrued liabilities of
$74,000 and deferred revenue of $51,000.
Cash used
for investing activities during 2008 totaled $57,000, consisting of purchase of
equipment of $1,000 and trademark renewal expenditures of
$56,000. Cash used for investing activities during 2007 totaled
$57,000, consisting of the purchase of equipment of $19,000 and trademark
renewal expenditures of $38,000.
Financing
activities used $750,000 during 2008, due to the repayment of notes payable of
$23,000 and the payment of dividends equal to $727,000. Financing
activities used $898,000 during 2007, due to the repayment of notes payable of
$193,000 and the payment of dividends equal to $726,000, offset by proceeds of
$21,000 from the exercise of options.
Although
there can be no assurances that the Company will be able to pay dividends in the
future, 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. It is the Company’s intent going forward to declare and pay cash
dividends on a quarterly basis. On December 4, 2008, the Board of
Directors authorized a $0.02 per share quarterly cash dividend. The
dividend was paid January 2, 2009 to shareholders of record as of December 18,
2008.
The
Company believes execution of its dividend policy will not have any material
adverse effects on its cash or its ability to fund current operations or future
capital investments.
The
Company has no financial covenants on its outstanding debt.
OFF
BALANCE SHEET ARRANGEMENTS
The
Company has no off balance sheet arrangements, other than the lease commitments
disclosed in Note 7 of the audited consolidated financial statements included
herein.
CRITICAL
ACCOUNTING POLICIES
The
Company's significant accounting policies are presented in the Notes to the
Consolidated Financial Statements (see Note 2 of the audited consolidated
financial statements included herein). While all of the significant
accounting policies impact the Company's Consolidated Financial Statements, some
of the policies may be viewed to be more critical. The more critical
policies are those that are most important to the portrayal of the Company's
financial condition and results of operations and that require management's most
difficult, subjective and/or complex judgments and
estimates. Management bases its judgments and estimates on
historical experience and various other factors that are believed to be
reasonable under the circumstances. The results of judgments and
estimates form the basis for making judgments about the Company's value of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from those estimates under
different assumptions or conditions. Management believes the
following are its most critical accounting policies because they require more
significant judgments and estimates in preparation of its consolidated financial
statements.
Revenue
Recognition
Royalty
fees represent a 5% charge on franchised stores’ net retail and wholesale sales.
Royalty revenues are recognized on the accrual basis using estimates based on
past history and seasonality.
The
Company recognizes franchise fee revenue upon the opening of a franchise store.
Direct costs associated with the franchise sales are deferred until the
franchise fee revenue is recognized. These costs include site
approval, construction approval, commissions, blueprints and training
costs.
The
Company earns a licensing fee from the sale of BAB branded products, which
include coffee, cream cheese, muffin mix and par baked bagels from a third-party
commercial bakery to the franchised and licensed units.
Long-Lived
Assets
Property
and equipment are recorded at cost. Improvements and replacements are
capitalized, while expenditures for maintenance and routine repairs that don't
extend the life of the asset are charged to expense as
incurred. Depreciation is calculated on the straight-line basis over
the estimated useful lives of the assets. Property, equipment and
leasehold improvements are stated at cost, less accumulated
depreciation. Estimated useful lives for the purpose of depreciation
and amortization are 3 to 7 years for property and equipment and 10 years, or
the term of the lease if less, for leasehold improvements.
The
Company's intangible assets consist primarily of trademarks and
goodwill. SFAS 142, "Goodwill and Other Intangible Assets" requires
that assets with indefinite lives no longer be amortized, but instead be subject
to annual impairment tests. The Company no longer amortizes goodwill
or trademarks. No impairment was recorded for the years ended
November 30, 2008 and 2007. (See Note 2 of the audited consolidated
financial statements included herein.)
Concentrations of Credit
Risk
Certain
financial instruments potentially subject the Company to concentrations of
credit risk. These financial instruments consist primarily of royalty
and wholesale accounts receivables. Amounts due from
franchisees represented approximately 67% and 61% of the receivable balance at
November 30, 2008 and 2007, respectively. The Company believes it has
maintained adequate reserves for doubtful accounts. The Company
reviews the collectibility of receivables periodically taking into account
payment history and industry conditions.
Valuation Allowance and
Deferred Taxes
A
valuation allowance is the portion of a deferred tax asset for which it is more
likely than not that a tax benefit will not be realized.
As of
November 30, 2008, the Company has cumulative net operating loss carryforwards
expiring between 2012 and 2021 for U.S. federal income tax purposes of
approximately $6,049,000. A valuation allowance has been
established for $1,489,000 at November 30, 2008 for the deferred tax benefit
related to those loss carryforwards and other deferred tax assets for which it
is considered more likely than not that the benefit will not be
realized. (See Note 3 of the audited consolidated financial
statements included herein.)
Recent Accounting
Pronouncements
In July
2006, the Financial Accounting Standards Board (“FASB”) issued FIN No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109. FIN No. 48 clarifies the accounting and reporting for
uncertainties in income tax law. FIN No. 48 prescribes a
comprehensive model for the financial statement recognition, measurement,
presentation, and disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. Effective December 1, 2007, the Company
adopted FIN No. 48. The Company files a consolidated U.S. income tax
return and tax returns in various state jurisdictions. Review of the
Company’s possible tax uncertainties as of November 30, 2008 did not result in
any positions requiring disclosure. Should the Company need to record
interest and/or penalties related to uncertain tax positions or other tax
authority assessments, it would classify such expenses as part of the income tax
provision. The Company has not changed any of its tax policies or
adopted any new tax positions during the fiscal year ended November 30, 2008 and
believes it has filed appropriate tax returns in all jurisdictions for which it
has nexus. This review included the Company’s net deferred income tax
asset of $500,000, which management believes will be realized over future
profitable years.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. Where applicable, SFAS No. 157 simplifies
and codifies related guidance within GAAP and does not require any new fair
value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Effective December 1,
2007, the Company adopted SFAS No. 157. Adoption of SFAS No. 157 had
no material impact on the Company’s consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 allows entities to measure at
fair value many financial instruments and certain other assets and liabilities
that are not otherwise required to be measured at fair value. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. Effective December
1, 2007, the Company adopted SFAS No.
159. Adoption
of SFAS No. 159 had no material effect on the Company’s consolidated financial
statements.
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
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy). This statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversite Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not believe adoption of SFAS
No. 162 will have a material effect on the Company’s consolidated financial
statements.
ITEM
7. FIN
ANCI
AL STATEMENTS
The
Consolidated Financial Statements and Report of Independent Registered Public
Accounting Firm is included immediately following.
BAB,
Inc.
Years
Ended November 30, 2008 and November 30, 2007
C o n t e n t
s
Reports
of Independent Registered Public Accounting Firms
Consolidated
Balance Sheets
Consolidated
Statements of Income
Consolidated
Statements of Stockholders
’
Equity
Consolidated
Statements of Cash Flows
Notes to
Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
Stockholders
and Board of Directors of BAB, Inc.
