FORM 10-KSB

U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 

(Mark one)

| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    EXCHANGE ACT OF 1934 
For the fiscal year ended: November 26, 2000 [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES    EXCHANGE ACT OF 1934 
For the transition period from ______ to ______ 

Commission file number: 0-31555 
 

BAB, Inc. 

(Name of small business issuer in its charter) 
Delaware 
36-4389547(State or other jurisdiction of incorporation)(IRS Employer  or organization Identification No.)
8501 West Higgins Road, Suite 320, Chicago, Illinois 60631 

(Address of principal executive offices) (Zip Code) 

Issuer's telephone number: (773) 380-6100 

Check whether the issuer: (1) filed all reports required to be filed by Section13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. 

[X] Yes [ ] No 

Check if there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B is not contained in this form, and no disclosure will be contained, to thebest of registrant's knowledge, in definitive proxy or information statements incorporatedby reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] 

State issuer's revenues for its most recent fiscal year: 

$13,568,112 

State the aggregate market value of the voting stock held by nonaffiliatescomputed by reference to the price at which the stock was sold, or the average bid andasked prices of such stock, as of a specified date within the past 60 days: $407,111 basedon 1,117,287 shares held by nonaffiliates as of February 21, 2001 and the average of theclosing bid ($0.219) and asked ($0.51) prices for said shares in the NASDAQ OTC BulletinBoard as of such date. 

State the number of shares outstanding of each of the issuer's classes of commonequity, as of the latest practicable date: 2,237,640 shares of Common Stock, as ofFebruary 21, 2001. 

DOCUMENTS INCORPORATED BY REFERENCE 

The Company's definitive proxy materials to be filed on or before March 31, 2001are incorporated by reference in Part III of Form 10-KSB. In addition, certain exhibitsidentified in Part III, Item 13 are incorporated by reference to said exhibits aspreviously filed with the Commission. 

Transitional Small Business Disclosure Format (check one): 

[ ] Yes [X] No 

 

 

FORM 10-KSB INDEX 
PART I Item 1Description of BusinessOverviewRisk Factors Recent AcquisitionsLocationsStore OperationsFranchising Competition Trademarks and Service Marks Government Regulation Employees Item 2 Description of PropertyItem 3Legal ProceedingsItem 4  Submission of Matters to a Vote of Security HoldersPART IIItem 5.  Market for the Common Equity and Related Stockholder    MattersItem 6. Management's Discussion and Analysis of Financial    Condition and Results of OperationsItem 7. Financial StatementsItem 8.  Changes in and Disagreement with Accountants on    Accounting and Financial DisclosurePART III Item 9. Directors, Executive Officers, Promoters and Control    Persons; Compliance with Section 16(a) of the Exchange ActItem 10.  Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and    Management Item 12. Certain Relationships and Related TransactionsItem 13. Exhibits and Reports on Form 8-K
**PART I**
ITEM 1.DESCRIPTION OF BUSINESS  OVERVIEW
BAB, Inc. (the Company) was incorporated under the laws of the State of Delawareon July 12, 2000. After an affirmative vote of the shareholders of BAB Holdings, Inc.,(Holdings), Holdings was merged into the Company on November 1, 2000. The combinedcompanies then merged with Planet Zanett, Inc. (PZ) on November 1, 2000. On November 13,2000, the Company was spun off from PZ to the former shareholders of Holdings. The Companycurrently operates, franchises and licenses bagel, muffin and coffee retail units underthe Big Apple Bagels, My Favorite Muffin and Brewster's Coffee trade names. At November26, 2000, the Company had 242 units in operation in 28 states, two Canadian provinces,Egypt and Peru. The Company additionally derives income from the sale of its trademarkbagels, muffins and coffee through nontraditional channels of distribution including underlicensing agreements with HMS Host (HMS), Mrs. Fields Famous Brands (Mrs. Fields), AlontiCafe and Kohr Bros. Frozen Custard and through direct home delivery of specialty muffingift baskets and coffee. 

The Big Apple Bagels brand franchise and Company-owned stores feature dailybaked "from scratch" bagels, flavored cream cheeses, premium coffees, gourmetbagel sandwiches and other related products. Licensed Big Apple Bagels units serve theCompany's par-baked frozen bagel products, freshly baked daily, and related products. TheMy Favorite Muffin brand consists of units operating as "My Favorite Muffin,"featuring a large variety of freshly baked muffins, coffees and related products, andunits operating as "My Favorite Muffin and Bagel Cafe," featuring these productsas well as a variety of specialty bagel sandwiches and related products. The Company'sBrewster's Coffee units are specialty coffee shops featuring a variety of premium arabicabean coffees--freshly brewed or in bulk--and related products. Big Apple Bagels units areconcentrated in the Midwest and Western United States, while My Favorite Muffin units areclustered in the Middle Atlantic States and Florida. Brewster's Coffee units are currentlylocated in Ohio. The Brewster's coffee products are featured in all Company-owned and manyof the franchised units. 

The Company has grown significantly since its initial public offering inNovember 1995 through growth in franchise units, Company-store development, acquisitionsand the development of alternative distribution channels for its branded products. TheCompany intends to continue its expansion through these means in the future. With theacquisition of My Favorite Muffin Too, Inc. (MFM) on May 13, 1997, the Company immediatelyadded 60 franchise and five Company-operated units. Through this acquisition the Companyis leveraging on the natural synergy of distributing muffin products in existing Big AppleBagels units and, alternatively, bagel products and Brewster's Coffee in existing MyFavorite Muffin units. Additionally, in February 1999, the Company acquired eight bagelstore units and a commissary doing business as Jacobs Bros. Bagels ("JacobsBros.") in Chicago, Illinois.  Most of the units have been converted toCompany-owned or franchised tri-branded stores and three continue to operate under theJacobs Bros. Bagels trade name. The Company expects to realize efficiencies in servicingthe combined base of Big Apple Bagels and My Favorite Muffin franchisees as a result ofthese acquisitions. 

 
RISK FACTORS
Limited Operating History 

The Company's predecessor was formed in November 1992. As of November 26, 2000,the Company had 14 Company-owned stores and 228 franchised and licensed stores inoperation. The company's growth from 2 Company-owned and 59 franchise units at the time ofits initial public offering in November 1995 has been achieved primarily throughacquisitions. Consequently, the Company's operating results achieved to date may not beindicative of the results that may be achieved in the future by the Company. 

Operating Losses 

The Company reported losses of $308,000 for the year ended November 26,2000, and $3,465,000 for the year ended November 28, 1999.  However, the Companybelieves that with a renewed focus on its franchising and licensing operations andselected investment in its Company-owned stores, it will generate revenues sufficient toexceed the expenses necessary to support its operations in the foreseeable future. 

Recent Acquisitions 

The Company's strategic plan has included growth through business acquisitions.In February 1999, the Company acquired Jacobs Bros. As a result of acquisitions sinceinception, the Company has grown significantly in size,has expanded thegeographic area in which it operates and has added product lines and distributionchannels. Any acquisition involves inherent uncertainties, such as the effect on theacquired businesses of integration into a larger organization and the availability ofmanagement resources to oversee the operations of the acquired business. The Company'sability to integrate the operations of acquired businesses is essential to its futuresuccess. There can be no assurance as to the Company's ability to integrate new businessesor as to its success in managing the significantly larger operations resulting therefrom.Additionally, amortization of intangible assets recorded as a result of the acquisitionswill have a significant impact on future operating results. 

Recoverability of Intangible Assets 

The Company has recorded significant intangible assets in connection withcertain acquisitions. Applicable accounting standards require the Company to reviewlong-lived assets (such as goodwill and other identifiable intangible assets) to be heldand used by the Company for impairment whenever events or changes in circumstancesindicate that the carrying values of those assets may not be recoverable. In the fourthquarter of 1999, the Company recorded a restructuring charge of$1,600,000.Of this amount,$113,000 related to intangible assets. (See "Management's Discussionand Analysis" and Note 4 of the audited consolidated financial statements includedherein.) While management believes goodwill and other identifiable intangible assetsrecorded as of November 26, 2000 to be fairly stated, it is possible that additionalcharges to write down assets will be required in the future. Any such charges could have amaterial adverse effect on the Company's financial results. 

Rapid Growth 

The Company has grown significantly since inception and expects continued growthin franchising and licensed product distribution to continue in the future. The openingand success of franchised Big Apple Bagels, Brewster's Coffee and My Favorite Muffinstores will depend on various factors, including customer acceptance of these concepts innew markets, the availability of suitable sites, the negotiation of acceptable lease orpurchase terms for new locations, permit and regulatory compliance, the ability to meetconstruction schedules, the financial and other capabilities of the Company and itsfranchisees, the ability of the Company to successfully manage this anticipated expansionand to hire and train personnel, and general economic and business conditions. Not all ofthe foregoing factors are within the control of the Company. 

The Company will continue to require the implementation of enhanced operationaland financial systems and additional management, operational, and financial resources.Failure to implement these systems and add these resources could have a material adverseeffect on the Company's results of operations and financial condition. There can be noassurance that the Company will be able to manage its expanding operations effectively orthat it will be able to maintain or accelerate its growth. 

Terms of Credit Facility and Availability of Capital 

In November 2000, the Company entered into a new credit facility for $1,400,000with an affiliate of PZ. This new credit line is secured by substantially all of theassets of the Company excluding those acquired through the Jacobs Bros. acquisition.Interest payments at the rate of prime plus 1% are due and payable quarterly. Theprincipal is due and payable in November 2002. At November 26, 2000, the Company had all$1,400,000 of this facility outstanding. 

In June 1999 the Company obtained an amortizing loan in the amount of $170,000from a finance company. Proceeds were used to purchase two stores from a franchisee inWisconsin.   $156,427 of this loan remains outstanding at the end of fiscal2000.

