10-Q

FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 29, 2016
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _________________ Commission file number: 0-31555

BAB, Inc.

(Name of small business issuer in its charter)

Delaware	36-4389547
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

Issuer's telephone number (847) 948-7520

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   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 ☐   Non-accelerated filer ☐  (Do not check if a smaller reporting company)   Smaller reporting company ☒

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

As of April 11, 2016 BAB, Inc. had: 7,263,508 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3	Quantitative and Qualitative Disclosures About Market Risk	13
Item 4	Controls and Procedures	14
PART II	OTHER INFORMATION	14
Item 1.	Legal Proceedings	14
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3	Defaults Upon Senior Securities	15
Item 4	Mine Safety Disclosures	15
Item 5	Other Information	15
Item 6	Exhibits	15
SIGNATURE		15

2

PART I

ITEM 1. FINANCIAL STATEMENTS

BAB, Inc.

Consolidated Balance Sheets

	February 29, 2016			November 30, 2015
	(unaudited)
ASSETS
Current Assets
Cash	$	724,980		$	837,382
Restricted cash		469,178			420,739
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $31,943 in 2016 and $33,077 in 2015 )		73,571			75,079
Marketing fund contributions receivable from franchisees and stores		23,509			21,111
Inventories		25,573			26,824
Prepaid expenses and other current assets		92,953			83,796
Total Current Assets		1,409,764			1,464,931
Property, plant and equipment (net of accumulated depreciation of $150,693 in 2016 and $150,083 in 2015)		2,866			3,476
Trademarks		455,182			455,182
Goodwill		1,493,771			1,493,771
Definite lived intangible assets (net of accumulated amortization of $100,629 in 2016 and $96,389 in 2015)		22,770			22,987
Deferred tax asset		248,000			248,000
Total Noncurrent Assets		2,222,589			2,223,416
Total Assets	$	3,632,353		$	3,688,347
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	33,413		$	33,413
Accounts payable		8,855			13,055
Accrued expenses and other current liabilities		312,410			311,916
Unexpended marketing fund contributions		492,942			442,105
Deferred franchise fee revenue		115,000			105,000
Deferred licensing revenue		47,738			32,083
Total Current Liabilities		1,010,358			937,572
Stockholders' Equity
Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of February 29, 2016 and November 30, 2015		-			-
Preferred shares -$.001 par value; 1,000,000 Series A authorized; no shares outstanding as of February 29, 2016 and November 30, 2015		-			-
Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of February 29, 2016 and November 30, 2015		13,508,257			13,508,257
Additional paid-in capital		987,034			987,034
Treasury stock		(222,781	)		(222,781	)
Accumulated deficit		(11,650,515	)		(11,521,735	)
Total Stockholders' Equity		2,621,995			2,750,775
Total Liabilities and Stockholders' Equity	$	3,632,353		$	3,688,347

SEE ACCOMPANYING NOTES

3

BAB, Inc.

Consolidated Statements of Income

For the Three Months Ended February 29, 2016 and February 28, 2015

(Unaudited)

	For the three months ended:
	February 29, 2016			February 28, 2015
REVENUES
Royalty fees from franchised stores	$	406,900		$	394,095
Franchise fees		15,000			5,000
Licensing fees and other income		158,977			93,293
Total Revenues		580,877			492,388
OPERATING EXPENSES
Selling, general and administrative expenses:
Payroll and payroll-related expenses		277,256			297,677
Occupancy		44,790			43,893
Advertising and promotion		9,699			10,522
Professional service fees		48,877			58,502
Travel		8,976			9,101
Employee benefit expenses		44,291			34,905
Depreciation and amortization		4,849			4,234
Legal Settlement		-			243,046
Other		52,803			36,061
Total Operating Expenses		491,541			737,941
Income/(Loss) from operations		89,336			(245,553	)
Interest income		186			724
Interest expense		(397	)		(776	)
Net Income/(Loss)	$	89,125		$	(245,605	)
Net Income/(Loss) per share - Basic and Diluted	$	0.01		$	(0.03	)
Weighted average shares outstanding - Basic		7,263,508			7,263,508
Effect of dilutive common stock		-			-
Weighted average shares outstanding - Diluted		7,263,508			7,263,508
Cash distributions declared per share	$	0.03		$	0.02

SEE ACCOMPANYING NOTES

4

BAB, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended February 29, 2016 and February 28, 2015

(Unaudited)