We have
audited the accompanying consolidated balance sheets of BAB, Inc. as of November
30, 2008 and 2007 and the related consolidated statements of income,
stockholders’ equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit 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 consolidated 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.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of BAB, Inc. as of November 30,
2008 and 2007, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
By: /s/
Frank L. Sassetti & Co.
Oak Park,
Illinois
February
10, 2009
BAB,
Inc
Consolidated
Balance Sheets
November
30, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,207,108
|
|
|
$
|
1,510,292
|
|
|
Restricted
cash
|
|
|
293,994
|
|
|
|
271,970
|
|
|
Receivables
|
|
|
|
|
|
|
|
|
Trade
accounts and notes receivable (net of allowance for
doubtful
accounts of
$3,841 in 2008
and $19,451 in 2007)
|
|
|
104,153
|
|
|
|
110,280
|
|
|
Marketing
fund contributions receivable from franchisees and stores
|
|
|
13,245
|
|
|
|
36,756
|
|
|
Inventories
|
|
|
51,331
|
|
|
|
43,946
|
|
|
Prepaid
expenses and other current assets
|
|
|
145,953
|
|
|
|
129,575
|
|
|
Total
Current Assets
|
|
|
1,815,784
|
|
|
|
2,102,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (net of accumulated
depreciation of $554,111
in
2008 and $526,661 in 2007)
|
|
|
47,980
|
|
|
|
79,879
|
|
|
Trademarks
|
|
|
763,667
|
|
|
|
763,667
|
|
|
Goodwill
|
|
|
3,542,772
|
|
|
|
3,542,772
|
|
Definite
lived intangible assets (net of accumulated amortization of $313,560
in 2008 and $307,288 in 2007)
|
|
|
86,324
|
|
|
|
36,204
|
|
|
Deferred
tax asset
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Total
Noncurrent Assets
|
|
|
4,940,743
|
|
|
|
4,922,522
|
|
|
Total
Assets
|
|
$
|
6,756,527
|
|
|
$
|
7,025,341
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
24,145
|
|
|
$
|
23,051
|
|
|
Accounts
payable
|
|
|
49,353
|
|
|
|
40,470
|
|
|
Accrued
expenses and other current liabilities
|
|
|
313,329
|
|
|
|
371,458
|
|
|
Dividends
payable
|
|
|
-
|
|
|
|
290,540
|
|
|
Unexpended
marketing fund contributions
|
|
|
254,493
|
|
|
|
253,616
|
|
|
Deferred
franchise fee revenue
|
|
|
125,000
|
|
|
|
190,000
|
|
|
Deferred
licensing revenue
|
|
|
36,996
|
|
|
|
82,135
|
|
|
Total
Current Liabilities
|
|
|
803,316
|
|
|
|
1,251,270
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (net of current portion)
|
|
|
204,371
|
|
|
|
228,516
|
|
|
Deferred
revenue (net of current portion)
|
|
|
-
|
|
|
|
9,508
|
|
|
Total
Noncurrent Liabilities
|
|
|
204,371
|
|
|
|
238,024
|
|
|
Total
Liabilities
|
|
|
1,007,687
|
|
|
|
1,489,294
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock ($.001 par value; 15,000,000 shares authorized;
8,466,953
shares issued and 7,263,508 shares
outstanding as of
November 30, 2008 and 2007
|
|
|
13,508,257
|
|
|
|
13,508,257
|
|
|
Additional
paid-in capital
|
|
|
957,264
|
|
|
|
932,038
|
|
|
Treasury
stock
|
|
|
(222,781
|
)
|
|
|
(222,781
|
)
|
|
Accumulated
deficit
|
|
|
(8,493,900
|
)
|
|
|
(8,681,467
|
)
|
|
Total
Stockholders' Equity
|
|
|
5,748,840
|
|
|
|
5,536,047
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
6,756,527
|
|
|
$
|
7,025,341
|
|
See
accompanying notes
BAB,
Inc
Consolidated
Statements of Income
November
30, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
REVENUES
|
|
|
|
|
|
|
|
Royalty
fees from franchised stores
|
|
$
|
2,116,285
|
|
|
$
|
2,217,820
|
|
|
Net
sales by Company-owned stores
|
|
|
520,466
|
|
|
|
484,399
|
|
|
Franchise
fees
|
|
|
165,000
|
|
|
|
235,000
|
|
|
Licensing
fees and other income
|
|
|
976,059
|
|
|
|
1,057,680
|
|
|
Total
Revenues
|
|
|
3,777,810
|
|
|
|
3,994,899
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
Store
food, beverage and paper costs
|
|
|
167,991
|
|
|
|
155,800
|
|
|
Store
payroll and other operating expenses
|
|
|
458,066
|
|
|
|
437,024
|
|
|
Selling,
general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
Payroll
and payroll-related expenses
|
|
|
1,490,938
|
|
|
|
1,528,656
|
|
|
Occupancy
|
|
|
140,198
|
|
|
|
141,109
|
|
|
Advertising
and promotion
|
|
|
139,127
|
|
|
|
122,937
|
|
|
Professional
service fees
|
|
|
189,082
|
|
|
|
151,781
|
|
|
Travel
expenses
|
|
|
88,533
|
|
|
|
134,886
|
|
|
Depreciation
and amortization
|
|
|
38,960
|
|
|
|
44,812
|
|
|
Other
|
|
|
460,290
|
|
|
|
586,187
|
|
|
Total
Operating Expenses
|
|
|
3,173,185
|
|
|
|
3,303,192
|
|
|
Income
from operations
|
|
|
604,625
|
|
|
|
691,707
|
|
|
Interest
income
|
|
|
30,520
|
|
|
|
67,612
|
|
|
Interest
expense
|
|
|
(11,767
|
)
|
|
|
(15,606
|
)
|
|
Income
before provision for income taxes
|
|
|
623,378
|
|
|
|
743,713
|
|
|
Provision
(benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
Current
tax (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
Deferred
tax (benefit)
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
Net Income
|
|
$
|
623,378
|
|
|
$
|
1,243,713
|
|
|
Net
Income per share - Basic
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
Net
Income per share - Diluted
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - Basic
|
|
|
7,263,508
|
|
|
|
7,261,651
|
|
|
Weighted
average shares outstanding - Diluted
|
|
|
7,271,732
|
|
|
|
7,278,066
|
|
|
Cash
dividends declared per share
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
See
accompanying notes
BAB,
Inc
Consolidated
Statements of Stockholders’ Equity
November
30, 2008 and 2007
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
30, 2006
|
|
|
8,426,377
|
|
|
$
|
13,508,216
|
|
|
$
|
876,999
|
|
|
|
(1,203,445
|
)
|
|
$
|
(222,781
|
)
|
|
$
|
(9,198,846
|
)
|
|
$
|
4,963,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Exercised
|
|
|
40,576
|
|
|
|
41
|
|
|
|
20,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS
No. 123(R)
|
|
|
|
|
|
|
|
|
|
|
34,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(726,334
|
)
|
|
|
(726,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,243,713
|
|
|
|
1,243,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
30, 2007
|
|
|
8,466,953
|
|
|
|
13,508,257
|
|
|
|
932,038
|
|
|
|
(1,203,445
|
)
|
|
|
(222,781
|
)
|
|
|
(8,681,467
|
)
|
|
|
5,536,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS
No. 123(R)
|
|
|
|
|
|
|
|
|
|
|
25,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,811
