BAB, Inc. Annual Report
10-K FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2017
AUDITED FINANCIAL STATEMENTS INCLUDED
Officers and Directors
Michael W. Evans
Michael K. Murtaugh
Geraldine Conn
James A. Lentz
Steven G. Feldman
Chairman and Chief Executive Officer, President and Director
Vice President and General Counsel, Secretary and Director
Chief Financial Officer and Treasurer
Retired Professor of Business, Moraine Valley Community College, Director
Entrepreneurial business executive, former CEO of Techcare, LLC, Director
Market for the Common Equity
The following table sets forth the quarterly high and low sale price for the Company’s Common Stock, as reported in the
Nasdaq OTCQB Market for the two years ended November 30, 2017.
Year Ended: November 30, 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Year Ended: November 30, 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Low
0.73
0.69
0.69
0.61
Low
0.55
0.56
0.56
0.70
High
0.88
0.83
0.78
0.82
High
0.65
0.64
0.74
0.91
Corporate Headquarters
BAB, Inc.
500 Lake Cook Road
Suite 475
Deerfield, Illinois 60015
(847) 948-7520
Independent Auditors
Sassetti LLC
6611 W. North Ave.
Suite 105
Oak Park, IL 60302
(708) 386-1433
Stock Exchange Listing
Nasdaq OTCQB
Ticker Symbol: BABB
Legal Counsel
Rieck and Crotty
55 West Monroe
Suite 3390
Chicago, Illinois 60603
(312) 726-4646
Transfer Agent
American Stock Transfer & Trust Co. LLC
6201 15th Ave.
Brooklyn, NY 11219
(718) 921-8200
U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-K
(Mark one)
[X]
[ ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: November 30, 2017
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
Delaware
36-4389547
(State or other jurisdiction of incorporation)
(IRS Employer or organization Identification No.)
BAB, Inc.
(Exact name of registrant as specified in its charter)
500 Lake Cook Road, Suite 475 Deerfield, Illinois 60015
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number: (847) 948-7520
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Name of exchange on which registered
NASDAQ/OTC
Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X ] No
Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] Yes [ X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): Large
Accelerated Filer [ ], Accelerated Filer [ ], Non-Accelerated Filer [ ], Smaller Reporting Company [ X ].
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
State issuer's revenues for its most recent fiscal year: $2,220,893.
The aggregate market value of the voting common equity held by nonaffiliates as of the last business day of the registrant’s most recently completed
second fiscal quarter was: $3,252,482 based on 4,336,643 shares held by nonaffiliates as of May 31, 2017; Closing price ($0.75) for said shares in the
NASDAQ OTCQB Marketplace as of such date.
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 7,263,508 shares of Common
Stock, as of February 23, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
See index to exhibits
FORM 10-K INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreement with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
3
7
7
7
7
7
8
9
10
15
16
33
33
33
34
36
38
39
39
40
- 2 -
ITEM 1. BUSINESS
PART I
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 or MFM 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 and MFM trade names. At November 30,
2017, the Company had 82 franchise units and 3 licensed units in operation in 23 states and the United Arab
Emirates. There are 2 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 a licensing
agreement with Green Beans Coffee. Also, included in licensing fees and other income is Operations Sign Shop
results. For franchise consistency and convenience, the Sign Shop provided the majority of signage to franchisees,
including but not limited to, menu panels, build charts, interior and exterior signage and point of purchase
materials. Beginning in December 2017, a majority of franchise signage and point of sale materials will be
outsourced to a printer that will be able to provide consistency and convenience to the franchisees. Outsourcing
signage will not have a material effect on revenues or net income.
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®," featuring a large variety of freshly baked muffins, coffees and related products, and units
operating as "My Favorite Muffin and Bagel Cafe," featuring these products as well as a variety of specialty bagel
sandwiches and related products. The SweetDuet® brand is a fusion concept, pairing self-serve frozen yogurt with
MFM’s exclusive line of My Favorite Muffin gourmet muffins. SD frozen yogurt can be added as an additional
brand in a BAB or MFM 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.
Net Income
The Company reported net income of $454,000 and $449,000 for the years ended November 30, 2017 and 2016,
respectively.
Food Service Industry
Food service businesses are often affected by changes in consumer tastes; national, regional, and local economic
conditions; demographic trends; traffic patterns; and the type, number and location of competing restaurants.
Multi-unit food service chains, such as the Company's, can also be substantially adversely affected by publicity
resulting from problems with food quality, illness, injury or other health concerns or operating issues stemming
from one store or a limited number of stores. The food service business is also subject to the risk that shortages or
interruptions in supply caused by adverse weather or other conditions could negatively affect the availability,
quality and cost of ingredients and other food products. In addition, factors such as inflation, increased food and
labor costs, regional weather conditions, availability and cost of suitable sites and the availability of experienced
management and hourly employees may also adversely affect the food service industry in general and the
Company's results of operations and financial condition in particular.
- 3 -
The Company’s franchisees represent a varied geographic and demographic group. Among some of the primary
services the Company provides to its franchisees are marketing assistance, training, time-tested successful recipes,
bulk purchasing discounts, food service knowledgeable personnel and brand recognition.
CUSTOMERS
SUPPLIERS
The Company's major suppliers are Coffee Bean International, Dawn Food Products, Inc., Savencia Cheese USA,
Coca-Cola and U.S. Foods. The Company is not dependent on any of these suppliers for future growth and
profitability since like products that may be purchased from these suppliers are available from other sources.
LOCATIONS
The Company had 82 franchised locations and 3 licensed units in 23 states and the United Arab Emirates. There
are 2 units under development.
STORE OPERATIONS
BIG APPLE BAGELS®--BAB franchised stores bake a variety of fresh bagels daily and offer up to 11 flavors of
cream cheese spreads. Stores also offer a wide assortment of breakfast and lunch bagel sandwiches, salads, soups,
various dessert items, fruit smoothies, gourmet coffees and other beverages. A typical BAB store is in an area with
a mix of both residential and commercial properties and ranges from 1,500 to 2,000 square feet. The Company's
current store design is approximately 1,800 square feet, with seating capacity for 20 to 30 persons, and includes
approximately 750 square feet devoted to production and baking. A satellite store is typically smaller than a
production store, averaging 800 to 1,200 square feet. Although franchise stores may vary in size from other
franchise stores, store layout is generally consistent.
MY FAVORITE MUFFIN®--MFM franchised stores bake 20 to 25 varieties of muffins daily from over 250
recipes, plus a variety of bagels. They also serve gourmet coffees, beverages and, at My Favorite Muffin and Bagel
Cafe locations, a variety of bagel sandwiches and related products. The typical MFM store design is approximately
1,800 square feet, with seating capacity for 20 to 30 persons.
SWEETDUET®--SD The Company has one SweetDuet franchised store which offers frozen yogurt and various
toppings from which customers prepare their own yogurt creations. They also serve My Favorite Muffin®
gourmet muffins and Brewster’s® Coffee. Beginning in 2014, the SweetDuet concept is available as an added
brand to a BAB or MFM location.
BREWSTER'S® COFFEE--Although the Company doesn't have, or actively market, Brewster's stand-alone
franchises, Brewster's coffee products are sold in most of the franchised units.
FRANCHISING
The Company requires payment of an initial franchise fee per store, plus an ongoing 5% royalty on net sales.
Additionally, BAB, MFM and SD franchisees are members of a marketing fund requiring an ongoing 3%
contribution for general system-wide marketing. The Company currently requires a franchise fee of $25,000 on a
franchisee's first full production BAB or MFM store. There is currently a $10,000 veterans discount for the
franchise fee for the first location. The fee for subsequent production stores for BAB and MFM is $20,000.
Beginning in 2014, the SD concept is available at no additional charge as an added brand to a BAB or MFM
location.
- 4 -
The Company's current Franchise Disclosure Documents (“FDD”) provides for, among other things, the
opportunity for prospective franchisees to enter into a Preliminary Agreement for their first production store. This
agreement enables a prospective franchisee a period of 60 days in which to locate a site. The fee for this
Preliminary Agreement is $10,000. If a site is not located and approved by the Company within the 60 days, the
prospective franchisee will receive a refund of $7,000. If a site is approved, the entire $10,000 will be applied
toward the initial franchise fee. See also last paragraph under "Government Regulation" section in this 10-K. The
Company's Franchise Agreement provides a franchisee with the right to develop one store at a specific location.
Each Franchise Agreement is for a term of 10 years with the right to renew. Franchisees are expected to be in
operation no later than 10 months following the signing of the Franchise Agreement.
The Company will recognize revenue upon a signed and completed franchise agreement for a Master Franchise
Agreement (“MFA”). The revenue for a MFA is a nonrefundable fee and the amount of the fee is dependent on the
area covered by the MFA. In addition there will be ongoing royalty fees as determined by the contract.