	For the three months ended:
	February 29, 2016			February 28, 2015
Operating activities
Net Income/(Loss)	$	89,125		$	(245,605	)
Adjustments to reconcile net income/(loss) to cash
flows provided by operating activities:
Depreciation and amortization		4,849			4,235
Provision for uncollectible accounts, net of recoveries		(1,133	)		(203	)
Changes in:
Trade accounts receivable and notes receivable		2,641			3,884
Restricted cash		(48,439	)		(15,391	)
Marketing fund contributions receivable		(2,398	)		(11,633	)
Inventories		1,251			(204	)
Prepaid expenses and other		(9,157	)		(28,124	)
Accounts payable		(4,200	)		29,665
Accrued liabilities		494			256,933
Unexpended marketing fund contributions		50,837			22,025
Deferred revenue		25,655			26,250
Net Cash Provided by Operating Activities		109,525			41,832
Investing activities
Capitalization of trademark renewals		(4,022	)		(703	)
Net Cash Used In Investing Activities		(4,022	)		(703	)
Financing activities
Cash distributions/dividends		(217,905	)		(145,270	)
Net Cash Used In Financing Activities		(217,905	)		(145,270	)
Net Decrease in Cash		(112,402	)		(104,141	)
Cash, Beginning of Period		837,382			709,555
Cash, End of Period	$	724,980		$	605,414
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	400		$	2,000

 SEE ACCOMPANYING NOTES

5

BAB, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three Months Ended February 29, 2016 and February 28, 2015

(Unaudited)

Note 1. Nature of Operations

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

The Company was incorporated under the laws of the State of Delaware on July 12, 2000.  The Company currently franchises and licenses bagel and muffin retail units under the BAB and MFM trade names. At February 29, 2016, the Company had 84 franchise units and 3 licensed units in operation in 24 states and one international location. There are 7 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including under licensing agreements with Kohr Bros. Frozen Custard and Green Beans Coffee. Also, included in licensing fees and other income is Operations Sign Shop results. For franchise consistency and convenience, the Sign Shop provides the majority of signage to franchisees, including but not limited to, menu panels, build charts, interior and exterior signage and point of purchase materials.

The BAB franchised brand consists of units operating as “Big Apple Bagels®,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. Licensed BAB units serve the Company's frozen bagel and related products baked daily.  BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as "My Favorite Muffin®," featuring a large variety of freshly baked muffins, coffees and related products, and units operating as "My Favorite Muffin and Bagel Cafe," featuring these products as well as a variety of specialty bagel sandwiches and related products.  The SweetDuet® brand is a fusion concept, pairing self-serve frozen yogurt with MFM’s exclusive line of My Favorite Muffin gourmet muffins. SD frozen yogurt can be added as an additional brand in a BAB or MFM location. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.

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

The accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2015 which was filed February 24, 2016.  In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim period presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim period and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

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2. Units Open and Under Development

Units which are open or under development at February 29, 2016 are as follows:

Stores open:
Franchisee-owned stores	84
Licensed Units	3
	87
Unopened stores with Franchise Agreements	7
Total operating units and units with Franchise Agreements	94

3. Earnings per Share

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

	For the three months ended:
	February 29, 2016		February 28, 2015
Numerator:
Net income/(loss) available to common shareholders	$	89,125	$	(245,605	)
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508
Earnings/(Loss) per Share - Basic	$	0.01	$	(0.03	)

The Company excluded 175,000 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share, for the three months ended February 29, 2016, because their inclusion would have been anti-dilutive. For the three months ended February 28, 2015, the Company excluded 257,500 potential shares attributable to outstanding stock options from the calculation.

4.  Long-Term Debt

On September 6, 2002, the Company signed a note payable requiring annual installments of $35,000, including interest at a rate of 4.75% per annum, for a term of 15 years, in the original amount of $386,000. The Company purchased and retired 1,380,040 shares of BAB, Inc. common stock from a former stockholder. The balance of the note payable as of February 29, 2016, $33,000, is all current debt. The final payment is due October 1, 2016.

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5.  Stock Options

In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (“Plan”). The Plan reserved and has issued 1,400,000 shares of common stock for grant. As of February 29, 2016, there were 1,225,000 stock options exercised or forfeited under the Plan. 

	For the three months ended:
	February 29, 2016			February 28, 2015
Options outstanding at beginning of year		237,500			314,400
Granted		-			-
Forfeited or expired		(62,500	)		(56,900	)
Exercised		-			-
Outstanding at end of period		175,000			257,500

To value option grants and other awards for stock-based compensation, the Company uses the Black-Scholes option valuation model. When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.

The Company’s stock options expire in ten years and vary in vesting from immediate to a vesting period of five years.

The following table summarizes the stock options outstanding and exercisable at February 29, 2016:

Options Outstanding								Options Exercisable
Outstanding		Wghtd. Avg.		Wghtd. Avg.		Aggregate		Exercisable		Wghtd. Avg.		Aggregate
at 2/29/16		Remaining Life		Exercise Price		Intrinsic Value		at 2/29/16		Exercise Price		Intrinsic Value
	175,000		0.75	$	1.29	$	-		175,000	$	1.29	$	-

There is no computation for the aggregate intrinsic value in the table above because the outstanding options weighted average exercise price was greater than the Company’s closing stock price of $0.56 as of the last business day of the period ended February 29, 2016. There were 62,500 unexercised options that expired and no options exercised during the three month period ended February 29, 2016.

