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FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2023

☐

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 or

organization)

(I.R.S. Employer Identification No.)

 

500 Lake Cook Road, Suite 475, Deerfield, Illinois 60015

 

(Address of principal executive offices) (Zip Code)

 

Issuer's telephone number (847) 948-7520

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s)

Name of each exchange on which registered
Common Stock BABB OTCQB

 

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by checkmark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company. Yes ☐ No ☒

 

As of July 13, 2023 BAB, Inc. had: 7,263,508 shares of Common Stock outstanding.

 

 
 

 

 
 

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 3
     

Item 1.

Financial Statements

 3
     

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

 16
     

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 19
     

Item 4

Controls and Procedures

 19
     

PART II

OTHER INFORMATION

 20
     

Item 1.

Legal Proceedings

 20
     

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 20
     

Item 3

Defaults Upon Senior Securities

 20
     

Item 4

Mine Safety Disclosures

 20
     

Item 5

Other Information

 20
     

Item 6

Exhibits

 21
     

SIGNATURE

   22

 

2
 

 

PART I

 

ITEM 1.

FINANCIAL STATEMENTS
 

BAB, Inc.

Consolidated Balance Sheets

 

   

May 31, 2023

    

November 30, 2022

  
    (unaudited)     (audited)  
ASSETS                
Current Assets                

Cash and cash equivelants

   $ 1,682,226     $ 1,623,256  

Restricted cash

     337,340       279,405  
Receivables                

Trade accounts and notes receivable (net of allowance for doubtful accounts of $10,873 in 2023 and 2022 )

     59,338       73,972  

Marketing fund contributions receivable from franchisees and stores

     22,366       12,811  

Lease receivable

     5,864       5,827  

Prepaid expenses and other current assets

     90,730       159,226  

Total Current Assets

     2,197,864       2,154,497  
                 

Property, plant and equipment (net of accumulated depreciation of $159,414 in 2023 and 2022)

     -       -  

Lease receivable

     35,364       38,305  

Trademarks

     461,445       461,445  

Goodwill

     1,493,771       1,493,771  

Definite lived intangible assets (net of accumulated amortization of $136,579 in 2023 and $134,733 in 2022)

     17,127       18,972  

Operating lease right of use

     80,802       127,617  

Total Noncurrent Assets

     2,088,509       2,140,110  

Total Assets

   $ 4,286,373     $ 4,294,607  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities                

Accounts payable

   $ 14,058     $ 5,803  

Accrued expenses and other current liabilities

     345,501       324,718  

Unexpended marketing fund contributions

     359,877       291,387  

Deferred franchise fee revenue

     25,077       33,487  

Deferred licensing revenue

     12,500       298  

Current portion operating lease liability

     97,602       113,883  

Total Current Liabilities

     854,615       769,576  
                 
Long-term Liabilities (net of current portion)                

Operating lease liability

     -       39,819  

Deferred franchise revenue

     156,891       128,465  

Deferred tax liability

     255,877       281,700  

Total Long-term Liabilities

     412,768       449,984  
                 

Total Liabilities

   $ 1,267,383     $ 1,219,560  
                 

Commitments and contingencies

            
                 
Stockholders' Equity                

Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of May 31, 2023 and November 30, 2022

     -       -  

Preferred shares -$.001 par value; 1,000,000 Series A authorized; no shares outstanding as of May 31, 2023 and November 30, 2022

     -       -  

Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of May 31, 2023 and November 30, 2022

     13,508,257       13,508,257  

Additional paid-in capital

     987,034       987,034  

Treasury stock

     (222,781 )     (222,781 )

Accumulated deficit

     (11,253,520 )     (11,197,463 )

Total Stockholders' Equity

     3,018,990       3,075,047  

Total Liabilities and Stockholders' Equity

   $ 4,286,373     $ 4,294,607  

 

SEE ACCOMPANYING NOTES

 

3
 

 

 

BAB, Inc.

Consolidated Statements of Income

For the Three Months and Six Months ended May 31, 2023 and May 31, 2022

(Unaudited)

 

   

Three months ended May 31,

    

Six months ended May 31,

  
   

2023

    

2022

    

2023

    

2022

  
REVENUES                                

Royalty fees from franchised stores

   $ 494,933     $ 465,491     $ 937,541     $ 879,712  

Franchise Fees

     7,054       9,102       11,401       18,079  

Licensing fees and other income

     75,674       73,729       135,994       144,072  

Marketing fund revenue

     286,739       276,110       525,057       520,845  

Total Revenues

     864,400       824,432       1,609,993       1,562,708  
                                 

OPERATING EXPENSES

                                
Selling, general and administrative expenses:                                

Payroll and payroll-related expenses

     231,904       253,502       503,623       489,631  

Occupancy

     33,759       33,303       68,407       66,885  

Advertising and promotion

     4,904       5,153       7,705       8,486  

Professional service fees

     25,625       19,616       78,677       63,901  

Travel

     7,043       5,855       8,274       7,672  

Employee benefit expenses

     38,548       35,732       77,870       77,860  

Depreciation and amortization

     922       1,284       1,845       2,594  

Marketing fund expenses

     286,739       276,110       525,057       520,845  

Other

     63,866       61,928       118,046       104,316  

Total Operating Expenses

     693,310       692,483       1,389,504       1,342,190  

Income from operations

     171,090       131,949       220,489       220,518  

Interest income

     5,438       58       5,559       129  

Income before provision for income taxes

     176,528       132,007       226,048       220,647  
Provision for income taxes                                

Current tax expense

     75,823       21,591       90,023       30,341  

Deferred tax expense (benefit)

     (25,823 )     16,500       (25,823 )     33,500  

Total Tax Provision

     50,000       38,091       64,200       63,841  
                                 

Net Income

   $ 126,528     $ 93,916     $ 161,848     $ 156,806  
                                 

Net Income per share - Basic and Diluted

   $ 0.02     $ 0.01     $ 0.02     $ 0.02  
                                 

Weighted average shares outstanding - Basic and diluted

     7,263,508       7,263,508       7,263,508       7,263,508  

Cash distributions declared per share

   $ 0.01     $ 0.01     $ 0.03     $ 0.02  

 

SEE ACCOMPANYING NOTES

 

4
 

 

 

BAB, Inc.

Consolidated Statements of Cash Flows

For Six Months Ended May 31, 2023 and May 31, 2022

(Unaudited)

 

   

May 31, 2023

    

May 31, 2022

  

Operating activities

                

Net Income

   $ 161,848     $ 156,806  
Adjustments to reconcile net income to cash flows provided by operating activities:                

Depreciation and amortization

     1,845       2,594  

Deferred tax (expense) benefit

     (25,823 )     33,500  

Provision for uncollectible accounts, net of recoveries

     -       (1,028 )

Noncash lease expense

     49,655       49,656  
Changes in:                

Trade accounts receivable and notes/lease receivable

     17,538       10,421  
Marketing fund contributions receivable     (9,555 )     (3,791 )

Prepaid expenses and other

     68,496       1,053  

Accounts payable

     8,255       (8,490 )

Accrued liabilities

     20,783       (25,793 )

Unexpended marketing fund contributions

     68,490       111,140  

Deferred revenue

     32,218       18,885  

Operating lease liability

     (58,940 )     (57,616 )

Net Cash Provided by Operating Activities

     334,810       287,337  
                 
Investing activities                

Purchase of equipment

     -       (41,700 )

Net Cash Used In Investing Activities

     -       (41,700 )
                 
Financing activities                

Cash distributions/dividends

     (217,905 )     (145,270 )
Net Cash Used In Financing Activities     (217,905 )     (145,270 )
                 

Net Increase in Cash and Restricted Cash

     116,905       100,367  

Cash and Restricted Cash - Beginning of Period

     1,902,661       2,058,158  

Cash and Restricted Cash - End of Period

   $ 2,019,566     $ 2,158,525  
                 
                 
Supplemental disclosure of cash flow information:                

Interest paid

   $ -     $ -  

Income taxes paid

   $ 7,500     $ 38,100  

 

SEE ACCOMPANYING NOTES

 

5
 

 

BAB, Inc.

Notes to Unaudited Consolidated Financial Statements

For Three and Six Months Ended May 31, 2023 and May 31, 2022

(Unaudited)

 

 

 

Note 1. Nature of Operations

 

BAB, Inc. (“the Company”) has three wholly owned subsidiaries: BAB Systems, Inc. (“Systems”), BAB Operations, Inc. (“Operations”) and BAB Investments, Inc. (“Investments”). Systems was incorporated on December 2, 1992, and was primarily established to franchise Big Apple Bagels® (“BAB”) specialty bagel retail stores. My Favorite Muffin (“MFM”) was acquired in 1997 and is included as a part of Systems. Brewster’s (“Brewster’s”) was established in 1996 and the coffee is sold in BAB and MFM locations. SweetDuet® (“SD”) frozen yogurt can be added as an additional brand in a BAB location. Operations was formed in 1995, primarily to operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were acquired in 1999, and any branded wholesale business uses this trademark. Investments was incorporated in 2009 to be used for the purpose of acquisitions. To date there have been no acquisitions.

 

The Company was incorporated under the laws of the State of Delaware on July 12, 2000. The Company currently franchises and licenses bagel and muffin retail units under the BAB, MFM and SD trade names. At May 31, 2023, the Company had 67 franchise units and 3 licensed units in operation in 20 states. There are 4 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including under licensing agreements.

 

The BAB franchised brand consists of units operating as “Big Apple Bagels®,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as “My Favorite Muffin Gourmet Muffin Bakery®” (“MFM Bakery”), featuring a large variety of freshly baked muffins and coffees and units operating as “My Favorite Muffin Your All-Day Bakery Café®” (“MFM Cafe”) featuring these products as well as a variety of specialty bagel sandwiches and related products. The SweetDuet® is a branded self-serve frozen yogurt that can be added as an additional brand in a BAB location. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.

 

The Company is leveraging on the natural synergy of distributing muffin products in existing BAB units and, alternatively, bagel products and Brewster's Coffee in existing MFM units. The Company expects to continue to realize efficiencies in servicing the combined base of BAB and MFM franchisees.