The Company currently advertises its franchising opportunities in directories, newspapers and the internet. In
addition, prospective franchisees contact the Company as a result of patronizing an existing store.
COMPETITION
The quick service restaurant industry is intensely competitive with respect to product quality, concept, location,
service and price. There are a number of national, regional and local chains operating both owned and franchised
stores which compete with the Company on a national level or solely in a specific market or region. The Company
believes that because the industry is extremely fragmented, there is a significant opportunity for expansion in the
bagel, muffin, frozen yogurt and coffee concept chains.
The Company believes the primary direct competitors of its bagel units are Panera Bread Company, Bruegger's
Bagel Bakery and Einstein Noah Restaurant Group, which operates Einstein Bros. Bagels. There are several other
regional bagel chains with fewer than 50 stores, as well as numerous small, independently owned bagel bakeries
and national fast food restaurants such as Dunkin’ Donuts and McDonald’s, all of which may compete with the
Company. There is no major national competitor in the muffin business, but there are a number of regional and
local operators. The Company believes the primary direct competitors for its yogurt concept are Red Mango,
Yogurtland and TCBY. There are several regional and a number of local individual operators. Additionally, the
Company competes directly with a number of national, regional and local coffee competitors.
Other competition includes supermarket bakery sections and prepackaged, fresh and frozen bagels, muffins and
yogurt. Certain of these competitors may have greater product and name recognition and larger financial,
marketing and distribution capabilities than the Company. The Company believes the startup costs associated with
opening a retail food establishment offering similar products on a stand-alone basis are competitive with the startup
costs associated with opening its stores and, accordingly, such startup costs are not an impediment to entry into the
retail bagel, muffin, frozen yogurt or coffee businesses.
The Company believes that its stores compete favorably in terms of food quality, and taste, convenience and
customer service and value, which the Company believes are important factors to its targeted customers.
Competition in the food service industry is often affected by changes in consumer tastes, national, regional and
local economic and real estate conditions, demographic trends, traffic patterns, the cost and availability of labor,
consumer purchasing power, availability of product and local competitive factors. The Company attempts to
manage or adapt to these factors, but not all such factors are within the Company's control. Such factors could
cause the Company and some or all of its franchisees to be adversely affected.
The Company competes for qualified franchisees with a wide variety of investment opportunities in the restaurant
business, as well as other industries. Investment opportunities in the bagel bakery cafe business include franchises
offered by Einstein Noah Restaurant Group, Panera Bread Company and opportunities in the frozen yogurt
business, including Red Mango, Yogurtland and TCBY. The Company's continued success is dependent on its
reputation for providing high quality and value with respect to its service, products and franchises. This reputation
is affected by the performance of its franchise stores and licensed units that sell branded products over which the
Company has limited control.
- 5 -
TRADEMARKS AND SERVICE MARKS
The trademarks, trade names and service marks used by the Company contain common descriptive English words
and thus may be subject to challenge by users of these words, alone or in combination with other words, to
describe other services or products. Some persons or entities may have prior rights to these names or marks in their
respective localities. Accordingly, there is no assurance that such names and marks are available in all locations.
Any challenge, if successful, in whole or in part, could restrict the Company's use of the names and marks in areas
in which the challenger is found to have used the name or mark prior to the Company's use. Any such restriction
could limit the expansion of the Company's use of the names or marks into that region, and the Company and its
franchisees may be materially and adversely affected.
The trademarks and service marks "Big Apple Bagels®," "My Favorite Muffin®," “SweetDuet®”and
"Brewster's® Coffee" are registered under applicable federal trademark law. These marks are licensed by the
Company to its franchisees pursuant to Franchise Agreements. In February 1999, the Company acquired the
trademark of "Jacobs Bros. Bagels®" upon purchasing certain assets of Jacobs Bros. The "Jacobs Bros. Bagels®"
mark is also registered under applicable federal trademark law.
The Company is aware of the use by other persons and entities in certain geographic areas of names and marks
which are the same as, or similar to, the Company's names and marks. Some of these persons or entities may have
prior rights to those names or marks in their respective localities; therefore, there is no assurance that the names
and marks are available in all locations. It is the Company's policy to pursue registration of its names and marks
whenever possible and to vigorously oppose any infringement of its names and marks.
GOVERNMENT REGULATION
The Company is subject to the Trade Regulation Rule of the Federal Trade Commission (the "FTC") entitled
“Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures'' (the
"FTC Franchise Rule") and state and local laws and regulations that govern the offer, sale and termination of
franchises and the refusal to renew franchises. Continued compliance with these broad federal, state and local
regulatory networks is essential and costly. The failure to comply with such regulations may have a material
adverse effect on the Company and its franchisees. Violations of franchising laws and/or state laws and regulations
regulating substantive aspects of doing business in a particular state could limit the Company's ability to sell
franchises or subject the Company and its affiliates to rescission offers, monetary damages, penalties,
imprisonment and/or injunctive proceedings. In addition, under court decisions in certain states, absolute vicarious
liability may be imposed upon franchisors based upon claims made against franchisees. Even if the Company is
able to obtain insurance coverage for such claims, there can be no assurance that such insurance will be sufficient
to cover potential claims against the Company.
The Company and its franchisees are required to comply with federal, state and local government regulations
applicable to consumer food service businesses, including those relating to the preparation and sale of food,
minimum wage requirements, overtime, working and safety conditions, citizenship requirements, as well as
regulations relating to zoning, construction, health and business licensing. Each store is subject to regulation by
federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other
departments. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the
opening of a new Company-owned or franchise store, and failure to remain in compliance with applicable
regulations could cause the temporary or permanent closing of an existing store. The Company believes that it is in
material compliance with these provisions. Continued compliance with these federal, state and local laws and
regulations is costly but essential, and failure to comply may have an adverse effect on the Company and its
franchisees.
- 6 -
The Company's franchising operations are subject to regulation by the FTC under the Uniform Franchise Act
which requires, among other things, that the Company prepare and periodically update a comprehensive disclosure
document known as a Franchise Disclosure Document (“ FDD”) in connection with the sale and operation of its
franchises. In addition, some states require a franchisor to register its franchise with the state before it may offer a
franchise to a prospective franchisee. The Company believes its FDD, together with any applicable state versions
or supplements, comply with both the FTC guidelines and all applicable state laws regulating franchising in those
states in which it has offered franchises.
The Company is also subject to a number of state laws, as well as foreign laws (to the extent it offers franchises
outside of the United States), that regulate substantive aspects of the franchisor-franchisee relationship, including,
but not limited to, those concerning termination and non-renewal of a franchise.
EMPLOYEES
As of November 30, 2017, the Company employed 13 full time persons in the Corporate headquarters. The
employees are responsible for corporate management and oversight, franchising, accounting, advertising and Sign
Shop operations. None of the Company's employees are subject to any collective bargaining agreements and
management considers its relations with its employees to be good.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not required for smaller reporting companies.
ITEM 2. PROPERTIES
The Company's principal executive office, consisting of approximately 7,150 square feet, is located in Deerfield,
Illinois and is leased. The Company elected to extend the lease term under the first amendment to the original
lease and it expires September 30, 2018. The Company is reviewing its lease renewal options.
ITEM 3. LEGAL PROCEEDINGS
We are 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 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 4. MINE SAFETY DISCLOSURES
None
- 7 -
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth the quarterly high and low reported closing sales prices for the Company's common
stock, as reported in the Nasdaq Small Cap Market for the two years ended November 30, 2017 and 2016. The
Company's common stock is traded on the NASDAQ OTCQB Marketplace under the symbol "BABB."
Year Ended: November 30, 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Year Ended: November 30, 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Low
0.73
0.69
0.69
0.61
Low
0.55
0.56
0.56
0.70
High
0.88
0.83
0.78
0.82
High
0.65
0.64
0.74
0.91
As of February 15, 2018, the Company's Common Stock was held by 139 holders of record. Registered ownership
includes nominees who may hold securities on behalf of multiple beneficial owners. The Company estimates that
the number of beneficial owners of its common stock at February 15, 2018, is approximately 1,100 based upon
information provided by a proxy services firm.
STOCK OPTIONS
In May 2001, the Company's Board of Directors approved a Long-Term Incentive and Stock Option Plan (Plan),
with an amendment in May 2003 to increase the Plan from the reserve of 1,100,000 shares to 1,400,000 shares of
Common Stock for grant. A total of 1,400,000 stock options have been granted to directors, officers and
employees. In 2017 and 2016, no options were granted. As of November 30, 2016, all stock options had been
exercised or forfeited under the Plan. (See Note 6 of the audited consolidated financial statements included
herein.)
CASH DISTRIBUTION AND DIVIDEND POLICY
On December 5, 2017, a $0.01 quarterly and a $0.01 special cash distribution/dividend per share was declared and
paid on January 12, 2018.
