SEC Info - Bab, Inc. - ‘10-Q’ for 2/29/24

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FORM i 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

i ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended i February 29, 2024
i ☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _________________ Commission file number: i 0-31555

i BAB, Inc.

(Name of small business issuer in its charter)

i Delaware

i 36-4389547

(State or other jurisdiction of incorporation or

organization)

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

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

(Address of principal executive offices) (Zip Code)

Issuer's telephone number ( i 847) i 948-7520

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

Title of each class

Trading Symbol(s)

Name of each exchange on which

registered

i Common Stock

i BABB

OTCQB

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

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

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

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

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

As of April 12, 2024 BAB, Inc. had: i 7,263,508 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements	3

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4	Controls and Procedures	22

PART II	OTHER INFORMATION	23

Item 1.	Legal Proceedings	23

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3	Defaults Upon Senior Securities	23

Item 4	Mine Safety Disclosures	23

Item 5	Other Information	23

Item 6	Exhibits	24

SIGNATURE		25

	February 29, 2024			November 30, 2023
	(unaudited)			(audited)
ASSETS
Current Assets
Cash	$	i 1,890,204		$	i 1,888,728
Restricted cash		i 229,520			i 183,944
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $ i 51,455 in 2024 and $ i 28,873 in 2023)		i 68,696			i 71,681
Marketing fund contributions receivable from franchisees and stores		i 15,702			i 14,995
Lease receivable		i 5,919			i 5,900
Prepaid expenses and other current assets		i 93,039			i 96,544
Total Current Assets		i 2,303,080			i 2,261,792

Property, plant and equipment (net of accumulated depreciation of $ i i 159,414 / in both 2024 and 2023.		i -			i -
Lease receivable		i 30,918			i 32,406
Trademarks		i 461,445			i 461,445
Goodwill		i 1,493,771			i 1,493,771
Definite lived intangible assets (net of accumulated amortization of $ i 139,521 in 2024 and $ i 138,541 in 2023)		i 15,365			i 16,345
Operating lease right of use		i 409,669			i 32,745
Total Noncurrent Assets		i 2,411,168			i 2,036,712

Total Assets	$	i 4,714,248		$	i 4,298,504

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	i 49,876		$	i 3,042
Income tax payable		i 108,125			i 47,334
Accrued expenses and other current liabilities		i 311,833			i 325,880
Unexpended marketing fund contributions		i 231,547			i 201,824
Deferred franchise fee revenue		i 24,395			i 30,094
Current portion operating lease liability		i 48,383			i 39,818
Total Current Liabilities		i 774,159			i 647,992

Long-term Liabilities (net of current portion)
Operating lease liability		i 363,055			i -
Deferred franchise revenue		i 157,104			i 162,026
Deferred tax liability		i 287,502			i 309,293
Total Long-term Liabilities		i 807,661			i 471,319

Total Liabilities	$	i 1,581,820		$	i 1,119,311

Stockholders' Equity
Preferred shares -$.001 par value; i i 4,000,000 / authorized; no shares outstanding as of February 29, 2024 and November 30, 2023		i -			i -
Preferred shares -$.001 par value; i i 1,000,000 / Series A authorized; no shares outstanding as of February 29, 2024 and November 30, 2023		i -			i -
Common stock -$.001 par value; i i 15,000,000 / shares authorized; i i 8,466,953 / shares issued and i i 7,263,508 / shares outstanding as of February 29, 2024 and November 30, 2023		i 13,508,257			i 13,508,257
Additional paid-in capital		i 987,034			i 987,034
Treasury stock		( i 222,781	)		( i 222,781	)
Accumulated deficit		( i 11,140,082	)		( i 11,093,317	)
Total Stockholders' Equity		i 3,132,428			i 3,179,193
Total Liabilities and Stockholders' Equity	$	i 4,714,248		$	i 4,298,504

	February 29, 2024			February 28, 2023
REVENUES
Royalty fees from franchised stores	$	i 459,690		$	i 442,608
Franchise Fees		i 10,246			i 4,347
Licensing fees and other income		i 106,587			i 60,320
Marketing fund revenue		i 259,411			i 238,318
Total Revenues		i 835,934			i 745,593

OPERATING EXPENSES
Selling, general and administrative expenses:
Payroll and payroll-related expenses		i 256,329			i 271,719
Occupancy		i 33,341			i 34,648
Advertising and promotion		i 364			i 2,801
Professional service fees		i 51,779			i 53,052
Travel		i 3,022			i 1,231
Employee benefit expenses		i 36,804			i 39,322
Depreciation and amortization		i 980			i 923
Marketing fund expenses		i 259,411			i 238,318
Other		i 71,924			i 54,180
Total Operating Expenses		i 713,954			i 696,194
Income from operations		i 121,980			i 49,399
Interest income		i 15,525			i 121
Income before provision for income taxes		i 137,505			i 49,520
Provision for income taxes
Current tax expense		i 60,791			i 14,200
Deferred tax		( i 21,791	)		i -
Total Tax Provision.		i 39,000			i 14,200

