BAB, INC. Annual Report 2018

Plain-text annual report

1 BAB, Inc.Project Type: 10-KEDGAR Submission ProofCreated At: 2/25/2019 12:45:56 PM ESTSubmission Information Submission Type10-KContact NameRDG FilingsContact Phone1-415-643-6080Exchange(s)NONEFiler CIK0001123596Filer CCC********Reporting Period11/30/2018Well Known Seasoned Issuer?FalseVoluntary Filer?FalseSmaller Reporting Company?TrueAccelerated Filer StatusNot ApplicableShell Company?FalseDocuments 10-KFORM 10-KEX-21.1Exhibit 21.1EX-31.1Exhibit 31.1EX-31.2Exhibit 31.2EX-32.1Exhibit 32.1EX-32.2Exhibit 32.2GRAPHICsassettilogo01.jpgGRAPHICs1.jpgFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST11 U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2018 [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number: 0-31555 BAB, Inc. (Exact name of registrant as specified in its charter) Delaware36-4389547(State or other jurisdiction of incorporation)(IRS Employer or organization Identification No.) 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 theAct: Title of each class Name of exchange on which registeredCommon Stock NASDAQ/OTC Securities registered pursuant to Section 12(g) of the Act:None (Title of Class) 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 thepreceding 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 past90 days. [X] Yes [ ] No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-Tduring the preceding 12 months (or for such shorter period that the registrant was required to submit 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 ofregistrant’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, smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer[ ] Accelerated filer[ ]Non-accelerated filer[ ] Smaller reporting company[X] Emerging growth company[ ] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] 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: $2,173,331. 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 fiscalquarter was: $3,350,650 based on 4,786,643 shares held by nonaffiliates as of May 31, 2018; Closing price ($0.70) for said shares in the NASDAQ OTCQB Marketplace asof 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 ofFebruary 25, 2019. DOCUMENTS INCORPORATED BY REFERENCESee index to exhibits Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST22 FORM 10-K INDEX PART I Item 1.Business3Item 1A.Risk Factors7Item 1B.Unresolved Staff Comments7Item 2. Properties 7Item 3.Legal Proceedings7Item 4. Mine Safety Disclosures7PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities8Item 6.Selected Financial Data9Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 9Item 7A.Quantitative and Qualitative Disclosures About Market Risk15Item 8. Financial Statements and Supplementary Data16Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure35Item 9A.Controls and Procedures35Item 9B.Other Information35PART III Item 10.Directors, Executive Officers and Corporate Governance 36Item 11. Executive Compensation38Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 40Item 13.Certain Relationships, Related Transactions and Director Independence41Item 14.Principal Accountant Fees and Services41PART IV Item 15.Exhibits and Financial Statement Schedules42 - 2 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST33 PART I ITEM 1. BUSINESS 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 inBAB 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, primarilyto operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were acquired in 1999, and any brandedwholesale 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 unitsunder the BAB and MFM trade names. At November 30, 2018, the Company had 76 franchise units and 4 licensed units in operation in 22 states and the United ArabEmirates. There are 4 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee throughnontraditional channels of distribution including under a licensing agreement with Green Beans Coffee. Beginning in December 2017, a majority of franchise signage andpoint of sale materials was outsourced to a printer that provides consistency and convenience to the franchisees, prior to December 2017, Sign Shop revenue wasincluded in licensing and other income. The BAB franchised brand consists of units operating as “Big Apple Bagels®,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagelsandwiches and other related products. BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operatingas “My Favorite Muffin Gourmet Muffin Bakery™” (“MFM Bakery”), featuring a large variety of freshly baked muffins and coffees and units operating as “My FavoriteMuffin Your All Day Bakery Café®” (“MFM Cafe”) featuring these products as well as a variety of specialty bagel sandwiches and related products. The SweetDuet®is a branded self-serve frozen yogurt that can be added as an additional brand in a BAB or MFM location. Although the Company doesn't actively market Brewster'sstand-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 inexisting MFM units. The Company expects to continue to realize efficiencies in servicing the combined base of BAB and MFM franchisees. Net IncomeThe Company reported net income of $508,000 and $454,000 for the years ended November 30, 2018 and 2017, respectively. Food Service IndustryFood service businesses are often affected by changes in consumer tastes; national, regional, and local economic conditions; demographic trends; traffic patterns; andthe type, number and location of competing restaurants. Multi-unit food service chains, such as the Company's, can also be substantially adversely affected bypublicity 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 theavailability, 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 ingeneral and the Company's results of operations and financial condition in particular. - 3 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST44 CUSTOMERS The Company’s franchisees represent a varied geographic and demographic group. Among some of the primary services the Company provides to its franchisees aremarketing assistance, training, time-tested successful recipes, bulk purchasing discounts, food service knowledgeable personnel and brand recognition. 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 notdependent 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 76 franchised locations and 4 licensed units in 22 states and the United Arab Emirates. There are 4 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 wideassortment of breakfast and lunch bagel sandwiches, salads, soups, various dessert items, fruit smoothies, gourmet coffees and other beverages. A typical BAB storeis 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 approximately1,800 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 typicallysmaller 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 generallyconsistent. MY FAVORITE MUFFIN®--MFM franchised stores bake 20 to 25 varieties of muffins daily from over 125 recipes. They also serve gourmet coffees, beverages and, atMFM Cafe locations, a variety of bagels, bagel sandwiches and related products. A typical MFM store is in an area with a mix of both residential and commercialproperties and rages from 1,500 to 2,000 square feet. The typical MFM Café store design is approximately 1,800 square feet, with seating capacity for 20 to 30 persons.The MFM Bakery is approximately 1,500 square feet, with seating for 10 to 12 persons and typically sells only muffins and coffee. Although franchise stores may vary insize from other franchise stores, store layout is generally consistent. SWEETDUET®--SD The Company has one SweetDuet franchised store which offers frozen yogurt and various toppings from which customers prepare their ownyogurt creations. They also serve My Favorite Muffin® gourmet muffins and Brewster’s® Coffee. Beginning in 2014, the SweetDuet concept is available as an addedbrand 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 thefranchised 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 membersof a marketing fund requiring an ongoing 3% contribution for general system-wide marketing. BAB currently requires a franchise fee of $25,000 on a franchisee's first fullproduction BAB 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 is$20,000. MFM currently requires a franchise fee of $30,000 on a franchisee's first full production MFM store. The fee for subsequent production stores for MFM is$25,000. - 4 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST55 Beginning in 2014, the SD concept is available at no additional charge as an added brand to a BAB or MFM location. The Company's current Franchise Disclosure Documents (“FDD”) provides for, among other things, the opportunity for prospective franchisees to enter into aPreliminary 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 thisPreliminary Agreement is $10,000. If a prospective franchisee fails to submit a site to Corporate in the designated timeframe, the preliminary agreement may be terminatedand the fee is nonrefundable. If the prospective franchisee submits in writing, the request to terminate the agreement within the required timeframe, prior to submitting asite for approval Corporate will issue a refund of the preliminary fee less $3,000. If the prospective franchisee submits one site for approval that is not approved byCorporate, Corporate may, at its sole discretion either grant an extension to the above referenced 60 day period or terminate the Preliminary Agreement and refund thepreliminary fee less $3,000. If a site is approved, the entire $10,000 will be applied toward the initial franchise fee. See also last paragraph under "GovernmentRegulation" 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 FranchiseAgreement 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 FranchiseAgreement. The Company will recognize revenue over the contract life upon a signed and completed franchise agreement for a Master Franchise Agreement (“MFA”). The revenuefor 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 