 

The accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2022 which was filed February 24, 2023. In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim period presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim period and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

 

6
 

 
 

2. Summary of Significant Accounting Policies

 

Unaudited Consolidated Financial Statements

 

The accompanying unaudited Condensed Consolidated Financial Statements of BAB, Inc. have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the financial statements and accompanying notes are in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and treasury notes with banks and equity firms with original maturities of less than 90 days. The balance of bank accounts may, at times, exceed federally insured credit limits. The Company has not experienced any loss in such accounts and believes it is not subject to any significant credit risk related to cash at May 31, 2023.

 

Accounts and Notes Receivable

 

Receivables are carried at original invoice amount less estimates for doubtful accounts. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance is outstanding 90 days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as income when received. Certain receivables have been converted to unsecured interest-bearing notes.

 

Lease Receivable

 

The Company leases restaurant equipment to a certain franchisee under a sales-type lease agreement. Under the terms of the agreement, title to the equipment passes to the customer once all lease payments have been made and a reasonable buy-out fee is paid. The Company retains title or a security interest in the equipment until such time. The sales and cost of sales are recognized at the inception of the lease. The profit or loss on the issuance of the lease is recorded in the period of commencement. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and, if applicable, estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the franchisee (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables.

 

Property, Plant and Equipment

 

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 3 to 7 years for property and equipment and 10 years, or term of lease if less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized.

 
7
 

 

2. Summary of Significant Accounting Policies (continued)

 

Advertising and Promotion Costs

 

The Company expenses advertising and promotion costs as incurred. All advertising and promotion costs were related to the Company’s franchise operations.

 

Leases

 

The company accounts for leases under ASC 842. Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets and other current and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2023. The Company will adopt ASU 2016-13 for fiscal year ending November 30, 2025.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 for fiscal year ending November 30, 2025.

 

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of May 31, 2023 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

 

Statement of Cash Flows

 

The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of May 31, 2023 and May 31, 2022 were as follows:

 

   

May 31, 2023

    

May 31, 2022

  
                 

Cash and cash equivalents

   $ 1,682,226     $ 1,451,214  

Restricted cash

     337,340       707,311  

Total cash and restricted cash

   $ 2,019,566     $ 2,158,525  

 
8
 

 
 

3. Revenue Recognition

 

Franchise and related revenue

 

The Company sells individual franchises. The franchise agreements typically require the franchisee to pay an initial, non-refundable fee prior to opening the respective location(s), and continuing royalty fees on a weekly basis based upon a percentage of franchisee net sales. The initial term of franchise agreements are typically 10 years. Subject to the Company’s approval, a franchisee may generally renew the franchise agreement upon its expiration. If approved, a franchisee may transfer a franchise agreement to a new or existing franchisee, at which point a transfer fee is typically paid by the current owner which then terminates that franchise agreement. A franchise agreement is signed with the new franchisee with no franchise fee required. If a contract is terminated prior to its term, it is a breach of contract and a penalty is assessed based on a formula reviewed and approved by management. Revenue generated from a contract breach is termed settlement income by the Company and included in licensing fees and other income.

 

Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as blueprints, operational materials, planning and functional training courses, and ongoing services, such as management of the marketing fund. The Company considers certain pre-opening activities and the franchise rights and related ongoing services to represent two separate performance obligations. The franchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performance obligations related to certain pre-opening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initial franchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed. Revenue allocated to franchise rights and ongoing services is deferred until the store opens, and recognized on a straight-line basis over the duration of the agreement, as this ensures that revenue recognition aligns with the customer’s access to the franchise right.

 

Royalty fees from franchised stores represent a 5% fee on net retail and wholesale sales of franchised units. Royalty revenues are recognized on an accrual basis using actual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis based on actual numbers from reports received from franchisees shortly after the month-end. Estimates are utilized in certain instances where actual numbers have not been received and such estimates are based on the average of the last 10 weeks’ actual reported sales.

 

Royalty revenue is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur.

 

There are two items involving revenue recognition of contracts that require us to make subjective judgments: the determination of which performance obligations are distinct within the context of the overall contract and the estimated stand-alone selling price of each obligation. In instances where our contract includes significant customization or modification services, the customization and modification services are generally combined and recorded as one distinct performance obligation.

 

9
 

 

3. Revenue Recognition (continued)

 

Gift Card Breakage Revenue

 

The Company sells gift cards to its customers in its retail stores and through its Corporate office. The Company’s gift cards do not have an expiration date and are not redeemable for cash except where required by law. Revenue from gift cards is recognized upon redemption in exchange for product and reported within franchisee store revenue and the royalty and marketing fees are paid and shown in the Condensed Consolidated Statements of Income. Until redemption, outstanding customer balances are recorded as a liability. An obligation is recorded at the time of sale of the gift card and it is included in accrued expenses on the Company’s Condensed Consolidated Balance Sheets.

 

The liability is reduced when the gift cards are redeemed by a franchise. Although there are no expiration dates for our gift cards, based on our analysis of historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage.” The Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and the corresponding revenue is included in licensing fees and other revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter.

 

Nontraditional and rebate revenue

 

As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors. The Company may receive various fees and rebates from the vendors and distributors on product purchases by franchisees. In addition, the Company may collect various initial fees, and those fees are classified as deferred revenue in the balance sheet and straight lined over the life of the contract as deferred revenue in the balance sheet. The Company does not possess control of the products prior to their transfer to the franchisee and products are delivered to franchisees directly from the vendor or their distributors. The Company recognizes the rebates as franchisees purchase products and supplies from vendors or distributors and recognizes the initial fees over the contract life and the fees are reported as licensing fees and other income in the Condensed Consolidated Statements of Income.

 

Marketing Fund

 

Franchise agreements require the franchisee to pay continuing marketing fees on a weekly basis, based on a percentage of franchisee sales. Marketing fees are not paid on franchise wholesale sales. The balance sheet includes marketing fund cash, which is the restricted cash, accounts receivable and unexpended marketing fund contributions. Although the marketing fees are not separate performance obligations distinct from the underlying franchise right, the Company acts as the principal as it is primarily responsible for the fulfillment and control of the marketing services. As a result, the Company records marketing fees in revenues and related marketing fund expenditures in expenses in the Condensed Consolidated Statement of Income. The Company historically presented the net activities of the marketing fund within the balance sheet in the Condensed Consolidated Balance Sheet. While this reclassification impacts the gross amount of reported revenue and expenses the amounts will be offsetting, and there is no impact on net income.

 

10
 

 

3. Revenue Recognition (continued)

 

Disaggregation of Revenue

 

The following table presents disaggregation of revenue from contracts with customers for the three months and six months ended May 31, 2023 and May 31, 2022:

 

   

For three

months ended

May 31, 2023

    

For three

months ended

May 31, 2022

    

For six

months ended

May 31, 2023

    

For six

months ended

May 31, 2022

  
                                 
Revenue recognized at a point in time                                

Sign Shop revenue

   $ 2,022     $ 3,205     $ 2,179     $ 3,296  

Settlement revenue

     6,000       10,000       12,500       16,750  

Total revenue at a point in time

     8,022       13,205       14,679       20,046  
Revenue recognized over time                                

Royalty revenue

     494,933       465,491       937,541       879,712  

Franchise fees

     7,054       9,102       11,401       18,079  

License fees

     5,443       4,378       9,589       8,756  

Gift card revenue

     1,796       357       2,100       2,560  

Nontraditional revenue

     60,413       55,789       109,626       112,710  

Marketing fund revenue

     286,739       276,110       525,057       520,845  

Total revenue over time

     856,378       811,227       1,595,314       1,542,662  

Grand total

   $ 864,400     $ 824,432     $ 1,609,993     $ 1,562,708  

 

Contract balances

 

The balance of contract liabilities includes franchise fees, license fees and vendor payments that have ongoing contract rights and the fees are being straight lined over the contract life. Contract liabilities also include marketing fund balances and gift card liability balances.

 

   

May 31, 2023

    

November 30, 2022

  
Liabilities                

Contract liabilities - current

   $ 613,310     $ 563,895  

Contract liabilities - long-term

     181,593       128,465  

Total Contract Liabilities

   $ 794,903     $ 692,360  

 

   

May 31, 2023

    

November 30, 2022

  

Contracts at beginning of period

   $ 692,360     $ 972,470  
                 

Revenue Recognized during period

     (711,007 )     (1,742,303 )

Additions during period

     813,550       1,462,193  

Contracts at end of period

   $ 794,903     $ 692,360  

 

11
 

 

3. Revenue Recognition (continued)

 

Transaction price allocated to remaining performance obligations (franchise agreements and license fee agreement) for the year ended November 30:

 

2023

     28,709  (a)

2024

     34,782  

2025

     27,133  

2026

     17,126  

2027

     15,426  

Thereafter

     71,291  

Total

   $ 194,468  

 

(a) represents the estimate for the remainder of 2023

 

 
 

4. Units Open and Under Development

 

Units which are open or under development at May 31, 2023 and 2022 are as follows:

 

   

May 31, 2023

    

May 31, 2022

  
Stores open:                

Franchisee-owned stores

     67       68  

Licensed Units

     3       4  
      70       72  
                 

 

Unopened stores with Franchise

 

                

Agreements

     4       2  
                 

 

Total operating units and units

 

                

with Franchise Agreements

     74       74  

 

 
 

5. Earnings per Share

 

The following table sets forth the computation of basic and diluted earnings per share:

 

   

For the three months ended:

    

For the six months ended:

  
   

May 31, 2023

    

May 31, 2022

    

May 31, 2023

    

May 31, 2022

  

Numerator:

                                

Net income available to common shareholders

   $ 126,528     $ 93,916     $ 161,848     $ 156,806  
                                 

Denominator:

                                

Weighted average outstanding shares

                                

Basic and diluted common stock

     7,263,508       7,263,508       7,263,508       7,263,508  

Earnings per Share - Basic

   $ 0.02     $ 0.01     $ 0.02     $ 0.02  

 

12
 

 
 

6. Goodwill and Other Intangible Assets

 

Accounting Standard Codification (“ASC”) 350 “Goodwill and Other Intangible Assets” requires that assets with indefinite lives no longer be amortized, but instead be subject to annual impairment tests.

