BAB, INC. Annual Report 2019

Plain-text annual report

1 BAB, Inc.Project Type: 10-KEDGAR Submission ProofCreated At: 2/19/2020 1:32:28 PM ESTSubmission Information Submission Type10-KContact NameRDG FilingsContact Phone1-415-643-6080Exchange(s)NONEFiler CIK0001123596Filer CCC********Reporting Period11/30/2019Well 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 32.2GRAPHICbabs20191130_10kimg001.jpgGRAPHICbabs20191130_10kimg002.gifFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST11 U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-K (Mark one) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: November 30, 2019 ☐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 the Act:Title of each classTrading SymbolName of exchange on which registeredCommon StockBABBOTCQB 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 ☒ 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 ☒ 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. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). ☒ Yes ☐ No 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 ☒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 ☒ State issuer's revenues for its most recent fiscal year: $3,069,692. 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: $3,781,450 based on 4,786,643 shares held by nonaffiliates as of May 31, 2019; Closing price ($0.79) 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 24, 2020. DOCUMENTS INCORPORATED BY REFERENCESee index to exhibits Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST22 FORM 10-K INDEX PART I Item 1.Business3 Item 1A.Risk Factors7 Item 1B.Unresolved Staff Comments7 Item 2. Properties 7 Item 3.Legal Proceedings 7 Item 4. Mine Safety Disclosures7 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities8 Item 6.Selected Financial Data9 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7A.Quantitative and Qualitative Disclosures About Market Risk14 Item 8. Financial Statements and Supplementary Data15 Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure36 Item 9A.Controls and Procedures36 Item 9B.Other Information36 PART III Item 10.Directors, Executive Officers and Corporate Governance 37 Item 11. Executive Compensation39 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 41 Item 13.Certain Relationships, Related Transactions and Director Independence42 Item 14.Principal Accountant Fees and Services42 PART IV Item 15.Exhibits and Financial Statement Schedules43 - 2 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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, MFM and SD trade names. At November 30, 2019, the Company had 72 franchise units and 7 licensed units in operation in 23 states and the UnitedArab Emirates. There are 2 units under development. The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchiseesand from receipt of initial franchise fees. Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagelscream cheese and Brewster's coffee) to franchisees, licensees and other approved customers. 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 location. Although the Company doesn't actively market Brewster's stand-alonefranchises, 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 $449,000 and $508,000 for the years ended November 30, 2019 and 2018, 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 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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 72 franchised locations and 7 licensed units in 23 states and the United Arab Emirates. There are 2 units under development. STORE OPERATIONS BIG APPLE BAGELS®--BAB franchised stores bake a variety of fresh bagels daily and offer up to 11 flavors of cream cheese spreads. Stores also offer a 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 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST55 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 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 and coffee concept chains. The Company believes the primary direct competitors of its bagel units are Panera Bread Company, Bruegger's Bagel Bakery and Einstein Noah Restaurant Group, 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. Additionally, the Company competes directly with a number of national, regional and local coffeecompetitors. 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. 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 and Panera Bread Company. The Company's continuedsuccess is dependent on its reputation for providing high quality and value with respect to its service, products and franchises. This reputation is affected by theperformance of its franchise stores and licensed units that sell branded products over which the Company has limited control. - 5 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST66 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 applicable federaltrademark law. These marks are licensed by the Company to its franchisees pursuant to Franchise Agreements. In February 1999, the Company acquired the trademarkof "Jacobs Bros. Bagels®" upon purchasing certain assets of Jacobs Bros. The "Jacobs Bros. Bagels®" mark is also registered under applicable federal trademark law. The Company is aware of the use by other persons and entities in certain geographic areas of names and marks which are the same as, or similar to, the Company'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. 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. - 6 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST77 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, 2019, 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 may be subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of 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 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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, 2019 and 2018. The Company's common stock is traded on the NASDAQ OTCQB Marketplace under the symbol "BABB." Year Ended: November 30, 2019LowHighFirst quarter0.650.74Second quarter0.690.84Third quarter0.700.89Fourth quarter0.700.90 Year Ended: November 30, 2018LowHighFirst quarter0.630.72Second quarter0.650.74Third quarter0.650.72Fourth quarter0.660.71 As of February 17, 2020, the Company's Common Stock was held by 131 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 17, 2020, is approximately 1,000 based uponinformation provided by a proxy services firm. CASH DISTRIBUTION AND DIVIDEND POLICY On December 5, 2019, a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 9, 2020. The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 13, June 5 and September 5, 2019, paid April 18, July 10, and October 8,2019, respectively. The Board of Directors declared a cash distribution/dividend on March 7, June 4 and September 4, 2018 of $0.01 per share, paid April 13, July 6, and October 2, 2018,respectively. 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. 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 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the originalagreement. All other original rights and provisions 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 72 franchised and 7 licensed units with 2 units under development at the end of 2019. Units in operation and under development at the end of 2018included 76 franchised and 4 licensed units and 4 units under development. System-wide revenues were $33.3 million in 2019 and $33.8 million in 2018. 