The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 15, June 7 and
September 7, 2017, paid April 20, July 13, and October 13, 2017, respectively On December 5, 2016, a $0.01
quarterly and $.01 special cash distribution/dividend per share was declared and paid January 9, 2017.
The Board of Directors declared a cash distribution/dividend on March 3, June 6 and September 6, 2016 of $0.01
per share, paid April 13, July 11, and October 12, 2016, respectively. On December 3, 2015, a $0.01 quarterly and
$.02 special cash distribution/dividend per share was declared and paid January 6, 2016.
- 8 -
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.
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting companies.
- 9 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The selected financial data contained herein has been derived from the consolidated financial statements of the
Company included elsewhere in this Report on Form 10-K. The data should be read in conjunction with the
consolidated financial statements and notes thereto. Certain statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations, including statements regarding the development of the
Company's business, the markets for the Company's products, anticipated capital expenditures, and the effects of
completed and proposed acquisitions, and other statements and disclosures contained herein and throughout this
Annual Report regarding matters that are not historical facts, are forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995). In such cases, we may use words such as
"believe," "intend," "expect," "anticipate" and the like. Because such statements include risks and uncertainties,
actual results may differ materially from those expressed or implied by such forward-looking statements. Certain
risks and uncertainties are wholly or partially outside the control of the Company and its management, including its
ability to attract new franchisees; the continued success of current franchisees; the effects of competition on
franchisee store results; consumer acceptance of the Company's products in new and existing markets; fluctuation
in development and operating costs; brand awareness; availability and terms of capital; adverse publicity;
acceptance of new product offerings; availability of locations and terms of sites for store development; food, labor
and employee benefit costs; changes in government regulation (including increases in the minimum wage);
regional economic and weather conditions; the hiring, training, and retention of skilled corporate and restaurant
management; and the integration and assimilation of acquired concepts. Accordingly, readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date
hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-
looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
GENERAL
The Company has 82 franchised and 3 licensed units with 2 units under development at the end of 2017. Units in
operation and under development at the end of 2016 included 85 franchised and 3 licensed units and 2 units under
development. System-wide revenues were $35.0 million in 2017 and $35.5 million in 2016.
The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees
and from 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 a licensing
agreement with Green Beans Coffee. Also included in licensing fees and other income is Operation’s Sign Shop
results. For franchise consistency and convenience, the Sign Shop provided the majority of signage to franchisees,
including but not limited to, posters, menu panels, build charts, outside window stickers and counter signs.
Beginning in December 2017, a majority of franchise signage and point of sale materials will be outsourced to a
printer that will be able to provide consistency and convenience to the franchisees. Outsourcing signage will not
have a material effect on revenues or net income.
YEAR 2017 COMPARED TO YEAR 2016
Total revenues from all sources decreased $165,000, or 6.9%, to $2,221,000 in 2017 from $2,386,000 in the prior
year due to a decrease in royalty revenue of $18,000, a decrease in franchisee fee revenue of $63,000 and a
decrease in licensing fees and other income of $84,000.
- 10 -
Royalty revenue from franchise stores decreased $18,000, or 1.0%, to $1,727,000 in 2017 as compared to
$1,745,000 in 2016. Franchise fee revenue decreased $63,000, or 55.8%, to $50,000 in 2017 versus $113,000 in
2016. During fiscal 2017 there were 2 store openings and 2 transfers, compared to 3 store openings, 6 transfers
and one defaulted preliminary agreement in 2016. Licensing fees and other income decreased $84,000, or 15.9%,
to $444,000 in 2017 compared to $528,000 in 2016. The decrease in licensing and other income was primarily due
to a decrease of $61,000 in settlement and other income, $14,000 for Sign Shop revenues and $9,000 in
nontraditional revenues in 2017 as compared to 2016.
Total operating expenses in 2017 were $1,761,000, or 79.3% of revenues, compared to $1,926,000, or 80.7% of
revenues in 2016. Total operating expenses decreased $165,000, or 8.6%, in 2017 compared to 2016.
The decrease in operating expenses of $165,000 in 2017 was primarily due to a decrease in payroll of $101,000
because there was no bonuses in 2017 versus bonuses paid in 2016. In 2017 there was a decrease in advertising
and promotions of $17,000, a decrease in legal expenses of $13,000, a decrease in franchise development of
$12,000, a decrease in Sign Shop expenses for cost of goods and obsolete inventory of $25,000 and a decrease in
depreciation and amortization of $9,000. These expenses were offset by an increase in rent of $3,000, employee
benefits of $3,000, an increase in bad debt expense of $2,000 and an increase in general expenses of $4,000.
On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the
Act reduces the Federal statutory corporate income tax rate from 35% to 21%. We recognize deferred tax assets to
the extent that we believe these assets are more likely than not to be realized. In making such a determination, we
consider all available positive and negative evidence, including future reversals of existing taxable temporary
differences. This rate reduction is not expected to have a significant impact on the net deferred tax
asset which will be reviewed during the first quarter of fiscal 2018.
Interest income was less than $1,000 in 2017 and 2016.
Interest expense decreased $1,000 to zero in 2017 versus $1,000 in 2016, as a result of no outstanding debt in
2017.
There was an income tax expense of $6,000 in 2017 compared to an expense of $10,000 in 2016.
Net income totaled $454,000 or 20.4% of revenue in 2017 as compared to $449,000 or 18.8%, of revenue in the
prior year. Earnings per share for basic and diluted outstanding shares are $.06 for 2017 and 2016.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2017, the Company had working capital of $648,000 and unrestricted cash of $793,000. At
November 30, 2016, the Company had working capital of $557,000 and unrestricted cash of $907,000.
During fiscal 2017, the Company had net income of $454,000 and operating activities which provided cash of
$260,000. The principal adjustments to reconcile net income to cash provided by operating activities were
depreciation and amortization of $12,000, less the provision for uncollectible accounts of $6,000. In addition,
changes in other operating assets and liabilities decreased a total of $200,000. During fiscal 2016, the Company
had net income of $449,000 and operating activities which provided cash of $543,000. The principal adjustments
to reconcile net income to cash provided by operating activities were depreciation and amortization of $20,000,
less the provision for uncollectible accounts of $8,000. In addition, changes in other operating assets and liabilities
increased a total of $82,000.
- 11 -
During fiscal 2017, the Company used $11,000 for investing activities for equipment purchases and trademark
renewal. During fiscal 2016, the Company used $4,000 for investing activities for trademark renewals.
For financing activities in fiscal 2017, $363,000 was used for cash distributions/dividend payments to common
stockholders. For financing activities in fiscal 2016, $33,000 was used for repayment of debt and $436,000 for
cash distributions/dividend payments to common stockholders.
Although there can be no assurances that the Company will be able to pay cash distributions/dividends in the
future, it is the Company’s intent that future cash distributions/dividends will be considered based on profitability
expectations and financing needs and will be declared at the discretion of the Board of Directors. It is the
Company’s intent going forward to declare and pay cash distributions/dividends on a quarterly basis if warranted.
On December 5, 2017, a $0.01 quarterly and a $0.01 special cash distribution/dividend per share was declared
and paid on January 12, 2018.
The Company believes execution of its cash distribution/dividend policy will not have any material adverse effects
on its ability to fund current operations or future capital investments.
The Company has no outstanding debt at November 30, 2017.
OFF BALANCE SHEET ARRANGEMENTS
The Company has no off balance sheet arrangements, other than the lease commitments disclosed in Note 7 of the
audited consolidated financial statements included herein.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are presented in the Notes to the Consolidated Financial Statements
(see Note 2 of the audited consolidated financial statements included herein). While all of the significant
accounting policies impact the Company's Consolidated Financial Statements, some of the policies may be viewed
to be more critical. The more critical policies are those that are most important to the portrayal of the Company's
financial condition and results of operations and that require management's most difficult, subjective and/or
complex judgments and estimates. Management bases its judgments and estimates on historical experience and
various other factors that are believed to be reasonable under the circumstances. The results of judgments and
estimates form the basis for making judgments about the Company's value of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from those estimates under different assumptions
or conditions. Management believes the following are its most critical accounting policies because they require
more significant judgments and estimates in preparation of its consolidated financial statements.
Revenue Recognition
Royalty fees 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.
The Company recognizes franchise fee revenue on the store’s opening. Direct costs associated with the sale of
franchises are deferred until the franchise fee revenue is recognized. These costs include site approval,
construction approval, commissions, blueprints and training costs.
- 12 -
The Company recognizes revenue upon a signed and completed franchise agreement for a Master Franchise
Agreement (“MFA”). The revenue for a MFA is a nonrefundable fee and the amount of the fee is dependent on the
area covered by the MFA. In addition there will be ongoing royalty fees as determined by the contract.