 

Following the guidelines contained in ASC 350, the Company tests goodwill and intangible assets that are not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the first quarter. During the quarter ended February 28, 2023 and February 28, 2022, management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy, and changes in the composition and carrying amounts of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than it’s carrying value, a quantitative assessment is then performed. Based on the qualitative analysis conducted during the quarter, management does not believe that an impairment existed at May 31, 2023.

 

 

7. Lease Receivable Commitments

 

The Company leases restaurant equipment to a certain franchise under a sales-type lease agreement. The lease agreement does not contain any non-lease components. The lease term is for a period of seven years, beginning June 1, 2022 and ending June 1, 2029. The lease requires weekly payments of $121 for a total 365 payments, and a final optional buy-out payment of $4,800, which management believes estimates residual value. At May 31, 2023, management does not believe the unguaranteed residual asset value of $4,800 to be impaired.

 

During the six months ending May 31, 2023, the Company recorded interest income from the lease receivable of $237.

 

The sales lease is included in the balance sheet at the current value of the lease payments at a 1.25% discount rate, which reflects the rate implicit in the lease agreement.

 

Future minimum lease payments receivable as of May 31, 2023 are as follows:

 

   

Undiscounted Rent

Payments

  
Year Ending November 30:        

2023

   $ 3,142  

2024

     6,283  

2025

     6,283  

2026

     6,283  

2027

     6,283  

thereafter

     14,347  

Total Undiscounted Lease Payments

   $ 42,621  
         

Unamortized interest income

     (1,393 )

Lease receivable, net

   $ 41,228  
         

Short-term lease receivable

   $ 5,864  

Long-term lease receivable

     35,364  

Total lease receivable

   $ 41,228  

 

13
 

 
 

8. Lease Commitments

 

The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. A lease was signed in June of 2018, effective October 1, 2018, expiring on March 31, 2024 with an option to renew for a 5-year period. A six-month rent abatement and tenant allowance was provided in the lease, with any unused portion to be applied to base rent. The unused portion was determined to be $21,300. The renewal option has not been included in the measurement of the lease liability.

 

Monthly rent expense is recognized on a straight-line basis over the term of the lease. At May 31, 2023 the remaining lease term was 10 months. The operating lease is included in the balance sheet at the present value of the lease payments at a 5.25% discount rate. The discount rate was considered to be an estimate of the Company’s incremental borrowing rate.

 

Gross future minimum annual rental commitments as of May 31, 2023 are as follows:

 

   

Undiscounted Rent

Payments

  

Year Ending November 30:

        

2023

     59,382  

2024

     40,177  

Total Undiscounted Rent Payments

   $ 99,559  
         
Present Value Discount     (1,957 )

Present Value

   $ 97,602  
         

Short-term lease liability

   $ 97,602  

Long-term lease liability

     -  

Total Operating Lease Liability

   $ 97,602  

 

 
 

9. Income Taxes

 

For the three months ended May 31, 2023, the Company recorded current and deferred tax expense of $50,000 for an effective tax rate of 28.3% compared to $38,091 of current and deferred tax expense for the three months ended May 31, 2022 for an effective tax rate of 28.9%.

 

For the six months ended May 31, 2023, the Company recorded current and deferred tax expense of $64,200 for an effective tax rate of 28.4% compared to $63,841 of current and deferred tax expense for the six months ended May 31, 2022 for an effective tax rate of 28.9%.

 

14
 

 
 

10. Stockholder’s Equity

 

On June 6, 2023 the Board of Directors (“Board”) declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2023, payable on July 11, 2023. On March 13, 2023 the Board of Directors declared a $0.01 distribution/dividend per share to stockholders of record as of March 30, 2023, paid on April 19, 2023. On December 07, 2022 the Board of Directors declared a $0.02 cash distribution/dividend per share, $0.01 quarterly and $0.01 special, to stockholders of record as of December 22, 2022, paid January 11, 2023.

 

On September 9, 2022 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of September 28, 2022, paid October 20, 2022. On June 3, 2022 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2022, paid July 11, 2022. On March 7, 2022 the Board declared a $0.01 cash distribution/dividend per share to stockholders of record as of March 29, 2022, paid April 18, 2022. On December 06, 2021 the Board declared a $0.01 cash distribution/dividend per share to stockholders of record as of December 22, 2021, paid January 11, 2022.

 

On May 6, 2013, the Board of Directors (“Board”) of BAB, Inc. authorized and declared a dividend distribution of one right for each outstanding share of the common stock of BAB, Inc. to stockholders of record at the close of business on May 13, 2013. Each right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A Participating Preferred Stock of the Company at an exercise price of $0.90 per one-thousandth of a Preferred Share, subject to adjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement, dated May 6, 2013, between the Company and IST Shareholder Services, as rights agent.

 

The Board adopted the Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group that acquires 15% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement nor the Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board.

 

Full details about the Rights Plan are contained in a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission on May 7, 2013.

 

On June 18, 2014 an amendment to the Preferred Shares Rights Agreement was filed appointing American Stock Transfer & Trust Company, LLC as successor to Illinois Stock Transfer Company. All original rights and provisions remain unchanged. On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreement changing the final expiration date to mean the fifth anniversary of the date of the original agreement. All other original rights and provisions remain the same. On May 22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights and provisions remain the same. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the original agreement. All other original rights and provisions remain the same. On March 4, 2021 an amendment was filed extending the final expiration date to mean the eleventh anniversary date of the original agreement. All other original rights and provisions remain the same. On April 4, 2023 an amendment was filed extending the final expiration date to mean the fourteenth anniversary date of the original agreement. All other original rights and provisions remain the same.

 

15
 

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, including statements regarding the development of the Company's business, the markets for the Company's products, anticipated capital expenditures, and the effects of completed and proposed acquisitions, and other statements contained herein regarding matters that are not historical facts, are forward-looking statements as is within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because such statements include risks and uncertainties, actual results could differ materially from those expressed or implied by such forward-looking statements as set forth in this report, the Company's Annual Report on Form 10-K and other reports that the Company files with the Securities and Exchange Commission. Certain risks and uncertainties are wholly or partially outside the control of the Company and its management, including its ability to attract new franchisees; the continued success of current franchisees; the effects of competition on franchisees and consumer acceptance of the Company's products in new and existing markets; fluctuation in development and operating costs; brand awareness; availability and terms of capital; adverse publicity; acceptance of new product offerings; availability of locations and terms of sites for store development; food, labor and employee benefit costs; changes in government regulation (including increases in the minimum wage); regional economic and weather conditions; the hiring, training, and retention of skilled corporate and restaurant management; and the integration and assimilation of acquired concepts. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

General

 

There are 67 franchised and 3 licensed units at May 31, 2023 compared to 68 franchised and 4 licensed units at May 31, 2022.  System-wide revenues for the six months ended May 31, 2023 were $19.4 million and May 31, 2022 was $18.3 million.

 

The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees and receipt of initial franchise fees.  Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese and Brewster's coffee), and through nontraditional channels of distribution.

 

Royalty fees represent a 5% fee on net retail and wholesale sales of franchised units. Royalty revenues are recognized on an accrual basis using actual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis based on actual numbers from reports received from franchisees shortly after the month-end. Estimates are utilized in certain instances where actual numbers have not been received and such estimates are based on the average of the last 10 weeks’ actual reported sales.

 

There are two items involving revenue recognition of contracts that require us to make subjective judgments: the determination of which performance obligations are distinct within the context of the overall contract and the estimated stand-alone selling price of each obligation. In instances where our contract includes significant customization or modification services, the customization and modification services are generally combined and recorded as one distinct performance obligation.

 

The Company earns licensing fees from the sale of BAB branded products, which includes coffee, cream cheese, muffin mix and frozen bagels from a third-party commercial bakery, to the franchised and licensed units.

 

As of May 31, 2023, the Company employed 11 full-time employees and one part-time employee at the Corporate office. The employees are responsible for corporate management and oversight, accounting, advertising and franchising.  None of the Company's employees are subject to any collective bargaining agreements and management considers its relations with its employees to be good.

 

16
 

 

Results of Operations

 

Three Months Ended May 31, 2023 versus Three Months Ended May 31, 2022

 

For the three months ended May 31, 2023 and May 31, 2022, the Company reported net income of $127,000 and $94,000, respectively. Total revenue of $864,000 increased $40,000, or 4.9%, for the three months ended May 31, 2023, as compared to total revenue of $824,000 for the three months ended May 31, 2022.

 

Royalty fee revenue of $495,000, for the quarter ended May 31, 2023, increased $29,000, or 6.2%, from the $466,000 for quarter ended May 31, 2022. The increase in royalties for the quarter ended May 31, 2023 compared to the quarter ended May 31, 2022, was primarily due to franchisees’ continued increase in usage of online ordering and delivery services in their areas and price increases for products sold.

 

Franchise fee revenue was $7,000, for the quarter ended May 31, 2023, decreased $2,000, or 22.2%, from $9,000 for May 31, 2022. In the second quarter 2023 and 2022 there was one store transfer. Licensing fee and other income of $76,000, for the quarter ended May 31, 2023, increased $2,000 or 2.7% from $74,000 for same quarter 2022.

 

Marketing Fund revenues of $287,000, for the quarter ended May 31, 2023, increased $11,000, or 4.0% from $276,000 for the quarter ended May 31, 2022.

 

Total operating expenses of $693,000, for the quarter ended May 31, 2023, increased $1,000, or 0.1% from $692,000 for the quarter ended May 31, 2022. The increase was primarily related to an increase in, marketing fund expenses of $11,000, professional services of $6,000, employee benefit expense increase of $3,000, travel expense of $1,000 and other expenses of $2,000 for the second quarter 2023 versus 2022. This was offset by a decrease in payroll expense of $22,000 which was a result of a combination of marketing fund payroll allocation adjustment and an employee changing from full time to part time in the second quarter 2023 versus 2022.

 

For the three months ended May 31, 2023 the provision for income tax was $50,000, compared to $38,000 for the three months ending May 31, 2022.

 

Earnings per share, as reported for basic and diluted outstanding shares, was $0.02 for quarter ended May 31, 2023 versus $0.01 for the quarter ended May 31, 2022.

 

 

Six Months Ended May 31, 2023 versus Six Months Ended May 31, 2022

 

For the six months ended May 31, 2023 and May 31, 2022, the Company reported net income of $162,000 and $157,000, respectively. Total revenue of $1,610,000 increased $47,000, or 3.0%, for the six months ended May 31, 2023, as compared to total revenue of $1,563,000 for the six months ended May 31, 2022.