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) to franchisees,licensees and other approved customers. - 9 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1010 YEAR 2019 COMPARED TO YEAR 2018 Total revenues from all sources increased $897,000, or 41.3%, to $3,070,000 in 2019 from $2,173,000 in the prior year. Marketing revenue of $988,000 is included in 2019 peradoption of ASC 606. Franchise fee revenue remained the same in 2019 and 2018, royalty revenue decreased $19,000 and licensing and other revenue decreased $72,000in 2019 compared to 2018. Royalty revenue from franchise stores decreased $19,000, or 1.1%, to $1,646,000 in 2019 as compared to $1,665,000 in 2018. Franchise fee revenue remained the same for2019 versus 2018. During fiscal 2019 $14,000 is included in franchise fees per adoption of ASC 606 and there were 4 transfers in fiscal 2019 compared to 7 transfers in2018. Licensing fees and other income decreased $72,000, or 15.2%, to $402,000 in 2019 compared to $474,000 in 2018. The decrease in licensing and other income wasprimarily due to a decrease of $71,000 in settlement revenue and other income decreased $45,000, which includes a decrease in gift card revenue of $22,000 and SignShop revenue of $3,000, offset by an increase in license fee and nontraditional revenue of $44,000 in 2019 compared to 2018. Total operating expenses in 2019 were $2,596,000, or 84.6% of revenues, compared to $1,636,000, or 75.3% of revenues in 2018. Total operating expenses in 2019increased $961,000, or 58.7%, in 2019 compared to 2018. The increase in operating expenses of $961,000 in 2019 was primarily due to marketing expenses of $988,000 which are included per adoption of ASC 606 in 2019.Marketing revenues and expenses are included in the ASC 606 adoption and are equal so there is no net income impact. In addition, advertising expense increased$49,000, employee benefits expense increased $18,000, legal fees increased $4,000 and payroll and tax expense increased $2,000. This was offset by a decrease in theprovision for uncollectible accounts of $35,000, a decrease in occupancy expense of $35,000, a decrease in Sign Shop cost of goods of $13,000, a decrease in repair andmaintenance of $5,000 and decreased general expenses of $12,000 in 2019 versus 2018. Interest income was $1,000 in 2019 and less than a $1,000 in 2018. There was an income tax expense of $25,000 and $30,000 in 2019 and 2018, respectively. Net income totaled $449,000 or 14.6% of revenue in 2019 as compared to $508,000 or 23.4% (pre ASC 606 adoption), of revenue in the prior year. Earnings per share forbasic and diluted outstanding shares in 2019 and 2018 are $.06 and $.07, respectively. LIQUIDITY AND CAPITAL RESOURCES At November 30, 2019, the Company had working capital of $813,000 and unrestricted cash of $1,095,000. At November 30, 2018, the Company had working capital of$756,000 and unrestricted cash of $1,065,000. During fiscal 2019, the Company had net income of $449,000 and operating activities which provided cash of $432,000. The principal adjustments to reconcile net incometo cash provided by operating activities were depreciation and amortization of $2,000, deferred tax expense of $48,000 and noncash lease expense of $75,000, less theprovision for uncollectible accounts of $15,000. In addition, changes in other operating assets and liabilities decreased cash a total of $128,000. During fiscal 2018, theCompany had net income of $508,000 and operating activities which provided cash of $392,000. The principal adjustments to reconcile net income to cash provided byoperating activities were depreciation and amortization of $1,000, the provision for uncollectible accounts of $21,000 and noncash lease expense of $13,000. In addition,changes in other operating assets and liabilities decreased cash a total of $151,000. During fiscal 2019, the Company used $9,000 for investing activities for equipment purchases and trademark renewal. During fiscal 2018, the Company used $6,000 forinvesting activities for equipment purchases and trademark renewals. For financing activities in fiscal 2019 and 2018, $436,000 and $363,000 was used for cash distributions/dividend payments to common stockholders, respectively. - 10 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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 5, 2019, a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 9, 2020. 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, 2019. 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. 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. Goodwill and Other Intangible Assets 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, 2019, 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, 2019, and a quantitative assessment was not considered necessary. - 11 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1212 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 collectability 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, 2019 the Company has net operating loss carryforwards of approximately $1,691,000 expiring between 2020 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 $29,000 and $116,000 as of November 30, 2019 and 2018, 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. Leases The Company accounts for leases under ASC 842. Lease arrangements are determined at the inception of the contract. Operating leases are included in operating leaseright-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in propertyand equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term 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. The Company early adopted this standard at the commencement of thenew lease beginning October 1, 2018. Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers(“Topic 606”) and has since issued various amendments which provide additional clarification and implementation guidance on Topic 606. This guidance establishesprinciples for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received inexchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal 2019 using the modified retrospective transition methodand applied Topic 606 to those contracts which were not completed as of December 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at thebeginning of fiscal 2019. In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfiedperformance obligations, determining the transaction price, and allocating the transaction price. Comparative information from prior year periods has not been adjustedand continues to be reported under the accounting standards in effect for those periods under “Revenue Recognition” (“Topic 605”). Refer to Note 3 for furtherdisclosure of the impact of the new guidance. - 12 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1313 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. TheCompany adopted this new guidance on December 1, 2018 using a retrospective transition method, and restated the cash flow statement for the prior period presented. The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of November 30, 2019 and November 30, 2018 were as follows: In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The new guidance creates an exception under ASC405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakagemodel. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to theunredeemed stored value. The Company adopted this guidance effective December 1, 2018 in connection with its adoption of Topic 606, utilizing the modifiedretrospective method. Refer to Note 3 for further disclosure of the impact of the new guidance. 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 adopted Topic 606 on December 1, 2018 using the modified retrospective transition method and recorded an increase to opening accumulated deficit of$84,000. The adoption of this standard update resulted in no tax impact. The Company adopted Topic 606 only for contracts with remaining performance obligations asof December 1, 2018, under the modified retrospective transition method. Comparative information from prior year periods has not been adjusted and continues to bereported under the accounting standards in effect for those periods under Topic 605. The adoption changed the timing of recognition of initial franchise fees, development fees, the reporting of advertising fund contributions and related expenditures, aswell as timing of the recognition of gift card breakage. Detail of the timing changes in revenue recognition can be found in Note 3 of the audited financials, Item 8. Nontraditional and rebate revenue As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors. The Company may receive various fees andrebates from the vendors and distributors on product purchases by franchisees. In addition, the Company may collect various initial fees, and those fees are classifiedas deferred revenue in the balance sheet and straight lined over the life of the contract as deferred revenue in the balance sheet. The Company does not possess controlof the products prior to their transfer to the franchisee and products are delivered to franchisees directly from the vendor or their distributors. Under adoption of ASC606 the revenue recognition did not change, the Company recognizes the rebates as franchisees purchase products and supplies from vendors or distributors andrecognizes the initial fees over the contract life and the fees are reported as licensing fees and other income in the Condensed Consolidated Statements of Income. - 13 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1414 Gift Card Policy Previously, under Topic 605, the Company recognized revenue from gift cards on an annual basis in the first quarter per a management policy that was formulated basedon when the likelihood of the gift card being redeemed by the customer was remote (also referred to as “breakage”) and the Company determined that it did not have alegal obligation to remit the unredeemed gift cards to the relevant jurisdictions. The Company determined the gift card breakage amount based upon its historicalredemption patterns. Gift card breakage revenue was previously included in licensing fees and other revenue in the Condensed Consolidated Statements of Operations.Under Topic 606, the Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and it is included in licensing fees andother revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter. Detail of the timing changes inrevenue recognition can be found in Note 3 of the audited Financials Statements, Item 8. Included in accounts payable and accrued expenses at November 30, 2019 and 2018 were liabilities of $170,900 and $146,300, 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 Management does not believe that there are any recently issued and effective or not yet effective pronouncements as of November 30, 2019 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. - 14 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1515 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, 2019 and 2018 C o n t e n t s Report of Independent Registered Public Accounting Firm 16 Consolidated Balance Sheets 17 Consolidated Statements of Income 18 Consolidated Statements of Stockholders’ Equity 19 Consolidated Statements of Cash Flows 20 Notes to the Consolidated Financial Statements 21 - 35 - 15 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1616 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors andStockholders of BAB, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of BAB, Inc. (the Company) as of November 30, 2019 and 2018, and the related statements of income,stockholders’ equity, and cash flows for each of the years in the two-year period ended November 30, 2019, and the related notes (collectively referred to as the financialstatements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2019 and 2018, andthe results of its operations and its cash flows for each of the years in the two-year period ended November 30, 2019, in conformity with accounting principles generallyaccepted in the United States of America. Adoption of Revenue Recognition Standard As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue recognition for the year ended November30, 2019 using the modified retrospective approach, pursuant to the guidance in ASU No. 2014-09, Revenue from Contracts with Customers. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statementsbased on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission 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 financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financialreporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express nosuch opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overallpresentation of the 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 24, 2020 6611 W. North Avenue ▪ Oak Park, IL 60302 ▪ P 708.386.1433 ▪ F 708.386.0139 ▪ www.sassetti.com - 16 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1717 BAB, IncConsolidated Balance SheetsNovember 30, 2019 and 2018 November 30, 2019 November 30, 2018 ASSETS Current Assets Cash $1,095,235 $1,065,265 Restricted cash 400,434 443,962 Receivables Trade accounts and notes receivable (net of allowance for doubtful accounts of $24,792 in 2019 and$39,377 in 2018 ) 66,870 78,012 Marketing fund contributions receivable from franchisees and stores 17,219 15,831 Prepaid expenses and other current assets 94,145 69,490 Total Current Assets 1,673,903 1,672,560 Property, plant and equipment (net of accumulated depreciation of $155,752 in 2019 and $155,024 in 2018) 3,662 1,142 Trademarks 461,445 459,637 Goodwill 1,493,771 1,493,771 Definite lived intangible assets (net of accumulated amortization of $125,278 in 2019 and $123,949 in 2018) 12,625 9,742 Operating lease right of use 384,159 480,785 Deferred tax asset 200,000 248,000 Total Noncurrent Assets 2,555,662 2,693,077 Total Assets $4,229,565 $4,365,637 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $4,195 $38,224 Accrued expenses and other current liabilities 287,414 296,227 Unexpended marketing fund contributions 416,305 459,413 Deferred franchise fee revenue 29,363 27,000 Deferred licensing revenue 31,072 46,667 Current portion operating lease liability 92,139 48,635 Total Current Liabilities 860,488 916,166 Long-term Liabilities (net of current portion) Operating lease liability 359,242 449,409 Deferred franchise revenue 72,670 - Deferred licensing revenue 7,440 - Total Long-term Liabilities 439,352 449,409 Total Liabilities $1,299,840 $1,365,575 Stockholders' Equity Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of November 30, 2019 and2018 - - Preferred shares -$.001 par value; 1,000,000 Series A authorized; no shares outstanding as of November 30,2019 and 2018 - - Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 sharesoutstanding as of November 30, 2019 and 2018 13,508,257 13,508,257 Additional paid-in capital 987,034 987,034 Treasury stock (222,781) (222,781)Accumulated deficit (11,342,785) (11,272,448)Total Stockholders' Equity 2,929,725 3,000,062 Total Liabilities and Stockholders' Equity $4,229,565 $4,365,637 See accompanying notes - 17 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1818 BAB, IncConsolidated Statements of IncomeYears Ended November 30, 2019 and 2018 2019 2018 REVENUES Royalty fees from franchised stores $1,645,639 $1,665,016 Franchise Fees 33,817 34,500 Licensing fees and other income 402,293 473,815 Marketing fund revenue 987,943 - Total Revenues 3,069,692 2,173,331 OPERATING EXPENSES Selling, general and administrative expenses: Payroll and payroll-related expenses 974,362 971,830 Occupancy 119,379 153,614 Advertising and promotion 62,487 14,027 Professional service fees 129,854 126,050 Travel 39,206 40,312 Employee benefit expenses 147,435 129,116 Depreciation and amortization 2,057 1,210 Marketing fund expenses 987,943 - Other 133,488 199,456 Total Operating Expenses 2,596,211 1,635,615 Income from operations 473,481 537,716 Interest income 612 159 Income before provision for income taxes 474,093 537,875 Provision for income taxes Current tax expense 25,000 30,000 Net Income $449,093 $507,875 Net Income per share - Basic and Diluted $0.06 $0.07 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 - 18 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST1919 BAB, IncConsolidated Statements of Stockholders’ EquityYears Ended November 30, 2019 and 2018 Additional Accumulated Common Stock Paid-In Treasury Stock Deficit Total 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 Cummulative Effect of Adoption of ASC606 (83,619) (83,619) Dividends Declared (435,811) (435,811) Net Income 449,093 449,093 November 30, 2019 8,466,953 $13,508,257 $987,034 1,203,445 $(222,781) $(11,342,785) $2,929,725 See accompanying notes - 19 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2020 BAB, IncConsolidated Statements of Cash FlowsYears Ended November 30, 2019 and 2018 November 30, 2019 November 30, 2018 Operating activities Net Income $449,093 $507,875 Adjustments to reconcile net income to cash flows provided by operating activities: Depreciation and amortization 2,057 1,210 Deferred tax expense 48,000 - Provision for uncollectible accounts, net of recoveries (14,945) 20,773 Noncash lease expense 75,423 12,967 Changes in: Trade accounts receivable and notes receivable 26,087 (42,443)Marketing fund contributions receivable (1,388) (3,196)Inventories - 15,762 Prepaid expenses and other (23,307) 19,475 Accounts payable (34,029) (5,517)Accrued liabilities (11,555) 52,830 Unexpended marketing fund contributions (43,108) (247,443)Deferred revenue (15,347) 55,512 Operating lease liability (25,460) 4,292 Net Cash Provided by Operating Activities 431,521 392,097 Investing activities Capitalization of trademark renewals (6,020) (10,292)Purchase of property (3,248) - Proceeds from sale of property and equipment - 4,517 Net Cash Used In Investing Activities (9,268) (5,775) Financing activities Cash distributions/dividends (435,811) (363,175)Net Cash Used In Financing Activities (435,811) (363,175) Net (Decrease) Increase in Cash and Restricted Cash (13,558) 23,147 Cash and Restricted Cash - Beginning of Period 1,509,227 1,486,080 Cash and Restricted Cash - End of Period $1,495,669 $1,509,227 Supplemental disclosure of cash flow information: Interest paid $- $- Income taxes paid $3,050 $969 Non cash operating activities: Tenant improvement allowance $21,203 $- Right of use lease asset and liability $- $493,752 See accompanying notes - 20 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2121 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 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, 2019, the Company had 72 franchise units and 7 licensed units in operation in 23 states and the UnitedArab Emirates. There are 2 units under development. The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchiseesand from receipt of initial franchise fees. Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagelscream cheese and Brewster's coffee) to franchisees, licensees and other approved customers. 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 location. Although the Company doesn't actively market Brewster's stand-alonefranchises, 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. 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. - 21 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2222 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) Uses of Estimates The preparation of the financial statements and accompanying notes are in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differfrom those estimates. 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. Property, Plant and Equipment Property, 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. 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 Company follows this guidance. Following the guidelines contained in ASC 350, the Company 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, 2019, 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. After determining that there were no significant changes to theCompany’s operations and overall business environment since the first quarter, management determined that the carrying value of goodwill was not impaired atNovember 30, 2019, and further analysis was not considered necessary. Management reviewed the qualitative assessment conducted during the first quarter 2019 at year end and does not believe that any impairment exists at November 30,2019. - 22 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2323 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) Goodwill and Other Intangible Assets (continued) 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, 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 Additions - 1,808 4,212 6,020 Amortization expense - - (1,329) (1,329)Net Balance as of November 30, 2019 $1,493,771 $461,445 $12,625 $1,967,841 Advertising and Promotion Costs The Company expenses advertising and promotion costs as incurred. All advertising and promotion costs were related to the Company’s franchise operations.Advertising and promotion expense was $62,000 and $14,000 in 2019 and 2018, respectively. 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, 2019 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, 2019 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 for year ended November 30, 2018. In accordance with ASU 2015-17,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, 2016, 2017 and 2018 are subject to examinationby the IRS and corresponding states, generally for three years after they are filed. - 23 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2424 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) Leases The company accounts for leases under ASC 842. Lease arrangements are determined at the inception of the contract. Operating leases are included in operating leaseright-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in propertyand equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term 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. The Company early adopted this standard at the commencement of thenew lease beginning October 1, 2018. We have elected certain practical expedients available under the guidance, including a package of practical expedients which allow us to not reassess prior conclusionsrelated to contracts containing leases, lease classification, and initial direct costs. We have also elected to not recast its comparative periods. Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers(“Topic 606”) and has since issued various amendments which provide additional clarification and implementation guidance on Topic 606. This guidance establishesprinciples for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received inexchange for those goods or services. The Company adopted this new guidance effective the first day of fiscal 2019 using the modified retrospective transition methodand applied Topic 606 to those contracts which were not completed as of December 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at thebeginning of fiscal 2019. In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfiedperformance obligations, determining the transaction price, and allocating the transaction price. Comparative information from prior year periods has not been adjustedand continues to be reported under the accounting standards in effect for those periods under “Revenue Recognition” (“Topic 605”). Refer to Note 3 for furtherdisclosure of the impact of the new guidance. In March 2016, the FASB issued ASU 2016-04, Recognition of Breakage for Certain Prepaid Stored-Value Products. The new guidance creates an exception under ASC405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakagemodel. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to theunredeemed stored value. The Company adopted this guidance effective December 1, 2018 in connection with its adoption of Topic 606, utilizing the modifiedretrospective method. Refer to Note 3 for further disclosure of the impact of the new guidance. - 24 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2525 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) 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. Statement of Cash Flows 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. TheCompany adopted this new guidance on December 1, 2018 using a retrospective transition method, and restated the cash flow statement for the prior period presented. The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of November 30, 2019 and November 30, 2018 were as follows: November 30, 2019 November 30, 2018 Cash $1,095,235 $1,065,265 Restricted cash 400,434 443,962 Total cash and restricted cash $1,495,669 $1,509,227 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. 2019 2018 Numerator: Net income available to common shareholders $449,093 $507,875 Denominator: Weighted average outstanding shares Basic and diluted 7,263,508 7,263,508 Earnings per Share - Basic and diluted $0.06 $0.07 At November 30, 2019 and 2018, 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. - 25 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2626 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) Revenue Recognition The Company adopted Topic 606 on December 1, 2018 using the modified retrospective transition method and recorded an increase to opening accumulated deficit of$84,000. The adoption of this standard update resulted in no tax impact. The Company adopted Topic 606 only for contracts with remaining performance obligations asof December 1, 2018. Comparative information from prior year periods has not been adjusted and continues to be reported under the accounting standards in effect forthose periods under Topic 605. The adoption changed the timing of recognition of initial franchise fees, development fees, the reporting of advertising fund contributions and related expenditures, aswell as timing of the recognition of gift card breakage. The cumulative effects of the changes made to the Condensed Consolidated Balance Sheets as of December 1, 2018, for the adoption of Topic 606 were as follows: Balance atNovember 30, 2018 AdjustmentsDue to ASC 606 Balance atDecember 1, 2018 Assets Other assets $66,295 $(1,348) $64,947 Liabilities Accrued gift card liability 146,290 2,742 149,032 Other current liabilities Deferred revenue 27,000 82,225 109,225 Shareholders (deficit) equity Accumulated deficit (11,272,448) (83,619) (11,356,067) The following table presents disaggregation of revenue from contracts with customers for the year ended November 30, 2019 and 2018: For fiscal yearended November 30, 2019 For year endedNovember 30, 2018 (1) Revenue recognized at a point in time Sign Shop revenue $2,409 $5,627 Settlement revenue 80,307 171,052 Total revenue at a point in time 82,716 176,679 Revenue recognized over time Royalty revenue 1,645,639 1,665,016 Franchise fees 33,817 34,500 License fees 19,875 15,000 Gift card revenue 4,494 26,260 Nontraditional revenue 295,208 255,876 Marketing fund revenue 987,943 - Total revenue over time 2,986,976 1,996,652 Grand total $3,069,692 $2,173,331 (1)As disclosed in Note 2, prior period amounts have not been adjusted under the modified retrospective method of adoption of Topic 606. - 26 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2727 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) 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. Franchise and related revenue The Company sells individual franchises. The franchise agreements typically require the franchisee to pay an initial, non-refundable fee prior to opening the respectivelocation(s), and continuing royalty fees on a weekly basis based upon a percentage of franchisee net sales. The initial term of franchise agreements are typically 10years. Subject to the Company’s approval, a franchisee may generally renew the franchise agreement upon its expiration. If approved, a franchisee may transfer afranchise agreement to a new or existing franchisee, at which point a transfer fee is typically paid by the current owner which then terminates that franchise agreement. Afranchise agreement is signed with the new franchisee with no franchise fee required. If a contract is terminated prior to its term, it is a breach of contract and a penalty isassessed based on a formula reviewed and approved by management. Revenue generated from a contract breach is termed settlement income by the Company andincluded in licensing fees and other income. Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as blueprints, operational materials,planning and functional training courses, and ongoing services, such as management of the marketing fund. Under the previous standards, initial franchise fees paid byfranchisees for each arrangement were deferred until the store opened and were recognized as revenue in their entirety on that date. Upon adoption of Topic 606, theCompany determined that certain pre-opening activities, and the franchise rights and related ongoing services, represented two separate performance obligations. Thefranchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performanceobligations related to certain pre-opening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initialfranchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed. Revenueallocated to franchise rights and ongoing services is deferred until the store opens, and recognized on a straight line basis over the duration of the agreement, as thisensures that revenue recognition aligns with the customer’s access to the franchise right. Royalty income is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur.Adoption of ASC 606 will not change when the royalty revenue is recognized. This new guidance did not impact the recognition of royalty income. There are two items involving revenue recognition of contracts that require us to make subjective judgments: the determination of which performance obligations aredistinct within the context of the overall contract and the estimated stand alone selling price of each obligation. In instances where our contract includes significantcustomization or modification services, the customization and modification services are generally combined and recorded as one distinct performance obligation. - 27 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2828 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 2 - Summary of Significant Accounting Policies (continued) Gift card breakage revenue The Company sells gift cards to its customers in its retail stores and through its Corporate office. The Company’s gift cards do not have an expiration date and are notredeemable for cash except where required by law. Revenue from gift cards is recognized upon redemption in exchange for product and reported within franchisee storerevenue and the royalty and marketing fees are paid and shown in the Condensed Consolidated Statements of Income. Until redemption, outstanding customer balancesare recorded as a liability. An obligation is recorded at the time of sale of the gift card and it is included in accrued expenses on the Company’s Condensed ConsolidatedBalance Sheets. Previously, under Topic 605, the Company recognized revenue from gift cards on an annual basis in the first quarter per a management policy that was formulated basedon when the likelihood of the gift card being redeemed by the customer was remote (also referred to as “breakage”) and the Company determined that it did not have alegal obligation to remit the unredeemed gift cards to the relevant jurisdictions. The Company determined the gift card breakage amount based upon its historicalredemption patterns. Gift card breakage revenue was previously included in licensing fees and other revenue in the Condensed Consolidated Statements of Operations.Under Topic 606, the Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and it is included in licensing fees andother revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter. Nontraditional and rebate revenue As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors. The Company may receive various fees andrebates from the vendors and distributors on product purchases by franchisees. In addition, the Company may collect various initial fees, and those fees are classifiedas deferred revenue in the balance sheet and straight lined over the life of the contract as deferred revenue in the balance sheet. The Company does not possess controlof the products prior to their transfer to the franchisee and products are delivered to franchisees directly from the vendor or their distributors. Under adoption of ASC606 the revenue recognition did not change, the Company recognizes the rebates as franchisees purchase products and supplies from vendors or distributors andrecognizes the initial fees over the contract life and the fees are reported as licensing fees and other income in the Condensed Consolidated Statements of Income. Marketing Fund Franchise agreements require the franchisee to pay continuing marketing fees on a weekly basis, based on a percentage of franchisee sales. Marketing fees are not paidon franchise wholesale sales. The balance sheet includes marketing fund cash, which is the restricted cash, accounts receivable and unexpended marketing fundcontributions. Under Topic 606, the Company has determined that although the marketing fees are not separate performance obligations distinct from the underlyingfranchise right, the Company acts as the principal as it is primarily responsible for the fulfillment and control of the marketing services. As a result, the Company recordsmarketing fees in revenues and related marketing fund expenditures in expenses in the Condensed Consolidated Statement of Income. The Company historicallypresented the net activities of the marketing fund within the balance sheet in the Condensed Consolidated Balance Sheet. While this reclassification impacts the grossamount of reported revenue and expenses the amounts will be offsetting, and there is no impact on net income. - 28 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST2929 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 3 - Revenue Recognition Contract balances Information about contract balances subject to ASC 606 is as follows: November 30, 2019 December 1, 2018 Assets Accounts receivable $58,853 $36,337 Total Assets 58,853 36,337 Liabilities Contract liabilities - current 622,724 647,594 Contract liabilities - long-term 80,110 106,948 Total Contract Liabilities $702,834 $754,542 Accounts receivable represent weekly royalty payments and monthly vendor rebate payments that represent billed and unbilled receivables due as of November 30,2019 and December 1, 2018. The balance of contract liabilities includes franchise fees, license fees and vendor payments that have ongoing contract rights and the feesare being straight lined over the contract life. Contract liabilities also include marketing fund balances and gift card liability balances. AccountsReceivable ContractLiabilities Balance at December 1, 2018 $36,337 $754,542 Revenue Recognized 671,602 (1,141,617) Amounts (collected) or invoiced, net (649,086) 1,089,909 Balance at November 30, 2019 $58,853 $702,834 Transaction price allocated to remaining performance obligations (franchise agreements and license fee agreement) for the year ended November 30: 2020 60,435 2021 17,704 2022 17,042 2023 12,348 2024 10,217 Thereafter 22,799 Total $140,545 - 29 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3030 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 3 - Revenue Recognition (continued) Contract balances (continued) The Company has elected to apply certain practical expedients as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligations that are apart of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related tounsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performanceobligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring thedistinct service. As such, sales-based royalty and marketing income, as well as gift card breakage revenue, is not included in the above transaction price chart.Additionally, the Company has applied the transition practical expedient that allows the Company to omit the above disclosures for the fiscal year November 30, 2018. Impact of the Adoption of ASC 606 The adoption changed the timing of recognition of initial franchise fees, the reporting of advertising fund contributions and related expenditures, as well as timing of therecognition of gift card breakage. In accordance with the new revenue standard requirements, the following tables summarize the effects of the new standard on the Company’s Consolidated BalanceSheet and Statement of Operations for fiscal year ended November 30, 2019. As reportedNovember 30, 2019 Effect of change Balance without ASC606 adoption Assets Prepaid expenses and other current assets $94,145 $(1,348) $95,493 Liabilities Accrued gift card