In February 1999 the Company obtained a series of amortizing loans in the amountof $1,350,000 from a finance company. Loan proceeds of $950,000 were used to purchasecertain assets of Jacobs Bros. Bagels. An additional $280,000 was used to purchaseequipment and fund remodeling required on the units acquired in the purchase. Theremaining $120,000 was used to purchase assets from a former franchisee in Colorado.  $1,091,832 of this loan remains outstanding at the end of fiscal 2000.

The Company believes that its cash flows from current operations will providesufficient working capital to enable the Company to meet operating requirements andcompensating cash balance requirements for the foreseeable future, however, it is possiblethat additional financing will be required. The Company does not represent that it will beable to obtain any required additional financing or that such financing, if obtained, willbe on terms favorable or acceptable to the Company. Any future equity financing may resultin dilution to holders of the Common Stock and any future debt financing may reduceearnings. If the Company is unable to secure additional financing when needed, or at all,it could be required to significantly reduce the scope of its existing operations, or evento discontinue operations. (See "Management's Discussion and Analysis" and Note6 to the audited financial statements included herein.) 

Dependence on Franchisees 

The Company historically has received a significant portion of its revenues frominitial franchise fees and continuing royalty payments from franchisees. Although theCompany uses established criteria to evaluate franchisees, there can be no assurance thatfranchisees will have the business ability or access to financial resources necessary tosuccessfully develop or operate stores in a manner consistent with the Company's conceptsand standards. Additionally, no assurance can be given that desirable locations andacceptable leases can be obtained by franchisees. If the Company's franchisees encounterbusiness or operational difficulties, the Company's revenues will be adversely affected.The poor performance of any franchisee may also negatively impact the Company's ability tosell new franchises. Consequently, at present, the Company's financial prospects aresubstantially related to the success of the franchise stores, over which the Company haslimited control. There can be no assurance that the Company will be able to successfullyattract new franchisees or that the Company's franchisees will be able to successfullydevelop and operate stores. 

Although the Company monitors franchisees' compliance with ongoing obligationson the basis of weekly revenue, and the Company's standard franchise agreement also grantsthe Company the right to audit the books and records of franchisees at any time, noassurance can be given that all franchisees will operate their stores in accordance withthe Company's operating guidelines and in compliance with all material provisions of thefranchise agreement, and the failure of franchisees to so operate their stores could havea material adverse impact on the Company's business. The franchise agreement gives theCompany the choice of seeking legal remedies, which could be time-consuming and expensive,and terminating the franchisee, which would diminish the Company's revenue until suchtime, if ever, as a new franchisee replaces the terminated franchisee. 

Competition 

The food service industry in general, and the fast food/take-out sector inparticular, are highly competitive, and competition is likely to increase. The Companybelieves that specialty bagel, muffin and coffee retail businesses are growing rapidly andhave become increasingly competitive. The Company competes against well-established foodservice companies with greater product and name recognition and with larger financial,marketing, and distribution capabilities than those of the Company, as well as innumerablelocal food service establishments that offer products competitive with those offered bythe Company. The Company's principal competitors include Bruegger's Bagel Bakery("Bruegger's"), Einstein/Noah Bagel Corp. ("Einstein") and New WorldCoffee and Bagel. In addition, other fast-food service providers, such as Dunkin' Donutsand McDonalds, have recently added bagels to their product offerings. Any increase in thenumber of food service establishments in areas where the Company's or its franchisees'sites are located could have a material adverse effect on the Company's sales andrevenues. The Company competes for qualified franchisees with a wide variety of investmentopportunities both in the food service business and in other industries. Investmentopportunities in the bagel store business include competing franchises offered byBruegger's, Einstein and New World Coffee and Bagel, as well as operators of individualstores and multi-store chains. 

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 servicechains, such as the Company's, can also be substantially adversely affected by publicityresulting from problems with food quality, illness, injury, or other health concerns oroperating issues stemming from one store or a limited number of stores. Such businessesare also subject to the risk that shortages or interruptions in supply caused by adverseweather or other conditions could negatively affect the availability, quality, and cost ofingredients and other food products. In addition, factors such as inflation, increasedfood and labor costs, regional weather conditions, availability and cost of suitable sitesand the availability of experienced management and hourly employees may also adverselyaffect the food service industry in general and the Company's results of operations andfinancial condition in particular. 

Government Regulation 

The Company is subject to the Trade Regulation Rule of the Federal TradeCommission (the "FTC") entitled ``Disclosure Requirements and ProhibitionsConcerning Franchising and Business Opportunity Ventures'' (the "FTC FranchiseRule") andstate and local laws and regulations that govern the offer,sale and termination of franchises and the refusal to renew franchises. Continuedcompliance with this broad federal, state and local regulatory network is essential andcostly, and the failure to comply with such regulations may have a material adverse effecton the Company and its franchisees. Violations of franchising laws and/or state laws andregulations regulating substantive aspects of doing business in a particular state couldlimit the Company's ability to sell franchises or subject the Company and its affiliatesto rescission offers, monetary damages, penalties, imprisonment and/or injunctiveproceedings. In addition, under court decisions in certain states, absolute vicariousliability may be imposed upon franchisers based upon claims made against franchisees. Evenif the Company is able to obtain insurance coverage for such claims, there can be noassurance that such insurance will be sufficient to cover potential claims against theCompany. 

Dependence on Personnel 

The Company's ability to develop and market its products and to achieve andmaintain a competitive market position depends, in large part, on its ability to attractand retain qualified food marketing personnel and franchisees. Competition for suchpersonnel is intense, and there can be no assurance that the Company will be able toattract and retain such personnel. 

Trademarks/Service Marks 

The trademarks and service marks used by the Company contain common descriptiveEnglish words and thus may be subject to challenge by users of these words, alone or incombination with other words, to describe other services or products. Some persons orentities may have prior rights to those names or marks in their respective localities.Accordingly, there is no assurance that such marks are available in all locations. Anychallenge, if successful, in whole or in part, could restrict the Company's use of themarks in areas in which the challenger is found to have used the name prior to theCompany's use. Any such restriction could limit the expansion of the Company's use of themarks into that region, and the Company and its franchisees may be materially andadversely affected. 

Potential Effects of Antitakeover Provisions 

The Company is authorized to issue up to 5,000,000 shares of preferred stock.The Board of Directors, without shareholder approval, may issue such shares in one or moreseries and set the terms of each such series. The issuance of any preferred stock couldadversely affect the rights of the holders of Common Stock, and specific rights granted toholders of preferred stock could make a change in control of the Company more difficult toaccomplish and could hamper attempts by outside parties. 

Certain provisions of the Delaware General Corporation Law  (the"Delaware Law") restrict a publicly-held corporation from engaging in a"business combination" with an "interested shareholder" or itsaffiliates, unless the business combination is approved by the Board of Directors or by asupermajority vote of the shareholders. These provisions of the Delaware Law could delayand makemore difficult a business combination even if the businesscombination could be beneficial to the interests of the Company's shareholders. 

Possible Depressive Effect on Price of Common Stock from Future Sales of CommonStock 

Approximately 500,000 shares of the Company's unregistered Common Stock iseligible for sale under Securities and Exchange Commission Rule 144.  While theprovisions of this Rule may limit the timing and amount of public sales of such shares,the sale, or availability for sale, of substantial additional amounts of Common Stock inthe public market could materially adversely affect the market price of the Common Stockand could impair the Company's ability to raise additional capital through the sale of itsequity securities or debt financing. 
RECENT BUSINESS ACQUISITIONS
On May 13, 1997, the Company acquired My Favorite Muffin Too, Inc., a New Jerseycorporation. MFM franchised andoperated muffin and bagel specialty retailstores concentrated primarily in the eastern United States and Florida, and had 60franchise and 5 Company-operated units in operation. MFM was merged into BAB AcquisitionCorporation, a wholly owned subsidiary of the Company, with MFM being the survivingentity. The acquisition through merger was completed by exchanging 150 shares of MFMcommon stock held equally by Owen Stern, Ruth Stern and Ilona Stern (the"Sellers"), for 72,101 shares of the Company's common stock, restricted as totransfer until January 1, 1999, and $259,000 in cash. In addition to current liabilities,the Company has assumed approximately $350,000 of MFM's existing bank debt. The Company  retained one of the three Sellers as an employee of the Company pursuant to anemployment contract, through May 8, 2001 for Owen Stern. (See "Management'sDiscussion and Analysis" and Note 12 to the audited consolidated financial statementsincluded herein). 

On February 1, 1999 the Company acquired certain assets of Jacobs Bros. whichincluded eight retail bagel stores and a central commissary facility, in exchange for$950,000 in cash and warrants for the purchase of an aggregate of 83,333 shares of CommonStock of Holdings at an exercise price of $7.50 per share as to 45,833 shares and $9.00per share as to 37,500 shares. These warrants were first exercisable on February 1, 2000and expire on January 31, 2006.   The warrants are exercisable for PZ stock.  Further, the Company entered into noncompetition agreements with two formerprincipals of Jacobs Bros. totaling $210,000 to be paid over varying periods. (See"Management's Discussion and Analysis" and Note 12 to the audited consolidatedfinancial statements included herein). 

BAB, Inc. (the "Company") was incorporated under the laws of the Stateof Delaware on July 12, 2000. After an affirmative vote of the shareholders of BABHoldings, Inc., (Holdings), Holdings was merged into the Company on November 1, 2000. Thecombined companies then merged with Planet Zanett, Inc. (PZ) on November 1, 2000.   On November 13, 2000, as a result of the merger with Planet Zanett, Inc. theCompany was spun off to remain a separate entity in its businesses.  The Companyfiled a separate registration statement under the Securities Exchange Act of 1934,registering its Common Stock for trading.