6. Goodwill and Other Intangible Assets

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

The Company tests goodwill that is not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. Goodwill was tested at the end of the first quarter, February 29, 2016 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment test performed February 29, 2016 was based on a discounted cash flow model using management’s business plan projected for expected cash flows. Based on the computation it was determined that no impairment has occurred.

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7. Recent Accounting Pronouncements

Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. The standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements. The ASU is effective for years beginning after December 15, 2017. The Company will adopt ASU 2014-09 for fiscal year ending November 30, 2019 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

On February 25, 2016, the FASB issued ASU 2016-02, a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. GAAP. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt ASU 2016-02 for fiscal year ending November 30, 2020 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of February 29, 2016 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.

8. Stockholder’s Equity

On March 3, 2016 the Board of Directors declared a $.01 cash distribution/dividend to shareholders of record as of March 23, 2016, payable April 13, 2016.

On December 3, 2015 a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 6, 2016.

On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreement changing the final expiration date to mean the fifth anniversary of the date of the original agreement. All other original rights and provisions remain the same.

9. Contingencies

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

On July 8, 2013, a judgment was entered in the Circuit Court of Cook County against BAB Operations, Inc. (“Operations”), a wholly owned subsidiary of BAB, Inc., and in favor of a former landlord of Operations, Alecta Real Estate USA, LLC. In September 2013 the Company filed an appeal. On March 23, 2015 the Appellate Court found in favor of the plaintiff and against Operations, affirming the trial court’s judgment. The legal settlement of $243,000 was recorded in the first quarter of 2015 and payment was made in the second quarter of 2015 and included the judgment, attorney’s fees and interest.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

General

There are 84 franchised and 3 licensed units at February 29, 2016 compared to 84 franchised and 5 licensed units at February 28, 2015.  System-wide revenues for the three months ended February 29, 2016 were $8.3 million as compared to February 28, 2015 which were $8.0 million.

The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees and receipt of initial franchise fees.  Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese, Big Apple Bagels frozen bagels and Brewster's coffee), and through nontraditional channels of distribution (Kohr Bros. and Green Beans Coffee). Also included in licensing fees and other income is Operation’s Sign Shop revenue. The Sign Shop provides the majority of signage, which includes but is not limited to, posters, menu panels, outside window stickers and counter signs to franchisees to provide consistency and convenience.

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.

The Company recognizes franchise fee revenue upon the opening of a franchise store or upon the signing of a Master Franchise Agreement. Direct costs associated with the franchise sale are deferred until the franchise fee revenue is recognized.  These costs include site approval, construction approval, commissions, blueprints and training costs.

10

The Company earns a licensing fee 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, 2016, the Company employed 15 full-time employees and 1 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.

Results of Operations

Three Months Ended February 29, 2016 versus Three Months Ended February 28, 2015

For the three months ended February 29, 2016, the Company reported net income of $89,000. For the three months ended February 28, 2015, the Company reported a net loss of $246,000. Total revenue was $581,000, an increase of $89,000, or 18.1%, for the three months ended February 29, 2016, as compared to total revenue of $492,000 for the three months ended February 28, 2015.

Royalty fee revenue of $407,000, for the quarter ended February 29, 2016, increased $13,000, or 3.3%, from the $394,000 for quarter ended February 28, 2015.

Franchise fee revenues of $15,000, for the quarter ended February 29, 2016, increased $10,000 as compared to the same quarter 2015. There were three stores transferred in the three months ending February 29, 2016 compared to one transfer in the same period 2015.

Licensing fee and other income of $159,000, for the quarter ended February 29, 2016, increased $66,000, or 71.0% from $93,000 for the quarter ended February 28, 2015. The increase in licensing fees and other income was primarily due to an increase in nontraditional income, settlement income for a closed location received in 2016 and an increase in Sign Shop revenue for the first quarter 2016 compared to same period 2015.

Total operating expenses of $492,000, for the quarter ended February 29, 2016 decreased $246,000, or 33.3.0% from $738,000 for the quarter ended February 28, 2015. The increase in 2015 was primarily due to a legal settlement of $243,000 which was recorded in the first quarter of 2015. Other changes in operating expenses from the first quarter 2016 to same period 2015 were, a decrease in payroll and payroll related expenses of $20,000 and a decrease in legal expenses of $10,000, offset by an increase of $9,000 in employee benefit expense, primarily from the 401(k) employer contribution, an increase of $6,000 for franchise development, a $6,000 increase in Sign Shop cost of goods, an increase of $2,000 in Corporate filing fees, and an increase in general operating expenses of $5,000.