Net Income	$	i 98,505		$	i 35,320

Net Income per share - Basic and Diluted	$	i 0.01		$	i 0.00

Weighted average shares outstanding - Basic and diluted		i 7,263,508			i 7,263,508
Cash distributions declared per share	$	i 0.02		$	i 0.02

	February 29, 2024			February 28, 2023
Operating activities
Net Income	$	i 98,505		$	i 35,320
Adjustments to reconcile net income to cash
flows provided by operating activities:
Depreciation and amortization		i 980			i 923
Deferred tax expense		( i 21,791	)		i -
Provision for uncollectible accounts, net of recoveries		i 22,582			i -
Noncash lease expense		i 24,828			i 24,827
Changes in:
Trade accounts receivable and notes receivable		( i 18,128	)		( i 732	)
Marketing fund contributions receivable		( i 707	)		( i 15,751	)
Prepaid expenses and other		i 3,505			i 29,665
Accounts payable		i 46,834			i 19,685
Accrued liabilities		i 46,744			i 5,433
Unexpended marketing fund contributions		i 29,723			i 77,075
Deferred revenue		( i 10,621	)		i 32,981
Operating lease liability		( i 30,132	)		( i 29,470	)
Net Cash Provided by Operating Activities		i 192,322			i 179,956


Financing activities
Cash distributions/dividends		( i 145,270	)		( i 145,270	)
Net Cash Used In Financing Activities		( i 145,270	)		( i 145,270	)

Net (Decrease)/Increase in Cash and Restricted Cash		i 47,052			i 34,686
Cash and Restricted Cash - Beginning of Period		i 2,072,672			i 1,902,661
Cash and Restricted Cash - End of Period	$	i 2,119,724		$	i 1,937,347


Supplemental disclosure of cash flow information:
Interest paid	$	i -		$	i -
Income taxes paid	$	i -		$	i -
Non-cash operating activities:
Right-of-use operating asset obtained in exchange for operating lease liability	$	i 401,430		$	i -

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

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

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

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

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

As of February 29, 2024, the Company employed 11 full-time employees and one part-time employee at the Corporate office. The employees are responsible for corporate management and oversight, accounting, advertising and franchising. None of the Company's employees are subject to any collective bargaining agreements and management considers its relations with its employees to be good.

For the three months ended February 29, 2024 and February 28, 2023, the Company reported net income of $99,000 and $35,000, respectively. Total revenue of $836,000 increased $90,000, or 12.1%, for the three months ended February 29, 2024, as compared to total revenue of $746,000 for the three months ended February 28, 2023.

Royalty fee revenue of $460,000, for the quarter ended February 29, 2024, increased $17,000, or 3.8%, from the $443,000 for quarter ended February 28, 2023. Sales continue to increase primarily because of continued traditional and digital marketing campaigns.

Franchise fee revenue was $10,000, for the quarter ended February 29, 2024, an increase of $6,000, or 150.0%, from $4,000 for February 28, 2023. In the first quarter 2024 there was one store opened and then both years had normal annual amortization. Licensing fee and other income of $107,000, for the quarter ended February 29, 2024, increased $47,000 or 78.3% from $60,000 for same quarter 2023. Settlement revenue increased in the first quarter 2024 by $19,000 and license fee and other revenue increased by $23,000 compared to same period 2023.

Marketing Fund revenues of $259,000, for the quarter ended February 29, 2024, increased $21,000, or 8.8% from $238,000 for the quarter ended February 28, 2023.

Total operating expenses of $714,000, for the quarter ended February 29, 2024, increased $18,000, or 2.6% from $696,000 for the quarter ended February 28, 2023. The increase was primarily related to an increase in, marketing fund expenses of $21,000, an increase in provision for uncollectible accounts of $23,000, an increase in franchise development of $5,000, offset by a decrease in payroll and payroll related expenses of $16,000, a decrease in business insurance of $5,000, a decrease in advertising and promotion expenses of $3,000 and a decrease in general expenses of $7,000 compared to the quarter ended February 28, 2023.

For the three months ended February 29, 2024 the provision for income tax was $39,000, compared to $14,000 for the three months ending February 28, 2023.

Earnings per share, as reported for basic and diluted outstanding shares, was $0.01 for the quarter ended February 29, 2024 and $0.00 earnings for quarter ended February 28, 2023.

During the three months ended February 29, 2024, the Company had net income of $99,000 and operating activities provided cash of $192,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the three months ending February 29, 2024 was depreciation and amortization of $1,000, noncash lease expense $25,000 and $23,000 provision for uncollectible accounts, less deferred tax expense of $22,000. In addition, changes in operating assets and liabilities increased cash by $67,000. During the three months ended February 28, 2023, the Company had net income of $35,000 and operating activities provided cash of $180,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the three months ending February 28, 2023 was depreciation and amortization of $1,000, and noncash lease expense of $25,000. In addition, changes in operating assets and liabilities increased cash by $119,000.