determinedby the contract. The Company currently advertises its franchising opportunities in directories, newspapers and the internet. In addition, prospective franchisees contact the Companyas 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. TheCompany believes that because the industry is extremely fragmented, there is a significant opportunity for expansion in the bagel, muffin, frozen yogurt and coffeeconcept 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, whichoperates Einstein Bros. Bagels. There are several other regional bagel chains with fewer than 50 stores, as well as numerous small, independently owned bagel bakeriesand 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 themuffin 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 greaterproduct and name recognition and larger financial, marketing and distribution capabilities than the Company. The Company believes the startup costs associated withopening 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 believesare important factors to its targeted customers. Competition in the food service industry is often affected by changes in consumer tastes, national, regional and localeconomic and real estate conditions, demographic trends, traffic patterns, the cost and availability of labor, consumer purchasing power, availability of product and localcompetitive 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 theCompany and some or all of its franchisees to be adversely affected. - 5 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST66 The Company competes for qualified franchisees with a wide variety of investment opportunities in the restaurant business, as well as other industries. Investmentopportunities in the bagel bakery cafe business include franchises offered by Einstein Noah Restaurant Group, Panera Bread Company and opportunities in the frozenyogurt business, including Red Mango, Yogurtland and TCBY. The Company's continued success is dependent on its reputation for providing high quality and valuewith respect to its service, products and franchises. This reputation is affected by the performance of its franchise stores and licensed units that sell branded productsover which the Company has limited control. 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 ofthese 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 intheir 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 suchrestriction 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 adverselyaffected. The trademarks and service marks "Big Apple Bagels®," "My Favorite Muffin®," “SweetDuet®”and "Brewster's® Coffee" are registered under applicablefederal trademark law. These marks are licensed by the Company to its franchisees pursuant to Franchise Agreements. In February 1999, the Company acquired thetrademark of "Jacobs Bros. Bagels®" upon purchasing certain assets of Jacobs Bros. The "Jacobs Bros. Bagels®" mark is also registered under applicable federaltrademark 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'snames 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 thenames 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 anyinfringement 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 ConcerningFranchising'' (the "Amended FTC Franchise Rule") and state and local laws and regulations that govern the offer, sale and termination of franchises and the refusal torenew franchises. Continued compliance with these broad federal, state and local regulatory networks is essential and costly. The failure to comply with suchregulations may have a material adverse effect on the Company and its franchisees. Violations of franchising laws and/or state laws and regulations regulatingsubstantive 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 rescissionoffers, monetary damages, penalties, imprisonment and/or injunctive proceedings. In addition, under court decisions in certain states, absolute vicarious liability may beimposed upon franchisors based upon claims made against franchisees. Even if the Company is able to obtain insurance coverage for such claims, there can be noassurance that such insurance will be sufficient to cover potential claims against the Company. The Company and its franchisees are required to comply with federal, state and local government regulations applicable to consumer food service businesses, includingthose relating to the preparation and sale of food, minimum wage requirements, overtime, working and safety conditions, citizenship requirements, as well as regulationsrelating to zoning, construction, health and business licensing. Each store is subject to regulation by federal agencies and to licensing and regulation by state and localhealth, sanitation, safety, fire and other departments. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a newCompany-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 butessential, and failure to comply may have an adverse effect on the Company and its franchisees. - 6 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST77 The Company's franchising operations are subject to regulation by the FTC under the Amended FTC Franchise Rule which requires, among other things, that theCompany prepare and periodically update a comprehensive disclosure document known as a Franchise Disclosure Document (“FDD”) in connection with the sale andoperation 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 FDDs, together with any applicable state versions or supplements, comply with both the FTC guidelines and all applicable state lawsregulating franchising in those states in which it has offered franchises. The Company is also subject to a number of state laws, as well as foreign laws (to the extent it offers franchises outside of the United States), that regulate substantiveaspects of the franchisor-franchisee relationship, including, but not limited to, those concerning termination and non-renewal of a franchise. EMPLOYEES As of November 30, 2018, the Company employed 13 full time persons in the Corporate headquarters. The employees are responsible for corporate management andoversight, franchising, accounting, advertising and operations. None of the Company's employees are subject to any collective bargaining agreements and managementconsiders 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 5,300 square feet, is located in Deerfield, Illinois and is leased. A lease was signed in June of 2018,effective October 1, 2018, expiring on March 31, 2024 with an option to renew for a 5 year period. 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 suchproceedings 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 onour 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 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST88 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 forthe two years ended November 30, 2018 and 2017. The Company's common stock is traded on the NASDAQ OTCQB Marketplace under the symbol "BABB." Year Ended: November 30, 2018LowHighFirst quarter0.630.72Second quarter0.650.74Third quarter0.650.72Fourth quarter0.660.71 Year Ended: November 30, 2017LowHighFirst quarter0.730.88Second quarter0.690.83Third quarter0.690.78Fourth quarter0.610.82 As of February 15, 2019, the Company's Common Stock was held by 138 holders of record. Registered ownership includes nominees who may hold securities on behalfof multiple beneficial owners. The Company estimates that the number of beneficial owners of its common stock at February 15, 2019, is approximately 1,000 based uponinformation provided by a proxy services firm. CASH DISTRIBUTION AND DIVIDEND POLICY On December 6, 2018, a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 11, 2019. The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 7, June 4 and September 4, 2018, paid April 13, July 6, and October 2,2018, respectively. The Board of Directors declared a cash distribution/dividend on March 15, June 7 and September 7, 2017 of $0.01 per share, paid April 20, July 13, and October 13, 2017,respectively. 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. 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 commonstock 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 toadjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement, dated May 6, 2013, between the Company and IST ShareholderServices, 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 significantpenalty 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 theCommon 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 difficulta merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement northe Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board. - 8 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST99 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 IllinoisStock Transfer Company. All original rights and provisions remain unchanged. On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreementchanging 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 May22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights andprovisions remain the same. ITEM 6. SELECTED FINANCIAL DATA Not required for smaller reporting companies. 