|
)
|
|
|
(435,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623,378
|
|
|
|
623,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
30, 2008
|
|
|
8,466,953
|
|
|
$
|
13,508,257
|
|
|
$
|
957,264
|
|
|
|
(1,203,445
|
)
|
|
$
|
(222,781
|
)
|
|
$
|
(8,493,900
|
)
|
|
$
|
5,748,840
|
|
See
accompanying notes
BAB,
Inc
Consolidated
Statements of Cash Flow
November
30, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
623,378
|
|
|
$
|
1,243,713
|
|
|
Depreciation
and amortization
|
|
|
38,960
|
|
|
|
44,812
|
|
|
Provision
for uncollectible accounts, net of recoveries
|
|
|
2,072
|
|
|
|
(4,840
|
)
|
|
Share-based
compensation
|
|
|
25,226
|
|
|
|
34,415
|
|
|
Provision
for deferred taxes
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable and notes receivable
|
|
|
4,055
|
|
|
|
480
|
|
|
Restricted
cash
|
|
|
(22,024
|
)
|
|
|
(37,856
|
)
|
|
Marketing
fund contributions receivable
|
|
|
23,511
|
|
|
|
(7,278
|
)
|
|
Inventories
|
|
|
(7,385
|
)
|
|
|
2,102
|
|
|
Prepaid
expenses and other
|
|
|
(16,377
|
)
|
|
|
(29,137
|
)
|
|
Accounts
payable
|
|
|
8,883
|
|
|
|
(15,491
|
)
|
|
Accrued
liabilities
|
|
|
(57,201
|
)
|
|
|
(74,048
|
)
|
|
Unexpended
marketing fund contributions
|
|
|
877
|
|
|
|
67,137
|
|
|
Deferred
revenue
|
|
|
(119,647
|
)
|
|
|
(50,754
|
)
|
|
Net
Cash Provided by Operating Activities
|
|
|
504,328
|
|
|
|
673,255
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(991
|
)
|
|
|
(19,127
|
)
|
|
Proceeds
from sale of equipment
|
|
|
200
|
|
|
|
-
|
|
|
Capitalization
of trademark renewals
|
|
|
(56,392
|
)
|
|
|
(38,109
|
)
|
|
Net
Cash Used In Investing Activities
|
|
|
(57,183
|
)
|
|
|
(57,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Repayment
of borrowings
|
|
|
(23,051
|
)
|
|
|
(192,740
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
-
|
|
|
|
20,665
|
|
|
Payment
of dividends
|
|
|
(727,278
|
)
|
|
|
(726,318
|
)
|
|
Net
Cash Used In Financing Activities
|
|
|
(750,329
|
)
|
|
|
(898,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash
|
|
|
(303,184
|
)
|
|
|
(282,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
Beginning of Period
|
|
|
1,510,292
|
|
|
|
1,792,666
|
|
|
Cash,
End of Period
|
|
$
|
1,207,108
|
|
|
$
|
1,510,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
11,949
|
|
|
$
|
16,454
|
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Supplemental
disclosure of noncash investing and financing activities:
On
November 26, 2007, a quarterly $0.02 per share cash dividend and a $0.02 per
share special dividend was declared, payable January 4, 2008, and recorded as a
dividend payable in the amount of $290,540 at November 30, 2007.
See
accompanying notes
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
1 - Nature of Operations
BAB, Inc.
the (“Company”) was incorporated under the laws of the State of Delaware on July
12, 2000. The Company currently operates, franchises and licenses
bagel, muffin and coffee retail units under the Big Apple Bagels (“BAB”), My
Favorite Muffin (“MFM”) and Brewster’s Coffee trade names. The
Company additionally derives income from the sale of its trademark bagels,
muffin mix, cream cheese and coffee through nontraditional channels of
distribution, including under license agreements and through direct home
delivery of specialty muffin baskets and coffee.
The
Company has four wholly owned subsidiaries: BAB Systems, Inc. (Systems); BAB
Operations, Inc. (“Operations”); Brewster’s Franchise Corporation (“BFC”) and My
Favorite Muffin Too, Inc. Systems was incorporated on
December 2, 1992, and was primarily established to franchise BAB specialty bagel
retail stores. Operations was formed on August 30, 1995, primarily to
operate Company-owned 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. My Favorite
Muffin Too, Inc., a New Jersey corporation, was acquired on May 13,
1997. My Favorite Muffin Too, Inc. franchises (“MFM”) concept muffin
stores. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were
acquired on February 1, 1999. All branded wholesale business uses this
trademark.
Note
2 - Summary of Significant Accounting Policies
Principles of
Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Revenue
Recognition
Systems royalty fees represent a 5%
charge on franchised stores’ net retail and wholesale
sales.
Royalty revenues are recognized on the accrual basis
using estimates based on past history and seasonality.
The
Company recognizes franchise fee revenue upon the opening of a franchise
store. Direct costs associated with franchise sales are deferred
until the franchise fee revenue is recognized. These costs include
site approval, construction approval, commissions, blueprints and training
costs.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
2 - Summary of Significant Accounting Policies (Continued)
The
Company earns a licensing fee from the sale of par-baked bagels from a
third-party commercial bakery and from the sale of coffee from a coffee bean
roaster for the sale of BAB branded product to the franchised and licensed units
noted in the table below. Stores which have been opened, and unopened
stores for which a Franchise Agreement has been executed at November 30, 2008
and 2007 are as follows:
|
|
|
|
2008
|
|
2007
|
|
|
|
Stores
opened
|
|
|
|
|
|
|
|
Company-owned
|
|
1
|
|
1
|
|
|
|
Franchisee-owned
|
|
114
|
|
126
|
|
|
|
Licensed
|
|
3
|
|
2
|
|
|
|
|
|
118
|
|
129
|
|
|
|
Unopened
stores
|
|
|
|
|
|
|
|
Franchise
Agreement
|
|
5
|
|
7
|
|
|
|
|
|
123
|
|
136
|
|
Segments
In June
1997, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (SFAS) No. 131, “Disclosures about Segments of an
Enterprise and Related Information,” which established annual reporting
standards for an enterprise’s operating segments and related disclosures about
its products, services, geographic areas and major customers. The Company’s
operations are confined to two reportable segments operating in the United
States; Company-owned stores and franchise operations.
Marketing
Fund
Systems
established a Marketing Fund during 1994. Franchisees and the
Company-owned store are required to contribute to the Marketing Fund based on
their retail sales. The Marketing Fund also earns revenues from commissions paid
by certain vendors on the sale of BAB licensed products to
franchisees.