The Company earns a licensing fee from the sale of BAB branded and nonbranded products, which includes
coffee, cream cheese, muffin mix and par baked bagels from a third-party commercial bakery to the franchised and
licensed units.
Long-Lived Assets
Property and equipment are recorded at cost. Improvements and replacements are capitalized, while expenditures
for maintenance and routine repairs that do not extend the life of the asset are charged to expense as incurred.
Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Property,
equipment and leasehold improvements are stated at cost, less accumulated depreciation. Estimated useful lives
for the purpose of depreciation and amortization are 3 to 7 years for property and equipment and 10 years, or the
term of the lease if less, for leasehold improvements.
Following the guidelines contained in ASC 350, the corporation 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, 2017, 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 its carrying value, a quantitative assessment is then performed. Based on a qualitative evaluation,
management determined that the carrying value of goodwill was not impaired at February 28, 2017, and a
quantitative assessment was not considered necessary.
Management reviewed the qualitative assessment conducted during the first quarter 2017 at year end and does
not believe that any impairment exists at November 30, 2017.
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial
instruments consist primarily of royalty and wholesale accounts receivables. The Company believes it has
maintained adequate reserves for doubtful accounts. The Company reviews the collectibility of receivables
periodically taking into account payment history and industry conditions.
Valuation Allowance and Deferred Taxes
A valuation allowance is the portion of a deferred tax asset for which it is more likely than not that a tax benefit
will not be realized.
As of November 30, 2017 the Company has net operating loss carryforwards of approximately $2,592,000 expiring
between 2018 and 2029 for U.S. federal income tax purposes. The Company routinely reviews the future
realization of tax assets based on projected future reversals of taxable temporary differences, available tax planning
strategies and projected future taxable income. A valuation allowance has been established for $457,000 and
$641,000 as of November 30, 2017 and 2016, respectively, for the deferred tax benefit related to those loss
carryforwards and other deferred tax assets, that are more likely than not that the deferred tax asset will not be
realized.
- 13 -
Recent Accounting Pronouncements
Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard
for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such
as the real estate, construction and software industries. The revenue standard’s core principle is built on the
contract between a vendor and a customer for the provision of goods and services. It attempts to depict the
exchange of rights and obligations between the parties in the pattern of revenue recognition based on the
consideration to which the vendor is entitled. The standard requires five basic steps: (i) identify the contract with
the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv)
allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the
entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more
judgment than under current guidance, which will be highlighted for users through increased disclosure
requirements.
The standard requires that the transaction price received from customers be allocated to each separate and distinct
performance obligation. The transaction price attributable to each separate and distinct performance obligation is
then recognized as the performance obligations are satisfied. We are currently evaluating the standards to
determine whether the services we provide related to upfront fees we receive from franchisees such as initial or
renewal fees contain separate and distinct performance obligations from the franchise right. If we determine these
services are not separate and distinct from the overall franchise right, the fees received will be recognized as
revenue over the term of each respective franchise agreement. We currently recognize upfront franchise fees such
as initial and renewal fees when the related services have been provided, which is when a store opens for initial
fees and when renewal options become effective for renewal fees. The standards require the unamortized portion
of fees received to be presented in our Consolidated Balance Sheets as a contract liability. Any contract liabilities
required to be recorded as a result of adopting these standards may be material to our Consolidated Balance Sheets
given the volume of our franchise agreements and their duration, which is typically equal to ten years.
We are currently evaluating whether the standards will have an impact on transactions currently not included
in our revenues such as franchisee contributions to and subsequent expenditures from our marketing fund. We act
as an agent in regard to these franchisee contributions and expenditures and as such we do not currently include
them in our Consolidated Statements of Income or Cash Flows. See Note 2 for details. We are evaluating whether
the new standards will impact the principal/agent determinations in these arrangements. If we determine we are the
principal in these arrangements we would include contributions to and expenditures from these advertising
cooperatives within our Consolidated Statements of Income and Cash Flows. While any such change has the
potential to materially impact our gross amount of reported revenues and expenses, we are still evaluating how this
standard specifically affects this arrangement. The Company will adopt ASU 2014-09 for fiscal year ending
November 30, 2019.
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use
asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees,
leases will continue to be classified as either operating or finance leases in the income statement. Lessor
accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors
will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new
standard for public companies is for fiscal years beginning after December 15, 2018. Early adoption is permitted.
The new standard must be adopted using a modified retrospective transition and requires application of the new
guidance at the beginning of the earliest comparative period presented. The Company will adopt ASU 2016-02 for
fiscal year ending November 30, 2020 and the Company is evaluating the impact that adoption of this guidance
might have on the Company’s financial position, cash flows or results of operations.
- 14 -
the Financial Accounting Standards Board
In March 2016,
issued ASU 2016-04, Liabilities –
Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value
Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the
accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value
product liability is to be derecognized when it is probable that a significant reversal of the recognized
breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its
remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendments
in this ASU are effective for the annual reporting periods beginning after December 15, 2017, including the
interim periods within that reporting period. Early adoption is permitted. The Company is evaluating the
impact that adoption of this guidance will have on the Company’s financial position, cash flows or results of
operations.
Management does not believe that there are any other recently issued and effective or not yet effective
pronouncements as of November 30, 2017 that would have or are expected to have any significant effect on
the Company’s financial position, cash flows or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In regard to interest, foreign currency and commodity price risk the Company does not believe that these are
significant risk factors.
- 15 -
ITEM 8. FINANCIAL STATEMENTS
The Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm is included
immediately following.
BAB, Inc.
Years Ended November 30, 2017 and 2016
C o n t e n t s
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
17
18
19
20
21
22 - 32
- 16 -
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors of BAB, Inc.
We have audited the accompanying consolidated balance sheets of BAB, Inc. and Subsidiaries as of
November 30, 2017 and 2016 and the related consolidated statements of income, stockholders’ equity and
cash flows for the years then ended. BAB, Inc.’s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of BAB, Inc. and Subsidiaries as of November 30, 2017 and 2016, and the
results of their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
By: /s/ Sassetti LLC
Oak Park, Illinois
February 26, 2018
- 17 -
BAB, Inc
Consolidated Balance Sheets
November 30, 2017 and 2016
See accompanying notes
- 18 -
20172016ASSETSCurrent AssetsCash792,655$ 907,116$ Restricted cash693,425598,887ReceivablesTrade accounts and notes receivable (net of allowance fordoubtful accounts of $19,438 in 2017 and $25,319 in 2016 )56,34250,844Marketing fund contributions receivable from franchisees and stores12,63510,238Inventories19,76116,130Prepaid expenses and other current assets85,77081,021Total Current Assets1,660,5881,664,236Property, plant and equipment (net of accumulated depreciation of $154,762in 2017 and $152,334 in 2016)5,5151,226Trademarks459,637455,182Goodwill1,493,7711,493,771Definite lived intangible assets (net of accumulated amortization of $123,398in 2017 and $114,290 in 2016)- 9,108Deferred tax asset248,000248,000Total Noncurrent Assets2,206,9232,207,287Total Assets3,867,511$ 3,871,523$ LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable43,741$ 43,383$ Accrued expenses and other current liabilities243,397365,169Unexpended marketing fund contributions706,856609,380Deferred franchise fee revenue- 40,000Deferred licensing revenue18,15549,226Total Current Liabilities1,012,1491,107,158Total Liabilities1,012,1491,107,158Stockholders' Equity Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of November 30, 2017 and November 30, 2016- - Preferred shares -$.001 par value; 1,000,000 Series A authorized; noshares outstanding as of November 30, 2017 and November 30, 2016- - Common stock -$.001 par value; 15,000,000 shares authorized;8,466,953 shares issued and 7,263,508 shares outstandingas of November 30, 2017 and November 30, 201613,508,257 13,508,257 Additional paid-in capital987,034 987,034 Treasury stock(222,781) (222,781) Accumulated deficit(11,417,148) (11,508,145) Total Stockholders' Equity2,855,3622,764,365Total Liabilities and Stockholders' Equity3,867,511$ 3,871,523$
BAB, Inc
Consolidated Statements of Income
Years Ended November 30, 2017 and 2016
See accompanying notes
- 19 -