**LOCATIONS**

The following table sets forth the states, provinces and countries in which theCompany's units were located as of November 26, 2000. 
State/ProvinceCompany Owned Franchised Licensed TotalAlabama 22California2518Colorado22Connecticut22Florida729Georgia347Illinois4271243Indiana88Iowa99Kentucky22Maryland11Michigan30333Minnesota819Missouri1910Nebraska33Nevada257New Jersey12214New York235North Carolina55Ohio26210Oregon11Pennsylvania77Rhode Island11Texas516Utah11Virginia112Washington22Wisconsin616224CANADABritish Columbia123Ontario11Egypt22Peru33**TOTAL****14****170****58****242**
   

**STORE OPERATIONS**

BIG APPLE BAGELS--Big Apple Bagels franchised and Company-owned stores dailybake "from scratch" over 18 varieties of fresh bagels and prepare up to 18varieties of cream cheese spreads. Licensed units under HMS, and Choice Picks Food Courtsserve the Company's par-baked frozen bagel products, freshly baked daily. Stores alsooffer a variety of breakfast and lunch bagel sandwiches, soups, various dessert items, andgourmet coffees and other beverages. A typical Big Apple Bagels franchise or Company-ownedstore is located within a three-mile radius of at least 25,000 residents in an area with amix of both residential and commercial properties. The average Company-owned or franchisedstore ranges from 1,500 to 2,000 square feet. The Company's current store design isapproximately 2,000 square feet, with seating capacity for 30 to 40 persons, and includes750 square feet devoted to production and baking. A satellite store is typically smallerthan a production store, averaging 600 to 1,000 square feet. Although franchise stores mayvary in size from Company-owned stores, and from other franchise stores, store layout isgenerally consistent. Licensed units are generally located in airports, travel plazas,hotels, and universities. 

MY FAVORITE MUFFIN--My Favorite Muffin franchised stores bake 20 to 25 varietiesof muffins daily, from over 400 recipes, plus a variety of bagels. They also serve gourmetcoffees, beverages and, at My Favorite Muffin and Bagel Cafe locations, a variety of bagelsandwiches and related products. While a number of MFM units are located in shopping malllocations with minimal square footage of 400 to 800 square feet, the typical strip mallprototype unit is approximately 2,000 square feet with seating for 30 to 40 persons. Atypical MFM franchise store is located within a three-mile radius of at least 25,000residents in an area with a mix of both residential and commercial properties. 

BREWSTER'S COFFEE--Brewster's Coffee licensed units serve a variety of arabicabean coffees, both freshly brewed and in bulk, and related products such as bagels,muffins and other beverages. The typical Brewster's coffee location is approximately 1,500square feet and offers seating for 20 to 30 persons and is generally located in hightraffic urban or suburban location. 

**FRANCHISING**

The Company requires payment of an initial franchise fee per store, plus a 5%royalty on net sales. Additionally, Big Apple Bagels ("BAB") and MFM franchiseesare members of a national marketing fund requiring a 1% contribution based on net sales.The Company currently requires a franchise fee of $25,000 on a franchisee's first BAB orMFM store. The fee for subsequent production stores is $20,000 and $15,000 for satelliteand kiosk stores. 

The Company's current  Uniform Franchise Offering Circular  providesfor, among other things, the opportunity for prospective franchisees to enter into apreliminary agreement for their first production store. This agreement enables aprospective franchisee a period of 60 days in which to locate a site. The fee for thispreliminary agreement is $10,000. If a site is not located and approved by the franchiserwithin the 60 days, the prospective franchisee will receive a refund of $7,000. If a siteis approved, the entire $10,000 will be applied toward the initial franchise fee. See also"Government Regulation." 

The Company's franchise agreements provide a franchisee with the right todevelop one store at a specific location. Each franchise agreement is for a term of tenyears with the right to renew. A franchisee is required to be in operation not later thanten months following the signing of the franchise agreement. 

Area development agreements, which may be granted to new or existingfranchisees, provide that a franchisee may open a predetermined number of concept storeswithin a defined geographic area (an "Area of Exclusivity"). The Area ofExclusivity is negotiated prior to the signing of the area development agreement andvaries by agreement as to size of the area, the number of stores required, and theschedule for store development and opening. The Company's current area development fee is$5,000 per store to be developed. As additional franchise agreements are executed,additional franchise fees are collected. The area development fee is not refundable if nofranchise agreement is executed. 

The Company currently advertises its franchising opportunities at franchisetrade shows and in directories, newspapers and business opportunity magazines worldwide.In addition, a substantial number of prospective franchisees contact the Company as aresult of patronizing an existing store. 

**COMPETITION**

The quick service restaurant industry is intensely competitive with respect toproduct quality, concept, location, service and price. There are a number of national,regional and local chains operating both owned and franchised stores which may competewith the Company on a national level or solely in a specific market or region. The Companybelieves that because the industry is extremely fragmented, there is a significantopportunity for expansion in the bagel, muffin and coffee concept chains. 

The Company believes that the most direct competitors of its bagel concept unitsare New World Coffee and Bagel , Bruegger's, and Einstein, all of which are alsofranchisers. There are several other regional bagel chains with fewer than fifty stores,all of which may be expected to compete with the Company. There is currently not a majornational competitor in the muffin business, but there are a number of local and regionaloperators. Additionally, the Company competes directly with a number of national, regionaland local coffee concept stores and brand names. 

The Company competes, and can be anticipated to compete, against numerous smallindependently owned bagel bakeries, and national fast food restaurants, such as Dunkin'Donuts and McDonald's, that offer bagels and muffins as part of their breakfast foodofferings and supermarket bakery sections. In particular, the Company's bagels competeagainst Thomas' Bagels and other brands of fresh and frozen bagels offered insupermarkets. Certain of these competitors may have greater product and name recognitionand larger financial, marketing and distribution capabilities than the Company. Inaddition, the Company believes that the startup costs associated with opening a retailfood establishment offering similar products on a stand-alone basis are competitive withthe startup costs associated with opening its concept stores and, accordingly, suchstartup costs are not an impediment to entry into the retail bagel, muffin or coffeebusinesses. 

The Company believes that its stores compete favorably in terms of taste, foodquality, convenience, customer service, and value, which the Company believes areimportant factors to its targeted customers. Competition in the food service industry isoften affected by changes in consumer taste; national, regional, and local economic andreal estate conditions, demographic trends, traffic patterns; the cost and availability oflabor; 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 arewithin the Company's control and such factors could cause the Company and some or all ofits area developers and franchisees to be adversely affected. 

The Company competes for qualified franchisees with a wide variety of investmentopportunities in the restaurant business and in other industries. The Company's continuedsuccess is dependent to a substantial extent on its reputation for providing high qualityand value with respect to its service, products and franchises, and this reputation may beaffected not only by the performance of Company-owned stores but also by the performanceof its franchise stores, over which the Company has limited control. 

**TRADEMARKS AND SERVICEMARKS**

The trademarks and service marks "Big Apple Bagels," "Brewster'sCoffee" and "My Favorite Muffin" are registered under applicable federaltrademark law. These marks are licensed by the Company to its franchisees pursuant tofranchise agreements, and the Company has licensed the "Big Apple Bagels" markto Big Apple Bagels, Inc., a corporation which was wholly owned by Paul C. Stolzer, aprincipal stockholder and a former director and president of the Company, who sold thelicense to a third party in 1999. Mr. Stolzer served as a consultant to the Companythrough February 1999. In February 1999 the Company acquired the trademark of "JacobsBros. 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 certaingeographic areas of names and marks which are the same as or similar to the Company'smarks. Some of these persons or entities may have prior rights to those names or marks intheir respective localities. Therefore, there is no assurance that the marks are availablein all locations. It is the Company's policy to pursue registration of its marks wheneverpossible and to vigorously oppose any infringement of its marks. 

**GOVERNMENT REGULATION**

The Company and its franchisees are required to comply with federal, state andlocal government regulations applicable to consumer food service businesses, includingthose relating to the preparation and sale of food, minimum wage requirements, overtime,working and safety conditions, and citizenship requirements, as well as regulationsrelating to zoning, construction, health, and business licensing. Each store is subject toregulation by federal agencies and to licensing and regulation by state and local health,sanitation, safety, fire and other departments. Difficulties or failures in obtaining therequired licenses or approvals could delay or prevent the opening of a new Company-ownedor franchise store, and failure to remain in compliance with applicable regulations couldcause the temporary or permanent closing of an existing store. The Company believes thatit is in material compliance with these provisions. Continued compliance with thesefederal, state and local laws and regulations is costly but essential, and failure tocomply may have an adverse effect on the Company and its franchisees. 

The Company's franchising operations are subject to regulation by the FederalTrade Commission (the "FTC") under the Uniform Franchise Act which requires,among other things, that the Company prepare and periodically update a comprehensivedisclosure document known as a Uniform Franchise Offering Circular ("UFOC"), inconnection with the sale and operation of its franchises. In addition, some states requirea franchiser to register its franchise with the state before it may offer a franchise to aprospective franchisee. The Company believes its UFOCs, together with any applicable stateversions or supplements, comply with both the FTC guidelines and all applicable state lawsregulating 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 regulatesubstantive aspects of the franchiser-franchisee relationship, including, but not limitedto, those concerning termination and non-renewal of a franchise. 

**EMPLOYEES**

As of November 26, 2000, the Company employed 240 persons. Of these individuals,211 work in the Company-owned stores and the majority are part-time employees. Theremaining employees are responsible for oversight of franchising and Company-storeoperations. None of the Company's employees are subject to any collective bargainingagreements, and management considers its relations with its employees to be good. 

**ITEM 2. DESCRIPTION OF PROPERTY**

The Company's principal executive office, consisting of approximately 7,300square feet, is located in Chicago, Illinois and is leased pursuant to a lease, expiringin June 2004. The Company believes that these facilities will be adequate to meet itsneeds for the remainder of the term of the lease. Additionally, the Company leases spacefor each of its Company-owned stores. Lease terms for these stores are generally forinitial terms of five years and contain options for renewal for one or more five-yearterms. (See Note 7 to the audited consolidated financial statements included herein.) 

**ITEM 3. LEGAL PROCEEDINGS**

None. 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

The following matters were voted upon at a special meeting of shareholders heldon October 18, 2000. Each of the proposals passed. 