Cash
Bank
deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000. Deposits may from time to time exceed federally insured
limits. As of November 30, 2008 and 2007, the Marketing Fund cash
balances, which are accounted for separately as mandated by the FDD, were
$240,993 and $208,513, respectively. Also included in restricted cash
at November 30, 2008 and 2007 is a $53,001 and $63,457 certificate of deposit,
respectively, that serves as collateral for a Letter of Credit for the Corporate
Office facility, as required by the lease.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
2 - Summary of Significant Accounting Policies (Continued)
Accounts and Notes
Receivable
Receivables
are carried at original invoice amount less estimates made for doubtful
accounts. Certain receivables have been converted to unsecured
interest-bearing notes. Management determines the allowances for
doubtful accounts by reviewing and identifying troubled accounts on a periodic
basis by using historical experience applied to an aging of
accounts. A receivable is considered to be past due if any portion of
the receivable balance is outstanding 90 days past the due
date. Receivables are written off when deemed
uncollectible. Recoveries of receivables previously written off are
recorded as income when received
Inventories
Inventories
are valued at the lower of cost or market under the first-in, first-out (FIFO)
method.
Property, Plant and
Equipment
Property
and equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the
assets. Estimated useful lives are 3 to 7 years for property and
equipment and 10 years, or term of lease, if less, for leasehold
improvements. Maintenance and repairs are charged to expense as
incurred. Expenditures that materially extend the useful lives of
assets are capitalized.
Goodwill and Other
Intangible Assets
The
Company’s intangible assets consist primarily of trademarks and
goodwill. SFAS No. 142, ”Goodwill and Other Intangible Assets”
requires that assets with indefinite lives no longer be amortized, but instead
be subject to annual impairment tests using a discounted cash flow model to
determine the assets’ fair value. The Company no longer amortizes goodwill but
instead, the Company’s intangible assets are tested annually for impairment. No
impairment was recorded for the years ended November 30, 2008 and
2007.
The net
book value of intangible assets with definite lives totaled $86,324 and $36,204
at November 30, 2008 and 2007, respectively. The gross value of
definite lived intangible assets and their respective accumulated amortization
are as follows:
|
|
|
Accumulated
Amortization
|
|
|
Definite
Lived Intangible Assets
|
|
Original
Cost
|
|
|
As
of
November
30, 2008
|
|
|
Trademark
Renewals
|
|
$
|
94,502
|
|
|
$
|
8,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
Definite
Lived Intangible Assets
|
|
Original
Cost
|
|
|
As
of
November
30, 2007
|
|
|
Master
Lease Origination Fees
|
|
$
|
95,382
|
|
|
$
|
95,382
|
|
|
Trademark
Renewals
|
|
|
38,110
|
|
|
|
1,906
|
|
Definitive
lived intangible assets are being amortized over their useful
lives. Trademark renewal expenditures of $56,392 and $38,110 were
capitalized in 2008 and 2007, respectively and will be amortized over a 10 year
life. The Company recorded amortization expense for definitive lived
intangible assets of $6,272 and $4,802 for the years ended November 30, 2008 and
2007, respectively, and will record approximately $10,000 per year over the next
five years.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
2 - Summary of Significant Accounting Policies (Continued)
Advertising and Promotion
Costs
The
Company expenses advertising and promotion costs as
incurred. Advertising and promotion expense was $139,127 and $122,937
in 2008 and 2007, respectively. Included in advertising expense was
$96,760 and $74,564 in 2008 and 2007, respectively, related to the Company’s
franchise operations.
Income
Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The benefits from net
operating losses carried forward may be impaired or limited in certain
circumstances. In addition, a valuation allowance can be provided for
deferred tax assets when it is more likely than not that all or some portion of
the deferred tax asset will not be realized. The Company reduced the
valuation allowance on the net deferred tax assets by $500,000 for the period
ended November 30, 2007.
In July
2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of the Financial Accounting Standards Board (“FASB”) Statement
No. 109. FIN No. 48 clarifies the accounting and reporting for
uncertainties in income tax law. FIN No. 48 prescribes a
comprehensive model for the financial statement recognition, measurement,
presentation, and disclosure of uncertain tax positions taken or expected to be
taken in income tax returns. Effective December 1, 2007, the Company
adopted FIN No. 48. The Company files a consolidated U.S. income tax
return and tax returns in various state jurisdictions. Review of the
Company’s possible tax uncertainties as of November 30, 2008 did not result in
any positions requiring disclosure. Should the Company need to record
interest and/or penalties related to uncertain tax positions or other tax
authority assessments, it would classify such expenses as part of the income tax
provision. The Company has not changed any of its tax policies or
adopted any new tax positions during the fiscal year ended November 30, 2008 and
believes it has filed appropriate tax returns in all jurisdictions for which it
has nexus. This review included the Company’s net deferred income tax
asset of $500,000, which management believes will be realized over future
profitable years. (See Note 3.)
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
2 - Summary of Significant Accounting Policies (Continued)
Earnings Per
Share
The
Company computes earnings per share (“EPS”) under SFAS No. 128, “Earnings per
Share.” Basic net earnings are divided by the weighted average number
of common shares outstanding during the year to calculate basic net earnings per
common share. Diluted net earnings per common share are calculated to
give effect to the potential dilution that could occur if options or other
contracts to issue common stock were exercised and resulted in the issuance of
additional common shares.
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
623,378
|
|
|
$
|
1,243,713
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted
average outstanding shares
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,263,508
|
|
|
|
7,261,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per Share - Basic
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive common stock
|
|
|
8,224
|
|
|
|
16,415
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average outstanding shares
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
7,271,732
|
|
|
|
7,278,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - Diluted
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
At
November 30, 2008 and 2007, there are 309,500 and 267,500, respectively of
unexercised options that are not included in the computation of dilutive EPS
because their impact would be antidilutive based on current market
prices.
Stock-Based
Compensation
Effective
December 1, 2006, the Company adopted the provisions of FASB Statement No. 123
(revised 2004), “Share-Based Payment” (“SFAS 123R”) using the modified
prospective transition method. Under this method, the Company
recognizes compensation cost using a fair-value based method for all share-based
payments granted after November 30, 2006, plus any awards granted to employees
up through November 30, 2006 that remain unvested at that time. The
Company recorded compensation expense arising from share-based payment
arrangements in payroll-related expenses on the Condensed Consolidated Statement
of Operations for the Company’s stock option plan of $25,000 and $34,000 for the
year ended November 30, 2008 and 2007, respectively.
Fair Value of Financial
Instruments
The
carrying amounts of financial instruments including cash, accounts receivable,
notes receivable, accounts payable and short-term debt approximate their fair
values because of the relatively short maturity of these
instruments. The carrying value of long-term debt, including the
current portion, approximate fair value based upon market prices for the same or
similar instruments.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Recent Accounting
Pronouncements
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value,
establishes
a framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. Where
applicable, SFAS No. 157 simplifies and codifies related guidance within GAAP
and does not require any new fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. Effective December 1, 2007, the Company adopted SFAS No.
157. Adoption of SFAS No. 157 had no material impact on the Company’s
consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 allows entities to
measure at fair value many financial instruments and certain other assets and
liabilities that are not otherwise required to be measured at fair value. SFAS
No. 159 is effective for fiscal years beginning after November 15, 2007.