20172016REVENUESRoyalty fees from franchised stores1,726,976$ 1,744,640$ Franchise fees50,000 113,000 Licensing fees and other income443,917 528,527 Total Revenues2,220,893 2,386,167 OPERATING EXPENSESSelling, general and administrative expenses: Payroll and payroll-related expenses1,017,435 1,118,356 Occupancy177,592 174,757 Advertising and promotion24,065 40,650 Professional service fees130,323 143,755 Travel41,271 42,188 Employee benefit expense158,646 156,125 Depreciation and amortization11,536 20,152 Other200,459 230,463 Total Operating Expenses1,761,327 1,926,446 Income from operations459,566 459,721 Interest income107502 Interest expense - (1,323) Income before provision for income taxes459,673 458,900 Provision for income taxes Current tax expense5,500 9,500 Net Income454,173$ 449,400$ Earnings per share - Basic and Diluted0.06$ 0.06$ Weighted average shares outstanding - Basic and Diluted7,263,508 7,263,508 Cash distributions declared per share0.05$ 0.06$
BAB, Inc
Consolidated Statements of Stockholders’ Equity
Years Ended November 30, 2017 and 2016
See accompanying notes
- 20 -
Additional Paid-InAccumulatedSharesAmountCapitalShares AmountDeficitTotalNovember 30, 20158,466,95313,508,257$ 987,034$ 1,203,445(222,781)$ (11,521,735)$ 2,750,775$ Dividends Declared(435,810) (435,810) Net Income449,400 449,400 November 30, 20168,466,95313,508,257$ 987,034$ 1,203,445(222,781)$ (11,508,145)$ 2,764,365$ Dividends Declared(363,176) (363,176) Net Income454,173 454,173 November 30, 20178,466,95313,508,257$ 987,034$ 1,203,445(222,781)$ (11,417,148)$ 2,855,362$ Common StockTreasury Stock
BAB, Inc
Consolidated Statements of Cash Flows
Years Ended November 30, 2017 and 2016
See accompanying notes
- 21 -
20172016Operating activitiesNet income454,173$ 449,400$ Adjustments to reconcile net income to cashflows provided by operating activities:Depreciation and amortization 11,536 20,152 Provision for uncollectible accounts, net of recoveries(5,881) (7,733) Changes in:Trade accounts receivable and notes receivable383 31,968 Restricted cash(94,538) (178,148) Marketing fund contributions receivable(2,397) 10,873 Inventories(3,631) 10,694 Prepaid expenses and other(4,748) 2,775 Accounts payable358 30,328 Accrued liabilities(121,772) 53,253 Unexpended marketing fund contributions97,476 167,275 Deferred revenue(71,071) (47,857) Net Cash Provided by Operating Activities259,888542,980Investing activitiesCapitalization of trademark renewals(4,455) (4,023) Purchase of equipment(6,718) - Net Cash Used In Investing Activities(11,173) (4,023) Financing activitiesRepayment of borrowings- (33,413) Cash distributions/dividends(363,176) (435,810) Net Cash Used In Financing Activities(363,176) (469,223) Net (Decrease)/Increase in Cash(114,461) 69,734 Cash, Beginning of Period907,116 837,382 Cash, End of Period792,655$ 907,116$ Supplemental disclosure of cash flow information:Interest paid-$ 1,323$ Income taxes paid21,091$ 8,171$
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 1 - Nature of Operations
BAB, Inc (“the Company”) has three wholly owned subsidiaries: BAB Systems, Inc. (“Systems”) and 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 or MFM 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
November 30, 2017, the Company had 82 franchise units and 3 licensed units in operation in 23 states and the
United Arab Emirates. There are 2 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 a licensing agreement with Green Beans Coffee. Also, included in licensing fees and other income is
Operations Sign Shop results. For franchise consistency and convenience, the Sign Shop provides the
majority of signage to franchisees, including but not limited to, posters, menu panels, build charts, outside
window stickers and counter signs.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
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 period-end. Estimates
are utilized in certain instances where actual numbers have not been received.
- 22 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 2 -Summary of Significant Accounting Policies (Continued)
Revenue Recognition (Continued)
The Company recognizes franchise fee revenue on the store’s opening. Direct costs associated with the sale
of franchises are deferred until the franchise fee revenue is recognized. These costs include site approval,
construction approval, commissions, blueprints and training costs.
The Company will recognize revenue upon a signed and completed franchise agreement for a Master Franchise
Agreement (“MFA”). The revenue for a MFA is a nonrefundable fee and the amount of the fee is dependent on the
area covered by the MFA. In addition there will be ongoing royalty fees as determined by the contract.
Big Apple Bagels®, SweetDuet Frozen Yogurt and Gourmet Muffins® and My Favorite Muffin® operating
units, licensed units and unopened stores for which a Franchise Agreement has been executed, are as follows:
Operating Units
Franchise Owned
Licensed Units
Unopened stores with Franchise
Agreements:
Total operating units and units
with Franchise Agreements
2017
2016
82
3
85
2
87
85
3
88
2
90
License fees and other income primarily consist of license fees, Sign Shop revenues and defaulted and
terminated franchise contract revenues. Revenue is recorded on an accrual basis. Actual amounts are used to
record the majority of license fees although at times it is necessary to use estimates. Revenues and expenses
recorded for the Sign Shop, as well as defaulted and terminated franchise contract revenue, are actual
amounts.
Segments
Accounting standards have established annual reporting standards for an enterprise’s operating segments and
related disclosures about its products, services, geographic areas and major customers. The Company’s
operations were a single reportable segment and an international segment. The international segment
operations are immaterial.
- 23 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 2 - Summary of Significant Accounting Policies (Continued)
Marketing Fund
A Marketing Fund has been established for BAB, MFM and SD. Franchised stores are required to contribute
a fixed percentage of their net retail sales to the Marketing Fund. Liabilities for unexpended funds received
from franchisees are included as a separate line item in accrued expenses and Marketing Fund cash accounts
are included in restricted funds in the accompanying Balance Sheet. The Marketing Fund also derives
revenues from rebates paid by certain vendors on the sale of BAB and MFM licensed products to franchisees.
Cash
As of November 30, 2017 and 2016, the Marketing Fund cash balances, which are restricted, were $693,000
and $599,000, respectively.
The FDIC maximum insurance on all interest and noninterest bearing checking accounts is $250,000 for each
entity. The Company exceeded FDIC limits on its operating and marketing accounts but did not experience
any losses.
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.
Inventories
Inventories are valued at the lower of cost or market under the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property and equipment and leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the
assets. Estimated useful lives are 3 to 7 years for property and equipment and 10 years, or term of lease if
less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures
that materially extend the useful lives of assets are capitalized.
Goodwill and Other Intangible Assets
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. The Company
follows this guidance.
- 24 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 2 - Summary of Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets (Continued)
The Company tests goodwill that is 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, 2017, 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 its carrying value, a quantitative assessment is then performed. Based on a
qualitative evaluation, management determined that the carrying value of goodwill was not impaired at
February 28, 2017, and a quantitative assessment was not considered necessary.
Management reviewed the qualitative assessment conducted during the first quarter 2017 at year end and does
not believe that any impairment exists at November 30, 2017.
The net book value of goodwill and intangible assets with indefinite and definite lives are as follows:
Definite lived intangible assets were fully amortized during fiscal 2017.
In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350), which is
intended to simplify the test for goodwill impairment. To simplify the subsequent measurement of goodwill,
the standard eliminates Step 2 from the goodwill impairment test. Instead, an entity will perform its annual or
interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An
entity will recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting
unit to determine if the quantitative impairment test is necessary. The amendments in this ASU are effective
for the annual reporting periods beginning after December 15, 2019, including the interim periods within that
reporting period. The Company elected to early adopt this guidance in the quarter ended February 28, 2017.
- 25 -
GoodwillTrademarksDefinite Lived IntangiblesTotalNet Balance as of November 30, 20151,493,771$ 455,182$ 22,987$ 1,971,940$ Additions- - 4,0224,022 Amortization expense- - (17,901)(17,901) Net Balance as of November 30, 20161,493,771$ 455,182$ 9,108$ 1,958,061$ Additions- 4,455 - 4,455 Amortization expense- - (9,108)(9,108) Net Balance as of November 30, 20171,493,771$ 459,637$ -$ 1,953,408$
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 2 - Summary of Significant Accounting Policies (Continued)
Advertising and Promotion Costs
The Company expenses advertising and promotion costs as incurred. Advertising and promotion expense
was $24,000 and $41,000 in 2017 and 2016, respectively. All advertising and promotion costs were related to
the Company’s franchise operations.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
benefits from net operating losses carried forward may be impaired or limited in certain circumstances. In
addition, a valuation allowance can be provided for deferred tax assets when it is more likely than not that all
or some portion of the deferred tax asset will not be realized.
The Company files a consolidated U.S. income tax return and tax returns in various state jurisdictions.
Review of the Company’s possible tax uncertainties as of November 30, 2017 did not result in any positions
requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax
positions or other tax authority assessments, it would classify such expenses as part of the income tax
provision. The Company has not changed any of its tax policies or adopted any new tax positions during the
fiscal year ended November 30, 2017 and believes it has filed appropriate tax returns in all jurisdictions for
which it has nexus.
The Company’s income tax returns for the years ending November 30, 2014, 2015 and 2016 are subject to
examination by the IRS and corresponding states, generally for three years after they are filed. (See Note 3.)