 

Royalty fee revenue of $938,000, for the six months ended May 31, 2023, increased $58,000, or 6.6%, from the $880,000 for six months ended May 31, 2022. The increase was primarily due to franchisees’ continued increase in usage of online ordering and delivery services in their areas and price increases for products sold.

 

Franchise fee revenues of $11,000, for the six months ended May 31, 2023, decreased $7,000, or 38.9%, from the $18,000 for the six months ended May 31, 2022. For the six months ended May 31, 2023, in addition to the normal franchise fee amortization, the Company recorded revenue for one store transfer compared to two transfers in the same period 2022.

 

17
 

 

Results of Operations (continued)

 

Licensing fee and other income of $136,000, for the six months ended May 31, 2023, decreased $8,000 or 5.6% from $144,000 for same period 2022. For the six months ended May 31, 2023 there was a $4,000 decrease in settlement income, a $1,000 decrease in Sign Shop revenue and a $3,000 decrease in nontraditional revenue in 2023 compared to same period 2022.

 

Marketing Fund revenues of $525,000, for the six months ended May 31, 2023, increased $4,000, or 0.8% from $521,000 for the six months ended May 31, 2022.

 

Total operating expenses of $1,390,000, for the six months ended May 31, 2023, increased $48,000, or 3.6% from $1,342,000 for the same period 2022. The increase was primarily related to a $15,000 increase in legal and accounting fees, a $14,000 increase in salaries, a $5,000 increase in insurance, a $7,000 increase in outside services, a $7,000 increase in annual meeting fees and Corporate expenses and a $4,000 increase in Marketing Fund expenses. This was offset by a $4,000 decrease in franchise development and a $1,000 decrease in depreciation and amortization in the six months ended May 31,2023 compared to same period 2022.

 

For the six months ended May 31, 2023 the provision for income tax was $64,000 for 2023 and 2022.

 

Earnings per share, as reported for basic and diluted outstanding shares for the six months ended May 2023 and 2022 were $0.02.

 

Liquidity and Capital Resources

 

At May 31, 2023, the Company had working capital of $1,343,000 and unrestricted cash of $1,682,000. At May 31, 2022 the Company had working capital of $1,171,000 and unrestricted cash of $1,451,000.

 

During the six months ended May 31, 2022, the Company had net income of $162,000 and operating activities provided cash of $335,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the six months ending May 31, 2022 was depreciation and amortization of $2,000, and noncash lease expense of 50,000, less deferred tax reduction of $26,000. In addition, changes in operating assets and liabilities increased cash by $147,000. During the six months ended May 31, 2022, the Company had net income of $157,000 and operating activities provided cash of $287,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the six months ending May 31, 2022 was depreciation and amortization of $3,000, deferred tax expense of $34,000 and noncash lease expense of 50,000, less the recovery of uncollectible accounts of $1,000. In addition, changes in operating assets and liabilities increased cash by $45,000.

 

The Company had no investing activities for the six months ended May 31, 2023 and investing activities of $42,000 for an equipment deposit in same period 2022.

 

Cash distributions/dividends used $218,000 and $145,000 in financing activities for the six months ending May 31, 2023 and 2022, respectively.

 

 

Cash Distribution and Dividend Policy

 

It is the Company’s intent that future cash distributions/dividend payments will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis. For 2023, a $0.02 cash distribution was declared for the first quarter and a $0.01 cash distribution was been declared for the second.

 

Determination of whether distributions are considered a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2023, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2023.

 

18
 

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2023. The Company will adopt ASU 2016-13 for fiscal year ending November 30, 2025.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 for fiscal year ending November 30, 2025.

 

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of May 31, 2023 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

 

 

Critical Accounting Policies

 

The Company has identified other significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.  The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, deferred tax assets and the related valuation allowance.  Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2022, filed with the Securities and Exchange Commission on February 24, 2023. 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

BAB, Inc. has no interest, currency or derivative market risk.

 

   

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of both our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, both our Chief Executive Officer and Chief Financial Officer have concluded that, as of May 31, 2023 our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

19
 

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three months ending May 31, 2023 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Compliance with Section 404 of Sarbanes-Oxley Act

The Company is in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Act”).

 

PART II

 

ITEM 1.

LEGAL PROCEEDINGS

 

We may be subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of such proceedings or claims cannot be predicted with certainty, management does not believe that the outcome of any of such proceedings or claims will have a material effect on our financial position. We know of no pending or threatened proceeding or claim to which we are or will be a party.

 

ITEM 2.  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.

OTHER INFORMATION

 

Amendment No. 6 to the Company’s Preferred Shares Rights Agreement dated May 6, 2013 was filed on April 4, 2023. The amendment revises the definition of “Final Expiration Date” to mean the fourteenth anniversary of the date of the Preferred Shares Rights Agreement.

 

20
 

 

(a)  EXHIBITS

The following exhibits are filed herewith.

  

INDEX NUMBER DESCRIPTION

3.1 Articles of Incorporation (See Form 10-KSB for year ended November 30, 2006 filed February 28, 2007)

3.2 Bylaws of the Company (See Form 10-KSB for year ended November 30, 2006 filed February 28, 2007)

4.1 Preferred Shares Rights Agreement (See Form 8-K filed May 7, 2013)

4.2 Preferred Shares Rights Agreement Amendment No. 1 (See Form 8-K filed June 18, 2014)

4.3 Preferred Shares Rights Agreement Amendment No. 2 (See Form 8-K filed August 18, 2015)

4.4 Preferred Shares Rights Agreement Amendment No. 3 (See Form 8-K filed May 22, 2017)

4.5 Preferred Shares Rights Agreement Amendment No. 4 (See Form 8-K filed February 25, 2019)

4.6 Preferred Shares Rights Agreement Amendment No. 5 (See Form 8-K filed March 8, 2021)

4.7 Preferred Shares Rights Agreement Amendment No. 6 (See Form 8-K filed April 4, 2023)

21.1 List of Subsidiaries of the Company

31.1, 31.2 Section 302 of the Sarbanes-Oxley Act of 2002

32.1, 32.2 Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are

embedded within the Inline XBRL document)

101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL Inline XBRL Taxonomy Extension Calculation

101.DEF Inline XBRL Taxonomy Extension Definition

101.LAB Inline XBRL Taxonomy Extension Labels

101.PRE Inline XBRL Taxonomy Extension Presentation

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

21
 

 

SIGNATURE

 

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

BAB, Inc.

 

Dated: July 13, 2023

/s/ Geraldine Conn
 

Geraldine Conn
 

Chief Financial Officer

 

22

 

Exhibit 21.1

 

BAB Systems, Inc., an Illinois corporation

 

BAB Operations, Inc., an Illinois corporation

 

BAB Investments, Inc., an Illinois corporation

 

 

 

 

Exhibit 31.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 (a) OR RULE 15d-14 (a) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

I, Michael W. Evans, certify that:

 

 

(1)

I have reviewed this quarterly report on Form 10-Q of BAB, Inc.

 

 

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d -15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

(5)

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: July 13, 2023

by / s/ Michael W. Evans

Michael W. Evans, Chief Executive Officer

                                    

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14 (a) OR RULE 15d-14 (a) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

I, Geraldine Conn, certify that:

 

 

(1)

I have reviewed this quarterly report on Form 10-Q of BAB, Inc.

 

 

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

 

 

(4)

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d -15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

(5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  

 

 

Date: July 13, 2023

By: /s/ Geraldine Conn

Geraldine Conn, Chief Financial Officer 

                                          

 

 

 

Exhibit 32.1

 

BAB, Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended May 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael W. Evans, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

 

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

 

Date:  July 13, 2023 By:  /s/ Michael W. Evans      
   
  Michael W. Evans, Chief Executive Officer          

                                                               

 

 

 

 

 

Exhibit 32.2

 

BAB, Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended May 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Geraldine Conn, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

 

 

1.

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

 

Date:  July 13, 2023 By:   /s/ Geraldine Conn 
   
  Geraldine Conn, Chief Financial Officer         

                           

 

 

 

 