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 andAnalysis of Financial Condition and Results of Operations, including statements regarding the development of the Company's business, the markets for the Company'sproducts, anticipated capital expenditures, and the effects of completed and proposed acquisitions, and other statements and disclosures contained herein andthroughout this Annual Report regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Private Securities LitigationReform Act of 1995). In such cases, we may use words such as "believe," "intend," "expect," "anticipate" and the like. Because such statements include risks anduncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Certain risks and uncertainties are wholly orpartially outside the control of the Company and its management, including its ability to attract new franchisees; the continued success of current franchisees; theeffects of competition on franchisee store results; consumer acceptance of the Company's products in new and existing markets; fluctuation in development andoperating costs; brand awareness; availability and terms of capital; adverse publicity; acceptance of new product offerings; availability of locations and terms of sitesfor store development; food, labor and employee benefit costs; changes in government regulation (including increases in the minimum wage); regional economic andweather 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 orcircumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL The Company has 76 franchised and 4 licensed units with 4 units under development at the end of 2018. Units in operation and under development at the end of 2017included 82 franchised and 3 licensed units and 2 units under development. System-wide revenues were $33.8 million in 2018 and $35.0 million in 2017. 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 alicensing agreement with Green Beans Coffee. Beginning in December 2017, a majority of franchise signage and point of sale materials was outsourced to a printer thatprovides consistency and convenience to the franchisees, and prior to December 2017, Sign Shop revenue was included in licensing and other income. - 9 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1010 YEAR 2018 COMPARED TO YEAR 2017 Total revenues from all sources decreased $48,000, or 2.2%, to $2,173,000 in 2017 from $2,221,000 in the prior year due to a decrease in royalty revenue of $62,000, adecrease in franchisee fee revenue of $16,000, offset by an increase in licensing fees and other income of $30,000. Royalty revenue from franchise stores decreased $62,000, or 3.6%, to $1,665,000 in 2018 as compared to $1,727,000 in 2017. Franchise fee revenue decreased $16,000, or32.0%, to $34,000 in 2018 versus $50,000 in 2017. During fiscal 2018 there were 6 transfers, compared to 2 store openings and 2 transfers in 2017. Licensing fees andother income increased $30,000, or 6.8%, to $474,000 in 2018 compared to $444,000 in 2017. The increase in licensing and other income was primarily due to an increaseof $184,000 in settlement and other income, offset by a decrease of $55,000 for Sign Shop revenues and $99,000 in nontraditional revenues in 2018 as compared to 2017. Total operating expenses in 2018 were $1,636,000, or 75.3% of revenues, compared to $1,761,000, or 79.3% of revenues in 2017. Total operating expenses decreased$125,000, or 7.1%, in 2018 compared to 2017. The decrease in operating expenses of $125,000 in 2018 was primarily due to a decrease in payroll of $45,000 and employee benefit expense of $30,000 for 2018. Inaddition, occupancy expense decreased in 2018 by $24,000 due to a reduction in square footage of the Corporate office space in October and November. There was alsoa decrease in advertising and promotions of $10,000, a decrease in legal expenses of $4,000, a decrease in franchise development and compliance of $25,000, a decreasein Sign Shop expenses for cost of goods and obsolete inventory of $26,000 and a decrease in depreciation and amortization of $10,000. These expenses were offset by anincrease in bad debt expense of $27,000 and an increase in general expenses of $22,000. Interest income was less than $1,000 in 2018 and 2017. There was an income tax expense of $30,000 in 2018 compared to an expense of $6,000 in 2017. Net income totaled $508,000 or 23.4% of revenue in 2018 as compared to $454,000 or 20.4%, of revenue in the prior year. Earnings per share for basic and dilutedoutstanding shares in 2018 and 2017 are $.07 and $.06, respectively. LIQUIDITY AND CAPITAL RESOURCES At November 30, 2018, the Company had working capital of $756,000 and unrestricted cash of $1,065,000. At November 30, 2017, the Company had working capital of$648,000 and unrestricted cash of $793,000. During fiscal 2018, the Company had net income of $508,000 and operating activities which provided cash of $642,000. The principal adjustments to reconcile net incometo cash provided by operating activities were depreciation and amortization of $1,000, the provision for uncollectible accounts of $21,000 and noncash lease expense of$17,000. In addition, changes in other operating assets and liabilities increased a total of $94,000. During fiscal 2017, the Company had net income of $454,000 andoperating activities which provided cash of $260,000. The principal adjustments to reconcile net income to cash provided by operating activities were depreciation andamortization 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 2018, the Company used $6,000 for investing activities for equipment purchases and trademark renewal. During fiscal 2017, the Company used $11,000 forinvesting activities for trademark renewals. For financing activities in fiscal 2018 and 2017, $363,000 was used for cash distributions/dividend payments to common stockholders. - 10 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1111 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 cashdistributions/dividends will be considered based on profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. It isthe Company’s intent going forward to declare and pay cash distributions/dividends on a quarterly basis if warranted. On December 6, 2018, a $0.01 quarterly and a $0.02special cash distribution/dividend per share was declared and paid on January 11, 2019. 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 futurecapital investments. The Company has no outstanding debt at November 30, 2018. OFF BALANCE SHEET ARRANGEMENTS The Company has no off balance sheet arrangements. 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 financialstatements included herein). While all of the significant accounting policies impact the Company's Consolidated Financial Statements, some of the policies may beviewed 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 operationsand that require management's most difficult, subjective and/or complex judgments and estimates. Management bases its judgments and estimates on historicalexperience and various other factors that are believed to be reasonable under the circumstances. The results of judgments and estimates form the basis for makingjudgments about the Company's value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates underdifferent assumptions or conditions. Management believes the following are its most critical accounting policies because they require more significant judgments andestimates 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 usingactual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis basedon actual numbers from reports received from franchisees shortly after the month-end. Estimates are utilized in certain instances where actual numbers have not beenreceived 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 isrecognized. 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 anonrefundable 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 froma third-party commercial bakery to the franchised and licensed units. - 11 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1212 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 extendthe 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 3to 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 morefrequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the first quarter. During thequarter ended February 28, 2018, management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in thisassessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in managementand 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 valueof a reporting unit is less than its carrying value, a quantitative assessment is then performed. Based on a qualitative evaluation, management determined that thecarrying value of goodwill was not impaired at February 28, 2018, and a quantitative assessment was not considered necessary. Management reviewed the qualitative assessment conducted during the first quarter 2018 at year end and does not believe that any impairment exists at November 30,2018. Concentrations of Credit Risk Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of royalty and wholesaleaccounts receivables. The Company believes it has maintained adequate reserves for doubtful accounts. The Company reviews the collectibility of receivablesperiodically 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, 2018 the Company has net operating loss carryforwards of approximately $2,267,000 expiring between 2019 and 2029 for U.S. federal income taxpurposes. The Company routinely reviews the future realization of tax assets based on projected future reversals of taxable temporary differences, available tax planningstrategies and projected future taxable income. A valuation allowance has been established for $116,000 and $457,000 as of November 30, 2018 and 2017, respectively, forthe 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. 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 taxrate from 35% to 21%. This rate reduction resulted in a significant decrease in our provisions for income taxes for the year ended November 30, 2018. The change in thevaluation allowance was $341,000, of which $196,000 was related to the change in the federal tax rate. - 12 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1313 Leases We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, andoperating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-termliabilities on our consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term atcommencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencementdate in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives andinitial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leaseexpense for minimum lease payments is recognized on a straight-line basis over the lease term. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipmentleases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. Gift Card Policy Included in accounts payable and accrued expenses at November 30, 2018 and 2017 were liabilities of $146,300 and $156,400, respectively for unredeemed gift cards. Wereduce the liability for gift cards when redeemed by a franchisee. If a gift card is not redeemed, we recognize revenue when the likelihood of its redemption becomesremote, generally 6 years from the date of issuance. Recent Accounting Pronouncements 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 allleases 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. Lessoraccounting 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, directfinancing 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 ispermitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliestcomparative period presented. The Company early adopted this standard at the commencement of the new lease beginning October 1, 2018. The Company hasclassified the new office lease as an operating lease. The adoption of ASU No. 2016-02 increased the Company’s total assets and liabilities by $494,000 based on adiscounted calculation of the future lease payments. A discount rate of 5.25% was used for the present value calculation of the future lease payments. The results on itsoperations is equal to amortization of the asset, net of the present value discount, on a straight line basis over the lease term. - 13 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1414 Recent Accounting Pronouncements (continued) Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, includingthose that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built onthe 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 partiesin 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 thecustomer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations inthe contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use morejudgment 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 priceattributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. We have evaluated franchise fees andhave determined that under the new standard the franchise fee is not separate and distinct from the overall franchise right. Franchise fees received will be recorded asdeferred revenue and recognized as revenue over the term of each respective franchise agreement, typically 10 years. Under previous GAAP standards, franchise feesand costs associated with opening a franchise location were netted and the balance of the franchise fee was recognized when the location was opened for business.Upon adoption of Topic 606 in fiscal 2019 franchise fees less nonspecific expenses will be amortized over the life of the franchise contract and specific expenses beingrecognized immediately. This new standard, as compared to previous years will decrease franchise fee revenue by approximately $20,000 and $25,000 for each BAB andMFM location opened, respectively. The retrospective adjustment to franchise fee revenue for 2019 will increase franchise revenue by approximately $14,000 and thecumulative adjustment as of December 1, 2018 will reduce retained earnings by approximately $83,000. In addition, we have evaluated the impact of our franchise contributions to and subsequent expenditures from our marketing fund. We act as an agent in regard to thesefranchisee contributions and expenditures and under prior GAAP standards, we have not currently included them in our Consolidated Statements of Income. Uponadoption of Topic 606, we have determined we are the principal in these arrangements and under the new standard we will include them as revenue and expense items. Additionally, we have determined that the advertising services provided to franchisees are highly interrelated with the franchise right and therefore not distinct.Franchisees remit to us a percentage of restaurant sales as consideration for providing the advertising services. As a result, revenues for advertising services arerecognized when the related sales occur based on the application of the sales-based royalty exception within Topic 606. We believe the approximate impact on revenuesand expenses for 2019, based on 2018 numbers, will increase both revenue and expenses by approximately $988,000. There will not be an impact on our net income. The ASU is effective for the Company, for fiscal years beginning after December 15, 2017. The Company will adopt ASU 2014-09 for fiscal year ending November 30,2019 and the Company does not believe that the impact of adoption of this guidance will have a material effect on the Company’s financial position, cash flows or resultsof operations. - 14 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1515 Recent Accounting Pronouncements (continued) In March 2016, the Financial Accounting Standards Board issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakagefor Certain Prepaid Stored-Value Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the accounting for derecognition ofprepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of therecognized breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimateshall 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. The Companycurrently follows a policy of recognizing breakage revenue after a card has been issued and not returned for a predetermined period per the Company policy. Revenue isrecognized in the first quarter each year for breakage of prepaid stored-value products. This standard will be adopted in fiscal 2019. The Company does not believe thatadoption of this guidance will have a material impact on the Company’s financial position, cash flows or results of operations. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues TaskForce), (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amountsgenerally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents shouldbe included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU2016-18 is effective for all interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of ASU2016-18 to have a material impact on our Consolidated Statements of Cash Flows. Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of November 30, 2018 that would have or areexpected 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 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1616 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, 2018 and 2017 C o n t e n t s Report of Independent Registered Public Accounting Firm17 Consolidated Balance Sheets18 Consolidated Statements of Income19 Consolidated Statements of Stockholders’ Equity20 Consolidated Statements of Cash Flows 21 Notes to the Consolidated Financial Statements22 - 34 - 16 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1717 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors andStockholders of BAB, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of BAB, Inc. and Subsidiaries (the Company) as of November 30, 2018 and 2017, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended November 30, 2018, and the related notes(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, theconsolidated financial position of the Company as of November 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended November 30, 2018, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations ofthe Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control overfinancial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, weexpress no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in theconsolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2007. Oak Park, IllinoisFebruary 25, 2019 6611 W. North Avenue ▪ Oak Park, IL 60302 ▪ P 708.386.1433 ▪ F 708.386.0139 ▪ www.sassetti.com - 17 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1818 BAB, IncConsolidated Balance SheetsNovember 30, 2018 and 2017 2018 2017 ASSETS Current Assets Cash $1,065,265 $792,655 Restricted cash 443,962 693,425 Receivables Trade accounts and notes receivable (net of allowance for doubtful accounts of $39,377 in 2018 and $19,438in 2017) 78,012 56,342 Marketing fund contributions receivable from franchisees and stores 15,831 12,635 Inventories 3,195 19,761 Prepaid expenses and other current assets 66,295 85,770 Total Current Assets 1,672,560 1,660,588 Property, plant and equipment (net of accumulated depreciation of $155,024 in 2018 and $154,762 in 2017) 1,142 5,515 Trademarks 459,637 459,637 Goodwill 1,493,771 1,493,771 Definite lived intangible assets (net of accumulated amortization of $123,949 in 2018 and $123,398 in 2017) 9,742 - Operating Lease Right of Use 480,785 - Deferred tax asset 248,000 248,000 Total Noncurrent Assets 2,693,077 2,206,923 Total Assets $4,365,637 $3,867,511 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $38,224 $43,741 Accrued expenses and other current liabilities 296,227 243,397 Unexpended marketing fund contributions 459,413 706,856 Deferred franchise fee revenue 27,000 - Deferred licensing revenue 46,667 18,155 Current portion operating lease liability 48,635 - Total Current Liabilities 916,166 1,012,149 Long-term operating lease liability (net of current portion) 449,409 - Total Liabilities 1,365,575 1,012,149 Stockholders' Equity Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of November 30, 2018 andNovember 30, 2017 - - Preferred shares -$.001 par value; 1,000,000 Series A authorized; no shares outstanding as of November 30, 2018and November 30, 2017 - - Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 sharesoutstanding as of November 30, 2018 and November 30, 2017 13,508,257 13,508,257 Additional paid-in capital 987,034 987,034 Treasury stock (222,781) (222,781)Accumulated deficit (11,272,448) (11,417,148)Total Stockholders' Equity 3,000,062 2,855,362 Total Liabilities and Stockholders' Equity $4,365,637 $3,867,511 See accompanying notes - 18 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1919 BAB, IncConsolidated Statements of IncomeYears Ended November 30, 2018 and 2017 2018 2017 REVENUES Royalty fees from