Earnings Per Share
The Company computes earnings per share (“EPS”) under ASC 260 “Earnings per Share.” Basic net
earnings are divided by the weighted average number of common shares outstanding during the year to
calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give
effect to the potential dilution that could occur if options or other contracts to issue common stock were
exercised and resulted in the issuance of additional common shares.
- 26 -
20172016Numerator:Net income available to common shareholders454,173$ 449,400$ Denominator:Weighted average outstanding sharesBasic and diluted7,263,5087,263,508Earnings per Share - Basic and diluted0.06$ 0.06$
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 2 - Summary of Significant Accounting Policies (Continued)
Earnings Per Share (Continued)
At November 30, 2017 and 2016, there are no common stock equivalents. In addition, the weighted average
shares do not include any effects for potential shares related to the Preferred Shares Rights Agreement.
Stock-Based Compensation
The Company recognizes compensation cost using a fair-value based method for all share-based payments
granted after November 30, 2006, plus any awards granted to employees up through November 30, 2006 that
remain unvested at that time. The Company had no recorded compensation expense arising from share-based
payment arrangements for the Company’s stock option plan in 2017 or 2016.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts receivable, notes receivable, accounts
payable and short-term debt approximate their fair values because of the relatively short maturity of these
instruments. The carrying value of long-term debt, including the current portion, approximate fair value
based upon market prices for the same or similar instruments.
Recent Accounting Pronouncements
Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition
standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific
guidance such as the real estate, construction and software industries. The revenue standard’s core principle is
built on the contract between a vendor and a customer for the provision of goods and services. It attempts to
depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based
on the consideration to which the vendor is entitled. The standard requires five basic steps: (i) identify the
contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v)
recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be
required to make more estimates and use more judgment than under current guidance, which will be
highlighted for users through increased disclosure requirements.
The standard requires that the transaction price received from customers be allocated to each separate and
distinct performance obligation. The transaction price attributable to each separate and distinct performance
obligation is then recognized as the performance obligations are satisfied. We are currently evaluating the
standards to determine whether the services we provide related to upfront fees we receive from franchisees
such as initial or renewal fees contain separate and distinct performance obligations from the franchise right.
If we determine these services are not separate and distinct from the overall franchise right, the fees received
will be recognized as revenue over the term of each respective franchise agreement. We currently recognize
upfront franchise fees such as initial and renewal fees when the related services have been provided, which is
when a store opens for initial fees and when renewal options become effective for renewal fees. The standards
require the unamortized portion of fees received to be presented in our Consolidated Balance Sheets as a
contract liability. Any contract liabilities required to be recorded as a result of adopting these standards may
be material to our Consolidated Balance Sheets given the volume of our franchise agreements and their
duration, which is typically equal to ten years.
- 27 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Recent Accounting Pronouncements (continued)
We are currently evaluating whether the standards will have an impact on transactions currently not included
in our revenues such as franchisee contributions to and subsequent expenditures from our marketing fund. We
act as an agent in regard to these franchisee contributions and expenditures and as such we do not currently
include them in our Consolidated Statements of Income or Cash Flows. See Note 2 for details. We are
evaluating whether the new standards will impact the principal/agent determinations in these arrangements. If
we determine we are the principal in these arrangements we would include contributions to and expenditures
from these advertising cooperatives within our Consolidated Statements of Income and Cash Flows. While
any such change has the potential to materially impact our gross amount of reported revenues and expenses,
we are still evaluating how this standard specifically affects this arrangement. The Company will adopt ASU
2014-09 for fiscal year ending November 30, 2019.
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-
use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For
lessees, leases will continue to be classified as either operating or finance leases in the income statement.
Lessor accounting is similar to the current model but updated to align with certain changes to the lessee
model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The
effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018.
Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and
requires application of the new guidance at the beginning of the earliest comparative period presented. The
Company will adopt ASU 2016-02 for fiscal year ending November 30, 2020 and the Company is evaluating
the impact that adoption of this guidance might have on the Company’s financial position, cash flows or
results of operations.
the Financial Accounting Standards Board
In March 2016,
issued ASU 2016-04, Liabilities –
Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value
Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the
accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value
product liability is to be derecognized when it is probable that a significant reversal of the recognized
breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its
remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendments
in this ASU are effective for the annual reporting periods beginning after December 15, 2017, including the
interim periods within that reporting period. Early adoption is permitted. The Company does not believe that
adoption of this guidance will have any impact on the Company’s financial position, cash flows or results of
operations.
Management does not believe that there are any other recently issued and effective or not yet effective
pronouncements as of November 30, 2017 that would have or are expected to have any significant effect on
the Company’s financial position, cash flows or results of operations.
- 28 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 3 – Income Taxes
The components of the Company’s current (benefit)/provision for income taxes are as follows:
The effective tax rate used to compute income tax expense and deferred tax assets and liabilities is a federal
rate of 34% and a state rate of 5.68%, net of the federal tax effect.
A reconciliation of the expected income tax expense to the recorded income tax expense is as follows for the
years ended November 30:
The components of the Company’s deferred tax assets and liabilities for federal and state income taxes consist
of the following:
- 29 -
20172016 Current Federal4,000$ 8,000$ State1,5001,500 Deferred- - Total 5,500$ 9,500$ 20172016Federal income tax provision computed at federal statutory rate157,327$ 157,883$ State income taxes, net of federal tax provision22,90522,986Other adjustments8,50414,906Change in valuation allowance and expiration of certain net operating losses (183,236)(186,275) Income Tax Provision 5,500$ 9,500$ 20172016Deferred revenue7,071$ 34,754$ Deferred rent 7,81315,867Marketing Fund net contributions270,089233,266Allowance for doubtful accounts and notes receivable7,5699,862Accrued expenses55,94657,468Net operating loss carryforwards1,009,5531,186,361Valuation allowance(457,394)(641,170)Total Deferred Income Tax Asset900,647$ 896,408$ Depreciation and amortization(652,647)$ (648,408)$ Total Deferred Income Tax Liabilities(652,647)$ (648,408)$ Total Net Deferred Tax Asset248,000$ 248,000$
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 3 – Income Taxes (Continued)
On December 22, 2017 the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions,
the Act reduces the Federal statutory corporate income tax rate from 35% to 21%. This rate reduction is not
expected to have a significant impact on the net deferred tax asset which will be reviewed during the first
quarter of fiscal 2018.
As of November 30, 2017 the Company has net operating loss carryforwards expiring between 2018 and
2029 for U.S. federal income tax purposes of approximately $2,592,000. The Company routinely reviews the
future realization of tax assets based on projected future reversals of taxable temporary differences, available
tax planning strategies and projected future taxable income. A valuation allowance has been established for
$457,000 and $641,000 as of November 30, 2017 and 2016, respectively, for the deferred tax benefit related
to those loss carryforwards and other deferred tax assets, that are more likely than not that the deferred tax
asset will not be realized.
Note 4 - Long-Term Debt
On September 6, 2002, the Company signed a note payable requiring annual installments of $35,000,
including interest at a rate of 4.75% per annum, for a term of 15 years, in the original amount of $386,000.
The Company purchased and retired 1,380,040 shares of BAB, Inc. common stock from a former stockholder.
The final debt payment was made on October 1, 2016, and there was no note payable balance as of November
30, 2017 or 2016.
Note 5 - Stockholders’ Equity
On December 5, 2017, a $0.01 quarterly and a $0.01 special cash distribution/dividend per share was declared
and paid on January 12, 2018.
The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 15, June 7
and September 7, 2017, paid April 20, July 13, and October 13, 2017, respectively On December 5, 2016, a
$0.01 quarterly and $.01 special cash distribution/dividend per share was declared and paid January 9, 2017.
The Board of Directors declared a cash distribution/dividend on March 3, June 6 and September 6, 2016 of
$0.01 per share, paid April 13, July 11, and October 12, 2016, respectively. On December 3, 2015, a $0.01
quarterly and $.02 special cash distribution/dividend per share was declared and paid January 6, 2016
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.
- 30 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 5 - Stockholders’ Equity (Continued)
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.
Note 6 - Stock Options
In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (“Plan”). The Plan
reserved 1,400,000 shares of common stock for grant, all of which have been granted as of November 30,
2009. The Plan terminated on May 25, 2011. The Plan permitted granting of awards to employees and non-
employee Directors and agents of the Company in the form of stock appreciation rights, stock awards and
stock options. The Plan was administered by a Committee of the Board of Directors appointed by the Board.
The Plan gave broad powers to the Board and Committee to administer and interpret the Plan, including the
authority to select the individuals to be granted options and rights and to prescribe the particular form and
conditions of each option or right granted.
Under the Plan, the exercise price of each option equals the market price of the Company’s stock on the date
of grant. The options granted vary in vesting from immediate to a vesting period over five years. The options
granted are exercisable within a 10 year period from the date of grant. All stock issued from the granted
options must be held for one year from date of exercise. Options issued and outstanding expired on various
dates through November 28, 2016. There are no options outstanding as of November 30, 2017.