 
v3.23.2
Document And Entity Information - shares
 6 Months Ended
May 31, 2023
Jul. 13, 2023
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date May 31, 2023  
Document Transition Report false  
Entity File Number 0-31555  
Entity Registrant Name BAB, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 36-4389547  
Entity Address, Address Line One 500 Lake Cook Road, Suite 475  
Entity Address, City or Town Deerfield  
Entity Address, State or Province IL  
Entity Address, Postal Zip Code 60015  
City Area Code 847  
Local Phone Number 948-7520  
Title of 12(b) Security Common Stock  
Trading Symbol BABB  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding (in shares)   7,263,508
Entity Central Index Key 0001123596  
Current Fiscal Year End Date --11-30  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q2  
Amendment Flag false  
v3.23.2
Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
May 31, 2023
Nov. 30, 2022
Current Assets    
Cash and cash equivalents $ 1,682,226 $ 1,623,256
Restricted cash 337,340 279,405
Receivables    
Trade accounts and notes receivable (net of allowance for doubtful accounts of $10,873 in 2023 and 2022) 59,338 73,972
Marketing fund contributions receivable from franchisees and stores 22,366 12,811
Lease receivable 5,864 5,827
Prepaid expenses and other current assets 90,730 159,226
Total Current Assets 2,197,864 2,154,497
Property, plant and equipment (net of accumulated depreciation of $159,414 in 2023 and 2022) 0 0
Lease receivable 35,364 38,305
Trademarks 461,445 461,445
Goodwill 1,493,771 1,493,771
Definite lived intangible assets (net of accumulated amortization of $136,579 in 2023 and $134,733 in 2022) 17,127 18,972
Operating lease right of use 80,802 127,617
Total Noncurrent Assets 2,088,509 2,140,110
Total Assets 4,286,373 4,294,607
Current Liabilities    
Accounts payable 14,058 5,803
Accrued expenses and other current liabilities 345,501 324,718
Current portion operating lease liability 97,602 113,883
Total Current Liabilities 854,615 769,576
Long-term Liabilities (net of current portion)    
Operating lease liability 0 39,819
Deferred franchise revenue 181,593 128,465
Deferred tax liability 255,877 281,700
Total Long-term Liabilities 412,768 449,984
Total Liabilities 1,267,383 1,219,560
Commitments and Contingencies  
Stockholders' Equity    
Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of May 31, 2023 and November 30, 2022 13,508,257 13,508,257
Additional paid-in capital 987,034 987,034
Treasury stock (222,781) (222,781)
Accumulated deficit (11,253,520) (11,197,463)
Total Stockholders' Equity 3,018,990 3,075,047
Total Liabilities and Stockholders' Equity 4,286,373 4,294,607
Series A Preferred Stock [Member]    
Stockholders' Equity    
Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of May 31, 2023 and November 30, 2022 0 0
Marketing Fund [Member]    
Current Liabilities    
Deferred revenue 359,877 291,387
Franchise [Member]    
Current Liabilities    
Deferred revenue 25,077 33,487
Long-term Liabilities (net of current portion)    
Deferred franchise revenue 156,891 128,465
License [Member]    
Current Liabilities    
Deferred revenue $ 12,500 $ 298
v3.23.2
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)
May 31, 2023
Nov. 30, 2022
Trade accounts and notes receivable, allowance for doubtful accounts $ 10,873 $ 10,873
Property, plant and equipment, accumulated depreciation 159,414 159,414
Definite lived intangible assets, accumulated amortization $ 136,579 $ 134,733
Preferred shares, par value (in dollars per share) $ 0.001 $ 0.001
Preferred shares, authorized (in shares) 4,000,000 4,000,000
Preferred shares, outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, authorized (in shares) 15,000,000 15,000,000
Common stock, issued (in shares) 8,466,953 8,466,953
Common stock, outstanding (in shares) 7,263,508 7,263,508
Series A Preferred Stock [Member]    
Preferred shares, par value (in dollars per share) $ 0.001 $ 0.001
Preferred shares, authorized (in shares) 1,000,000 1,000,000
Preferred shares, outstanding (in shares) 0 0
v3.23.2
Consolidated Statements of Income - USD ($)
 3 Months Ended 6 Months Ended
May 31, 2023
May 31, 2022
May 31, 2023
May 31, 2022
REVENUES        
Revenues $ 864,400 $ 824,432 $ 1,609,993 $ 1,562,708
Selling, general and administrative expenses:        
Payroll and payroll-related expenses 231,904 253,502 503,623 489,631
Occupancy 33,759 33,303 68,407 66,885
Advertising and promotion 4,904 5,153 7,705 8,486
Professional service fees 25,625 19,616 78,677 63,901
Travel 7,043 5,855 8,274 7,672
Employee benefit expenses 38,548 35,732 77,870 77,860
Depreciation and amortization 922 1,284 1,845 2,594
Marketing fund expenses 286,739 276,110 525,057 520,845
Other 63,866 61,928 118,046 104,316
Total Operating Expenses 693,310 692,483 1,389,504 1,342,190
Income from operations 171,090 131,949 220,489 220,518
Interest income 5,438 58 5,559 129
Income before provision for income taxes 176,528 132,007 226,048 220,647
Provision for income taxes        
Current tax expense 75,823 21,591 90,023 30,341
Deferred tax expense (benefit) (25,823) 16,500 (25,823) 33,500
Total Tax Provision. 50,000 38,091 64,200 63,841
Net Income $ 126,528 $ 93,916 $ 161,848 $ 156,806
Net Income per share - Basic and Diluted (in dollars per share) $ 0.02 $ 0.01 $ 0.02 $ 0.02
Weighted average shares outstanding - Basic and diluted (in shares) 7,263,508 7,263,508 7,263,508 7,263,508
Cash distributions declared per share (in dollars per share) $ 0.01 $ 0.01 $ 0.03 $ 0.02
Royalty [Member]        
REVENUES        
Revenues $ 494,933 $ 465,491 $ 937,541 $ 879,712
Franchise [Member]        
REVENUES        
Revenues 7,054 9,102 11,401 18,079
Licensing Fees and Other Income [Member]        
REVENUES        
Revenues 75,674 73,729 135,994 144,072
Marketing Fund [Member]        
REVENUES        
Revenues $ 286,739 $ 276,110 $ 525,057 $ 520,845
v3.23.2
Consolidated Statements of Cash Flows - USD ($)
 6 Months Ended
May 31, 2023
May 31, 2022
Operating activities    
Net Income $ 161,848 $ 156,806
Adjustments to reconcile net income to cash flows provided by operating activities:    
Depreciation and amortization 1,845 2,594
Deferred tax expense (benefit) (25,823) 33,500
Provision for uncollectible accounts, net of recoveries 0 (1,028)
Noncash lease expense 49,655 49,656
Changes in:    
Trade accounts receivable and notes/lease receivable 17,538 10,421
Marketing fund contributions receivable (9,555) (3,791)
Prepaid expenses and other 68,496 1,053
Accounts payable 8,255 (8,490)
Accrued liabilities 20,783 (25,793)
Unexpended marketing fund contributions 68,490 111,140
Deferred revenue 32,218 18,885
Operating lease liability (58,940) (57,616)
Net Cash Provided by Operating Activities 334,810 287,337
Investing activities    
Purchase of equipment 0 (41,700)
Net Cash Used In Investing Activities 0 (41,700)
Financing activities    
Cash distributions/dividends (217,905) (145,270)
Net Cash Used In Financing Activities (217,905) (145,270)
Net Increase in Cash and Restricted Cash 116,905 100,367
Cash and Restricted Cash - Beginning of Period 1,902,661 2,058,158
Cash and Restricted Cash - End of Period 2,019,566 2,158,525
Supplemental disclosure of cash flow information:    
Interest paid 0 0
Income taxes paid $ 7,500 $ 38,100
v3.23.2
Note 1 - Nature of Operations
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Nature of Operations [Text Block]

Note 1. Nature of Operations

 

BAB, Inc. (“the Company”) has three wholly owned subsidiaries: BAB Systems, Inc. (“Systems”), BAB Operations, Inc. (“Operations”) and BAB Investments, Inc. (“Investments”). Systems was incorporated on December 2, 1992, and was primarily established to franchise Big Apple Bagels® (“BAB”) specialty bagel retail stores. My Favorite Muffin (“MFM”) was acquired in 1997 and is included as a part of Systems. Brewster’s (“Brewster’s”) was established in 1996 and the coffee is sold in BAB and MFM locations. SweetDuet® (“SD”) frozen yogurt can be added as an additional brand in a BAB location. Operations was formed in 1995, primarily to operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were acquired in 1999, and any branded wholesale business uses this trademark. Investments was incorporated in 2009 to be used for the purpose of acquisitions. To date there have been no acquisitions.

 

The Company was incorporated under the laws of the State of Delaware on July 12, 2000. The Company currently franchises and licenses bagel and muffin retail units under the BAB, MFM and SD trade names. At May 31, 2023, the Company had 67 franchise units and 3 licensed units in operation in 20 states. There are 4 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including under licensing agreements.

 

The BAB franchised brand consists of units operating as “Big Apple Bagels®,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as “My Favorite Muffin Gourmet Muffin Bakery®” (“MFM Bakery”), featuring a large variety of freshly baked muffins and coffees and units operating as “My Favorite Muffin Your All-Day Bakery Café®” (“MFM Cafe”) featuring these products as well as a variety of specialty bagel sandwiches and related products. The SweetDuet® is a branded self-serve frozen yogurt that can be added as an additional brand in a BAB location. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.

 

The Company is leveraging on the natural synergy of distributing muffin products in existing BAB units and, alternatively, bagel products and Brewster's Coffee in existing MFM units. The Company expects to continue to realize efficiencies in servicing the combined base of BAB and MFM franchisees.

 

The accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2022 which was filed February 24, 2023. In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim period presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim period and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

 

 
v3.23.2
Note 2 - Summary of Significant Accounting Policies
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

 

Unaudited Consolidated Financial Statements

 

The accompanying unaudited Condensed Consolidated Financial Statements of BAB, Inc. have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of the financial statements and accompanying notes are in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and treasury notes with banks and equity firms with original maturities of less than 90 days. The balance of bank accounts may, at times, exceed federally insured credit limits. The Company has not experienced any loss in such accounts and believes it is not subject to any significant credit risk related to cash at May 31, 2023.

 

Accounts and Notes Receivable

 

Receivables are carried at original invoice amount less estimates for doubtful accounts. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance is outstanding 90 days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as income when received. Certain receivables have been converted to unsecured interest-bearing notes.

 

Lease Receivable

 

The Company leases restaurant equipment to a certain franchisee under a sales-type lease agreement. Under the terms of the agreement, title to the equipment passes to the customer once all lease payments have been made and a reasonable buy-out fee is paid. The Company retains title or a security interest in the equipment until such time. The sales and cost of sales are recognized at the inception of the lease. The profit or loss on the issuance of the lease is recorded in the period of commencement. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and, if applicable, estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the franchisee (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables.

 

Property, Plant and Equipment

 

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 3 to 7 years for property and equipment and 10 years, or term of lease if less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized.

 

 

 

Advertising and Promotion Costs

 

The Company expenses advertising and promotion costs as incurred. All advertising and promotion costs were related to the Company’s franchise operations.

 

Leases

 

The company accounts for leases under ASC 842. Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets and other current and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2023. The Company will adopt ASU 2016-13 for fiscal year ending November 30, 2025.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 for fiscal year ending November 30, 2025.

 

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of May 31, 2023 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

 

Statement of Cash Flows

 

The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of May 31, 2023 and May 31, 2022 were as follows:

 

   

May 31, 2023

    

May 31, 2022

  
                 

Cash and cash equivalents

   $ 1,682,226     $ 1,451,214  

Restricted cash

     337,340       707,311  

Total cash and restricted cash

   $ 2,019,566     $ 2,158,525  

 

 
v3.23.2
Note 3 - Revenue Recognition
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

3. Revenue Recognition

 

Franchise and related revenue

 

The Company sells individual franchises. The franchise agreements typically require the franchisee to pay an initial, non-refundable fee prior to opening the respective location(s), and continuing royalty fees on a weekly basis based upon a percentage of franchisee net sales. The initial term of franchise agreements are typically 10 years. Subject to the Company’s approval, a franchisee may generally renew the franchise agreement upon its expiration. If approved, a franchisee may transfer a franchise agreement to a new or existing franchisee, at which point a transfer fee is typically paid by the current owner which then terminates that franchise agreement. A franchise agreement is signed with the new franchisee with no franchise fee required. If a contract is terminated prior to its term, it is a breach of contract and a penalty is assessed based on a formula reviewed and approved by management. Revenue generated from a contract breach is termed settlement income by the Company and included in licensing fees and other income.