The Company had no investing activity for the first three months of 2024 or 2023.

Cash distributions/dividends used $145,000 in financing activities for the three months ending February 29, 2024 and February 28, 2023, respectively.

It is the Company’s intent that future cash distributions/dividend payments will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis. For 2024, a $0.02 cash distribution was declared for the first quarter and a $0.01 cash distribution has been declared for the second quarter.

Determination of whether distributions are considered a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2024, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2024.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2022. The Company adopted ASU 2016-13 in the first quarter of fiscal 2024 and there was no material financial change. Enhanced disclosures are found in the Summary of Significant Accounting Policies.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which is intended to simplify various aspects related to accounting for income taxes. ASU 2023-09 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2023-09 are effective for public business entities for fiscal years beginning after December 15, 2024, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2023-09 for fiscal year ending November 30, 2026.

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of February 29, 2024 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

The Company has identified other significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, deferred tax assets and the related valuation allowance. Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2023, filed with the Securities and Exchange Commission on February 26, 2024.

Our management, with the participation of both our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, both our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 29, 2024 our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three months ending February 29, 2024 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

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

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

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

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

	February 29, 2024			November 30, 2023
Accounts Receivable (Franchise Related)	$	i 58,939		$	i 55,781
Accounts Receivable (Vendor Related)		i 20,950			i 28,895
Notes Receivable		i 55,964			i 30,873
Lease Receivable, Net of Unamortized Interest		i 36,837			i 38,306
		i 172,690			i 153,855
Less: Allowance for Credit Losses		( i 51,455	)		( i 28,873	)
Total Receivables		i 121,235			i 124,982
Less: Current Portion		( i 90,317	)		( i 92,576	)
Long-Term Receivables	$	i 30,918		$	i 32,406

	Three months ended February 29, 2024		Three months ended February 28, 2023

Revenue recognized at a point in time
Sign Shop revenue	$	i 1,379	$	i 156
Settlement revenue		i 25,610		i 6,500
Total revenue at a point in time		i 26,989		i 6,656
Revenue recognized over time
Royalty revenue		i 459,690		i 442,608
Franchise fees		i 10,246		i 4,347
License fees		i 5,978		i 4,147
Gift card revenue		i 2,846		i 305
Nontraditional revenue		i 70,774		i 49,212
Marketing fund revenue		i 259,411		i 238,318
Total revenue over time		i 808,945		i 738,937
Grand total	$	i 835,934	$	i 745,593

	February 29, 2024		November 30, 2023
Liabilities
Contract liabilities - current	$	i 485,180	$	i 458,162
Contract liabilities - long-term		i 157,104		i 162,026
Total Contract Liabilities	$	i 642,284	$	i 620,188

	February 29, 2024			November 30, 2023
Contracts at beginning of period	$	i 620,188		$	i 692,360

Revenue Recognized during period		( i 336,180	)		( i 1,685,740	)
Additions during period		i 358,276			i 1,613,568
Contracts at end of period	$	i 642,284		$	i 620,188

2024		i 19,668	(a)
2025		i 25,505
2026		i 25,280
2027		i 18,633
2028		i 18,100
Thereafter		i 74,313
Total	$	i 181,499

Bab, Inc. – ‘10-Q’ for 2/29/24

On: Friday, 4/12/24, at 12:30pm ET · For: 2/29/24 · Accession #: 1437749-24-11861 · File #: 0-31555

Previous ‘10-Q’: ‘10-Q’ on 10/12/23 for 8/31/23 · Latest ‘10-Q’: This Filing · 8 References:

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

8 Previous Filings that this Filing References

	February 29, 2024		February 28, 2023

Cash and cash equivalents	$	i 1,890,204	$	i 1,598,465
Restricted cash		i 229,520		i 338,882
Total cash and restricted cash	$	i 2,119,724	$	i 1,937,347

	February 29, 2024		February 28, 2023
Stores open:
Franchisee-owned stores		i 64		i 68
Licensed Units		i 4		i 4
		i 68		i 72

Unopened stores with Franchise Agreements		i 4		i 2

Total operating units and units with Franchise Agreements		i 72		i 74

	February 29, 2024		February 28, 2023
Numerator:
Net income available to common stockholders	$	i 98,505	$	i 35,320

Denominator:
Weighted average outstanding shares
Basic and diluted		i 7,263,508		i 7,263,508
Earnings per Share - Basic and diluted	$	i 0.01	$	i 0.00

	Undiscounted Rent Payments
Year Ending November 30:
2024		i 6,283
2025		i 6,283
2026		i 6,283
2027		i 6,404
2028		i 6,283
thereafter		i 6,371
Total Undiscounted Lease Payments		i 37,907

Unamortized interest income		( i 1,070	)
Lease receivable, net	$	i 36,837

Short-term lease receivable	$	i 5,919
Long-term lease receivable		i 30,918
Total lease receivable	$	i 36,837

Dated: April 12, 2024	/s/ *Geraldine Conn*
	Geraldine Conn
	Chief Financial Officer

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