liability 170,863 29,286 $141,577 Other current liabilities Deferred revenue 140,545 80,033 $60,512 Shareholders (deficit) equity Accumulated deficit (11,342,785) (107,971) $(11,234,814) - 30 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3131 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 3 - Revenue Recognition (continued) Impact of the Adoption of ASC 606 (continued) As reported fiscalNovember 30, 2019 Effect of change Balance withoutASC606 adoption Royalty revenue $1,645,639 $- $1,645,639 Franchise fees 33,817 8,817 25,000 License fees 19,875 (6,625) 26,500 Gift card revenue 4,494 (26,544) 31,038 Sign Shop revenue 2,409 - 2,409 Settlement revenue 80,307 - 80,307 Nontradtional revenue 295,208 - 295,208 Marketing fund revenue 987,943 987,943 - Net revenue 3,069,692 963,591 2,106,101 Expenses unaffected by ASC 606 1,608,268 - 1,608,268 Marketing fund expenses 987,943 987,943 - Interest (income)/expense (612) - (612)Income tax expense 25,000 - 25,000 Net expenses 2,620,599 987,943 1,632,656 Net income $449,093 $(24,352) $473,445 Note 4 - Units Open, Licensed and Under Development 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: 2019 2018 Stores open: Franchisee-owned stores 72 76 Licensed Units 7 4 79 80 Unopened stores with Franchise Agreements 2 4 Total operating units and units with Franchise Agreements 81 84 - 31 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3232 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 5 – Income Taxes The components of the Company’s current (benefit)/provision for income taxes are as follows: 2019 2018 Current Federal $(17,181) $23,000 State (5,819) 7,000 Deferred 48,000 - Total $25,000 $30,000 The decrease in the deferred tax asset was due to a change in the expected use of NOLs that will be expiring in 2020 through 2029. The reduction in current year expenseis related to a reduction in current year tax liabilities. 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: 2019 2018 Federal income tax provision computed at federal statutory rate $100,155 $113,705 State income taxes, net of federal tax provision 33,910 38,497 Change in valuation allowance, tax rate and other adjustments (109,065) (122,202)Income Tax Provision $25,000 $30,000 The components of the Company’s deferred tax assets and liabilities for federal and state income taxes consist of the following: 2019 2018 Deferred revenue $39,507 $20,709 Marketing Fund net contributions 112,562 124,798 Allowance for doubtful accounts and notes receivable 6,969 11,069 Accrued expenses 44,582 31,688 Operating lease liability 126,883 140,000 Net operating loss carryforwards 475,380 637,359 Valuation allowance (28,500) (115,824)Total Deferred Income Tax Asset $777,383 $849,799 Depreciation and amortization $(469,396) $(466,650)Right of use lease asset (107,987) (135,149)Total Deferred Income Tax Liabilities $(577,383) $(601,799) Total Net Deferred Tax Asset $200,000 $248,000 - 32 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3333 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 5 – Income Taxes (continued) As of November 30, 2019 the Company has net operating loss carryforwards of approximately $1,691,000 expiring between 2020 and 2029 for U.S. federal income taxpurposes. There are no remaining net operating loss carryforwards to be utilized for state taxes. The Company routinely reviews the future realization of tax assets basedon projected future reversals of taxable temporary differences, available tax planning strategies and projected future taxable income. A valuation allowance has beenestablished for $29,000 and $116,000 as of November 30, 2019 and 2018, respectively, for the deferred tax benefit related to those loss carryforwards that are more likelythan not that the deferred tax asset will not be realized. The Company’s income tax returns, which are filed as a consolidated return under Inc. for the years ending November 30, 2016, 2017 and 2018 are subject to examinationby the IRS and corresponding states, generally for three years after they are filed. Note 6 – Stockholders’ Equity On December 5, 2019, a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 9, 2020. The Board of Directors declared a $0.01 quarterly cash distribution/dividend per share on March 13, June 5 and September 5, 2019, paid April 18, July 10, and October 8,2019, respectively. The Board of Directors declared a cash distribution/dividend on March 7, June 4 and September 4, 2018 of $0.01 per share, paid April 13, July 6, and October 2, 2018,respectively. 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. 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. 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. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the originalagreement. All other original rights and provisions remain the same. - 33 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3434 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 7 – Recent Accounting Pronouncement Management does not believe that there are any recently issued and effective or not yet effective pronouncements as of November 30, 2019 that would have or areexpected to have any significant effect on the Company’s financial position, cash flows or results of operations. Note 8 – Lease Commitments The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. A lease 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. The unused portion was determined to be $21,300. The renewal option has notbeen included in the measurement of the lease liability. Monthly rent expense is recognized on a straight-line basis over the term of the lease. Rent expenses for fiscal 2019 and 2018 were $83,800 and $89,200, respectively. AtNovember 30, 2019 the remaining lease term was 52 months. The operating lease is included in the balance sheet at the present value of the lease payments at a 5.25%discount rate. The discount rate was considered to be an estimate of the Company’s incremental borrowing rate. Gross future minimum annual rental commitments as of November 30, 2019, are as follows: UndiscountedRent Payments Year Ending November 30: 2020 110,375 2021 113,024 2022 115,673 2023 118,322 2024 40,177 Total Undiscounted Rent Payments 497,571 Present Value Discount (46,190)Present Value $451,381 Short-term lease liability $92,139 Long-term lease liability 359,242 Total Operating Lease Liability $451,381 - 34 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3535 BAB, IncNotes to the Consolidated Financial StatementsNovember 30, 2019 and 2018 Note 9 – 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 2019 and 2018 the Company’s employer match was $40,000 and $40,000,respectively. There were no Company discretionary contributions in 2019 or 2018. Note 10 – Contingencies We may be subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of 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. - 35 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3636 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, 2019 and 2018, 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, 2019. 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. - 36 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3737 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, 2019. 