franchised stores $1,665,016 $1,726,976 Franchise fees 34,500 50,000 Licensing fees and other income 473,815 443,917 Total Revenues 2,173,331 2,220,893 OPERATING EXPENSES Selling, general and administrative expenses: Payroll and payroll-related expenses 971,830 1,017,435 Occupancy 153,614 177,592 Advertising and promotion 14,027 24,065 Professional service fees 126,050 130,323 Travel 40,312 41,271 Employee benefit expense 129,116 158,646 Depreciation and amortization 1,210 11,536 Other 199,456 200,459 Total Operating Expenses 1,635,615 1,761,327 Income from operations 537,716 459,566 Interest income 159 107 Income before provision for income taxes 537,875 459,673 Provision for income taxes Current tax expense 30,000 5,500 Net Income $507,875 $454,173 Earnings per share - Basic and Diluted $0.07 $0.06 Weighted average shares outstanding - Basic and Diluted 7,263,508 7,263,508 Cash distributions declared per share $0.05 $0.05 See accompanying notes - 19 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2020 BAB, IncConsolidated Statements of Stockholders’ EquityYears Ended November 30, 2018 and 2017 Additional Common Stock Paid-In Treasury Stock Accumulated Shares Amount Capital Shares Amount Deficit Total November 30, 2016 8,466,953 $13,508,257 $987,034 1,203,445 $(222,781) $(11,508,145) $2,764,365 Dividends Declared (363,176) (363,176) Net Income 454,173 454,173 November 30, 2017 8,466,953 $13,508,257 $987,034 1,203,445 $(222,781) $(11,417,148) $2,855,362 Dividends Declared (363,175) (363,175) Net Income 507,875 507,875 November 30, 2018 8,466,953 $13,508,257 $987,034 1,203,445 $(222,781) $(11,272,448) $3,000,062 See accompanying notes - 20 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2121 BAB, IncConsolidated Statements of Cash FlowsYears Ended November 30, 2018 and 2017 2018 2017 Operating activities Net income $507,875 $454,173 Adjustments to reconcile net income to cash flows provided by operating activities: Depreciation and amortization 1,210 11,536 Provision for uncollectible accounts, net of recoveries 20,773 (5,881)Noncash lease expense 17,259 - Changes in: Trade accounts receivable and notes receivable (42,443) 383 Restricted cash 249,463 (94,538)Marketing fund contributions receivable (3,196) (2,397)Inventories 15,762 (3,631)Prepaid expenses and other 19,475 (4,748)Accounts payable (5,517) 358 Accrued liabilities 52,830 (121,772)Unexpended marketing fund contributions (247,443) 97,476 Deferred revenue 55,512 (71,071)Net Cash Provided by Operating Activities 641,560 259,888 Investing activities Capitalization of trademark renewals (10,292) (4,455)Proceeds from sale/(purchase) of equipment 4,517 (6,718)Net Cash Used In Investing Activities (5,775) (11,173) Financing activities Cash distributions/dividends (363,175) (363,176)Net Cash Used In Financing Activities (363,175) (363,176) Net Increase/(Decrease) in Cash 272,610 (114,461) Cash, Beginning of Period 792,655 907,116 Cash, End of Period $1,065,265 $792,655 Supplemental disclosure of cash flow information: Interest paid $- $- Income taxes paid $969 $21,091 NonCash Operating Activities Right of Use Lease Asset and Liability $493,752 $- See accompanying notes - 21 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2222 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 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 inBAB 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, primarilyto operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were acquired in 1999, and any brandedwholesale 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 unitsunder the BAB, MFM and SD trade names. At November 30, 2018, the Company had 76 franchise units and four licensed units in operation in 22 states and the UnitedArab Emirates. There are 4 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee throughnontraditional channels of distribution including under a licensing agreement with Green Beans Coffee. Also, included in licensing fees and other income for fiscal 2017is the Operations Sign Shop. Beginning in December 2017, a majority of franchise signage and point of sale materials was outsourced to a printer that providesconsistency and convenience to the franchisees. 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 beeneliminated 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 makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements, 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 usingactual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis basedon actual numbers from reports received from franchisees shortly after the period-end. Estimates are utilized in certain instances where actual numbers have not beenreceived. - 22 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2323 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 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 isrecognized. 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 anonrefundable 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 aFranchise Agreement has been executed, are as follows: 2018 2017 Operating Units Franchise Owned 76 82 Licensed Units 4 3 80 85 Unopened stores with Franchise Agreements: 4 2 Total operating units and units with Franchise Agreements 84 87 License fees and other income primarily consist of license fees, Sign Shop revenues and defaulted and terminated franchise contract revenues. Revenue is recorded onan 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 forthe Sign Shop, as well as defaulted and terminated franchise contract revenue, are actual amounts. Beginning in December 2017, a majority of franchise signage andpoint of sale materials was outsourced to a printer that provides consistency and convenience to the franchisees, prior to December 2017, Sign Shop revenue wasincluded in licensing and other income. 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 operationsare immaterial. - 23 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2424 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 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 MarketingFund. Liabilities for unexpended funds received from franchisees are included as a separate line item in accrued expenses and Marketing Fund cash accounts areincluded in restricted funds in the accompanying Balance Sheet. The Marketing Fund also derives revenues from rebates paid by certain vendors on the sale of BABand MFM licensed products to franchisees. Cash As of November 30, 2018 and 2017, the Marketing Fund cash balances, which are restricted, were $444,000 and $693,000, 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 operatingand 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 andidentifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance isoutstanding 90 days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as incomewhen 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-linemethod 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, forleasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized. - 24 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2525 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 2 - Summary of Significant Accounting Policies (Continued) 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 besubject to annual impairment tests. The Companyfollows this guidance. Following the guidelines contained in ASC 350, the corporation tests goodwill and intangible assets that are not subject to amortization for impairment annually or morefrequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the first quarter. During thequarter ended February 28, 2018, management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in thisassessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in managementand 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 valueof a reporting unit is less than its carrying value, a quantitative assessment is then performed. Based on a qualitative evaluation, management determined that thecarrying value of goodwill was not impaired at February 28, 2018, and a quantitative assessment was not considered necessary. Management reviewed the qualitative assessment conducted during the first quarter 2018 at year end and does not believe that any impairment exists at November 30,2018. The net book value of goodwill and intangible assets with indefinite and definite lives are as follows: Goodwill Trademarks Definite LivedIntangibles Total Net Balance as of November 30, 2016 $1,493,771 $455,182 $9,108 $1,958,061 Additions - 4,455 - 4,455 Amortization expense - - (9,108) (9,108)Net Balance as of November 30, 2017 $1,493,771 $459,637 $- $1,953,408 Additions - - 10,292 10,292 Amortization expense - - (550) (550)Net Balance as of November 30, 2018 $1,493,771 $459,637 $9,742 $1,963,150 - 25 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2626 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 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 $14,000 and $24,000 in 2018 and 2017, respectively. Alladvertising 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 theamounts used for income tax purposes. The benefits from net operating losses carried forward may be impaired or limited in certain circumstances. In addition, avaluation 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 ofNovember 30, 2018 did not result in any positions requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax positions orother 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 adoptedany new tax positions during the fiscal year ended November 30, 2018 and believes it has filed appropriate tax returns in all jurisdictions for which it has nexus. In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, “Income Taxes (Topic 740): BalanceSheet Classification of Deferred Taxes” (“ASU 2015-17”). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheetrather than being separated into current and noncurrent. The Company has adopted ASU 2015-17 during the year ended November 30, 2018. In accordance with ASU2015-17, the deferred tax asset is classified as noncurrent on the balance sheet. 