Interest expense and interest income netted to less than a $1,000 in the quarters ended February 29, 2016 and February 28, 2015.

Earnings per share, as reported for basic and diluted outstanding shares for the first quarter ended February 29, 2016 was $0.01 per share and a net loss of $0.03 per share in 2015.

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Liquidity and Capital Resources

At February 29, 2016, the Company had working capital of $399,000 and unrestricted cash of $725,000. At November 30, 2015 the Company had working capital of $527,000 and unrestricted cash of $837,000.

During the three months ended February 29, 2016, the Company had net income of $89,000 and operating activities provided cash of $110,000. The principal adjustments to reconcile the net income to cash provided in operating activities for the three months ending February 29, 2016 were depreciation and amortization of $5,000 less a provision for uncollectible accounts of $1,000. In addition, changes in operating assets and liabilities increased cash by $17,000. During February 28, 2015, the Company had a net loss of $246,000 and operating activities provided cash of $42,000. The principal adjustments to reconcile net income to cash provided by operating activities for the three months ending February 28, 2015 were depreciation and amortization of $4,000. In addition changes in operating assets and liabilities increased cash by $284,000.

The Company used $4,000 and $1,000 for investing activities for the three months ended February 29, 2016 and February 28, 2015, respectively.

The Company used $218,000 and $145,000 for cash distribution/dividend payments during the three months ended February 29, 2016 and February 28, 2015, respectively.

On March 3, 2016, the Board of Directors authorized a $0.01 per share cash distribution/dividend to shareholders of record as of March 23, 2016, payable April 13, 2016. Although there can be no assurances that the Company will be able to pay cash distributions/dividends in the future, it is the Company’s intent that future cash distributions/dividends will be considered based on profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. It is the Company’s intent going forward to declare and pay cash distributions/dividends on a quarterly basis if warranted.

The Company believes execution of its cash distribution/dividend policy will not have any material adverse effects on its cash or its ability to fund current operations or future capital investments.

The Company has no financial covenants on its outstanding debt.

Cash Distribution and Dividend Policy

It is the Company’s intent that future cash distributions/dividends will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. Due to the general economic downturn and its impact on the Company, there can be no assurance that the Company will generate sufficient earnings to pay out cash distributions/dividends. The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis.

The Company believes that for tax purposes the cash distributions declared in 2016 may be treated as a return of capital to stockholders depending on each stockholder’s basis or it may be treated as a dividend or a combination of the two. Determination of whether it is a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2016, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2016.

The Company believes execution of this policy will not have any material adverse effect on its ability to fund current operations or future capital investments.

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Recent Accounting Pronouncements

Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. The standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements. The ASU is effective for years beginning after December 15, 2017. The Company will adopt ASU 2014-09 for fiscal year ending November 30, 2019 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

On February 25, 2016, the FASB issued ASU 2016-02, a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. GAAP. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt ASU 2016-02 for fiscal year ending November 30, 2020 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of February 29, 2016 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.

Critical Accounting Policies

The Company has identified 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, 2015, filed with the Securities and Exchange Commission on February 24, 2016.  There have been no material changes to the Company's critical accounting policies that impact the Company's financial condition, results of operations or cash flows for the three months ended February 29, 2016.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

13

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of both our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, both our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 29, 2016 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.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the three months of fiscal year 2016 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Compliance with Section 404 of Sarbanes-Oxley Act

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

PART II

ITEM 1. LEGAL PROCEEDINGS 

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

There were no legal proceedings for 2016.

On July 8, 2013, a judgment was entered in the Circuit Court of Cook County against BAB Operations, Inc. (“Operations”), a wholly owned subsidiary of BAB, Inc., and in favor of a former landlord of Operations, Alecta Real Estate USA, LLC. In September 2013 the Company filed an appeal. On March 23, 2015 the Appellate Court found in favor of the plaintiff and against Operations, affirming the trial court’s judgment. The legal settlement of $243,000 was recorded in the first quarter of 2015 and payment was made in the second quarter of 2015 and included the judgment, attorney’s fees and interest.

14

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See index to exhibits

SIGNATURE 

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

BAB, Inc.

Dated: April 12, 2016	/s/ Geraldine Conn
	Geraldine Conn
	Chief Financial Officer

15

INDEX TO EXHIBITS

(a)  EXHIBITS

The following exhibits are filed herewith.

INDEX NUMBER	DESCRIPTION
3.1	Articles of Incorporation (See Form 10-KSB for year ended November 30, 2006)
3.2	Bylaws of the Company (See Form 10-KSB for year ended November 30, 2006)
4.1	Preferred Shares Rights Agreement (See Form 8-K filed May 6, 2013)
10.1	Long-Term Debt (Stock Redemption Agreement) (See Form 10-K for year ended November 30, 2015 filed February 24, 2016)
10.2	Long-Term Incentive and Stock Option Plan (See Form 10-K for year ended November 30, 2015 filed February 24, 2016)
21.1	List of Subsidiaries of the Company
31.1, 31.2	Section 302 of the Sarbanes-Oxley Act of 2002
32.1, 32.2	Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation
** XBRL	information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

16

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF BAB, INC.