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. - 37 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3838 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. Evans63Chief Executive Officer, President and DirectorMichael K. Murtaugh75Vice President, General Counsel, Secretary and DirectorGeraldine Conn68Chief Financial Officer and TreasurerSteven G. Feldman63DirectorJames A. Lentz72Director 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. - 38 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST3939 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 $100,000 during years 2019and 2018 (the "Named Executive Officers"). The Company has no employment agreements with any of its executive officers. Summary Compensation Table Name and PrincipalPosition Year Salary($) Bonus($) StockAwards($) OptionsAwards ($) NonequityIncentive PlanCompensation(S) Non-qualifieddeferredCompensationearnings(S) All othercompensation($)(1)(2) Total($)Michael W. Evans2019207,88727,000----9,395244,282President and CEO2018208,27124,124----9,527241,922 Michael K. Murtaugh2019149,67119,440----5,918175,029Vice President and GeneralCounsel2018150,05517,372----5,978173,405 Geraldine Conn2019107,9086,375----4,571118,854Chief Financial Officer2018105,0008,500----4,578118,078 In fiscal 2019 and 2018 bonuses were earned and a portion was paid and a portion waived by Mr. Evans and Mr. Murtaugh. Bonuses for Executive Officers that areDirectors are determined using measurable financial criteria approved by the Compensation Committee including, but not limited to, company profitability levels andperformance in system-wide same store sales. A bonus for the Chief Financial Officer is at the discretion of the Chief Executive Officer. All other compensation includesthe Company 401(k) matching funds and life insurance in 2018. (1)401(k) matching funds: 2019 M. Evans $9,395; M. Murtaugh $5,918; G. Conn $4,571 2018 M. Evans $9,388; M. Murtaugh $5,860; G. Conn $4,540 (2)Life insurance 2018 M. Evans $139; M. Murtaugh $118; G.Conn $38 The following tables set forth any stock or stock options awarded to executive officers that that are exercisable and not yet exercised or unexercisable as of November30, 2019: OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END NameNumber ofsecuritiesunderlyingunexercisedoptions(#)ExercisableNumber ofsecuritiesunderlyingunexercisedoptions(#)UnexercisableEquityincentive planawards: numberof securitiesunderlyingunexercisedunearnedoptions(#)Optionexerciseprice($) OptionexpirationdateMichael W. Evans---- President and CEO---- Michael K. Murtaugh---- Vice President and General Counsel---- - 39 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST4040 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END(Continued) NameNumber of sharesor units of stockthat have notvested(#)Market value ofshares or unitsof stock thathave not vested($)Equity incentiveplan awards:number ofunearned shares,units or otherrights that havenot vested(#)Equity incentiveplan awards: marketor payout value ofunearned shares,units or other rightsthat have not vested($)Michael W. Evans----President and CEO---- Michael K. Murtaugh----Vice President and General Counsel---- The following table sets forth any compensation paid to directors during fiscal year ended November 30, 2018: DIRECTOR COMPENSATIONCompensation for fiscal year ended November 30, 2019 Name Fees earned orpaid in cash($) Stock awards($) Option awards($) Non-equityincentive plancompensation($)Non-qualifiesdeferredcompensationearnings($) All othercompensation($) Total($) Steven Feldman 2,500 - - - - - 2,500 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. - 40 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST4141 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth as of February 21, 2020 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 21, 2020 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 1,432,468 (1)19.72 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) 2,445,754 (133.67 (1) Includes 3,500 shares inherited by spouse. - 41 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST4242 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 2019 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, 2019 and 2018 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 $59,400 and $56,400 for fiscal 2019 and 2018, respectively. Tax compliance services provided by Sassetti LLC were $11,200 for fiscal 2019 and 2018. During the years ended November 30, 2019 and 2018, 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. - 42 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST4343 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, 2019 and 2018 and the Consolidated Statements of Income, Shareholders’ Equity and Cash Flows for the yearsended November 30, 2019 and 2018 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 Company31.1, 31.2Section 302 of the Sarbanes-Oxley Act of 200232.1, 32.2Section 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.Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. - 43 -Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST4444 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 24, 2020 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 24, 2020By /s/ Michael W. EvansMichael W. Evans, Director, Chief Executive Officer and President (Principal Executive Officer) Dated: February 24, 2020By /s/ Michael K. MurtaughMichael K. Murtaugh, Director and Vice President/General Counsel and Secretary Dated: February 24, 2020By /s/ Geraldine ConnGeraldine Conn, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Dated: February 24, 2020By /s/ Steven G. FeldmanSteven G. Feldman, Director Dated: February 24, 2020By /s/ James A. LentzJames A. Lentz, Director - 44 - Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-21.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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 24, 2020 By:/s/ Michael W. Evans Michael W. Evans, Chief Executive Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-21.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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 24, 2020By:/s/ Geraldine Conn Geraldine Conn, Chief Financial Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-21.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.2 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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, 2019, 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 24, 2020By:/s/ Michael W. Evans Michael W. Evans, Chief Executive Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-21.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.2 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-32.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 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, 2019, 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 24, 2020By:/s/ Geraldine Conn Geraldine Conn, Chief Financial Officer Filer: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: 10-K Document Version: 14 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-21.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-31.2 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-32.1 Document Version: 2 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM ESTFiler: BAB, Inc. Project Type: 10-K Description: Form 10-K year ended 11-30-19Document Type: EX-32.2 Document Version: 3 Project ID: 55645Sequence: Created By: Karl Rohrbaugh Created At: 2/19/2020 1:32:28 PM EST

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