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 taxrate from 35% to 21%. This rate reduction resulted in a significant decrease in our provisions for income taxes for the year ended November 30, 2018. The Company’s income tax returns, which are filed as a consolidated return under Inc. for the years ending November 30, 2015, 2016 and 2017 are subject to examinationby the IRS and corresponding states, generally for three years after they are filed. - 26 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2727 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 2 - Summary of Significant Accounting Policies (Continued) 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 commonshares outstanding during the year to calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to thepotential dilution that could occur if options or other contracts to issue common stock were exercised and resulted in the issuance of additional common shares. 2018 2017 Numerator: Net income available to common shareholders $507,875 $454,173 Denominator: Weighted average outstanding shares Basic and diluted 7,263,508 7,263,508 Earnings per Share - Basic and diluted $0.07 $0.06 At November 30, 2018 and 2017, there are no common stock equivalents. In addition, the weighted average shares do not include any effects for potential shares relatedto the Preferred Shares Rights Agreement. 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 valuesbecause of the relatively short maturity of these instruments. The carrying value of long-term debt, including the current portion, approximate fair value based uponmarket prices for the same or similar instruments. Leases Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities,and operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-termliabilities on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term atcommencement date. As most leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date indetermining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial directcosts incurred. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leaseexpense for minimum lease payments is recognized on a straight-line basis over the lease term. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipmentleases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. - 27 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2828 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Gift Card Policy Included in accounts payable and accrued expenses at November 30, 2018 and 2017 were liabilities of $146,300 and $156,400, respectively for unredeemed gift cards. Wereduce the liability for gift cards when redeemed by a franchisee. If a gift card is not redeemed, we recognize revenue when the likelihood of its redemption becomesremote, generally 6 years from the date of issuance. Recent Accounting Pronouncements 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 allleases 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. Lessoraccounting 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, directfinancing 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 ispermitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliestcomparative period presented. The Company early adopted this standard at the commencement of the new lease beginning October 1, 2018. The Company hasclassified the new office lease as an operating lease. The adoption of ASU No. 2016-02 increased the Company’s total assets and liabilities by $494,000 based on adiscounted calculation of the future lease payments. A discount rate of 5.25% was used for the present value calculation of the future lease payments. The results on itsoperations is equal to amortization of the asset, net of the present value discount, on a straight line basis over the lease term. Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, includingthose that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built onthe 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 partiesin 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 thecustomer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations inthe contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use morejudgment 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 priceattributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. We have evaluated franchise fees andhave determined that under the new standard the franchise fee is not separate and distinct from the overall franchise right. Franchise fees received will be recorded asdeferred revenue and recognized as revenue over the term of each respective franchise agreement, typically 10 years. Under previous GAAP standards, franchise feesand costs associated with opening a franchise location were netted and the balance of the franchise fee was recognized when the location was opened for business.Upon adoption of Topic 606 in fiscal 2019 franchise fees less nonspecific expenses will be amortized over the life of the franchise contract and specific expenses beingrecognized immediately. This new standard, as compared to previous years will decrease franchise fee revenue by approximately $20,000 and $25,000 for each BAB andMFM location opened, respectively. The retrospective adjustment to franchise fee revenue for 2019 will increase franchise revenue by approximately $14,000 and thecumulative adjustment as of December 1, 2018 will reduce retained earnings by approximately $83,000. - 28 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST2929 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Recent Accounting Pronouncements (continued) In addition, we have evaluated the impact of our franchise contributions to and subsequent expenditures from our marketing fund. We act as an agent in regard to thesefranchisee contributions and expenditures and under prior GAAP standards, we have not currently included them in our Consolidated Statements of Income. Uponadoption of Topic 606, we have determined we are the principal in these arrangements and under the new standard we will include them as revenue and expense items. Additionally, we have determined that the advertising services provided to franchisees are highly interrelated with the franchise right and therefore not distinct.Franchisees remit to us a percentage of restaurant sales as consideration for providing the advertising services. As a result, revenues for advertising services arerecognized when the related sales occur based on the application of the sales-based royalty exception within Topic 606. We believe the approximate impact on revenuesand expenses for 2019, based on 2018 numbers, will increase both revenue and expenses by approximately $988,000. There will not be an impact on our net income. The ASU is effective for the Company, for fiscal years beginning after December 15, 2017. The Company will adopt ASU 2014-09 for fiscal year ending November 30,2019 and the Company does not believe that the impact of adoption of this guidance will have a material effect on the Company’s financial position, cash flows or resultsof operations. In March 2016, the Financial Accounting Standards Board issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakagefor Certain Prepaid Stored-Value Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the accounting for derecognition ofprepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of therecognized breakage amount will not subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimateshall 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. The Companycurrently follows a policy of recognizing breakage revenue after a card has been issued and not returned for a predetermined period per the Company policy. Revenue isrecognized in the first quarter each year for breakage of prepaid stored-value products. This standard will be adopted in fiscal 2019. The Company does not believe thatadoption of this guidance will have a material impact on the Company’s financial position, cash flows or results of operations. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues TaskForce), (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amountsgenerally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents shouldbe included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU2016-18 is effective for all interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We do not expect the adoption of ASU2016-18 to have a material impact on our Consolidated Statements of Cash Flows. Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of November 30, 2018 that would have or areexpected to have any significant effect on the Company’s financial position, cash flows or results of operations. - 29 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3030 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 3 – Income Taxes The components of the Company’s current (benefit)/provision for income taxes are as follows: 2018 2017 Current Federal $23,000 $4,000 State 7,000 1,500 Deferred - - Total $30,000 $5,500 The effective tax rate used to compute income tax expense and deferred tax assets and liabilities is a federal rate of 21% and a state rate of 7.11%, net of the federal taxeffect. A reconciliation of the expected income tax expense to the recorded income tax expense is as follows for the years ended November 30: 2018 2017 Federal income tax provision computed at federal statutory rate $113,705 $157,327 State income taxes, net of federal tax provision 38,497 22,905 Change in valuation allowance, tax rate and other adjustments (122,202) (174,732)Income Tax Provision $30,000 $5,500 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 taxrate from 35% to 21%. This rate reduction resulted in a significant decrease in our provisions for income taxes for the year ended November 30, 2018. The change in thevaluation allowance was $341,000, of which $196,000 was related to the change in the federal tax rate. Income tax expense does not bear a customary relationship in 2018 due to the reduction of the federal and state tax rate from 39% in 2017 to 28% in 2018. - 30 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3131 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 3 – Income Taxes (Continued) The components of the Company’s deferred tax assets and liabilities for federal and state income taxes consist of the following: 2018 2017 Deferred revenue $20,709 $7,071 Deferred rent - 7,813 Marketing Fund net contributions 124,798 270,089 Allowance for doubtful accounts and notes receivable 11,069 7,569 Accrued expenses 31,688 55,946 Operating lease liability 140,000 - Net operating loss carryforwards 637,359 1,009,553 Valuation allowance (115,824) (457,394)Total Deferred Income Tax Asset $849,799 $900,647 Depreciation and amortization $(466,650) $(652,647)Right of use lease asset (135,149) - Total Deferred Income Tax Liabilities $(601,799) $(652,647) Total Net Deferred Tax Asset $248,000 $248,000 As of November 30, 2018 the Company has net operating loss carryforwards expiring between 2019 and 2029 for U.S. federal income tax purposes of approximately$2,267,000. The Company routinely reviews the future realization of tax assets based on projected future reversals of taxable temporary differences, available taxplanning strategies and projected future taxable income. A valuation allowance has been established for $116,000 and $457,000 as of November 30, 2018 and 2017,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 notbe realized. - 31 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3232 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 4 - Stockholders’ Equity On December 6, 2018, a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 11, 2019. The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 7, June 4 and September 4, 2018, paid April 13, July 6, and October 2,2018, respectively. The Board of Directors declared a cash distribution/dividend on March 15, June 7 and September 7, 2017 of $0.01 per share, paid April 20, July 13, andOctober 13, 2017, respectively. 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. 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 thecommon 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 Companyone 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, subjectto 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 ShareholderServices, 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 significantpenalty 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 theCommon 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 difficulta merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement northe 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 IllinoisStock Transfer Company. All original rights and provisions remain unchanged. On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreementchanging 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 May22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights andprovisions remain the same. - 32 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3333 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 5 – Lease Commitments The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. A lease wassigned in June of 2018, effective October 1, 2018, expiring on March 31, 2024 with an option to renew for a 5 year period. A six month rent abatement and tenantallowance was provided in the lease, with any unused portion to be applied to base rent and the unused portion has not yet been determined. The renewal option andtenant allowance have not been included in the measurement of the lease liability. Rent expense for the years ended November 30, 2018 and 2017 was $150,000 and$174,000, respectively. Monthly rent expense is recognized on a straight-line basis over the term of the lease. At November 30, 2018 the remaining lease term was 64 months. The operatinglease is included in the balance sheet at the present value of the lease payments at a 5.25% discount rate. The discount rate was considered to be an estimate of theCompany’s incremental borrowing rate. Gross future minimum annual rental commitments as of November 30, 2018, are as follows: Undiscounted RentPayments Year Ending November 30: 2019 $71,965 2020 110,375 2021 113,024 2022 115,673 2023 118,322 Thereafter 40,176 Total Undiscounted Rent Payments 569,535 Present Value Discount (71,491)Present Value $498,044 Short-term lease liability $48,635 Long-term lease liability 449,409 Total Operating Lease Liability $498,044 - 33 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3434 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2018 and 2017 Note 6 – 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, establishingit 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 employeeearnings. The Company may also make discretionary contributions to the Plan. In fiscal 2018 and 2017 the Company’s employer match was $40,000 and $37,000,respectively. There were no Company discretionary contributions in 2018 or 2017. Note 7 – 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 suchproceedings 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 onour financial position. We know of no pending or threatened proceeding or claim to which we are or will be a party. - 34 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3535 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, 2018 and 2017, and through the dateof this Current Report, there were: (1) no disagreements between the Company and Sassetti LLC on any matters of accounting principles or practices, financial statementdisclosure 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 RegulationS-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 wereeffective (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, summarizedand 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 submitunder the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, asappropriate, 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 processdesigned by, or under the supervision of, the Chief Executive Officer and the Chief Financial Officer, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued bythe Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our controlenvironment. Based on our evaluation under the framework described above, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that theCompany’s internal controls and procedures were effective over financial reporting as of November 30, 2018. 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 ExchangeCommission 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. Wehave 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. - 35 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3636 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 ofthe 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 theyfile. 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 executiveofficers and directors were met during the year ended November 30, 2018. 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 itsentirety, 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 26 plus years of experience in business, sales and marketing as the CEO ofTechcare, 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 hisCPA 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 10years of experience in the food industry, including holding the position of Director of Franchise Training for BAB Systems, Inc. from 1992 through 1996. Mr. Lentzreceived 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 dealingdirectly with state franchise regulatory officials, for the negotiation and enforcement of franchise and area development agreements and for negotiations of acquisitionand 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 to1993. - 36 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3737 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 FinancialOfficer. She is responsible for accounting, financial reporting, risk management and human resource administration. Ms. Conn has over 25 years of accounting andfinance 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 OfficersAgePosition Held with CompanyMichael W. Evans62Chief Executive Officer, President and DirectorMichael K. Murtaugh74Vice President, General Counsel, Secretary and DirectorGeraldine Conn67Chief Financial Officer and TreasurerSteven G. Feldman62DirectorJames A. Lentz71Director AUDIT COMMITTEE 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 ofDirectors 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 forthe Charter in its entirety. - 37 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3838 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 $100,000 during years 2018and 2017 (the "Named Executive Officers"). The Company has no employment agreements with any of its executive officers. Summary Compensation Table Name and PrincipalPosition Year Salary($) Bonus($) StockAwards($) OptionsAwards ($) NonequityIncentive PlanCompensation(S) Non-qualifieddeferredCompensationearnings(S) All othercompensation($)(1)(2) Total($) Michael W. Evans2018 208,271 24,124 - - - - 9,527 241,922 President and CEO2017 232,886 - - - - - 10,961 243,847 Michael K. Murtaugh2018 150,055 17,372 - - - - 5,978 173,405 Vice President and GeneralCounsel2017 174,671 - - - - - 6,816 181,487 Geraldine Conn2018 105,000 8,500 - - - - 4,578 118,078 Chief Financial Officer2017 105,000 - - - - - 4,817 109,817 In fiscal 2018 bonuses were earned and a portion was paid and a portion waived by Mr. Evans and Mr. Murtaugh. Bonuses for Executive Officers that are Directors aredetermined using measurable financial criteria approved by the Compensation Committee including, but not limited to, company profitability levels and performance insystem-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 Company401(k) matching funds and life insurance which is provided to all employees. (1)401(k) matching funds: 2018 M. Evans $9,388; M Murtaugh $5,860; G. Conn $4,540 2017 M. Evans $9,315; M