- 31 -
BAB, Inc
Notes to the Consolidated Financial Statements
November 30, 2017 and 2016
Note 6 - Stock Options (Continued)
During fiscal 2017 and 2016 no options were granted or exercised and no stock based compensation was
recorded. On November 28, 2016 all remaining options outstanding expired. Activity under the Plan during
the two years ended November 30 is as follows:
Note 7 - Commitments
The Company rents its Corporate office under a lease which requires it to pay base rent, real estate taxes,
insurance and general repairs and maintenance. The lease is through September 30, 2018 and the Company is
reviewing its lease renewal options. Rent expense for the years ended November 30, 2017 and 2016 was
$174,000 and $171,000, respectively. Monthly rent is recorded on a straight-line basis over the term of the
lease with a deferred rent liability being recognized. As of November 30, 2017, future minimum annual
rental commitments under the Corporate lease is $115,197 for the year ending November 30, 2018.
Note 8 – Employee Benefit Plan
The Company maintains a qualified 401(k) plan which allows participants to make pretax contributions. In
fiscal 2015, the Company amended the 401(k) plan, establishing it as a Safe Harbor plan effective January 1,
2015. Employee contributions are matched by the Company in accordance with the Plan up to a maximum of
4% of employee earnings. The Company may also make discretionary contributions to the Plan. In fiscal
2017 and 2016 the Company’s employer match was $37,000 and $44,000, respectively. There were no
Company discretionary contributions in 2017 or 2016.
Note 9 – Contingencies
We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the
ordinary course of business. While the outcome of such proceedings or claims cannot be predicted with
certainty, management does not believe that the outcome of any such proceedings or claims will have a
material effect on our financial position. We know of no pending or threatened proceeding or claim to which
we are or will be a party.
- 32 -
OptionsWeighted average exercise priceOptionsWeighted average exercise priceOptions outstanding at beginning of year- -$ 237,5001.275$ Forfeited or expired- - (237,500) 1.275 Outstanding at end of year- -$ - -$ 20172016
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
In connection with the audits of the Company’s consolidated financial statements for each of the fiscal years ended
November 30, 2017 and 2016, and through the date of this Current Report, there were: (1) no disagreements
between the Company and Sassetti LLC on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedures.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
BAB, Inc.’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure
controls and procedures, as defined in Item 307 of Regulation S-K of the Securities Exchange Act of 1934, as of
the end of the period covered by this report, and they have concluded that these controls and procedures were
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.
Internal Control Over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive
Officer and the Chief Financial Officer, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated
framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the
Treadway Commission, to identify the risks and control objectives related to the evaluation of our control
environment.
Based on our evaluation under the framework described above, our management, including the Chief Executive
Officer and Chief Financial Officer, concluded that the Company’s internal controls and procedures were effective
over financial reporting as of November 30, 2017.
This annual report does not include an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation
requirements by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange
Commission that permits the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls or in other factors that could materially affect these controls over
financial reporting during the last fiscal quarter. We have not identified any significant deficiencies or material
weaknesses in our internal controls, and therefore there were no corrective actions taken.
ITEM 9B. OTHER INFORMATION
None.
- 33 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and
persons who beneficially own more than ten percent of the Company's Common Stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange Commission (the "SEC").
Executive officers, directors and greater than ten percent beneficial owners are required by the SEC to furnish the
Company with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to the Company, the Company believes that all Section
16(a) filing requirements applicable to its executive officers and directors were met during the year ended
November 30, 2017.
BAB, Inc. (the Company) has a formally established Code of Ethics, pursuant to Section 406 of the Sarbanes-
Oxley Act. In order to view the Code of Ethics in its entirety, see the BAB, Inc. Annual Report, Part III, Item 9,
dated November 30, 2007 and filed with the Securities and Exchange Commission on February 28, 2008.
Identification of Directors
The following two directors are independent directors:
Steven G. Feldman became a director of the Company in May 2003. Mr. Feldman brings 25 plus years of
experience in business, sales and marketing as the CEO of Techcare, LLC (1987-2011), an IT managed
services firm in Deerfield, IL that was purchased in 2011 by All Covered, a Division of Konica Minolta
Solutions, USA, Inc. Since 2014 Mr. Feldman has been working with and investing in a variety of startup
companies in the Chicago area. Mr. Feldman earned his degree in accounting and his CPA at the University
of Illinois at Champaign-Urbana.
James A. Lentz became a director of the Company in May 2004. From 1971 until 2000, Mr. Lentz was a
business professor for Moraine Valley Community College (MVCC). During his tenure at MVCC, Mr. Lentz
taught a variety of business related classes, including accounting, finance and marketing. In addition, Mr.
Lentz has 10 years of experience in the food industry, including holding the position of Director of Franchise
Training for BAB Systems, Inc. from 1992 through 1996. Mr. Lentz received both his undergraduate degree
and a Masters in Business Administration from Northern Illinois University.
Executive Officers and Directors
Michael W. Evans has served as Chief Executive Officer, President and Director of the Company since its
inception. Mr. Evans oversees all aspects of BAB, Inc., including franchise development, marketing, as well
as all corporate franchise sales performance, corporate finance and corporate and franchise operations.
Michael K. Murtaugh has served as Vice President and General Counsel and Director of the Company since
its inception. Mr. Murtaugh is responsible for dealing directly with state franchise regulatory officials, for the
negotiation and enforcement of franchise and area development agreements and for negotiations of
acquisition and other business arrangements. Before joining the Company, Mr. Murtaugh was a partner with
the law firm of Baker & McKenzie, where he practiced law from 1971 to 1993.
- 34 -
Executive Officer
Geraldine Conn joined the Company as Controller in 2001. In 2014 she became the Chief Financial Officer
and Treasurer upon the resignation of the prior Chief Financial Officer. She is responsible for accounting,
financial reporting, risk management and human resource administration. Ms. Conn has over 25 years of
accounting and finance experience in a management role. Ms. Conn received her CPA in 1986 and a Masters
in Business Administration in 1990 from DePaul University.
Directors and Executive Officers
The following tables set forth certain information with respect to each of the Directors and Executive Officers
of the Company and certain key management personnel.
Directors and Executive Officers
Michael W. Evans
Michael K. Murtaugh
Geraldine Conn
Steven G. Feldman
James A. Lentz
AUDIT COMMITTEE
Age
61
73
66
61
70
Position Held with Company
Chief Executive Officer, President and Director
Vice President, General Counsel, Secretary and Director
Chief Financial Officer and Treasurer
Director
Director
The Audit Committee consists of two members, who are both independent directors and both have been
deemed to be financial experts as defined in Regulation S-K, Item 407. The function of the Audit Committee
is to interact with the independent registered public accounting firm of the Company and to recommend to the
Board of Directors the appointment of the independent registered public accounting firm.
The current Audit Committee consists of Steven G. Feldman and James A. Lentz. The two independent
directors comply with the definition of "independent directors" as required by current law and regulations.
The Audit Committee has adopted a written Audit Charter. See Appendix I in the Proxy, Form14A filed on
April 19, 2006 for the Charter in its entirety.
- 35 -
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation by executive officers that received annual salary and bonus
compensation of more than $100,000 during years 2017 and 2016 (the "Named Executive Officers"). The
Company has no employment agreements with any of its executive officers.
Summary Compensation Table
Name and Principal
Position
Year
Salary
Bonus
Stock
Options
($)
($)
Awards
Awards
($)
($)
Nonequity
Incentive Plan
Compensation
(S)
Non-qualified
deferred
Compensation
earnings
(S)
All other
compensation
($)
(1)(2)
Michael W. Evans
President and CEO
Michael K. Murtaugh
Vice President and General Counsel
Geraldine Conn
Chief Financial Officer
2017
2016
2017
2016
2017
2016
232,886
-
232,886
40,425
174,671
-
174,671
30,319
105,000
-
105,000
8,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,961
12,144
6,816
7,463
4,817
5,253
Total
($)
243,847
285,455
181,487
212,453
109,817
118,253
In fiscal 2017 bonuses were earned and waived by Mr. Evans and Mr. Murtaugh. Bonuses for Executive
Officers that are Directors are determined using measurable financial criteria approved by the Compensation
Committee including, but not limited to, company profitability levels and performance in system-wide same
store sales. A bonus for the Chief Financial Officer is at the discretion of the Chief Executive Officer. All
other compensation includes the Company 401(k) matching funds and life insurance which is provided to all
employees.