 

Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as blueprints, operational materials, planning and functional training courses, and ongoing services, such as management of the marketing fund. The Company considers certain pre-opening activities and the franchise rights and related ongoing services to represent two separate performance obligations. The franchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performance obligations related to certain pre-opening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initial franchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed. Revenue allocated to franchise rights and ongoing services is deferred until the store opens, and recognized on a straight-line basis over the duration of the agreement, as this ensures that revenue recognition aligns with the customer’s access to the franchise right.

 

Royalty fees from franchised stores represent a 5% fee on net retail and wholesale sales of franchised units. Royalty revenues are recognized on an accrual basis using actual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis based on actual numbers from reports received from franchisees shortly after the month-end. Estimates are utilized in certain instances where actual numbers have not been received and such estimates are based on the average of the last 10 weeks’ actual reported sales.

 

Royalty revenue is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur.

 

There are two items involving revenue recognition of contracts that require us to make subjective judgments: the determination of which performance obligations are distinct within the context of the overall contract and the estimated stand-alone selling price of each obligation. In instances where our contract includes significant customization or modification services, the customization and modification services are generally combined and recorded as one distinct performance obligation.

 

 

 

Gift Card Breakage Revenue

 

The Company sells gift cards to its customers in its retail stores and through its Corporate office. The Company’s gift cards do not have an expiration date and are not redeemable for cash except where required by law. Revenue from gift cards is recognized upon redemption in exchange for product and reported within franchisee store revenue and the royalty and marketing fees are paid and shown in the Condensed Consolidated Statements of Income. Until redemption, outstanding customer balances are recorded as a liability. An obligation is recorded at the time of sale of the gift card and it is included in accrued expenses on the Company’s Condensed Consolidated Balance Sheets.

 

The liability is reduced when the gift cards are redeemed by a franchise. Although there are no expiration dates for our gift cards, based on our analysis of historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage.” The Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and the corresponding revenue is included in licensing fees and other revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter.

 

Nontraditional and rebate revenue

 

As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors. The Company may receive various fees and rebates from the vendors and distributors on product purchases by franchisees. In addition, the Company may collect various initial fees, and those fees are classified as deferred revenue in the balance sheet and straight lined over the life of the contract as deferred revenue in the balance sheet. The Company does not possess control of the products prior to their transfer to the franchisee and products are delivered to franchisees directly from the vendor or their distributors. The Company recognizes the rebates as franchisees purchase products and supplies from vendors or distributors and recognizes the initial fees over the contract life and the fees are reported as licensing fees and other income in the Condensed Consolidated Statements of Income.

 

Marketing Fund

 

Franchise agreements require the franchisee to pay continuing marketing fees on a weekly basis, based on a percentage of franchisee sales. Marketing fees are not paid on franchise wholesale sales. The balance sheet includes marketing fund cash, which is the restricted cash, accounts receivable and unexpended marketing fund contributions. Although the marketing fees are not separate performance obligations distinct from the underlying franchise right, the Company acts as the principal as it is primarily responsible for the fulfillment and control of the marketing services. As a result, the Company records marketing fees in revenues and related marketing fund expenditures in expenses in the Condensed Consolidated Statement of Income. The Company historically presented the net activities of the marketing fund within the balance sheet in the Condensed Consolidated Balance Sheet. While this reclassification impacts the gross amount of reported revenue and expenses the amounts will be offsetting, and there is no impact on net income.

 

 

 

Disaggregation of Revenue

 

The following table presents disaggregation of revenue from contracts with customers for the three months and six months ended May 31, 2023 and May 31, 2022:

 

   

For three

months ended

May 31, 2023

    

For three

months ended

May 31, 2022

    

For six

months ended

May 31, 2023

    

For six

months ended

May 31, 2022

  
                                 
Revenue recognized at a point in time                                

Sign Shop revenue

   $ 2,022     $ 3,205     $ 2,179     $ 3,296  

Settlement revenue

     6,000       10,000       12,500       16,750  

Total revenue at a point in time

     8,022       13,205       14,679       20,046  
Revenue recognized over time                                

Royalty revenue

     494,933       465,491       937,541       879,712  

Franchise fees

     7,054       9,102       11,401       18,079  

License fees

     5,443       4,378       9,589       8,756  

Gift card revenue

     1,796       357       2,100       2,560  

Nontraditional revenue

     60,413       55,789       109,626       112,710  

Marketing fund revenue

     286,739       276,110       525,057       520,845  

Total revenue over time

     856,378       811,227       1,595,314       1,542,662  

Grand total

   $ 864,400     $ 824,432     $ 1,609,993     $ 1,562,708  

 

Contract balances

 

The balance of contract liabilities includes franchise fees, license fees and vendor payments that have ongoing contract rights and the fees are being straight lined over the contract life. Contract liabilities also include marketing fund balances and gift card liability balances.

 

   

May 31, 2023

    

November 30, 2022

  
Liabilities                

Contract liabilities - current

   $ 613,310     $ 563,895  

Contract liabilities - long-term

     181,593       128,465  

Total Contract Liabilities

   $ 794,903     $ 692,360  

 

   

May 31, 2023

    

November 30, 2022

  

Contracts at beginning of period

   $ 692,360     $ 972,470  
                 

Revenue Recognized during period

     (711,007 )     (1,742,303 )

Additions during period

     813,550       1,462,193  

Contracts at end of period

   $ 794,903     $ 692,360  

 

 

 

Transaction price allocated to remaining performance obligations (franchise agreements and license fee agreement) for the year ended November 30:

 

2023

     28,709  (a)

2024

     34,782  

2025

     27,133  

2026

     17,126  

2027

     15,426  

Thereafter

     71,291  

Total

   $ 194,468  

 

(a) represents the estimate for the remainder of 2023

 

 
v3.23.2
Note 4 - Units Open and Under Development
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Units Open and Under Development [Text Block]

4. Units Open and Under Development

 

Units which are open or under development at May 31, 2023 and 2022 are as follows:

 

   

May 31, 2023

    

May 31, 2022

  
Stores open:                

Franchisee-owned stores

     67       68  

Licensed Units

     3       4  
      70       72  
                 

 

Unopened stores with Franchise

 

                

Agreements

     4       2  
                 

 

Total operating units and units

 

                

with Franchise Agreements

     74       74  

 

 
v3.23.2
Note 5 - Earnings Per Share
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Earnings Per Share [Text Block]

5. Earnings per Share

 

The following table sets forth the computation of basic and diluted earnings per share:

 

   

For the three months ended:

    

For the six months ended:

  
   

May 31, 2023

    

May 31, 2022

    

May 31, 2023

    

May 31, 2022

  

Numerator:

                                

Net income available to common shareholders

   $ 126,528     $ 93,916     $ 161,848     $ 156,806  
                                 

Denominator:

                                

Weighted average outstanding shares

                                

Basic and diluted common stock

     7,263,508       7,263,508       7,263,508       7,263,508  

Earnings per Share - Basic

   $ 0.02     $ 0.01     $ 0.02     $ 0.02  

 

 
v3.23.2
Note 6 - Goodwill and Other Intangible Assets
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]

6. Goodwill and Other Intangible Assets

 

Accounting Standard Codification (“ASC”) 350 “Goodwill and Other Intangible Assets” requires that assets with indefinite lives no longer be amortized, but instead be subject to annual impairment tests.

 

Following the guidelines contained in ASC 350, the Company tests goodwill and intangible assets that are not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the first quarter. During the quarter ended February 28, 2023 and February 28, 2022, management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy, and changes in the composition and carrying amounts of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than it’s carrying value, a quantitative assessment is then performed. Based on the qualitative analysis conducted during the quarter, management does not believe that an impairment existed at May 31, 2023.
v3.23.2
Note 7 - Lease Receivable Commitments
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Lessor, Sales-type Leases [Text Block]

7. Lease Receivable Commitments

 

The Company leases restaurant equipment to a certain franchise under a sales-type lease agreement. The lease agreement does not contain any non-lease components. The lease term is for a period of seven years, beginning June 1, 2022 and ending June 1, 2029. The lease requires weekly payments of $121 for a total 365 payments, and a final optional buy-out payment of $4,800, which management believes estimates residual value. At May 31, 2023, management does not believe the unguaranteed residual asset value of $4,800 to be impaired.

 

During the six months ending May 31, 2023, the Company recorded interest income from the lease receivable of $237.

 

The sales lease is included in the balance sheet at the current value of the lease payments at a 1.25% discount rate, which reflects the rate implicit in the lease agreement.

 

Future minimum lease payments receivable as of May 31, 2023 are as follows:

 

   

Undiscounted Rent

Payments

  
Year Ending November 30:        

2023

   $ 3,142  

2024

     6,283  

2025

     6,283  

2026

     6,283  

2027

     6,283  

thereafter

     14,347  

Total Undiscounted Lease Payments

   $ 42,621  
         

Unamortized interest income

     (1,393 )

Lease receivable, net

   $ 41,228  
         

Short-term lease receivable

   $ 5,864  

Long-term lease receivable

     35,364  

Total lease receivable

   $ 41,228  

 

 
v3.23.2
Note 8 - Lease Commitments
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Commitments Disclosure [Text Block]

8. Lease Commitments

 

The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. A lease was signed in June of 2018, effective October 1, 2018, expiring on March 31, 2024 with an option to renew for a 5-year period. A six-month rent abatement and tenant allowance was provided in the lease, with any unused portion to be applied to base rent. The unused portion was determined to be $21,300. The renewal option has not been included in the measurement of the lease liability.

 

Monthly rent expense is recognized on a straight-line basis over the term of the lease. At May 31, 2023 the remaining lease term was 10 months. The operating lease is included in the balance sheet at the present value of the lease payments at a 5.25% discount rate. The discount rate was considered to be an estimate of the Company’s incremental borrowing rate.