1.  Proposal to merge BAB Holdings, Inc. with and into BAB (Delaware),Inc., a newly formed wholly-owned Delaware subsidiary corporation, for the purpose ofbecoming a Delaware corporation and approve and adopt the related Certificate of Merger. 
For1,603,387Against10,417Abstain396Non-vote0
2.  Proposal to merge Planet Zanett Corporate Incubator, Inc. with and intoPZ Acquisition, Inc., a newly formed wholly-owned Delaware subsidiary of BAB Holdings,Inc. pursuant to the Amended and Restated Agreement and Plan of Merger dated August 24,2000 and the issuance of 21,989,295 shares of BAB Holdings, Inc. Common Stock to PlanetZanett's shareholders in connection with the merger. 
For1,601,182Against12,622Abstain396Non-vote0
3.  Proposal to declare a dividend (spin-off) consisting of all of thecommon stock of the Company to the holders of Holdings common stock .
For1,602,880Against10,982Abstain338Non-vote0
The mergers as detailed in proposals 1 and 2 were effected on November 1, 2000and the spin off as detailed in proposal 3 was completed on November 13, 2000. 

**PART II**

**ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS**

The following table sets forth the quarterly high and low sale prices for theCompany's Common Stock, as reported in the Nasdaq SmallCap Market for the two years endedNovember 26, 2000.  Until August 1, 2000, the Company's Common Stock was traded underthe symbol "BAGL".  From August 2, 2000 until November 12, 2000, theCompany's Common Stock was traded under the symbol "INCU."   As ofNovember 13, 2001, the Company's Common Stock began trading on the NASD OTC-Bulletin Boardunder the symbol "BABB".

**BAB Holdings, Inc.**YEAR ENDED NOVEMBER 28, 1999LOWHIGHFirst quarter3.569.75Second quarter3.947.13Third quarter 3.006.75Fourth quarter1.313.75YEAR ENDED NOVEMBER 26, 2000First quarter.943.00Second quarter.753.00Third quarter 2.254.06Fourth quarter3.004.88
**BAB, Inc.**YEAR ENDED NOVEMBER 26, 2000Fourth quarter.25.25
  All share prices reflect the 1:6 reverse split of the Common Stockeffected on December 10, 1999. 

The prices for BAB Holdings, Inc. reflect share activity prior to the merger ofthe Company and PZ on November 1, 2000. The prices for BAB, Inc. reflect share activitysubsequent to the spin-off of the Company from PZ on November 13, 2000. 

As of February 21, 2001, the Company's Common Stock was held of record by 208holders. Registered ownership includes nominees who may hold securities on behalf ofmultiple beneficial owners. The Company estimates that the number of beneficial owners ofits common stock at February 21, 2001 is 2,100 based upon information provided by a proxyservices firm. 

DIVIDEND POLICY 

The Company has never declared or paid any cash dividends on its Common Stock,and the Board of Directors currently intends to retain all earnings, if any, for use inthe Company's business for the foreseeable future. Any future determination as todeclaration and payment of dividends will be made at the discretion of the Board ofDirectors, subject to the existence of any covenants restricting the payment of dividends.

RECENT SALES OF UNREGISTERED SECURITIES 

On March 27, 1997, the Company authorized and issued a series of convertiblePreferred Stock which has liquidation and dividend rights senior to that of Common Stock.Such securities were offered and sold without registration under the Securities Act of1933 (the "Act") in reliance upon Sections 4 (2) and 4(6) of the Act. See Note 9to the audited consolidated financial statements included herein and Exhibit 4.4 to thereport on Form 10-QSB filed for the quarter ended February 28, 1997 for furtherinformation. As of October 1999, all of the Preferred Stock issued plus accumulateddividends was converted into Common Stock. 

On February 1, 1999 the Company issued warrants for purchase of an aggregate of83,333 shares of the Company's Common Stock in connection with the acquisition of certainassets of Jacobs Bros. These warrants are exercisable at an exercise price of $7.50 pershare as to 45,833 shares and $9.00 per share as to 37,500 shares commencing February 1,2000 and ending on January 31, 2006. The warrants are exercisable for PZ stock.  Thewarrants were offered and sold without registration under the Act in reliance upon Section4(2) of the Act. 

On February 26, 1999 the Company issued a total of 26,666 shares of Common Stockin connection with services rendered in the Jacobs Bros. acquisition, including 10,833shares which may be deemed to be beneficially owned by David Epstein, a member of theBoard of Directors of the Company. Such securities were offered and sold withoutregistration under the Act in reliance upon Section 4(2) of the Act. 

On October 21, 1999 the remaining 60,000 shares of the Company's Series Aconvertible preferred stock plus accumulated dividends were converted in accordance withthe terms of the preferred stock to an aggregate of 818,491 shares of common stock by theholder of the preferred stock, Holdings Investments, LLC an Illinois limited liabilitycompany (the "LLC"). (See Schedule 13D filed on behalf of the LLC on October 29,1999.) No cash or other consideration was required or paid in connection with theconversion. The Common Stock was issued to one investor (the LLC) in a non-public offeringin reliance on Section 4(2) of the Securities Act of 1933. 

**ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The selected financial data contained herein has been derived from theconsolidated financial statements of the Company included elsewhere in this Report on Form10-KSB. The data should be read in conjunction with the consolidated financial statementsand notes thereto. Certain statements contained in Management's Discussion and Analysis ofFinancial Condition and Results of Operations, including statements regarding thedevelopment of the Company's business, the markets for the Company's products, anticipatedcapital expenditures, and the effects of completed and proposed acquisitions, and otherstatements and disclosures contained herein and throughout this Annual Report regardingmatters that are not historical facts, are forward-looking statements (as such term isdefined in the Private Securities Litigation Reform Act of 1995). In such cases, we mayuse words such as "believe", "intend", "expect","anticipate" and the like.  Because such statements include risks anduncertainties, actual results may differ materially from those expressed or implied bysuch forward-looking statements. Certain risks and uncertainties are wholly or partiallyoutside the control of the Company and its management, including its ability to attractnew franchisees; the continued success of current franchisees; the effects of competitionon franchisee and Company-owned store results; consumer acceptance of the Company'sproducts in new and existing markets; fluctuation in development and operating costs;brand awareness; availability and terms of capital; adverse publicity; acceptance of newproduct offerings; availability of locations and terms of sites for store development;food, labor and employee benefit costs; changes in government regulation (includingincreases in the minimum wage; regional economic and weather conditions; the hiring,training, and retention of skilled corporate and restaurant management; and theintegration and assimilation of acquired concepts. Accordingly, readers are cautioned notto place undue reliance on these forward-looking statements, which reflect management'sanalysis only as of the date hereof. The Company undertakes no obligation to publiclyrelease the results of any revision to these forward-looking statements which may be madeto reflect events or circumstances after the date hereof or to reflect the occurrence ofunanticipated events. 
**GENERAL**
Since its inception in November 1992, the Company has grown to 14 Company-ownedstores and 228 franchised and licensed units at the end of fiscal 2000. Units in operationat the end of fiscal 1999 included 23 Company owned stores and 237 franchised and licensedunits. System-wide revenues in fiscal 2000 reached $75 million compared to $78 million inthe year ago period. 

The Company's revenues are derived primarily from the operation of Company-ownedstores, initial franchise fees and ongoing royalties paid to the Company by itsfranchisees. Additionally, the Company derives revenue from the sale of licensed productsas a result of purchasing trademarks (My Favorite Muffin and Brewster's) and licensingcontracts (licenses with HMS), and by directly entering into licensing agreements (ChoicePicks Food Courts and Mrs. Fields). The increase in overall revenues has reduced thedependence on the initial franchise fees as a source of income. 

During the fourth quarter of fiscal 1999, management identified thirteenunder-performing stores which were operating at a loss and which, based on the estimatedfuture cash flows, were considered to be impaired. In accordance with the FinancialAccounting Standards Board Standard No. 121, "Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed Of" and the EmergingIssues Task Force Issue No. 94-3, "Liability Recognition of Costs to Exit anActivity," management recorded a provision for impairment of assets and storeclosures which totaled approximately $1,600,000. Approximately $1,236,000 represented anon cash write-down of property and equipment, $113,000 was related to the write down ofintangible assets and the remainder represented a reserve for severance and other costs.One store was closed and one store was sold during fiscal 1999 while seven stores weresold during fiscal 2000. The remaining stores are expected to be disposed of in fiscal2001. In addition the Company wrote down and reserved $1,044,000 of franchise-relatedreceivables pertaining to closed stores during 1999. 

Despite the increase in both franchise and licensed operations and theacquisition of Jacobs Bros., the Company has controlled expenses in payroll, occupancy andoverhead costs in the corporate offices. At November 26, 2000, the Company had 29employees at the corporate level who oversee operations of the franchise, licensed andCompany-owned store operations, down from 33 at the end of 1999.  Efficiencies haveresulted in selling, general and administrative expenses, net of the provision fordoubtful accounts, depreciation and amortization, decreasing to 28.7% of revenue in 2000compared to 31.4% in 1999. On a fully loaded basis, selling, general and administrativeexpenses, as a percentage of revenue was 38.5% in fiscal 2000 compared to 46.7% in 1999.Management expects that these costs, as a percentage of revenue, will continue to declineas additional franchise and non-traditional sources of revenue are added. It isanticipated that the Company will not require additional office facilities in fiscal 2001.

**FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999**

Total revenues from all sources decreased 9% to $13,568,000 in 2000 from$14,941,000 in the prior year. Net sales by company-owned stores decreased by 15.4% to$8,721,000 in large part due to the sale of  nine stores in fiscal 2000 which reducedrevenue by $1,800,000 offset by increased wholesale business of $200,000. Royalty feesfrom franchise stores decreased slightly to $3,055,000 in fiscal 2000 from $3,086,000 infiscal 1999 principally due to a reduction in the total number of franchised units open.Franchise and area development fee revenue was $462,000 versus a year ago performance of$494,000 attributable to the number of domestic store openings and the number ofinternational agreements signed in 2000 versus 1999. Finally, licensing fees and otherincome was $1,330,000 versus $1,050,000 in 1999 primarily because of the increase innon-traditional revenues and the proceeds from the disposal of stores. 