BAB Systems, Inc., an Illinois corporation

BAB Operations, Inc., an Illinois corporation

BAB Investments, Inc., an Illinois corporation

EX-31.1

Exhibit 31.1

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

I, Michael W. Evans, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 12, 2016	by / s/ Michael W. Evans
	Michael W. Evans, Chief Executive Officer

EX-31.2

Exhibit 31.2

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

I, Geraldine Conn, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: April 12, 2016	By: /s/ Geraldine Conn
	Geraldine Conn, Chief Financial Officer

EX-32.1

Exhibit 32.1

BAB, Inc.

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

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

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended February 29, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael W. Evans, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

Date:  April 12, 2016	By:  /s/ Michael W. Evans
	Michael W. Evans, Chief Executive Officer

EX-32.2

Exhibit 32.2

BAB, Inc.

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

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

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended February 29, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Geraldine Conn, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

Date:  April 12, 2016	By:   /s/ Geraldine Conn
	Geraldine Conn, Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Feb. 29, 2016	Apr. 11, 2016
Entity Registrant Name	BAB, INC.
Entity Central Index Key	0001123596
Trading Symbol	babb
Current Fiscal Year End Date	--11-30
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		7,263,508
Document Type	10-Q
Document Period End Date	Feb. 29, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Feb. 29, 2016	Nov. 30, 2015
Series A Preferred Stock [Member]
Stockholders' Equity
Preferred shares
Cash	$ 724,980	$ 837,382
Restricted cash	469,178	420,739
Trade accounts and notes receivable (net of allowance for doubtful accounts of $31,943 in 2016 and $33,077 in 2015 )	73,571	75,079
Marketing fund contributions receivable from franchisees and stores	23,509	21,111
Inventories	25,573	26,824
Prepaid expenses and other current assets	92,953	83,796
Total Current Assets	1,409,764	1,464,931
Property, plant and equipment (net of accumulated depreciation of $150,693 in 2016 and $150,083 in 2015)	2,866	3,476
Trademarks	455,182	455,182
Goodwill	1,493,771	1,493,771
Definite lived intangible assets (net of accumulated amortization of $100,629 in 2016 and $96,389 in 2015)	22,770	22,987
Deferred tax asset	248,000	248,000
Total Noncurrent Assets	2,222,589	2,223,416
Total Assets	3,632,353	3,688,347
Current portion of long-term debt	33,413	33,413
Accounts payable	8,855	13,055
Accrued expenses and other current liabilities	312,410	311,916
Unexpended marketing fund contributions	492,942	442,105
Deferred franchise fee revenue	115,000	105,000
Deferred licensing revenue	47,738	32,083
Total Current Liabilities	$ 1,010,358	$ 937,572
Preferred shares
Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of February 29, 2016 and November 30, 2015	$ 13,508,257	$ 13,508,257
Additional paid-in capital	987,034	987,034
Treasury stock	(222,781)	(222,781)
Accumulated deficit	(11,650,515)	(11,521,735)
Total Stockholders' Equity	2,621,995	2,750,775
Total Liabilities and Stockholders' Equity	$ 3,632,353	$ 3,688,347

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Feb. 29, 2016	Nov. 30, 2015
Series A Preferred Stock [Member]
Preferred shares, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred shares, authorized (in shares)	1,000,000	1,000,000
Preferred shares, outstanding (in shares)	0	0
Allowance for doubtful accounts	$ 31,943	$ 33,077
Accumulated depreciation, property, plant and equipment	150,693	150,083
Definite lived intangible assets, accumulated amortization	$ 100,629	$ 96,389
Preferred shares, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred shares, authorized (in shares)	4,000,000	4,000,000
Preferred shares, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	15,000,000	15,000,000
Common stock, shares issued (in shares)	8,466,953	8,466,953
Common stock, shares outstanding (in shares)	7,263,508	7,263,508

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Feb. 29, 2016	Feb. 28, 2015
REVENUES
Royalty fees from franchised stores	$ 406,900	$ 394,095
Franchise fees	15,000	5,000
Licensing fees and other income	158,977	93,293
Total Revenues	580,877	492,388
Selling, general and administrative expenses:
Payroll and payroll-related expenses	277,256	297,677
Occupancy	44,790	43,893
Advertising and promotion	9,699	10,522
Professional service fees	48,877	58,502
Travel	8,976	9,101
Employee benefit expenses	44,291	34,905
Depreciation and amortization	$ 4,849	4,234
Legal Settlement		243,046
Other	$ 52,803	36,061
Total Operating Expenses	491,541	737,941
Income/(Loss) from operations	89,336	(245,553)
Interest income	186	724
Interest expense	(397)	(776)
Net Income/(Loss)	$ 89,125	$ (245,605)
Net Income/(Loss) per share - Basic and Diluted (in dollars per share)	$ 0.01	$ (0.03)
Weighted average shares outstanding - Basic (in shares)	7,263,508	7,263,508
Effect of dilutive common stock (in shares)
Weighted average shares outstanding - Diluted (in shares)	7,263,508	7,263,508
Cash distributions declared per share (in dollars per share)	$ 0.03	$ 0.02