 

Gross future minimum annual rental commitments as of May 31, 2023 are as follows:

 

   

Undiscounted Rent

Payments

  

Year Ending November 30:

        

2023

     59,382  

2024

     40,177  

Total Undiscounted Rent Payments

   $ 99,559  
         
Present Value Discount     (1,957 )

Present Value

   $ 97,602  
         

Short-term lease liability

   $ 97,602  

Long-term lease liability

     -  

Total Operating Lease Liability

   $ 97,602  

 

 
v3.23.2
Note 9 - Income Taxes
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

9. Income Taxes

 

For the three months ended May 31, 2023, the Company recorded current and deferred tax expense of $50,000 for an effective tax rate of 28.3% compared to $38,091 of current and deferred tax expense for the three months ended May 31, 2022 for an effective tax rate of 28.9%.

 

For the six months ended May 31, 2023, the Company recorded current and deferred tax expense of $64,200 for an effective tax rate of 28.4% compared to $63,841 of current and deferred tax expense for the six months ended May 31, 2022 for an effective tax rate of 28.9%.

 

 
v3.23.2
Note 10 - Stockholder's Equity
 6 Months Ended
May 31, 2023
Notes to Financial Statements  
Equity [Text Block]

10. Stockholder’s Equity

 

On June 6, 2023 the Board of Directors (“Board”) declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2023, payable on July 11, 2023. On March 13, 2023 the Board of Directors declared a $0.01 distribution/dividend per share to stockholders of record as of March 30, 2023, paid on April 19, 2023. On December 07, 2022 the Board of Directors declared a $0.02 cash distribution/dividend per share, $0.01 quarterly and $0.01 special, to stockholders of record as of December 22, 2022, paid January 11, 2023.

 

On September 9, 2022 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of September 28, 2022, paid October 20, 2022. On June 3, 2022 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2022, paid July 11, 2022. On March 7, 2022 the Board declared a $0.01 cash distribution/dividend per share to stockholders of record as of March 29, 2022, paid April 18, 2022. On December 06, 2021 the Board declared a $0.01 cash distribution/dividend per share to stockholders of record as of December 22, 2021, paid January 11, 2022.

 

On May 6, 2013, the Board of Directors (“Board”) of BAB, Inc. authorized and declared a dividend distribution of one right for each outstanding share of the common stock of BAB, Inc. to stockholders of record at the close of business on May 13, 2013. Each right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A Participating Preferred Stock of the Company at an exercise price of $0.90 per one-thousandth of a Preferred Share, subject to adjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement, dated May 6, 2013, between the Company and IST Shareholder Services, as rights agent.

 

The Board adopted the Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group that acquires 15% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement nor the Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board.

 

Full details about the Rights Plan are contained in a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission on May 7, 2013.

 

On June 18, 2014 an amendment to the Preferred Shares Rights Agreement was filed appointing American Stock Transfer & Trust Company, LLC as successor to Illinois Stock Transfer Company. All original rights and provisions remain unchanged. On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreement changing the final expiration date to mean the fifth anniversary of the date of the original agreement. All other original rights and provisions remain the same. On May 22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights and provisions remain the same. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the original agreement. All other original rights and provisions remain the same. On March 4, 2021 an amendment was filed extending the final expiration date to mean the eleventh anniversary date of the original agreement. All other original rights and provisions remain the same. On April 4, 2023 an amendment was filed extending the final expiration date to mean the fourteenth anniversary date of the original agreement. All other original rights and provisions remain the same.

 

 
v3.23.2
Significant Accounting Policies (Policies)
 6 Months Ended
May 31, 2023
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

Unaudited Consolidated Financial Statements

 

The accompanying unaudited Condensed Consolidated Financial Statements of BAB, Inc. have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for Form 10-Q. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 
Use of Estimates, Policy [Policy Text Block]

Use of Estimates

 

The preparation of the financial statements and accompanying notes are in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

 
Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, demand deposits and treasury notes with banks and equity firms with original maturities of less than 90 days. The balance of bank accounts may, at times, exceed federally insured credit limits. The Company has not experienced any loss in such accounts and believes it is not subject to any significant credit risk related to cash at May 31, 2023.

 
Receivable [Policy Text Block]

Accounts and Notes Receivable

 

Receivables are carried at original invoice amount less estimates for doubtful accounts. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance is outstanding 90 days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as income when received. Certain receivables have been converted to unsecured interest-bearing notes.

 
Lease Receivable [Policy Text Block]

Lease Receivable

 

The Company leases restaurant equipment to a certain franchisee under a sales-type lease agreement. Under the terms of the agreement, title to the equipment passes to the customer once all lease payments have been made and a reasonable buy-out fee is paid. The Company retains title or a security interest in the equipment until such time. The sales and cost of sales are recognized at the inception of the lease. The profit or loss on the issuance of the lease is recorded in the period of commencement. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and, if applicable, estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the franchisee (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables.

 
Property, Plant and Equipment, Policy [Policy Text Block]

Property, Plant and Equipment

 

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 3 to 7 years for property and equipment and 10 years, or term of lease if less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized.

 
Advertising Cost [Policy Text Block]

Advertising and Promotion Costs

 

The Company expenses advertising and promotion costs as incurred. All advertising and promotion costs were related to the Company’s franchise operations.

 
Lessee, Leases [Policy Text Block]

Leases

 

The company accounts for leases under ASC 842. Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets and other current and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 
New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2023. The Company will adopt ASU 2016-13 for fiscal year ending November 30, 2025.

 

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 for fiscal year ending November 30, 2025.

 

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of May 31, 2023 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

 
Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Statement of Cash Flows

 

The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of May 31, 2023 and May 31, 2022 were as follows:

 

   

May 31, 2023

    

May 31, 2022

  
                 

Cash and cash equivalents

   $ 1,682,226     $ 1,451,214  

Restricted cash

     337,340       707,311  

Total cash and restricted cash

   $ 2,019,566     $ 2,158,525  

 
v3.23.2
Note 2 - Summary of Significant Accounting Policies (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Cash, Cash Equivalents, and Restricted Cash, Cash Flow Statement Reconciliation [Table Text Block]
   

May 31, 2023

    

May 31, 2022

  
                 

Cash and cash equivalents

   $ 1,682,226     $ 1,451,214  

Restricted cash

     337,340       707,311  

Total cash and restricted cash

   $ 2,019,566     $ 2,158,525  
v3.23.2
Note 3 - Revenue Recognition (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Disaggregation of Revenue [Table Text Block]
   

For three

months ended

May 31, 2023

    

For three

months ended

May 31, 2022

    

For six

months ended

May 31, 2023

    

For six

months ended

May 31, 2022

  
                                 
Revenue recognized at a point in time                                

Sign Shop revenue

   $ 2,022     $ 3,205     $ 2,179     $ 3,296  

Settlement revenue

     6,000       10,000       12,500       16,750  

Total revenue at a point in time

     8,022       13,205       14,679       20,046  
Revenue recognized over time                                

Royalty revenue

     494,933       465,491       937,541       879,712  

Franchise fees

     7,054       9,102       11,401       18,079  

License fees

     5,443       4,378       9,589       8,756  

Gift card revenue

     1,796       357       2,100       2,560  

Nontraditional revenue

     60,413       55,789       109,626       112,710  

Marketing fund revenue

     286,739       276,110       525,057       520,845  

Total revenue over time

     856,378       811,227       1,595,314       1,542,662  

Grand total

   $ 864,400     $ 824,432     $ 1,609,993     $ 1,562,708  
Contract With Customer Asset and Liability, Subject to Change [Table Text Block]
   

May 31, 2023

    

November 30, 2022

  
Liabilities                

Contract liabilities - current

   $ 613,310     $ 563,895  

Contract liabilities - long-term

     181,593       128,465  

Total Contract Liabilities

   $ 794,903     $ 692,360  
Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]
   

May 31, 2023

    

November 30, 2022

  

Contracts at beginning of period

   $ 692,360     $ 972,470  
                 

Revenue Recognized during period

     (711,007 )     (1,742,303 )

Additions during period

     813,550       1,462,193  

Contracts at end of period

   $ 794,903     $ 692,360  
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Table Text Block]

2023

     28,709  (a)

2024

     34,782  

2025

     27,133  

2026

     17,126  

2027

     15,426  

Thereafter

     71,291  

Total

   $ 194,468  
v3.23.2
Note 4 - Units Open and Under Development (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Schedule of Franchisor Disclosure [Table Text Block]
   

May 31, 2023

    

May 31, 2022

  
Stores open:                

Franchisee-owned stores

     67       68  

Licensed Units

     3       4  
      70       72  
                 

 

Unopened stores with Franchise

 

                

Agreements

     4       2  
                 

 

Total operating units and units

 

                

with Franchise Agreements

     74       74  
v3.23.2
Note 5 - Earnings Per Share (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
   

For the three months ended:

    

For the six months ended:

  
   

May 31, 2023

    

May 31, 2022

    

May 31, 2023

    

May 31, 2022

  

Numerator:

                                

Net income available to common shareholders

   $ 126,528     $ 93,916     $ 161,848     $ 156,806  
                                 

Denominator:

                                

Weighted average outstanding shares

                                

Basic and diluted common stock

     7,263,508       7,263,508       7,263,508       7,263,508  

Earnings per Share - Basic

   $ 0.02     $ 0.01     $ 0.02     $ 0.02  
v3.23.2
Note 7 - Lease Receivable Commitments (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Sales-Type and Direct Financing Leases, Payment to be Received, Maturity [Table Text Block]
   

Undiscounted Rent

Payments

  
Year Ending November 30:        

2023

   $ 3,142  

2024

     6,283  

2025

     6,283  

2026

     6,283  

2027

     6,283  

thereafter

     14,347  

Total Undiscounted Lease Payments

   $ 42,621  
         

Unamortized interest income

     (1,393 )

Lease receivable, net

   $ 41,228  
         

Short-term lease receivable

   $ 5,864  

Long-term lease receivable

     35,364  

Total lease receivable

   $ 41,228  
v3.23.2
Note 8 - Lease Commitments (Tables)
 6 Months Ended
May 31, 2023
Notes Tables  
Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]
   

Undiscounted Rent

Payments

  

Year Ending November 30:

        

2023

     59,382  

2024

     40,177  

Total Undiscounted Rent Payments

   $ 99,559  
         
Present Value Discount     (1,957 )