Food, beverage and paper costs incurred at the Company-owned stores increased asa percentage of revenue from 30.5% in 1999 to 31.6% in 2000 an increase of just over 1percentage point. Store payroll and other costs increased to 65.6% of sales from 64.0%.The increase is largely the result of the performance of stores that have been sold or aredesignated for sale. Existing stores that are not scheduled to be sold incurred foodbeverage and paper costs as a percentage of revenue of 28.0% and store payroll and othercosts as a percentage of revenue of 62.0% in 2000. In addition, the 1999 results includeda $1,600,000 non cash special charge taken in the fourth quarter of 1999. The $1,600,000charge included a reserve to write down property and equipment and associated goodwill tofair market value, a reserve to accrue for future lease obligations, plus the costsassociated with closing the stores. (See Note 4 to the audited consolidated financialstatements included herein.) 

Selling, general & administrative costs fell as a percentage of revenue to38.5% from 46.7% On an absolute basis, selling, general & administrative expenses were$5,218,000 in 2000 versus $6,978,000 in 1999. The greatest reductions occurred in theprovision for uncollectible accounts, an improvement of $636,000, payroll, an improvementof $559,000 and depreciation and amortization, an improvement of $326,000. This was offsetslightly by an increase in professional service fees of $73,000 because of merger-relatedcharges. 

Loss from operations was $126,000 in fiscal 2000 versus a loss of  $3,388,000 in fiscal 1999.   In 1999, the Company took a special charge for$1,600,000 to restructure its business and also wrote off a number of uncollectibleroyalties from closed stores.   (See Note 4.)  Financial results also improvedbecause of the sale of underperforming Company stores and the reduction in selling,general and administrative expenses of $1,800,000..  Interest expense was $330,000during 2000 versus $292,000 in 1999 primarily because of a full year of interest paymentsassociated with the borrowings relating to the Jacobs Bros. Acquisition and the higherinterest rate on the Company's line of credit offset by the reduction in the amountoutstanding under the line of credit. 

Net loss totaled $308,000 during the current fiscal year as compared to a lossof $3,588,000 in the prior year. There were no preferred dividends accumulated in 2000while during 1999 preferred dividends totaled $124,000. 

**LIQUIDITY AND CAPITAL RESOURCES**

The net cash used in operating activities totaled $168,000 during fiscal 2000.Cash used in  operating activities principally represents net loss, adjusted for thedepreciation and amortization of $922,000, the gain on sale of property and equipment of($180,000), plus the provision for uncollectible accounts of $408,000 offset by increasesin trade accounts receivable ($213,000) and reductions in accounts payable, unexpendedNational Marketing Fund contributions and other accrued liabilities of ($505,000) anddeferred revenue ($293,000). In 1999, the net cash used in operating activities includednet loss of ($3,465,000) plus depreciation and amortization of $1,248,000, the specialcharge of $1,600,000 and provision for uncollectible accounts of $1,044,000 offset by anincrease in trade accounts receivable of($569,000) and contribution forthe National Marketing Fund of ($125,000) and a decrease in accounts payable and accruedliabilities of ($150,000). 

Cash provided by investing activities in 2000 was $911,000. The two primarysources of cash were the proceeds from the sale of property and equipment and assets heldfor resale of $696,000 and collections of notes receivable of $292,000, offset by thepurchase of property and equipment of ($77,000). Cash used for investing activities during1999 totaled $218,000, and was used primarily for the purchase of property, equipment andtrademarks offset by loan repayments and sales of property and equipment. 

Financing activities used ($426,000) during fiscal 2000 and consisted primarilyof repayments on the line of credit of ($257,000) and notes payable of ($168,000).  Financing activities used ($358,000) during fiscal 1999 primarily relating to therepayment of its line of credit of ($220,000). 

ITEM 7. FINANCIAL STATEMENTS 

The Consolidated Financial Statements and Report of Independent Auditors isincluded immediately following. 

 

 

BAB, Inc. 

Years Ended November 26, 2000 and November 28, 1999

 

C o n t e n t s 

Independent Auditor's Report 

Consolidated Balance Sheets   

Consolidated Statements of Operations 

Consolidated Statements ofStockholders' Equity   

Consolidated Statements of Cash Flows 

Notes to Consolidated FinancialStatements 

 

Independent Auditor's Report 

Stockholders and Board of Directors BAB, Inc. Chicago, Illinois 

We have audited the accompanying consolidated balance sheets of BAB, Inc. as ofNovember 26, 2000 and November 28, 1999, and the related consolidated statements ofoperations, stockholders' equity and cash flows for the years then ended. These financialstatements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audits. 

We conducted our audits in accordance with generally accepted auditingstandards. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basisfor our opinion. 

In our opinion, the financial statements referred to above present fairly, inall material respects, the consolidated financial position of BAB, Inc. as of November 26,2000 and November 28, 1999, and the consolidated results of its operations and its cashflows for the years then ended in conformity with generally accepted accountingprinciples. 
January 26, 2001 Chicago, Illinois
Blackman Kallick Bartelstein, LLP 
 

 
**BAB, Inc.****Consolidated    Balance Sheets****November 26, 2000 and November 28, 1999**20001999
**ASSETS**Current AssetsCash and cash equivalents, including restricted cash of $56,889 in    2000 and $21,946 in 1999348,25630,818Receivables     Trade accounts receivable (Net of    allowance for Doubtful accounts of $713,972 in 2000 and $770,764 in 1999) 1,000,4821,106,010     National Marketing Fund contributions    receivable from franchisees and stores 276,496415,317     Notes receivable (Net of allowance for    doubtful accounts of $258,066 in 2000 and $482,744 in 1999)168,301394,836Inventories238,468293,838Assets held for sale537,031916,754Prepaid expenses and other current assets325,891276,717Deferred income taxes 488,366530,005         Total Current    Assets**3,223,291****3,964,295**Property and Equipment     Leasehold improvements 1,360,4781,528,140     Furniture and fixtures459,926535,138     Equipment 1,619,6241,899,269     Less: Accumulated Depreciation(1,767,891)(1,382,406)         Total Property and    Equipment, Net1,672,1372,580,141Notes Receivable681,641517,186IntangiblesPatents, trademarks and copyrights (Net of accumulated amortization    of $218,852 in 1999 and $155,143 in 1999)917,079977,788Goodwill (Net of accumulated amortization of $276,496 in 2000 and    $232,885 in 1999)2,441,7972,510,379Franchise contract rights (Net of accumulated amortization of    $371,284 in 2000 and $267,670 in 1999)1,712,6811,816,295Other (Net of accumulated amortization of $426,680 in 2000 and    $303,117 in 1999)382,478488,494          Total    Intangibles, Net5,451,0355,792,956**11,188,104****12,854,578**
**LIABILITIES AND STOCKHOLDERS' EQUITY**Current LiabilitiesAccounts payable789,935939,787Accrued liabilities789,157875,563Liability for store conversions58,731168,719Accrued professional and other services120,902229,154Unexpended National Marketing Fund contributions401,056544,625Long-term debt due within one year177,0571,818,087Deferred franchise fee revenue107,000267,500     Total Current Liabilities         **2,443,838****4,843,435**Noncurrent LiabilitiesDeferred revenue177,023309,789Deferred income taxes308,366350,005Long-term debt (Net of portion included in current liabilities)2,471,2021,255,862          Total    Noncurrent Liabilities           **2,956,591****1,915,656**          Total    Liabilities**5,400,429****6,759,091**Stockholders' Equity Common stock - $.001 par value; 15,000,000 shares authorized;    2,287,739 shares issued; and 2,237,623 outstanding 13,507,669-Common stock - No par value; 3,333,333 shares authorized; 2,287,656    shares issued; and 2,237,540 shares outstanding -13,507,669Preferred stock - $.001 par value; 5,000,000 authorized; 0 shares    issued and outstanding on November 28, 2000--Preferred stock - $0.01 par value; 3,880,000 shares authorized; 0    shares issued and outstanding on November 28, 1999--Additional paid-in capital1,187,8001,187,696Accumulated deficit(8,863,831)(8,555,915)Treasury stock at cost, 50,116 shares and 50,116 shares,    respectively(43,963)(43,963)          Total    Stockholders' Equity**5,787,675****6,095,487****11,188,104****12,854,578**
 
**BAB, Inc.****Consolidated    Statements of Operations****November 26, 2000 and November 28, 1999**
**Revenues**20001999Net sales by Company-owned stores 8,721,49410,310,869Royalty fees from franchised stores3,054,8973,085,949Franchise and area development fees461,978493,869Licensing fees and other income1,329,7431,050,214          Total    Revenues **13,568,112****14,940,901****Operating Costs and Expenses**Food, beverage and paper costs2,754,9963,148,698Store payroll and other operating expenses5,720,5496,601,415Special charge1,600,406Selling, general and administrative expensesPayroll-related expenses1,925,4112,484,045Occupancy431,423337,063Advertising and promotion246,169435,719Professional service fees434,353361,655Franchise-related expenses63,556152,736Depreciation and amortization922,2351,247,868Provision for uncollectible accounts407,6171,043,993Other787,577915,035          Total    Selling, General and Administrative Expenses5,218,3416,978,114          Total    Operating Costs and Expenses**13,693,886****18,328,633**Loss  from Operations(125,774)(3,387,732)Interest Expense(329,931)(292,457)Other Income147,789215,620Loss  before Taxes(307,916)(3,464,569)Provision (Benefit) for Income Taxes--Net Loss (307,916)(3,464,569)Preferred Stock Dividends Accumulated-(123,780)Net Loss Attributable to Common Stockholders**(307,916)****(3,588,349)**Net Loss  per Share - Basic and Diluted **($0.14)****($2.32)**
The accompanying notes are an integral part of the consolidatedfinancial statements.