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Feb. 29, 2016	Feb. 28, 2015
Operating activities
Net Income/(Loss)	$ 89,125	$ (245,605)
Adjustments to reconcile net income/(loss) to cash flows provided by operating activities:
Depreciation and amortization	4,849	4,235
Provision for uncollectible accounts, net of recoveries	(1,133)	(203)
Changes in:
Trade accounts receivable and notes receivable	2,641	3,884
Restricted cash	(48,439)	(15,391)
Marketing fund contributions receivable	(2,398)	(11,633)
Inventories	1,251	(204)
Prepaid expenses and other	(9,157)	(28,124)
Accounts payable	(4,200)	29,665
Accrued liabilities	494	256,933
Unexpended marketing fund contributions	50,837	22,025
Deferred revenue	25,655	26,250
Net Cash Provided by Operating Activities	109,525	41,832
Investing activities
Capitalization of trademark renewals	(4,022)	(703)
Net Cash Used In Investing Activities	(4,022)	(703)
Financing activities
Cash distributions/dividends	(217,905)	(145,270)
Net Cash Used In Financing Activities	(217,905)	(145,270)
Net Decrease in Cash	(112,402)	(104,141)
Cash, Beginning of Period	837,382	709,555
Cash, End of Period	$ 724,980	$ 605,414
Supplemental disclosure of cash flow information:
Interest paid
Income taxes paid	$ 400	$ 2,000

XML

Note 1 - Nature of Operations

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Nature of Operations [Text Block]

Note 1. Nature of Operations

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

The Company was incorporated under the laws of the State of Delaware on July 12, 2000.  The Company currently franchises and licenses bagel and muffin retail units under the BAB and MFM trade names. At February 29, 2016,

the Company had 84 franchise units and 3 licensed units in operation in 24 states and one international location. There are 7 units under development. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including under licensing agreements with Kohr Bros. Frozen Custard and Green Beans Coffee. Also, included in licensing fees and other income is Operations Sign Shop results. For franchise consistency and convenience, the Sign Shop provides the majority of signage to franchisees, including but not limited to, menu panels, build charts, interior and exterior signage and point of purchase materials.

The BAB franchised brand consists of units operating as “Big Apple Bagels®,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. Licensed BAB units serve the Company's frozen bagel and related products baked daily.  BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as "My Favorite Muffin®," featuring a large variety of freshly baked muffins, coffees and related products, and units operating as "My Favorite Muffin and Bagel Cafe," featuring these products as well as a variety of specialty bagel sandwiches and related products.  The SweetDuet® brand is a fusion concept, pairing self-serve frozen yogurt with MFM’s exclusive line of My Favorite Muffin gourmet muffins. SD frozen yogurt can be added as an additional brand in a BAB or MFM location. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.

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

The accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2015 which was filed February 24, 2016.  In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim period presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim period and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

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Note 2 - Units Open and Under Development

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Units Open and Under Development [Text Block]

2. Units Open and Under Development

Units which are open or under development at February 29, 2016 are as follows:

Stores open:
Franchisee-owned stores	84
Licensed Units	3
	87
Unopened stores with Franchise Agreements	7
Total operating units and units with Franchise Agreements	94

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Note 3 - Earnings Per Share

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

3. Earnings per Share

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

	For the three months ended:
	February 29, 2016		February 28, 2015
Numerator:
Net income/(loss) available to common shareholders	$	89,125	$	(245,605	)
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508
Earnings/(Loss) per Share - Basic	$	0.01	$	(0.03	)

The Company excluded 175,000 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share, for the three months ended February 29, 2016, because their inclusion would have been anti-dilutive. For the three months ended February 28, 2015, the Company excluded 257,500 potential shares attributable to outstanding stock options from the calculation.

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Note 4 - Long-Term Debt

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Long-term Debt [Text Block]

4.  Long-Term Debt

On September 6, 2002, the Company signed a note payable requiring annual installments of $35,000, including interest at a rate of 4.75% per annum, for a term of 15 years, in the original amount of $386,000. The Company purchased and retired 1,380,040 shares of BAB, Inc. common stock from a former stockholder. The balance of the note payable as of February 29, 2016, $33,000, is all current debt. The final payment is due October 1, 2016.