Murtaugh $6,113; G. Conn $4,200 (2)Life insurance: 2018 M. Evans $139; M. Murtaugh $118; G. Conn $38 2017 M. Evans $1,646; M. Murtaugh $703; G. Conn $617 The following tables set forth any stock or stock options awarded to executive officers that that are exercisable and not yet exercised or unexercisable as of November30, 2018: OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END Name Number ofsecuritiesunderlyingunexercisedoptions(#)Exercisable Number ofsecuritiesunderlyingunexercisedoptions(#)Unexercisable Equity incentiveplan awards:number ofsecuritiesunderlyingunexercisedunearned options(#) Optionexerciseprice($) Optionexpiration dateMichael W. Evans - - - - President and CEO - - - - Michael K. Murtaugh - - - - Vice President and General Counsel - - - - - 38 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST3939 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END(Continued) Name Number of sharesor units of stockthat have notvested(#) Market value ofshares or units ofstock that havenot vested($) Equity incentiveplan awards:number ofunearned shares,units or otherrights that havenot vested(#) Equity incentiveplan awards:market or payoutvalue of unearnedshares, units orother rights thathave not vested($) 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, 2018: DIRECTOR COMPENSATIONCompensation for fiscal year ended November 30, 2018 Name Fees earned orpaid in cash($) Stock awards($) Option awards($) Non-equityincentive plancompensation($) Non-qualifiesdeferredcompensationearnings($) All othercompensation($) Total($) Steven Feldman 2,200 - - - - - 2,200 James Lentz 2,200 - - - - - 2,200 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 GeneralCorporation Law (the "Delaware Law"). Such Certificate eliminates the personal liability of directors to the Company and its shareholders for damages occasioned bybreach 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 Incorporationshall 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 suchamendment 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 forliability 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 theopinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. - 39 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST4040 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth as of February 22, 2019 the record and beneficial ownership of Common Stock held by (i) each person who is known to the Company to bethe 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" includethose 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 othersunless so stated. The number and percent of shares of Common Stock of the Company beneficially owned by each such person as of February 22, 2019 includes thenumber of shares which such person has the right to acquire within sixty (60) days after such date. Name and Address SharesPercentageMichael W. Evans500 Lake Cook Road, Suite 475Deerfield, IL 60015 1,463,579 (1)(2)20.15 Michael K. Murtaugh500 Lake Cook Road, Suite 475Deerfield, IL 60015 968,054 13.33 Geraldine Conn500 Lake Cook Road, Suite 475Deerfield, IL 60015 20,300.28 Steven G. Feldman500 Lake Cook Road, Suite 475Deerfield, IL 60015 10,000.14 James A. Lentz1415 College Lane SouthWheaton, IL 60189 14,932.21 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. - 40 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST4141 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 intoany 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 controlwith 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 themajority 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 2018 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, 2018 and 2017 didnot 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 inquarterly reports filed on Form 10-Q. Fees for audit services provided by Sassetti LLC were $56,400 and $63,400 for fiscal 2018 and 2017, respectively. Tax compliance services provided by Sassetti LLC were $11,200 and $12,600 for fiscal 2018 and 2017, respectively. During the years ended November 30, 2018 and 2017, 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 arecommendation 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. - 41 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST4242 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, 2018 and 2017 and the Consolidated Statements of Income, Shareholders’ Equity and Cash Flows for the yearsended November 30, 2018 and 2017 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 NUMBERDESCRIPTION3.1Articles of Incorporation (See Form 10-KSB for year ended November 30, 2006) 3.2Bylaws of the Company (See Form 10-KSB for year ended November 30, 2006)4.1Preferred Shares Rights Agreement (See Form 8-K filed May 6, 2013 and as amended June 18, 2014, August 18, 2015)21.1List of Subsidiaries of the Company31.1Section 302 of the Sarbanes-Oxley Act of 200231.2Section 302 of the Sarbanes-Oxley Act of 200232.1Section 906 of the Sarbanes-Oxley Act of 200232.2Section 906 of the Sarbanes-Oxley Act of 2002101.INS*XBRL Instance101.SCH*XBRL Taxonomy Extension Schema101.CAL*XBRL Taxonomy Extension Calculation101.DEF*XBRL Taxonomy Extension Definition101.LAB*XBRL Taxonomy Extension Labels101.PRE*XBRL Taxonomy Extension Presentation *XBRLInformation 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 theSecurities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. - 42 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST4343 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 theundersigned, thereunto duly authorized. BAB, INC. By /s/ Michael W. EvansMichael W. Evans, Director, Chief Executive Officer and President (Principal Executive Officer)Dated: February 25, 2019 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 theCompany and in the capacities and on the dates indicated. Dated: February 25, 2019By /s/ Michael W. EvansMichael W. Evans, Director, Chief Executive Officer and President (Principal Executive Officer) Dated: February 25, 2019By /s/ Michael K. MurtaughMichael K. Murtaugh, Director and Vice President/General Counsel and Secretary Dated: February 25, 2019By /s/ Geraldine ConnGeraldine Conn, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Dated: February 25, 2019By /s/ Steven G. FeldmanSteven G. Feldman, Director Dated: February 25, 2019By /s/ James A. LentzJames A. Lentz, Director - 43 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST111 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 Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-21.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1111 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 statementsmade, 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 financialcondition, 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 ExchangeAct 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 registrantand have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 inaccordance 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 theeffectiveness 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 fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’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 theregistrant’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 likelyto 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 overfinancial reporting. Date: February 25, 2019By:/s/ Michael W. Evans Michael W. Evans, Chief Executive Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-21.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST11111 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 statementsmade, 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 financialcondition, 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 ExchangeAct 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 registrantand have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure 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 inaccordance 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 theeffectiveness 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 fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’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 theregistrant’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 likelyto 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 overfinancial reporting. Date: February 25, 2019By:/s/ Geraldine Conn Geraldine Conn, Chief Financial Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-21.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.2 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST111111 Exhibit 32.1 BAB, Inc.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350AS 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, 2018, as filed with the Securities and ExchangeCommission 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 adoptedpursuant 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 25, 2019By:/s/ Michael W. Evans Michael W. Evans, Chief Executive Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-21.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.2 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-32.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST1111111 Exhibit 32.2 BAB, Inc.CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350AS 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, 2018, as filed with the Securities and ExchangeCommission 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 pursuantto 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 25, 2019By:/s/ Geraldine Conn Geraldine Conn, Chief Financial Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: 10-K Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-21.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-31.2 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-32.1 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-18Document Type: EX-32.2 Document Version: TBD Project ID: 48179Sequence: Created By: Sean Martindale Created At: 2/25/2019 12:45:56 PM EST

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