**BAB, Inc.Consolidated Statements ofStockholders' EquityYears Ended November 26, 2000 and November 28, 1999**
Common StockSeries A Preferred    StockTreasury StockAdditional    Paid-in-CapitalAccumulated    deficitTotalSharesAmountSharesAmountSharesAmount*Balance as of November 30, 1998**1,442,499**11,430,452**60,000**1,548,731**(48,883)**(36,067)**1,252,402**(4,967,566)**9,227,952*Issued Warrants in Connection    with Acquisition------200,000-200,000Purchase of Treasury Stock----(1,233)(7,896)--(7,896)Preferred Dividends Accumulated---123,780---(123,780)-Issue of Stock in Connection    with Acquisition26,666140,000------140,000Conversion of Preferred to    Common Stock818,4911,937,217(60,000)(1,672,511)--(264,706)--Net Loss-------(3,464,569)(3,464,569)Balance as of November 28, 19992,287,65613,507,669--(50,116)(43,963)1,187,696(8,555,915)6,095,487Exercise of Stock Options83104104Net Loss -------(307,916)(307,916)Balance as of Nov. 26, 2000 **2,287,739****$13,507,669****-****-****(50,116)****(43,963)****1,187,800****(8,863,831)****5,787,675**
The accompanying notes are an integral part of the consolidatedfinancial statements.

 

**BAB, Inc.Consolidated Statements of Cash FlowsYears Ended November 26, 2000 and November 28, 1999**
Years EndedNovember 26, 2000November 28, 1999*Cash Flows from Operating    Activities*Net loss$         (307,916)$        (3,464,569)  Adjustments to reconcile net    loss to net cash     Depreciation    and amortization922,2351,247,868     Provision for    store conversions-1,600,406     Provision for    uncollectible accounts407,6171,043,993     Gain on sale    of property and equipment(180,000)-     (Increase)    decrease in            Trade accounts receivable(212,565)(569,380)           National Marketing Fund contributions receivable138,821(124,558)           Inventories55,3704,663           Deferred franchise costs-18,227           Notes receivable(90,054)23,044           Prepaid expenses and other assets(10,017)(93,465)     Increase    (decrease) in           Accounts payable(149,852)(94,499)           Accrued professional and other services(18,406)(18,238)           Liability for closed store expenses(108,252)(36,344)           Accrued liabilities(109,988)36,476           Unexpended National Marketing Fund contributions(143,569)85,758           Jacobs Bros. noncompete agreement(68,000)(90,000)           Deferred franchise fee revenue(293,266)(99,207)           Other           Total Adjustments140,0742,934,744*           Net Cash Used in Operating Activities**(167,842)**(529,825)**Cash Flows from Investing    Activities*   Purchases of property and    equipment(76,730)(148,498)   Proceeds from sale of    property and equipment and    assets held for sale695,978101,140   Purchase of trademarks-(21,892)   Repayments on notes    receivable291,618247,059   Other-40,445*           Net Cash Provided by  Investing Activities**910,866**218,254**Cash Flows used in Financing    Activities*   Repayments on line of    credit(257,493)(219,972)   Debt repayments(168,197)(110,777)   Other104(27,024)*           Net Cash Used in Financing Activities**(425,586)**(357,773)**Net Increase (Decrease) in Cash and    Cash Equivalents*317,438(669,344)Cash and Cash Equivalents, Beginning of    Year30,818700,162*Cash and Cash Equivalents, End of    Year***$      348,256****$30,818**
The accompanying notes are an integral part of the consolidatedfinancial statements.
**BAB, Inc.****Notes    to Consolidated Financial Statements**
Note 1 - Basis Of Presentation 

BAB, Inc. (the Company) was incorporated under the laws of the State of Delawareon July 12, 2000. After an affirmative vote of the shareholders of BAB Holdings, Inc.,(Holdings), Holdings was merged into the Company on November 1, 2000.  The combinedcompanies then merged with Planet Zanett, Inc. (PZ) on November 1, 2000.  On November13, 2000, the Company was spun off from PZ to the former shareholders of Holdings.

For presentation purposes, the financial statements are reported as if theCompany was the controlling entity during the period covered in this report. The Companyhas four wholly owned subsidiaries: BAB Operations, Inc. (Operations); BAB Systems, Inc.(Systems); Brewster's Franchise Corporation (BFC); and My Favorite Muffin Too, Inc. (MFM).Systems was incorporated on December 2, 1992, and was primarily established to franchise"Big Apple Bagels" specialty bagel retail stores. Systems has a wholly ownedsubsidiary, Systems Investments, Inc. (Investments), which was created to operate thefirst Company-owned "Big Apple Bagels" store which, until December 1995, alsooperated as the franchise training facility. Investments also owned a 50% interest in ajoint venture, which operated a franchise satellite store. During fiscal 1997, the storesoperated by Investments and by the joint venture were sold and are currently operating asfranchised stores. As of November 1998, Investments was dissolved and merged into theparent company, Systems. Operations was formed on August 30, 1995, primarily to operateCompany-owned stores, currently "Big Apple Bagels" and "Brewster'sCoffee" concept stores, including one which currently serves as the franchisetraining facility. BFC was established on February 15, 1996, to franchise "Brewster'sCoffee" concept coffee stores. MFM, a New Jersey corporation, was acquired on May 13,1997. MFMfranchises "My Favorite Muffin" concept muffin stores.The assets of Jacobs Bros. Bagels (Jacobs Bros.) were acquired on February 1, 1999. SeeNote 12. The company continues to operate three stores with the Jacobs Bros. name. 

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation 

The consolidated financial statements include the accounts of the Company andits direct and indirect wholly owned subsidiaries. All intercompany accounts andtransactions have been eliminated in consolidation. 

Cash Equivalents 

The Company classifies as cash equivalents all highly liquid investments,primarily composed of money market mutual funds, certificates of deposit and governmentagency notes, which are convertible to a known amount of cash and carry an insignificantrisk of change in value. 

Inventories 

Inventories are valued at the lower of cost, determined on a first-in, first-out(FIFO) basis, or market. 

Change in Fiscal Year-End 

The Company operates on a 52-53 week period ending on the last Sunday of itsfiscal year. The  fiscal years ended on November 26 and November 28 for 2000 and1999, respectively, each contained 52 weeks. 

Depreciation and Amortization 

Leasehold improvements and equipment are stated at cost, less accumulateddepreciation. Depreciation is calculated on the straight-line method over the estimateduseful lives of the assets. Estimated useful lives for the purposes of depreciation are:leasehold improvements - ten years or term of lease if less; machinery, equipment andfixtures - five to seven years. 

The Company's intangible assets consist primarily of patents, trademarks,copyrights, franchise contract rights, and goodwill. . Patents, trademarks and copyrightsare being amortized over 17 years. Franchise contract rights are amortized over varyingperiods from 8.5 to 20 years. Goodwill recorded as a result of acquisitions is beingamortized over 40 years. Other intangibles including noncompete agreements are beingamortized over the terms of the agreements, which is 5-6 years. Amortization expenserecorded in the accompanying consolidated statements of operations for the years endedNovember 26, 2000 and November 28, 1999 was $352,706 and $344,306, respectively. 

Stock Options 

As part of the merger between Holdings and PZ, all existing stock options andwarrants issued by Holdings remained with PZ after the spin off of the Company.Accordingly, there are no outstanding stock options as of November 26, 2000. Prior to themerger and spin off, no compensation expense was recognized for stock options because theexercise price of the option was at least equal to the market price of the underlyingstock on the grant date. Stock options granted as consideration in purchase acquisitionshave been recorded as an addition to additional paid-in capital in the accompanyingbalance sheet based on the fair value of such options on the date of the acquisition. 

Stock Warrants 

Stock warrants granted as consideration in purchase acquisitions have beenrecorded as an addition to additional paid-in capital in the accompanying balance sheetbased on the fair value of such stock warrants on the date of the acquisition. 

Revenue Recognition 

Royalty fees from franchised stores represent a fee of 5% of net retail sales offranchised units. Royalty revenues are recognized on the accrual basis. 

The Company recognizes franchise fee revenue upon the opening of a franchisestore. Direct costs associated with the franchise sales are deferred until the franchisefee revenue is recognized. These costs include site approval, construction approval,commissions, blueprints, purchase of cash registers, and training costs. 

Area development agreement revenue is recognized on a pro rata basis as eachstore covered by the agreement opens. At the termination of an agreement, any remainingdeferred franchise and area development agreement revenue is recognized as such amountsare not refundable. 

In addition to Company-operated and franchised stores, the Company acts aslicensor of "Big Apple Bagels" units owned and operated primarily by HostMarriott Services (Host Marriott). Included below in "licensed units" are thoseunits located primarily in airport and travel plazas. In fiscal 2000 and 1999, the Companyopened additional units pursuant to other licensing arrangements. The Company derives alicensing fee from certain sales at these units as well as a sales commission from thesale of par-baked bagels to these units by a third-party commercial bakery. 

Stores which have been opened, and unopened stores for which an agreement hasbeen executed at November 26, 2000 and November 28, 1999 or area development feescollected are as follows (see Note 4): 
November 26, 2000November 28, 1999Stores Opened     Company-owned1423     Franchisee-owned170177     Licensed5860*242**260*Unopened stores     Franchise agreement310     Area development agreement38*6**18***248****278**
Advertising Costs 

The Company expenses advertising costs as incurred. Advertising expense was$52,612 and $193,364 in 2000 and 1999, respectively. Included in advertising expense was$34,949 and $55,019 in 2000 and 1999, respectively, related to the Company's franchiseoperations. 