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Note 5 - Stock Options

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

5.  Stock Options

In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (“Plan”). The Plan reserved and has issued 1,400,000 shares of common stock for grant. As of February 29, 2016, there were 1,225,000 stock options exercised or forfeited under the Plan. 

	For the three months ended:
	February 29, 2016			February 28, 2015
Options outstanding at beginning of year		237,500			314,400
Granted		-			-
Forfeited or expired		(62,500	)		(56,900	)
Exercised		-			-
Outstanding at end of period		175,000			257,500

To value option grants and other awards for stock-based compensation, the Company uses the Black-Scholes option valuation model. When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.

The Company’s stock options expire in ten years and vary in vesting from immediate to a vesting period of five years.

The following table summarizes the stock options outstanding and exercisable at February 29, 2016:

Options Outstanding								Options Exercisable
Outstanding		Wghtd. Avg.		Wghtd. Avg.		Aggregate		Exercisable		Wghtd. Avg.		Aggregate
at 2/29/16		Remaining Life		Exercise Price		Intrinsic Value		at 2/29/16		Exercise Price		Intrinsic Value
	175,000		0.75	$	1.29	$	-		175,000	$	1.29	$	-

There is no computation for the aggregate intrinsic value in the table above because the outstanding options weighted average exercise price was greater than the Company’s closing stock price of $0.56 as of the last business day of the period ended February 29, 2016. There were 62,500 unexercised options that expired and no options exercised during the three month period ended February 29, 2016.

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Note 6 - Goodwill and Other Intangible Assets

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

6. Goodwill and Other Intangible Assets

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

The Company tests goodwill that is not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. Goodwill was tested at the end of the first quarter, February 29, 2016 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment test performed February 29, 2016 was based on a discounted cash flow model using management’s business plan projected for expected cash flows. Based on the computation it was determined that no impairment has occurred.

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Note 7 - Recent Accounting Pronouncements

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

7. Recent Accounting Pronouncements

Revenue from Contracts with Customers, ASU 2014-09 establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. The standard requires five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements. The ASU is effective for years beginning after December 15, 2017. The Company will adopt ASU 2014-09 for fiscal year ending November 30, 2019 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

On February 25, 2016, the FASB issued ASU 2016-02, a leasing standard for both lessees and lessors. Under its core principle, a lessee will recognize lease assets and liabilities on the balance sheet for all arrangements with terms longer than 12 months. Lessor accounting remains largely consistent with existing U.S. GAAP. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company intends to adopt ASU 2016-02 for fiscal year ending November 30, 2020 and the Company is evaluating the impact that adoption of this guidance might have on the Company’s consolidated financial position, cash flows and results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of February 29, 2016 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations

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Note 8 - Stockholders' Equity

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

8. Stockholder’s Equity

On March 3, 2016 the Board of Directors declared a $.01 cash distribution/dividend to shareholders of record as of March 23, 2016, payable April 13, 2016.

On December 3, 2015 a $0.01 quarterly and a $0.02 special cash distribution/dividend per share was declared and paid on January 6, 2016.

On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreement changing the final expiration date to mean the fifth anniversary of the date of the original agreement. All other original rights and provisions remain the same.

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Note 9 - Contingencies

3 Months Ended

Feb. 29, 2016

Notes to Financial Statements

Contingencies Disclosure [Text Block]

9. Contingencies

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

On July 8, 2013, a judgment was entered in the Circuit Court of Cook County against BAB Operations, Inc. (“Operations”), a wholly owned subsidiary of BAB, Inc., and in favor of a former landlord of Operations, Alecta Real Estate USA, LLC. In September 2013 the Company filed an appeal. On March 23, 2015 the Appellate Court found in favor of the plaintiff and against Operations, affirming the trial court’s judgment. The legal settlement of $243,000 was recorded in the first quarter of 2015 and payment was made in the second quarter of 2015 and included the judgment, attorney’s fees and interest.

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Note 2 - Units Open and Under Development (Tables)

3 Months Ended

Feb. 29, 2016

Notes Tables

Schedule of Franchisor Disclosure [Table Text Block]

Stores open:
Franchisee-owned stores	84
Licensed Units	3
	87
Unopened stores with Franchise Agreements	7
Total operating units and units with Franchise Agreements	94

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Note 3 - Earnings Per Share (Tables)

3 Months Ended

Feb. 29, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the three months ended:
	February 29, 2016		February 28, 2015
Numerator:
Net income/(loss) available to common shareholders	$	89,125	$	(245,605	)
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508
Earnings/(Loss) per Share - Basic	$	0.01	$	(0.03	)

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Note 5 - Stock Options (Tables)