Effective December 1, 2007, the Company adopted SFAS No.
159. Adoption of SFAS No. 159 had no material effect on the Company’s
consolidated financial statements.
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 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 160 is effective for fiscal years beginning after
December 15, 2008 (Company’s Fiscal 2010). The Company does not
believe adoption of SFAS 160 will have a material effect on the Company’s
consolidated financial statements.
In May
2008 the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy). This statement is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversite Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company does not believe adoption of SFAS
No. 162 will have a material effect on the Company’s consolidated financial
statements.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
|
Note
3 - Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of the income tax expense (benefit) provision are as
follows:
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Federal
income tax provision computed at federal statutory rate
|
|
$
|
211,949
|
|
|
$
|
252,862
|
|
|
State
income taxes net of federal tax provision
|
|
|
30,034
|
|
|
|
35,832
|
|
|
Other
adjustments
|
|
|
2,763
|
|
|
|
10,879
|
|
|
Change
in valuation allowance
|
|
|
(194,555
|
)
|
|
|
(644,530
|
)
|
|
Utilization
of net operating losses
|
|
|
(50,191
|
)
|
|
|
(155,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
Tax Expense (Benefit)
|
|
$
|
-
|
|
|
$
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred
revenue
|
|
$
|
62,884
|
|
|
$
|
109,328
|
|
|
Deferred
rent revenue
|
|
|
15,215
|
|
|
|
15,912
|
|
|
Marketing
Fund net contributions
|
|
|
93,549
|
|
|
|
80,940
|
|
|
Allowance
for doubtful accounts
|
|
|
535
|
|
|
|
2,395
|
|
|
Allowance
for doubtful accounts-notes receivable
|
|
|
956
|
|
|
|
5,155
|
|
|
Accrued
expenses
|
|
|
20,706
|
|
|
|
20,707
|
|
|
Net
operating loss carryforwards
|
|
|
2,348,092
|
|
|
|
2,398,332
|
|
|
Valuation
allowance
|
|
|
(988,730
|
)
|
|
|
(1,232,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Deferred Income Tax Assets
|
|
|
1,553,207
|
|
|
|
1,400,467
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(1,044,931
|
)
|
|
|
(895,694
|
)
|
|
Franchise
Costs
|
|
|
(8,276
|
)
|
|
|
(4,773
|
)
|
|
Total
Deferred Income Tax Liabilities
|
|
|
(1,053,207
|
)
|
|
|
(900,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Deferred Tax Assets/Liabilities
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
As of
November 30, 2008, the Company has net operating loss carryforwards expiring
between 2012 and 2021 for U.S. federal income tax purposes of approximately
$6,049,000. A valuation allowance has been established for $989,000
and $1,232,000 as of November 30, 2008 and 2007, respectively, for the deferred
tax benefit related to those loss carryforwards and other deferred tax assets,
that are more likely than not that the deferred tax asset will not be
realized. The reduction in the valuation allowance of $243,000 in
2008 is a result of recognition of a portion of the net operating loss
carryforwards, a reduction of certain other deferred tax assets and an increase
in deferred tax liabilities relating to depreciation and
amortization.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
4 - Long-Term Debt
On
September 6, 2002, the Company signed a note payable requiring annual
installments of $35,000, including interest at a rate of 4.75% per annum, for a
term of 15 years, in the original amount of $385,531. The Company
purchased and retired 1,380,040 shares of BAB common stock from a former
stockholder. The balance of this note payable was $228,516 and
$251,567 as of November 30, 2008 and 2007, respectively.
As of
November 30, 2008, annual maturities on long-term obligations due are as
follows:
|
Year
Ending November 30:
|
|
|
|
|
|
2009
|
|
$
|
24,145
|
|
|
2010
|
|
$
|
25,292
|
|
|
2011
|
|
$
|
26,494
|
|
|
2012
|
|
$
|
27,752
|
|
|
2013
|
|
$
|
29,070
|
|
|
Thereafter
|
|
$
|
95,763
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
228,516
|
|
Note 5 - Stockholders’
Equity
On March
5, 2008, June 13, 2008, and September 10, 2008, a $.02 per share dividend was
declared, and was paid on April 10, 2008, July 8, 2008, and October 6, 2008,
respectively. On December 4, 2008, a $0.02 per share quarterly cash
dividend was declared and paid January 2, 2009 to shareholders of record as of
December 18, 2008. On March 9, 2007, June 5, 2007, and September 5,
2007, a $.02 per share dividend was declared, and was paid on April 10, 2007,
July 2, 2007, and October 2, 2007, respectively. On November 26,
2007, a $.02 quarterly dividend and a $.02 special dividend was declared,
payable January 4, 2008. A dividend payable, in the amount of $290,540, was
recorded at November 30, 2007.
Note
6 - Stock Options
In May
2001, the Company approved a Long-Term Incentive and Stock Option Plan
(Plan). The Plan reserves 1,400,000 shares of common stock for grant,
all of which have been granted as of November 30, 2008. The Plan will
terminate on May 25, 2011. The Plan permits granting of awards to
employees and non-employee Directors and agents of the Company in the form of
stock appreciation rights, stock awards and stock options. The Plan
is currently administered by a Committee of the Board of Directors appointed by
the Board. The Plan gives broad powers to the Board and Committee to
administer and interpret the Plan, including the authority to select the
individuals to be granted options and rights, and to prescribe the particular
form and conditions of each option or right granted.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
6 - Stock Options (Cont’d)
Under the
Plan, the exercise price of each option equals the market price of the Company’s
stock on the date of grant. The options granted vary in vesting from
immediate to a vesting period over five years. The options granted
are exercisable within a 10 year period from the date of grant. All
stock issued from the granted options must be held for one year from date of
exercise. Options issued and outstanding expire on various dates
through November 28, 2016. Range of exercise prices of options
outstanding as of November 30, 2008 are $0.46 to $1.27.