Fair Value of Financial Instruments 

The Company evaluates its various financial instruments based on current marketinterest, rates relative to stated interest rates, length to maturity, and the existenceof a readily determinable market price. Based on the Company's analysis, the fair value offinancial instruments recorded on the consolidated balance sheet as of November 26, 2000and November 28, 1999, approximates their carrying value. 

Comprehensive Income (Loss) 

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,"Reporting Comprehensive Income," which established standards for the reportingand display of comprehensive income (loss) and its components in the financial statements.Components of comprehensive income (loss) include amounts that, under SFAS No. 130, areincluded in the comprehensive income (loss) but are excluded from net income (loss). Therewere no differences between the Company's net(loss) income andcomprehensive (loss) income. 

New Accounting Standards 

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133 iseffective for the fiscal years beginning after June 15, 2000. SFAS No. 133 requires thatall derivative instruments be recorded on the balance sheet at their fair market value.Changes in the fair value of derivatives are recorded each period in the current earningsor other comprehensive income (loss) depending on whether a derivative is designed as partof a hedge transaction and, if so, the type of hedge transaction involved. The Companydoes not expect that adoption of SFAS No. 133 will have a material impact on itsconsolidated financial position or results of operation, as the Company does not currentlyhold any derivative financial instruments. 

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,"Revenue Recognition in Financial Statements" subsequently updated by SAB 101Aand SAB 101B ("SAB 101"). SAB 101 summarizes certain of the SEC's views inapplying generally accepted accounting principles to revenue recognition infinancial statements. We are required to adopt SAB 101 no later than the fourth quarter offiscal 2001. We believe our revenue recognition practices are in compliance with SAB 101. 

Use of Estimates 

The preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from thoseestimates. 

Reclassifications 

Certain 1999 amounts have been reclassified to reflect the 2000 presentation. 

Note 3 - Restricted Cash 

Systems and MFM have established the National Marketing Fund (Fund). Certainfranchisees and Company-owned stores are required to contribute to the Fund based on theirnet sales and in turn are reimbursed for a portion of media advertising placed in theirlocal markets up to a maximum equal to the amount they contributed. As of November 26,2000 and November 28, 1999, the Fund's cash balance was $56,889 and $21,946, respectively.

Note 4 - Special Charge 

During the fourth quarter of 1999, the Company made the decision to refranchisecertain Company-owned stores, in order to concentrate on franchising and marketing andbuilding equity in the branding of its trademarked names and products. The Company-ownedstores, which were to be converted to franchised units were written down to fair valuebased upon actual selling prices or, if not sold prior to year-end, upon management'sjudgment based upon the previous sale of such assets. Management's judgment is inherent inthe estimated fair value determinations and, accordingly, actual results could varysignificantly from such estimates. The estimated fair value of the remaining assets to besold totaled $502,874 and $1,323,736 and were recorded as current assets as of November26, 2000 and November 28, 1999, respectively. The remaining assets held for sale onNovember 26, 2000 represented seven stores and some equipment. The assets held for sale onNovember 28, 1999 represented 14 stores and some equipment. 

The actual and planned conversions resulted in a pre-tax loss of $1,600,406during the fourth quarter of 1999. As of November 26, 2000, $58,731 of the charge,primarily for lease termination costs, remains as a liability for store conversions. Asummary of the special charge is presented below: 
Loss associated with actual and expected conversion of stores to    franchises $1,236,568Severance, lease termination and other costs250,713Write-off of Canadian franchise rights113,125
In addition, the Company reserved or wrote off approximately $1,044,000 ofaccounts and notes receivable during 2000. This additional reserve primarily resulted fromstore closings of franchisees. 

Note 5 - Income Taxes 

The reconciliation of the income tax (benefit) provision is as follows: 

 
Years EndedNovember 26, 2000November 28, 1999Income tax (benefit) provision computed at federal statutory rate$  (104,691)$(1,177,953)State income taxes (benefit) provision, net of federal tax benefit(14,164)(166,922)Other adjustments1,53557,043Change in valuation allowance117,3201,287,832*Benefit for Income Taxes**$                   -**$                   -*
Deferred income taxes reflect the net tax effects of temporary differencesbetween the carrying amounts of assets and liabilities for financial reporting purposesand the amounts used for income tax purposes. 

Deferred tax assets (liabilities) are as follows: 
Years EndedNovember 26, 2000November 28, 1999Franchise fee revenue41,535100,926Franchise costs52,14761,620National Marketing Fund net contributions22,0837,960Allowance for uncollectible accounts277,150299,195Notes receivable100,176187,392Net operating loss carryforwards2,842,4072,461,151Other72,791214,364Valuation allowance(2,919,923)(2,802,603)*     Total Deferred Tax Assets**488,366**530,005*Depreciation(308,366)(350,005)*     Total Deferred Tax Liabilities**(308,366)**(350,005)***$     180,000****$     180,000**
As of November 26, 2000, the Company has cumulative net operating losscarryforwards expiring between 2011 and 2020 for U.S. federal income tax purposes ofapproximately $7,300,000. The net operating loss carryforwards are subject to limitationin any given year as a result of the Company's initial public offering and may be furtherlimited if certain other events occur. A valuation allowance has been established for$2,919,923 of the deferred tax benefit related to those loss carryforwards and otherdeferred tax assets for which it is considered more likely than not that the benefit willnot be realized. 

Note 6 - Long-Term Obligations 

Long-term debt consisted of the following: 

 
20001999Secured line of credit payable to PZ, due November 3, 2002, at an    interest rate of prime plus 1%$   1,400,000$                       -Secured line of credit payable to bank at an interest rate of prime    plus 1%-1,657,493Capital lease obligations, various rates-7,232Secured note payable, principal payments due monthly at an interest    rate of 11.3% 1,091,8321,239,224Other156,427170,0002,648,2593,073,949Less: current portion(177,057)(1,818,087)Long-term debt, net of current portion**$       2,471,202****$       1,255,862******
After the Spin Off, the Company entered into a new credit facility with anaffiliate of PZ. This new credit line is secured by substantially all of the assets of theCompany, excluding those acquired through the Jacobs Bros. Acquisition. The interest rateon this new line of credit is prime plus 1%. Interest payments are due quarterly and thenote is due and payable on November 3, 2002. As of November 26, 2000, the Company hadborrowed $1,400,000 on the Line. 

As of November 26, 2000, annual maturities on long-term obligations are due asfollows: 

 
Year Ending November 30:2001$ 177,05720021,597,9382003221,2842004247,3872005276,572Thereafter128,021
**$ 2,648,259**
In June 1999, the Company obtained an amortizing loan in the amount of $170,000from a finance company. Proceeds were used to purchase two stores from a franchisee inWisconsin. 

In February 1999, the Company obtained a series of amortizing loans in theamount of $1,350,000 from a finance company. Loan proceeds of $950,000 were used topurchase certain assets of Jacobs Bros. Approximately $280,000 was used to purchaseequipment and fund remodeling required on the units acquired in the purchase. Anadditional $120,000 was used to purchase the assets of a former franchisee. 

In February 1997, Systems entered into an agreement with a finance company toprovide financing to qualifying franchisees for the purpose of adding second or subsequentunits. The program is administered by the finance company; however, Systems has the finalright of approval over individual applicants. Systems has provided a guarantee ofborrowings up to a maximum of 10% of the total amount financed in each 12-month periodunder the program. As of November 26, 2000, $420,000 has been advanced to franchises underthis program. 

Interest paid for the years ended November 26, 2000 and 1999 was $329,931 and$292,457, respectively. 

Note 7 - Lease Commitments 

The Company rents its office and Company-owned store facilities under leaseswhich require it to pay real estate taxes, insurance and general repairs and maintenanceon these leased facilities. Rent expense for the years ended November 26, 2000 andNovember 28, 1999 was $1,072,670 and $1,277,463, less sublease income of $252,722 and$259,577, respectively. As of November 26, 2000, future minimum annual rental commitmentsunder leases, net of sublease income of $110,100 in 2001, $113,403 in 2002, $116,805 in2003, $120,309 in 2004 and $123,919 in 2005 are as follows: 

 
Year Ending November 30:2001$ 712,9492002631,1702003635,4412004458,8972005216,926Thereafter98,456
**$2,753,839**
 

Note 8 - Noncash Transactions 

In November 2000, the Company entered into a credit facility in the amount of$1,400,000 with an affiliate of PZ. The amount outstanding with CIB Bank was funded by PZ.

The Company refranchised five stores during fiscal 2000. The Company receivednotes in the amount of $284,000 and $62,000 in cash. 

In February 1999, the Company acquired certain assets of Jacobs Bros. See Note12. The company financed this acquisition with a lender in the amount of $950,000. Alsothe company issued common stock in the amount of $140,000 and warrants valued at $200,000in connection with this acquisition. The company also accrued $210,000 for the noncompeteagreement. 

In March 1999, the company acquired assets and assumed liabilities from afranchisee in the amount of $119,500.

In October 1999, the Company acquired two stores from a franchisee forforgiveness of outstanding royalty fees and national marketing fund receivables in theamount of $171,371. The company also assumed liabilities in the amount of $170,000. 

The company acquired assets and assumed liabilities from a franchisee in theamount of $119,500. 

Note 9 - Stockholders' Equity 

During fiscal 1999, holders elected to convert 60,000 shares of Preferred Stockplus dividends accrued thereon into 818,491 shares of common stock. 

Preferred dividends of $ 0 and $123,780 accumulated during fiscal years 2000 and1999, respectively. 

On December 10, 1999, subsequent to a favorable vote by stockholders, theCompany effected a 1:6 reverse split of the outstanding shares of common stock.Accordingly, all data shown in the accompanying consolidated financial statements andnotes have been retroactively adjusted to reflect the reverse split. 