3 Months Ended

Feb. 29, 2016

Notes Tables

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	For the three months ended:
	February 29, 2016			February 28, 2015
Options outstanding at beginning of year		237,500			314,400
Granted		-			-
Forfeited or expired		(62,500	)		(56,900	)
Exercised		-			-
Outstanding at end of period		175,000			257,500

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]

Options Outstanding								Options Exercisable
Outstanding		Wghtd. Avg.		Wghtd. Avg.		Aggregate		Exercisable		Wghtd. Avg.		Aggregate
at 2/29/16		Remaining Life		Exercise Price		Intrinsic Value		at 2/29/16		Exercise Price		Intrinsic Value
	175,000		0.75	$	1.29	$	-		175,000	$	1.29	$	-

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Note 1 - Nature of Operations (Details Textual)	Feb. 29, 2016
Franchised Units [Member]
Number of Stores	84
Licensed Units [Member]
Number of Stores	3
Units Under Development [Member]
Number of Stores	7
Number of States in which Entity Operates	24
Number of Wholly Owned Subsidiaries	3
Number of Stores	94

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Note 2 - Units Open and Under Development - Operating Units (Details)	Feb. 29, 2016
Franchised Units [Member]
Stores open:
Number of Stores	84
Licensed Units [Member]
Stores open:
Number of Stores	3
Total Franchised Owned and Licensed Units [Member]
Stores open:
Number of Stores	87
Unopened Store [Member]
Stores open:
Number of Stores	7
Number of Stores	94

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Note 3 - Earnings Per Share (Details Textual) - shares	3 Months Ended
	Feb. 29, 2016	Feb. 28, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	175,000	257,500

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Note 3 - Earnings Per Share - Computation of Earnings Per Share (Details) - USD ($)	3 Months Ended
	Feb. 29, 2016	Feb. 28, 2015
Net income/(loss) available to common shareholders	$ 89,125	$ (245,605)
Weighted average outstanding shares
Basic and diluted common stock (in shares)	7,263,508	7,263,508
Earnings/(Loss) per Share - Basic (in dollars per share)	$ 0.01	$ (0.03)

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Note 4 - Long-Term Debt (Details Textual) - USD ($)	Sep. 06, 2002	Sep. 06, 2002	Feb. 29, 2016
Debt Instrument, Periodic Payment		$ 35,000
Debt Instrument, Interest Rate, Stated Percentage	4.75%	4.75%
Debt Instrument, Term		15 years
Debt Instrument, Face Amount	$ 386,000	$ 386,000
Stock Repurchased and Retired During Period, Shares	1,380,040
Notes Payable, Noncurrent			$ 33,000

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Note 5 - Stock Options (Details Textual) - $ / shares	3 Months Ended
	Feb. 29, 2016	May. 31, 2001
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises and Forfeitures in Period	1,225,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Share Price	$ 0.56
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period	62,500

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Note 5 - Stock Options - Stock Option Activity (Details) - shares	3 Months Ended
	Feb. 29, 2016	Feb. 28, 2015
Options outstanding at beginning of year (in shares)	237,500	314,400
Forfeited or expired (in shares)	(62,500)	(56,900)
Outstanding at end of period (in shares)	175,000	257,500

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Note 5 - Stock Options - Aggregate Intrinsic Value (Details)	3 Months Ended
	Feb. 29, 2016 USD ($) $ / shares shares
Options Outstanding (in shares) | shares	175,000
Options Outstanding, Wghtd. Avg. Remaining Life	273 days
Options Outstanding, Wghtd. Avg. Exercise Price (in dollars per share) | $ / shares	$ 1.29
Options Outstanding, Aggregate Intrinsic Value | $	$ 0
Options Exercisable (in shares) | shares	175,000
Options Exercisable, Wghtd. Avg. Exercise Price (in dollars per share) | $ / shares	$ 1.29
Options Exercisable, Aggregate Intrinsic Value | $

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Note 6 - Goodwill and Other Intangible Assets (Details Textual)	3 Months Ended
	Feb. 29, 2016 USD ($)
Goodwill, Impairment Loss	$ 0
Impairment of Intangible Assets (Excluding Goodwill)	$ 0

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Note 8 - Stockholders' Equity (Details Textual) - $ / shares				3 Months Ended
	Mar. 03, 2016	Jan. 06, 2016	Dec. 03, 2015	Feb. 29, 2016	Feb. 28, 2015
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.01
Special Cash Distribution [Member]
Common Stock, Dividends, Per Share, Cash Paid		$ 0.02
Common Stock, Dividends, Per Share, Declared				$ 0.03	$ 0.02
Common Stock, Dividends, Per Share, Cash Paid			$ 0.01

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Note 9 - Contingencies (Details Textual) - USD ($)	3 Months Ended
	Feb. 29, 2016	May. 31, 2015	Feb. 28, 2015
Payments for Legal Settlements		$ 243,000
Litigation Settlement, Expense			$ 243,046