(1) 401(k) matching funds:
2017 M. Evans $9,315; M Murtaugh $6,113; G. Conn $4,200
2016 M.Evans $10,600; M. Murtaugh $6,803; G. Conn $4,682
(2) Life insurance:
2017 M. Evans $1,646; M. Murtaugh $703; G. Conn $617
2016 M. Evans $1,544; M. Murtaugh $660; G. Conn $571
The following tables set forth any stock or stock options awarded to executive officers that that are exercisable and
not yet exercised or unexercisable as of November 30, 2017:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name
Number of
securities
underlying
unexercised
options
(#)
Exercisable
Number of
securities
underlying
unexercised
options
(#)
Unexercisable
Equity incentive
plan awards:
number of
securities
underlying
unexercised
unearned options
(#)
Option
exercise
price
($)
Option
expiration date
Michael W. Evans
President and CEO
-
-
Michael K. Murtaugh
Vice President and General Counsel
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 36 -
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(Continued)
Name
Number of shares
or units of stock
that have not vested
(#)
Market value of
shares or units of
stock that have
not vested
($)
Equity incentive
plan awards:
number of
unearned shares,
units or other rights
that have not vested
(#)
Equity incentive plan
awards: market or
payout value of
unearned shares, units
or other rights that
have not vested
($)
Michael W. Evans
President and CEO
Michael K. Murtaugh
Vice President and General Counsel
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The following table sets forth any compensation paid to directors during fiscal year ended November 30, 2017:
DIRECTOR COMPENSATION
Compensation for fiscal year ended November 30, 2017
Fees earned
Stock
Name
or paid in
awards
Option
awards
Non-equity
deferred
All other
incentive plan
compensation
compensation
Total
($)
Non-qualifies
cash
($)
($)
($)
compensation
earnings
($)
($)
($)
Steven Feldman
2,500
James Lentz
2,500
-
-
-
-
-
-
-
-
-
-
2,500
2,500
Indemnification of Directors and Officers
The Company's Certificate of Incorporation limits personal liability for breach of fiduciary duty by its directors to
the fullest extent permitted by the Delaware General Corporation Law (the "Delaware Law"). Such Certificate
eliminates the personal liability of directors to the Company and its shareholders for damages occasioned by
breach of fiduciary duty, except for liability based on breach of the director's duty of loyalty to the Company,
liability for acts or omissions not made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payments or improper dividends, liability based on violation of state securities laws,
and liability for acts occurring prior to the date such provision was added. Any amendment to or repeal of such
provisions in the Company's Certificate of Incorporation shall not adversely affect any right or protection of a
director of the Company for with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
In addition to the Delaware Law, the Company's Bylaws provide that officers and directors of the Company have
the right to indemnification from the Company for liability arising out of certain actions to the fullest extent
permissible by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act")
may be permitted to directors, officers or persons controlling the Company pursuant to such indemnification
provisions, the Company has been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is therefore unenforceable.
- 37 -
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth as of February 22, 2018 the record and beneficial ownership of Common Stock held
by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the Common
Stock of the Company; (ii) each current director; (iii) each "named executive officer" (as defined in Regulation S-
B, Item 402 under the Securities Act of 1933); and (iv) all executive officers and directors of the Company as a
group. Securities reported as "beneficially owned" include those for which the named persons may exercise voting
power or investment power, alone or with others. Voting power and investment power are not shared with others
unless so stated. The number and percent of shares of Common Stock of the Company beneficially owned by each
such person as of February 22, 2018 includes the number of shares which such person has the right to acquire
within sixty (60) days after such date.
Name and Address
Michael W. Evans
500 Lake Cook Road, Suite 475
Deerfield, IL 60015
Michael K. Murtaugh
500 Lake Cook Road, Suite 475
Deerfield, IL 60015
Geraldine Conn
500 Lake Cook Road, Suite 475
Deerfield, IL 60015
Steven G. Feldman
1101 W Adams
Chicago, IL 60607
James A. Lentz
1415 College Lane South
Wheaton, IL 60189
Shares
1,463,579 (1)(2)
Percentage
20.15
968,054
13.33
20,300
10,000
14,932
.28
.14
.21
Executive officers and directors as a group (5 persons)
2,476,865 (1)(2)
34.10
(1) Includes 31,111 shares held by child.
(2) Includes 3,500 shares inherited by spouse.
.
- 38 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
There are no transactions between the Company and related parties, including officers and directors of the
Company. It is the Company's policy that it will not enter into any transactions with officers, directors or beneficial
owners of more than 5% of the Company's Common Stock, or any entity controlled by or under common control
with any such person, on terms less favorable to the Company than could be obtained from unaffiliated third
parties and all such transactions require the consent of the majority of disinterested members of the Board of
Directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board of Directors upon recommendation of the Audit Committee, appointed the firm Sassetti LLC,
certified public accountants, for 2017 audit and tax services.
The audit reports of Sassetti LLC on the consolidated financial statements of BAB, Inc. and Subsidiaries as of and
for the years ended November 30, 2017 and 2016 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope or accounting principles.
Audit fees relate to audit work performed on the financial statements as well as work that generally only the
independent auditor can reasonably be expected to provide, including discussions surrounding the proper
application of financial accounting and/or reporting standards and reviews of the financial statements included in
quarterly reports filed on Form 10-Q. Fees for audit services provided by Sassetti LLC in each of fiscal 2017 and
2016 were $63,400.
Tax compliance services provided by Sassetti LLC were $12,600 for each of 2017 and 2016.
During the years ended November 30, 2017 and 2016, Sassetti LLC did not perform any other services for the
Company.
Preapproval of Policies and Procedures by Audit Committee
The accountants provide a quote for services to the Audit Committee before work begins for the fiscal year. After
discussion, the Audit Committee then makes a recommendation to the Board of Directors on whether to accept the
proposal.
Percentage of Services Approved by Audit Committee
All services were approved by the Audit Committee.
- 39 -
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
(1) Financial Statements
Consolidated Balance Sheets as at November 30, 2017 and 2016 and the Consolidated Statements of
Income, Shareholders’ Equity and Cash Flows for the years ended November 30, 2017 and 2016 are
reported on by Sassetti LLC. These statements are prepared in accordance with United States GAAP.
(2) Financial Statement Schedules - none
.
(b) INDEX TO EXHIBITS
The following Exhibits are filed herewith or incorporated by reference:
INDEX NUMBER
3.1
3.2
4.1
10.1
10.2
21.1
31.1, 31.2
32.1, 32.2
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
*XBRL
DESCRIPTION
Articles of Incorporation (See Form 10-KSB for year ended November 30, 2006)
Bylaws of the Company (See Form 10-KSB for year ended November 30, 2006)
Preferred Shares Rights Agreement (See Form 8-K filed May 6, 2013 and as amended
June 18, 2014, August 18, 2015)
Long-Term Debt (Stock Redemption Agreement)(See Form 10-K filed February 24,
2016)
Long-Term Incentive and Stock Option Plan (See Form 10-K filed February 24, 2016)
List of Subsidiaries of the Company
Section 302 of the Sarbanes-Oxley Act of 2002
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation
XBRL Taxonomy Extension Definition
XBRL Taxonomy Extension Labels
XBRL Taxonomy Extension Presentation
Information is furnished and not filed or a part of a registration statement or prospectus
For purpose of sections 110 or 12 of the Securities Act of 1933, as amended is deemed
not filed for purposes of section 18 of the Securities Exchange Act of 1934, as
amended, and otherwise is not subject to liability under these sections.
- 40 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BAB, INC.
By /s/ Michael W. Evans
Michael W. Evans, Director, Chief Executive Officer and President (Principal Executive Officer)
Dated: February 26, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed
below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Dated: February 26, 2018
By /s/ Michael W. Evans
Michael W. Evans, Director, Chief Executive Officer and President (Principal Executive Officer)
Dated: February 26, 2018
By /s/ Michael K. Murtaugh
Michael K. Murtaugh, Director and Vice President/General Counsel and Secretary
Dated: February 26, 2018
By /s/ Geraldine Conn
Geraldine Conn, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Dated: February 26, 2018
By /s/ Steven G. Feldman
Steven G. Feldman, Director
Dated: February 26, 2018
By /s/ James A. Lentz
James A. Lentz, Director
EXHIBIT 21.1 – List of Subsidiaries of the Company
BAB Systems, Inc., an Illinois corporation
BAB Operations, Inc., an Illinois corporation
BAB Investments, Inc., an Illinois corporation
- 41 -
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 annual report on Form 10-K 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: February 26, 2018
By / s/ Michael W. Evans
Michael W. Evans, Chief Executive Officer
- 42 -
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 annual report on Form 10-K 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: February 26, 2018
By: /s/ Geraldine Conn
Geraldine Conn, Chief Financial Officer
- 43 -
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") Annual Report on Form 10-K for the period ended November
30, 2017, 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: February 26, 2018 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") Annual Report on Form 10-K for the period ended November
30, 2017, 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: February 26, 2018 By: /s/ Geraldine Conn
Geraldine Conn, Chief Financial Officer
- 44 -