Activity
under the Plan during the two years ended November 30 is as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Options
|
|
|
Weighted
average exercise price
|
|
|
Options
|
|
|
Weighted
average exercise price
|
|
|
Options
outstanding at beginning of year
|
|
|
392,373
|
|
|
$
|
1.121
|
|
|
|
432,949
|
|
|
$
|
1.064
|
|
|
Granted
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
$
|
0.00
|
|
|
Forfeited
|
|
|
(23,000
|
)
|
|
$
|
1.129
|
|
|
|
0
|
|
|
$
|
0.00
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
(40,576
|
)
|
|
$
|
0.509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of year
|
|
|
369,373
|
|
|
$
|
1.121
|
|
|
|
392,373
|
|
|
$
|
1.121
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
Range
of exercise price
|
|
|
Options
outstanding
|
|
|
Weighted
average remaining contractual life
|
|
|
Weighted
average exercise price
|
|
|
Options
exercisable
|
|
|
Weighted
average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
|
7,973
|
|
|
|
5.0
|
|
|
$
|
0.460
|
|
|
|
7,973
|
|
|
$
|
0.460
|
|
|
$
|
0.60
|
|
|
|
10,000
|
|
|
|
5.6
|
|
|
$
|
0.600
|
|
|
|
10,000
|
|
|
$
|
0.600
|
|
|
$
|
0.88
- $0.97
|
|
|
|
61,900
|
|
|
|
6.2
|
|
|
$
|
0.938
|
|
|
|
61,900
|
|
|
$
|
0.938
|
|
|
$
|
0.86
|
|
|
|
20,000
|
|
|
|
6.5
|
|
|
$
|
0.860
|
|
|
|
20,000
|
|
|
$
|
0.860
|
|
|
$
|
1.15
- $1.27
|
|
|
|
69,500
|
|
|
|
7.0
|
|
|
$
|
1.219
|
|
|
|
46,334
|
|
|
$
|
1.219
|
|
|
$
|
0.97
|
|
|
|
20,000
|
|
|
|
8.0
|
|
|
$
|
0.970
|
|
|
|
20,000
|
|
|
$
|
0.970
|
|
|
$
|
1.25
|
|
|
|
180,000
|
|
|
|
8.0
|
|
|
$
|
1.250
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
369,373
|
|
|
|
|
|
|
$
|
1.121
|
|
|
|
166,207
|
|
|
$
|
0.968
|
|
The
aggregate intrinsic value in the table below is before income taxes, based on
the Company’s closing stock price of $.66 as of the last business day of the
period ended November 30, 2008. There were no options exercised in
2008 and total intrinsic value of those options exercised during the year ended
November 30, 2007 was $200.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
6 - Stock Options and (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
Outstanding
|
|
|
Wghtd.
Avg.
|
|
|
Wghtd.
Avg.
|
|
|
Aggregate
|
|
|
Exercisable
|
|
|
Wghtd.
Avg.
|
|
|
Aggregate
|
|
|
at
11/30/08
|
|
|
Remaining
Life
|
|
|
Exercise
Price
|
|
|
Intrinsic
Value
|
|
|
at
11/30/08
|
|
|
Exercise
Price
|
|
|
Intrinsic
Value
|
|
|
|
369,373
|
|
|
|
7.30
|
|
|
$
|
1.12
|
|
|
$
|
-
|
|
|
|
166,207
|
|
|
$
|
0.97
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded compensation cost arising from share-based payment arrangements
in payroll-related expenses on the Condensed Consolidated Statement of
Operations for the Company’s stock option plan of $25,000 and $34,000 for the
years ended November 30, 2008 and 2007, respectively.
Note
7 - Commitments
The
Company rents its Corporate Office, Company-owned store and property occupied by
two tenants located in Lincoln, NE under leases which require it to pay real
estate taxes, insurance and general repairs and maintenance. Rent
expense for the years ended November 30, 2008 and 2007 was $123,898 and
$119,449, net of sublease income of $130,420 and $127,666,
respectively. Monthly rent is recorded on a straight-line basis over
the term of the lease with a deferred rent liability being
recognized. As of November 30, 2008, future minimum annual rental
commitments under leases, net of sublease income of $134,259 in 2009 and $11,245
in 2010 are as follows:
|
Year
Ending November 30:
|
|
|
2009
|
|
$
|
138,011
|
|
|
2010
|
|
$
|
150,177
|
|
|
2011
|
|
$
|
72,859
|
|
|
2012
|
|
$
|
3,849
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
364,896
|
|
Note
8 – Employee Benefit Plan
The
Company maintains a qualified 401(k) plan which allows eligible participants to
make pretax contributions. Company contributions are
discretionary. The Company did not make a contribution in 2008 but
contributed $15,000 in 2007.
BAB,
Inc
Notes
to the Consolidated Financial Statements
November
30, 2008 and 2007
Note
9 - Segment Information
Segment
information has been reclassified to reflect licensing fees revenue, goodwill
and certain definite lived assets and the amortization expense related to these
intangibles in Systems, so as to reflect a truer segment income stream and asset
relationship, as the business is focused on the franchise division.
The
following tables present segment information for the years ended November 30,
2008 and 2007:
|
|
|
Net
Revenues
|
|
|
Operating
Income (Loss)
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Company
Store Operations
|
|
$
|
822,224
|
|
|
$
|
890,972
|
|
|
$
|
(148,007
|
)
|
|
$
|
(141,544
|
)
|
|
Franchise
Operations and Licensing Fees
|
|
|
2,955,586
|
|
|
|
3,103,927
|
|
|
|
1,719,059
|
|
|
|
1,800,333
|
|
|
|
|
$
|
3,777,810
|
|
|
$
|
3,994,899
|
|
|
$
|
1,571,052
|
|
|
$
|
1,658,789
|
|
|
Corporate
Expenses
|
|
|
|
|
|
|
|
|
|
|
(966,427
|
)
|
|
|
(967,082
|
)
|
|
Interest
Income, Net of Interest Expense
|
|
|
|
|
|
|
|
|
|
|
18,753
|
|
|
|
52,006
|
|
|
Net
Income before provision for taxes
|
|
|
|
|
|
|
|
|
|
$
|
623,378
|
|
|
$
|
743,713
|
|
|
Income
tax expense benefit
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
500,000
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
$
|
623,378
|
|
|
$
|
1,243,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
|
|
|
Capital
|
|
|
Depreciation
and
|
|
|
|
|
Assets
|
|
|
Expenditures
|
|
|
Amortization
|
|
|
Year
Ended November 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Company
Store Operations
|
|
$
|
74,336
|
|
|
$
|
1,091
|
|
|
$
|
6,522
|
|
|
Franchise
Operations (other than goodwill)
|
|
|
728,697
|
|
|
|
56,392
|
|
|
|
32,438
|
|
|
Goodwill
and Other Intangible Assets
|
|
|
4,306,439
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,109,472
|
|
|
$
|
57,483
|
|
|
$
|
38,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended November 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Store Operations
|
|
$
|
74,891
|
|
|
$
|
848
|
|
|
$
|
20,237
|
|
|
Franchise
Operations (other than goodwill)
|
|
|
732,174
|
|
|
|
56,389
|
|
|
|
24,575
|
|
|
Goodwill
and Other Intangible Assets
|
|
|
4,306,439
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,113,504
|
|
|
$
|
57,237
|
|
|
$
|
44,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
to Total Assets as Reported
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets-Total
reportable segments - Identifiable assets
|
|
$
|
5,109,472
|
|
|
$
|
5,113,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,501,102
|
|
|
|
1,782,262
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
145,953
|
|
|
|
129,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consolidated Assets
|
|
$
|
6,756,527
|
|
|
$
|
7,025,341
|
|
|
|
|
|
There
were no sales to any individual customer during either year in the two-year
period ended November 30, 2008 that represented 10% or more of net
sales.
ITEM
8. C
HANG
ES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM
8A. C
ONTR
OLS AND PROCEDURES
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Chief
Executive Officer and the Chief Financial Officer, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principals.
Our
evaluation of internal control over financial reporting includes using the COSO
framework, an integrated framework for the evaluation of internal controls
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
to identify the risks and control objectives related to the evaluation of our
control environment.