Note 10 - Earnings Per Share 

The computation of basic and diluted loss per share is as follows: 

 
Years EndedNovember 26, 2000November 28, 1999*Numerator*:     Net loss(307,916)(3,464,569)     Preferred stock dividend accumulated-(123,780)**     Numerator for basic loss      per share - loss  attributable to       common stockholders****(307,916)****(3,588,349)**     Effect of dilutive securities:     Preferred stock dividend accumulated-123,780     **Numerator for diluted loss    per share -loss attributable to       common stockholders****(307,916)****(3,464,569)***Denominator:***     Denominator for basic loss per    share - weighted average shares****2,237,567****1,496,323****Basic and diluted loss per share****(0.14)****(2.32)**
The exercise of options and warrants outstanding during the year ended November28, 1999 is not assumed as the result is antidilutive to the reported loss per share. 

Note 11 - Stock Options Plans 

In November 2000, Holdings merged with PZ. Subsequent to the merger, the Companywas spun off. The existing stock options and warrants of Holdings remained with PZ.Accordingly, there are no options issued and outstanding by the Company. 

Activity under the Incentive Plan and Directors Plan during the two years endedNovember 26, 2000, is as follows: 

 
Number of SharesWeighted-Average Option Price Per ShareOutstanding as of November 30, 199870,57628.46Granted18,9145.80Exercised--Canceled(8,424)24.26Outstanding as of November 30, 199981,06623.61Transferred to PZ (merged company)(77,648)$23.34Canceled(3,418)29.34*Outstanding as of November 26, 2000**-*
Note 12 - Business Combinations 

During 2000, the Company was spun off from PZ as indicated in Note 1.

During 2000 and 1999, the Company acquired and sold several stores. Storespurchased are operated as Company-owned units for a period of time prior to the ultimateresale as a franchised unit. 

On February 1, 1999, the Company purchased certain assets of a related group ofentities doing business as Jacobs Bros. Bagels (Jacobs Bros.), a chain operating retailbagel stores in the Chicago, Illinois area. The assets acquired include eight retaillocations and a central commissary facility in exchange for $950,000 in cash and warrantsto acquire 83,333 shares of the Company's common stock. The warrants provide for thepurchase of 45,833 shares and 37,500 shares of common stock at an exercise price of $7.50and $9.00 per share, respectively. The warrants are first exercisable on February 1, 2000and expire on January 31, 2006. None of the warrants were exercised as of February 3,2000. Further, the Company entered into noncompetition agreements with two principals ofJacobs Bros. totaling $210,000 to be paid over varying periods. Finally, the Companyissued 26,666 shares of the Company's common stock to the investment banker for servicesin connection with the acquisition, valued at $140,000. 

Note 13 - Segment Information 

In the fourth quarter of 1999, the Company adopted Statement of FinancialAccounting Standards No. 131, "Disclosures about Segments of an Enterprise andRelated Information." This statement supercedes Statement of Financial AccountingStandards No. 14, "Financial Reporting for Segments of a Business Enterprise,"replacing the "industry segment" approach with the "management"approach. The management approach designates the internal organization that is used bymanagement for making operating decisions and assessing performance as the source of theCompany's reportable segments. This statement requires disclosure of certain informationby reportable segment, geographic area and major customer. As a result, the Company willseparately report information on the following two operating segments: company storeoperations and franchise operations. In determining the operating income of each segment,certain general and corporate expenses are not allocated to operating segments. 
Net RevenuesOperating    (Loss) IncomeYears    Ended2000199920001999Company Store Operations9,961,05911,361,084(578,527)(2,575,752)Franchise Operations3,607,0533,579,8171,159,302(261,481)*Total Ongoing Business*13,568,11214,940,901580,775(2,837,233)Corporate Expenses(706,549)(550,499)Interest Expense, Net of Interest Income(329,931)(292,457)Other Income147,789215,620Loss before Income Taxes(307,916)(3,464,569)Benefit for Income Taxes--**Net Loss****(307,916)****(3,464,569)**
 
**Operating Segment Data**Identifiable AssetsCapital ExpendituresDepreciation and AmortizationYear ended November 26,2000Company Store Operations$     6,874,464$    76,730$     764,114Franchise Operations3,151,127-158,121*$ 10,025,591**$   76,730**$    922,235*Year ended November 28,1999Company Store Operations$8,564,951$   122,148$           982,742Franchise Operations3,452,08726,350265,126*$  12,017,038**$  148,498**$  1,247,868*
 
**Reconciliation to Total Assets As Reported**November 26,2000November 28,1999AssetsTotal reportable segments - Identifiable assets$ 10,025,591$12,017,038Unallocated amounts  Cash348,25630,818  Prepaid expenses and other current assets325,891276,717  Other488,366530,005Total Consolidated Assets**11,188,104****12,854,578**
There were no sales to any individual customer during any of the years in thetwo-year period ended November 26, 2000 that represented 10% or more of net sales.

**ITEM 8. CHANGES IN AND DISAGREEMENT WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None. 

PART III 

**ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERSAND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.**

Incorporated by reference to the Company's definitive proxy materials to befiled with the Commission on or before March 31, 2001. 

**ITEM 10. EXECUTIVE COMPENSATION.**

Incorporated by reference to the Company's definitive proxy materials to befiled with the Commission on or before March 31, 2001. 

**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT. -**

Incorporated by reference to the Company's definitive proxy materials to befiled with the Commission on or before March 31, 2001. 

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS.**

Incorporated by reference to the Company's definitive proxy materials to befiled with the Commission on or before March 31, 2001. 

**ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K**

REPORTS ON FORM 8-K 

None. 

EXHIBITS 

The following exhibits are filed herewith. 
[ii] 3.1Certificate of Incorporation of the Company[ii] 3.2 Bylaws of the Company4.1Form of Stock Certificate evidencing Common Stock. $.001 par    value[i] 10.1Form of Franchise Agreement[i] 10.2Form of Franchise Agreement-Satellite[i] 10.3Form of Franchise Agreement-Wholesale [i] 10.4Form of Area Development Agreement11.1 Calculation of Earnings Per Share21.1List of Subsidiaries of the Company23.1 Consent of Blackman Kallick Bartlestein LLP, independent    auditors 
___________________________________________ 

[i] Incorporated by reference to the Company's Registration Statement onForm SB-2, effective November 27, 1995 (Commission File No. 33-98060C) 

[ii] Incorporated by reference to the Company's Registration Statement onForm 10-SB/A filed October 12, 2000 (Commission File No. 0-31555)

INDEX TO EXHIBITS 

 
INDEX NUMBERDESCRIPTION4.1Form of Certificate evidencing Common Stock. $.001 par value21.1 List of Subsidiaries of the Company 23.1Consent of Blackman Kallick Bartelstein, LLP, independent auditors 
  

SIGNATURES 

In accordance with Section 13 of the Exchange Act, the Registrant has dulycaused this report on Form 10-KSB to be signed on its behalf by the undersigned, thereuntoduly authorized. 

BAB, INC. 
Dated: February 26, 2001 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 reporton Form 10-KSB has been signed below by the following persons on behalf of the company andin the capacities and on the dates indicated. 
Dated: February 26, 2001 By /s/ Michael W. Evans Michael W. Evans, Chief Executive Officer and President (Principal    Executive Officer) 
 
Dated: February 26, 2001 /s/ Michael K. MurtaughMichael K. Murtaugh, Director and Vice President/General Counsel    and Secretary
 
Dated: February 26, 2001 /s/ Mark E. MajewskiMark E. Majewski, Chief Financial Officer and Treasurer (Principal    Financial and Accounting Officer)
 
Dated: February 26, 2001 /s/ David L. EpsteinDavid L. Epstein, Director
 
Dated: February 26, 2001 /s/ Robert B. NagelRobert B. Nagel, Director
 Exhibit 4.1Form of Certificate evidencing Common Stock. $.001 par valueNumber - B
**BAB, INC.**Shares -Common Stock - $.001 par valueIncorporated under the laws of the State of    DelawareCusip  055183 10 7This Certifies ThatIs the Owner ofFully paid and    non-assessable shares of the common stock of
BAB, Inc.transferrable on the books of the    Corporation or by the holder hereof in person or by duly authorized attorney, upon    surrender of this Certificate properly endorsed.  This Certificate is not valid until    countersigned and registered by the Transfer Agent and Registrar.    WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly    authorized officers.    Dated:/s/ Michael K. Murtaugh    Vice President/ General Counsel/s/ Michael W. Evans    President/Chief Executive Officer
 
Exhibit 21.1SUBSIDIARIES OF BAB, INC.
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 

 

Exhibit 23.1 

We consent to the incorporation by reference in the Registration Statements onForm S-3 (Commission File Nos. 333-42253 and 333-51337) and in the related Prospectuses ofour report dated January 26, 2001, with respect to the consolidated financial statementsof BAB, Inc. as of and for the year ended November 26, 2000 included in this Annual Report(Form 10-KSB) for the year ended November 26, 2000. 

 
February 26, 2001CHICAGO, ILLINOIS  
/s/ Blackman Kallick Bartelstein, LLP 

 
EX-27.1FINANCIAL DATA SCHEDULE 
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTEDFROM THE FINANCIAL STATEMENTS OF BAB HOLDINGS, INC. FOR THE TWELVE MONTH PERIOD ENDEDNOVEMBER 26, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIALSTATEMENTS. 
PERIOD-TYPE 12-MOS FISCAL-YEAR-END NOV-26-2000PERIOD-END NOV-26-2000CASH 348,256SECURITIES 0RECEIVABLES 1,714,454ALLOWANCES (713,972)INVENTORY 238,468CURRENT-ASSETS 3,223,291PP&E 3,424,930DEPRECIATION (1,767,891)TOTAL-ASSETS 11,188,104CURRENT-LIABILITIES 2,443,838BONDS 2,648,259COMMON  13,507,669OTHER-SE (7,719,994)TOTAL-LIABILITY-AND-EQUITY 11,188,104SALES 8,721,494TOTAL-REVENUES 13,568,112CGS 2,754,996TOTAL-COSTS 13,693,886INTEREST-EXPENSE 329,931INCOME-PRETAX  (307,916)NET-INCOME (307,916)EPS-PRIMARY AND DILUTED (0.14) 
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