Present Value

   $ 97,602  
         

Short-term lease liability

   $ 97,602  

Long-term lease liability

     -  

Total Operating Lease Liability

   $ 97,602  
v3.23.2
Note 1 - Nature of Operations (Details Textual)
May 31, 2023
May 31, 2022
Number of Wholly Owned Subsidiaries 3  
Number of Stores 74 74
Number of States in which Entity Operates 20  
Franchised Units [Member]    
Number of Stores 67 68
Licensed Units [Member]    
Number of Stores 3 4
Units Under Development [Member]    
Number of Stores 4  
v3.23.2
Note 2 - Summary of Significant Accounting Policies (Details Textual)
May 31, 2023
Leasehold Improvements [Member]  
Property, Plant and Equipment, Useful Life 10 years
Minimum [Member]  
Property, Plant and Equipment, Useful Life 3 years
Maximum [Member]  
Property, Plant and Equipment, Useful Life 7 years
v3.23.2
Note 2 - Summary of Significant Accounting Policies - Summary of Cash, Cash Equivalents, and Restricted Cash (Details) - USD ($)
May 31, 2023
Nov. 30, 2022
May 31, 2022
Nov. 30, 2021
Cash and cash equivalents $ 1,682,226 $ 1,623,256 $ 1,451,214  
Restricted cash 337,340   707,311  
Total cash and restricted cash $ 2,019,566 $ 1,902,661 $ 2,158,525 $ 2,058,158
v3.23.2
Note 3 - Revenue Recognition (Details Textual)
 6 Months Ended
May 31, 2023
Initial Franchise Term 10 years
Royalty Fees From Franchises Percentage 5.00%
v3.23.2
Note 3 - Revenue Recognition - Disaggregation of Revenue (Details) - USD ($)
 3 Months Ended 6 Months Ended
May 31, 2023
May 31, 2022
May 31, 2023
May 31, 2022
Revenues $ 864,400 $ 824,432 $ 1,609,993 $ 1,562,708
Transferred at Point in Time [Member]        
Revenues 8,022 13,205 14,679 20,046
Transferred over Time [Member]        
Revenues 856,378 811,227 1,595,314 1,542,662
Sign Shop [Member] | Transferred at Point in Time [Member]        
Revenues 2,022 3,205 2,179 3,296
Structured Settlement Annuity [Member] | Transferred at Point in Time [Member]        
Revenues 6,000 10,000 12,500 16,750
Royalty [Member]        
Revenues 494,933 465,491 937,541 879,712
Royalty [Member] | Transferred over Time [Member]        
Revenues 494,933 465,491 937,541 879,712
Franchise [Member]        
Revenues 7,054 9,102 11,401 18,079
Franchise [Member] | Transferred over Time [Member]        
Revenues 7,054 9,102 11,401 18,079
License [Member] | Transferred over Time [Member]        
Revenues 5,443 4,378 9,589 8,756
Gift Card [Member] | Transferred over Time [Member]        
Revenues 1,796 357 2,100 2,560
Non-traditional Revenue [Member] | Transferred over Time [Member]        
Revenues 60,413 55,789 109,626 112,710
Marketing Fund [Member]        
Revenues 286,739 276,110 525,057 520,845
Marketing Fund [Member] | Transferred over Time [Member]        
Revenues $ 286,739 $ 276,110 $ 525,057 $ 520,845
v3.23.2
Note 3 - Revenue Recognition - Contract Balances Subject to ASC 606 (Details) - USD ($)
May 31, 2023
Nov. 30, 2022
Contract liabilities - long-term $ 181,593 $ 128,465
Total Contract Liabilities 794,903 692,360
Contract Liabilities, Current and Accrued Expenses and Other Current Liabilities [Member]    
Contract liabilities - current $ 613,310 $ 563,895
v3.23.2
Note 3 - Revenue Recognition - Changes in Contract Balances (Details) - USD ($)
 6 Months Ended 12 Months Ended
May 31, 2023
Nov. 30, 2022
Contracts at beginning of period $ 692,360 $ 972,470
Revenue Recognized during period (711,007) (1,742,303)
Additions during period 813,550 1,462,193
Contracts at end of period $ 794,903 $ 692,360
v3.23.2
Note 3 - Revenue Recognition - Remaining Performance Obligations (Details)
May 31, 2023
USD ($)
Total $ 194,468
v3.23.2
Note 3 - Revenue Recognition - Remaining Performance Obligations 2 (Details)
May 31, 2023
USD ($)
Revenue, Remaining Performance Obligation, Amount $ 194,468
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-06-01  
Revenue, Remaining Performance Obligation, Amount $ 28,709 [1]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 6 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-12-01  
Revenue, Remaining Performance Obligation, Amount $ 34,782
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-12-01  
Revenue, Remaining Performance Obligation, Amount $ 27,133
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-12-01  
Revenue, Remaining Performance Obligation, Amount $ 17,126
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-12-01  
Revenue, Remaining Performance Obligation, Amount $ 15,426
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-12-01  
Revenue, Remaining Performance Obligation, Amount $ 71,291
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Year) 1 year
[1] represents the estimate for the remainder of 2023
v3.23.2
Note 4 - Units Open and Under Development - Operating Units (Details)
May 31, 2023
May 31, 2022
Operating Units and Units with Franchise Agreements 74 74
Franchised Units [Member]    
Operating Units and Units with Franchise Agreements 67 68
Licensed Units [Member]    
Operating Units and Units with Franchise Agreements 3 4
Total Franchised Owned and Licensed Units [Member]    
Operating Units and Units with Franchise Agreements 70 72
Unopened Store [Member]    
Operating Units and Units with Franchise Agreements 4 2
v3.23.2
Note 5 - Earnings Per Share - Computation of Earnings Per Share (Details) - USD ($)
 3 Months Ended 6 Months Ended
May 31, 2023
May 31, 2022
May 31, 2023
May 31, 2022
Net income available to common stockholders $ 126,528 $ 93,916 $ 161,848 $ 156,806
Weighted average shares outstanding - Basic and diluted (in shares) 7,263,508 7,263,508 7,263,508 7,263,508
Net Income per share - Basic and Diluted (in dollars per share) $ 0.02 $ 0.01 $ 0.02 $ 0.02
v3.23.2
Note 7 - Lease Receivable Commitments (Details Textual) - USD ($)
 6 Months Ended
Jun. 01, 2022
May 31, 2023
Lessor, Sales Type Lease, Weekly Payments $ 121  
Lessor, Sales-type Lease, Optional Buy-out Payment $ 4,800  
Sales-type Lease, Residual Value of Leased Asset   $ 4,800
Lease Income, Total   $ 237
Lessor, Sales Type Lease, Applicable Discount Rate   1.25%
v3.23.2
Note 7 - Lease Receivable Commitments - Future Minimum Lease Payments Receivable (Details)
May 31, 2023
USD ($)
2023 $ 3,142
2024 6,283
2025 6,283
2026 6,283
2027 6,283
thereafter 14,347
Total Undiscounted Lease Payments 42,621
Unamortized interest income (1,393)
Lease receivable, net 41,228
Short-term lease receivable 5,864
Long-term lease receivable 35,364
Total lease receivable $ 41,228
v3.23.2
Note 8 - Lease Commitments (Details Textual) - USD ($)
Oct. 01, 2018
May 31, 2023
Lessee, Operating Lease, Renewal Term 5 years  
Lessee, Operating Lease, Rent Abatement and Tenant Allowance Period 6 months  
Operating Lease, Expense $ 21,300  
Lessee, Operating Lease, Remaining Lease Term   10 months
Lessee, Operating Lease, Discount Rate   5.25%
v3.23.2
Note 8 - Lease Commitments - Gross Future Minimum Annual Rental Commitments (Details) - USD ($)
May 31, 2023
Nov. 30, 2022
2023 $ 59,382  
2024 40,177  
Total Undiscounted Rent Payments 99,559  
Present Value Discount (1,957)  
Present Value 97,602  
Current portion operating lease liability 97,602 $ 113,883
Long-term lease liability 0 $ 39,819
Total Operating Lease Liability $ 97,602  
v3.23.2
Note 9 - Income Taxes (Details Textual) - USD ($)
 3 Months Ended 6 Months Ended
May 31, 2023
May 31, 2022
May 31, 2023
May 31, 2022
Income Tax Expense (Benefit) $ 50,000 $ 38,091 $ 64,200 $ 63,841
Effective Income Tax Rate Reconciliation, Percent 28.30% 28.90% 28.40% 28.90%
v3.23.2
Note 10 - Stockholder's Equity (Details Textual) - $ / shares
 3 Months Ended 6 Months Ended
Jun. 06, 2023
Mar. 13, 2023
Dec. 07, 2022
Dec. 07, 2022
Sep. 09, 2022
Jun. 03, 2022
Mar. 07, 2022
Dec. 06, 2021
Mar. 04, 2021
Feb. 22, 2019
May 22, 2017
Aug. 18, 2015
May 06, 2013
May 31, 2023
May 31, 2022
May 31, 2023
May 31, 2022
Common Stock, Dividends, Per Share, Declared   $ 0.01   $ 0.02                   $ 0.01 $ 0.01 $ 0.03 $ 0.02
Preferred Stock Dividends Number of Rights Declared                         1        
Preferred Stock Dividends Number of Rights Minimum Percent of Common Stock that must be Acquired to Make Rights Exercisable                         15.00%        
Preferred Stock Dividends Number of Rights Minimum Percent of Common Stock that Must be Acquired to Make Rights Exercisable, Institutional Investors                         20.00%        
Right to Purchase Series A Preferred Stock [Member]                                  
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right                         0.01        
Class of Warrant or Right, Exercise Price of Warrants or Rights                         $ 0.90        
Class of Warrant or Right, Term                 11 years 9 years 7 years 5 years          
Quarterly Dividend [Member]                                  
Common Stock, Dividends, Per Share, Declared     $ 0.01   $ 0.01 $ 0.01 $ 0.01 $ 0.01                  
Special Cash Distribution [Member]                                  
Common Stock, Dividends, Per Share, Declared     $ 0.01                            
Subsequent Event [Member]                                  
Common Stock, Dividends, Per Share, Declared $ 0.01                                
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