Based on
our evaluation under the framework described above, our management, including
the Chief Executive Officer and Chief Financial Officer, concluded that the
Company’s disclosure controls and procedures were effective over financial
reporting as of November 30, 2008.
Additionally,
there were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the evaluation
date. We have not identified any significant deficiencies or material weaknesses
in our internal controls, and therefore there were no corrective actions
taken.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation
requirements by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permits the
Company to provide only management’s report in this annual report.
ITEM
8B. OT
HER
INFORMATION
None
PART
III
ITEM
9. DI
RECTO
RS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Section
16(a) of the Securities Exchange Act of 1934 requires the Company's executive
officers and directors, and persons who beneficially own more than ten percent
of the Company's Common Stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission (the "SEC").
Executive officers, directors and greater than ten percent beneficial owners are
required by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
Based
upon a review of the copies of such forms furnished to the Company, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers and directors were met during the year ended November 30,
2008.
BAB, Inc.
(the Company) has a formally established Code of Ethics, pursuant to Section 406
of the Sarbanes-Oxley Act. In order to view the Code of Ethics in its
entirety, see the BAB, Inc. Annual Report, Part III, Item 9, dated November 30,
2007 and filed with the Securities and Exchange Commission on February 28,
2008.
ITEM
10. EX
EC
UTIVE COMPENSATION
The
following table sets forth the cash compensation by executive officers that
received annual salary and bonus compensation of more than $100,000 during years
2008 and 2007 (the "Named Executive Officers"). The Company has no employment
agreements with any of its executive officers.
Summary
Compensation Table
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
Options
Awards
($)
|
|
Nonequity Incentive Plan
Compensation
(S)
|
|
Non-qualified
deferred Compensation earnings
(S)
|
|
|
All
other compensation
($)
|
|
|
Total
($)
|
|
|
Michael
W. Evans
|
|
2008
|
|
|
249,831
|
|
|
|
57,187
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
29,239
|
|
|
|
336,257
|
|
|
President
and CEO
|
|
2007
|
|
|
249,831
|
|
|
|
64,761
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
32,066
|
|
|
|
346,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
K. Murtaugh
|
|
2008
|
|
|
187,380
|
|
|
|
42,891
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
23,383
|
|
|
|
253,654
|
|
|
Vice
President and General Counsel
|
|
2007
|
|
|
187,380
|
|
|
|
48,572
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
26,299
|
|
|
|
262,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
M Gorden
|
|
2008
|
|
|
133,686
|
|
|
|
8,800
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
143,120
|
|
|
Chief
Financial Officer
|
|
2007
|
|
|
133,686
|
|
|
|
11,000
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
634
|
|
|
|
145,320
|
|
The
following tables set forth any stock or stock options awarded to executive
officers that that are exercisable and not yet exercised or unexercisable as of
November 30, 2008:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
Name
|
|
Number
of securities underlying unexercised options
(#)
Exercisable
|
|
|
Number
of securities underlying unexercised options
(#)
Unexercisable
|
|
|
Equity
incentive plan awards: number of securities underlying unexercised
unearned options
(#)
|
|
|
Option exercise price
($)
|
|
Option
expiration date
|
|
Michael
W. Evans
|
|
|
20,000
|
|
|
|
|
|
|
-
|
|
|
|
.97
|
|
2015
|
|
President
and CEO
|
|
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
1.27
|
|
2016
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
1.25
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
K. Murtaugh
|
|
|
20,000
|
|
|
|
|
|
|
|
-
|
|
|
|
.97
|
|
2015
|
|
Vice
President and General Counsel
|
|
|
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
1.27
|
|
2016
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
1.25
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
M Gorden
|
|
|
1,833
|
|
|
|
|
|
|
|
-
|
|
|
|
.51
|
|
2014
|
|
Chief
Financial Officer
|
|
|
6,000
|
|
|
|
|
|
|
|
-
|
|
|
|
.88
|
|
2015
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
1.15
|
|
2015
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
1.25
|
|
2016
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
(Continued)
|
Name
|
|
Number
of shares or units of stock that have not vested
(#)
|
|
|
Market
value of shares or units of stock that have not vested
($)
|
|
|
Equity
incentive plan awards: number of unearned shares, units or other rights
that have not vested
(#)
|
|
|
Equity
incentive plan awards: market or payout value of unearned shares, units or
other rights that have not vested
($)
|
|
|
Michael
W. Evans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
President
and CEO
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
K. Murtaugh
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Vice
President and General Counsel
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
M Gorden
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Chief
Financial Officer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
following table sets forth any compensation paid to directors during fiscal year
ended November 30, 2008:
DIRECTOR
COMPENSATION
Compensation
for fiscal year ended November 30, 2008
|
Name
|
|
Fees
earned or paid in cash
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)
|
|
|
Non-equity
incentive plan compensation
($)
|
|
|
Non-qualifies
deferred compensation earnings
($)
|
|
|
All
other compensation
($
)
|
|
|
Total
($)
|
|
|
Steven
Feldman
|
|
|
2,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Lentz
|
|
|
2,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,800
|
|
Indemnification of Directors
and Officers
The
Company's Certificate of Incorporation limits personal liability for breach of
fiduciary duty by its directors to the fullest extent permitted by the Delaware
General Corporation Law (the "Delaware Law"). Such Certificate eliminates the
personal liability of directors to the Company and its shareholders for damages
occasioned by breach of fiduciary duty, except for liability based on breach of
the director's duty of loyalty to the Company, liability for acts or omissions
not made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payments or improper dividends, liability based
on violation of state securities laws, and liability for acts occurring prior to
the date such provision was added. Any amendment to or repeal of such provisions
in the Company's Certificate of Incorporation shall not adversely affect any
right or protection of a director of the Company for with respect to any acts or
omissions of such director occurring prior to such amendment or
repeal.
In
addition to the Delaware Law, the Company's Bylaws provide that officers and
directors of the Company have the right to indemnification from the Company for
liability arising out of certain actions to the fullest extent permissible by
law. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to such indemnification provisions, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM
11. SECU
RITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth as of February 5, 2009 the record and beneficial
ownership of Common Stock held by (i) each person who is known to the Company to
be the beneficial owner of more than 5% of the Common Stock of the Company; (ii)
each current director; (iii) each "named executive officer" (as defined in
Regulation S-B, Item 402 under the Securities Act of 1933); and (iv) all
executive officers and directors of the Company as a group. Securities reported
as "beneficially owned" include those for which the named persons may exercise
voting power or investment power, alone or with others. Voting power and
investment power are not shared with others unless so stated. The number and
percent of shares of Common Stock of the Company beneficially owned by each such
person as of February 5, 2009 includes the number of shares which such person
has the right to acquire within sixty (60) days after such date.
|
Name
and Address
|
|
Shares
|
Percentage
|
|
Michael
W. Evans
500
Lake Cook Road, Suite 475
Deerfield,
IL 60015
|
|
2,839,946
(1)(2)(3)(4)
|
38.34
|
|
|
|
Michael
K. Murtaugh
500
Lake Cook Road, Suite 475
Deerfield,
IL 60015
|
|
2,698,533
(1)(2)(4)(5)
|
36.44
|
|
|
|
Holdings
Investment, LLC
220
DeWindt Road
Winnetka,
IL 60093
|
|
2,096,195
(1)
|
28.30
|
|
|
|
Jeffrey
M. Gorden
500
Lake Cook Road, Suite 475
Deerfield,
IL 60015
|
|
92,500
(6)
|
1.25
|
|
|
|
Steven
G. Feldman
750
Estate Drive, Suite 104
Deerfield,
IL 60015
|
|
40,000
(7)
|
.54
|
|
|
|
James
A. Lentz
1415
College Lane South
Wheaton,
IL 60189
|
|
34,932
(8)
|
.47
|
|
|
|
All
executive officers and directors as a group (5 persons)
|
|
3,609,716
(1)(2)(3)(4)(5)(6)(7)(8)
|
48.74
|
(1)
Includes all shares held of record by Holdings Investments, LLC. Messrs. Evans
and Murtaugh are members and managers of the LLC and together control all voting
power of the stock owned by the LLC.
(2)
Includes 40,000 stock options fully exercisable as of 2/05/09.
(3)
Includes 3,500 shares inherited by spouse.
(4)
Includes 22,222 shares held by children.
(5)
Includes 5,004 shares held in an IRA.
(6)
Includes 12,833 stock options fully exercisable as of 2/05/09.
(7)
Includes 30,000 stock options fully exercisable as of 2/05/09.
(8)
Includes 20,000 stock options fully exercisable as of 2/05/09.
ITEM
12. CER
TAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
There are
no transactions between the Company and related parties, including officers and
directors of the Company. It is the Company's policy that it will not enter into
any transactions with officers, directors or beneficial owners of more than 5%
of the Company's Common Stock, or any entity controlled by or under common
control with any such person, on terms less favorable to the Company than could
be obtained from unaffiliated third parties and all such transactions require
the consent of the majority of disinterested members of the Board of
Directors.
ITEM
13. E
XHI
BITS AND REPORTS ON FORM 8-K
See Index
to Exhibits
ITEM
14. PRI
NCIPA
L ACCOUNTANT FEES AND SERVICES
The Board
of Directors upon recommendation of the Audit Committee, appointed the firm
Frank L. Sassetti & Company, certified public accountants for 2008 audit and
tax services.
On May
23, 2007, BAB, Inc. (“Company”) dismissed McGladrey & Pullen, LLP as its
independent registered public accounting firm. This action was
approved by the Company’s Board of Directors. On May 23, 2007, the
Company engaged Frank L. Sassetti & Co. to be its independent registered
public accounting firm. The Company’s engagement of Frank L. Sassetti
& Co. was recommended by the Audit Committee and approved by the Company’s
Board of Directors.
The audit
reports of Frank L. Sassetti & Company on the consolidated financial
statements of BAB, Inc. and Subsidiaries as of and for the years ended November
30, 2008 and 2007 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.
In
connection with the audits of the Company’s consolidated financial statements
for each of the fiscal years ended November 30, 2008 and 2007, and through the
date of this Current Report, there were: (1) no disagreements between the
Company and Frank L. Sassetti & Co. on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements, if not resolved to the satisfaction of Frank L. Sassetti
& Co., would have caused Frank L. Sassetti & Co. to make reference to
the subject matter of the disagreement in their reports on the Company’s
financial statements for such years, and (2) no reportable events within the
meaning set forth in Item 304(a)(1)(iv)(B) of Regulation S-B.
Audit
fees relate to audit work performed on the financial statements as well as work
that generally only the independent auditor can reasonably be expected to
provide, including discussions surrounding the proper application of financial
accounting and/or reporting standards and reviews of the financial statements
included in quarterly reports filed on Form 10-Q. Fees for audit
services provided by Frank L. Sassetti & Company in fiscal 2008 amounted to
$60,600. Fees for audit services provided by Frank L. Sassetti &
Company for fiscal 2007 amounted to $54,000 and fees for audit services provided
by McGladrey and Pullen, LLP amounted to $20,500 for the year ended November 30,
2007.
Tax
compliance services were provided by Frank L. Sassetti & Co. for 2008 with
fees billed in the amount of $11,000 and RSM McGladrey billed $1,500 for
2008. RSM McGladrey provided tax compliance services for 2007 with
fees billed amounting to $18,300.
During
the years ended November 30, 2008 and 2007, Frank L. Sassetti & Co. and
McGladrey & Pullen
,
LLP did not perform any management consulting services for the
Company.
Preapproval of Policies and
Procedures by Audit Committee
The
accountants provide a quote for services to the Audit Committee before work
begins for the fiscal year. After discussion, the Audit Committee
then makes a recommendation to the Board of Directors on whether to accept the
proposal.
Percentage of Services
Approved by Audit Committee
All
services were approved by the Audit Committee.
INDEX
TO EXHIBITS
The
following Exhibits are filed herewith:
|
INDEX
NUMBER
|
DESCRIPTION
|
|
3.1
|
Articles
of Incorporation (See Form 10-KSB for year ended November 30,
2006)
|
|
3.2
|
Bylaws
of the Company (See Form 10-KSB for year ended November 30,
2006)
|
|
21.1
|
List
of Subsidiaries of the Company
|
|
|
Section
302 of the Sarbanes-Oxley Act of 2002
|
|
|
Section
906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURES
In
accordance with Section 13 of the Exchange Act, the Small Business Issuer has
duly caused this report on Form 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAB,
INC.
Dated:
February 20, 2009
By
/s/ Michael W. Evans
Michael
W. Evans, Chief Executive Officer and President (Principal Executive
Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report on Form
10-KSB has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Dated:
February 20, 2009
By
/s/ Michael W. Evans
Michael
W. Evans, Chief Executive Officer and President (Principal Executive
Officer)
Dated:
February 20, 2009
By
/s/ Michael K. Murtaugh
Michael
K. Murtaugh, Director and Vice President/General Counsel and
Secretary
Dated:
February 20, 2009
By
/s/ Jeffrey M. Gorden
Jeffrey
M. Gorden, Chief Financial Officer and Treasurer (Principal Financial and
Accounting Officer)
Dated:
February 20, 2009
By
/s/ Steven G. Feldman
Steven G.
Feldman, Director
Dated:
February 20, 2009
By
/s/ James A. Lentz
James A.
Lentz, Director
EXHIBIT 3.1 - Certificate of
Incorporation
See Form
10-KSB for year ended November 30, 2006
EXHIBIT
3.2 - Bylaws of BAB, Inc.
See Form
10-KSB for year ended November 30, 2006
EXHIBIT
21.1 – List of Subsidiaries of the Company
BAB
Systems, Inc., an Illinois corporation
BAB
Operations, Inc., an Illinois corporation
Brewster’s
Franchise Corporation, an Illinois corporation
My
Favorite Muffin Too, Inc., a New Jersey corporation
BAB (QB) (USOTC:BABB)
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BAB (QB) (USOTC:BABB)
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