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Note 2 - Summary of Significant Accounting Policies
12 Months Ended
Nov. 30, 2018
Notes to Financial Statements  
Significant Accounting Policies [Text Block]
Note
2
- Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Revenue Recognition
 
Royalty fees from franchised stores represent a
5%
fee on net retail and wholesale sales of franchised units. Royalty revenues are recognized on an accrual basis using actual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis based on actual numbers from reports received from franchisees shortly after the period-end. Estimates are utilized in certain instances where actual numbers have
not
been received.
 
The Company recognizes franchise fee revenue on the store’s opening. Direct costs associated with the sale of franchises are deferred until the franchise fee revenue is recognized.  These costs include site approval, construction approval, commissions, blueprints and training costs.
 
The Company will recognize revenue upon a signed and completed franchise agreement for a Master Franchise Agreement (“MFA”). The revenue for a MFA is a nonrefundable fee and the amount of the fee is dependent on the area covered by the MFA. In addition there will be ongoing royalty fees as determined by the contract.
 
Big Apple Bagels®, SweetDuet Frozen Yogurt and Gourmet Muffins® and My Favorite Muffin® operating units, licensed units and unopened stores for which a Franchise Agreement has been executed, are as follows:
 
   
2018
   
2017
 
Operating Units
               
Franchise Owned
   
76
     
82
 
Licensed Units
   
4
     
3
 
     
80
     
85
 
Unopened stores with Franchise Agreements:
   
4
     
2
 
Total operating units and units with Franchise Agreements
   
84
     
87
 
 
License fees and other income primarily consist of license fees, Sign Shop revenues and defaulted and terminated franchise contract revenues. Revenue is recorded on an accrual basis. Actual amounts are used to record the majority of license fees although at times it is necessary to use estimates. Revenues and expenses recorded for the Sign Shop, as well as defaulted and terminated franchise contract revenue, are actual amounts. Beginning in
December 2017,
a majority of franchise signage and point of sale materials was outsourced to a printer that provides consistency and convenience to the franchisees, prior to
December 2017,
Sign Shop revenue was included in licensing and other income.
 
Segments
 
Accounting standards have established annual reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. The Company’s operations were a single reportable segment and an international segment. The international segment operations are immaterial.
 
Marketing Fund
 
A Marketing Fund has been established for BAB, MFM and SD. Franchised stores are required to contribute a fixed percentage of their net retail sales to the Marketing Fund. Liabilities for unexpended funds received from franchisees are included as a separate line item in accrued expenses and Marketing Fund cash accounts are included in restricted funds in the accompanying Balance Sheet. The Marketing Fund also derives revenues from rebates paid by certain vendors on the sale of BAB and MFM licensed products to franchisees.
 
Cash
 
As of
November 30, 2018
and
2017,
the Marketing Fund cash balances, which are restricted, were
$444,000
and
$693,000,
respectively.
 
The FDIC maximum insurance on all interest and noninterest bearing checking accounts is
$250,000
for each entity. The Company exceeded FDIC limits on its operating and marketing accounts but did
not
experience any losses.
 
Accounts
and Notes
Receivable
 
Receivables are carried at original invoice amount less estimates for doubtful accounts. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance is outstanding
90
days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as income when received. Certain receivables have been converted to unsecured interest-bearing notes.
 
Inventories
 
Inventories are valued at the lower of cost or market under the
first
-in,
first
-out (FIFO) method.
 
Property, Plant and Equipment
 
Property and equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are
3
to
7
years for property and equipment and
10
years, or term of lease if less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized.
 
Goodwill and Other Intangible Assets
 
Accounting Standard Codification (“ASC”)
350
“Goodwill and Other Intangible Assets” requires that assets with indefinite lives
no
longer be amortized, but instead be subject to annual impairment tests. The Company
follows this guidance.
 
Following the guidelines contained in ASC
350,
the corporation tests goodwill and intangible assets that are
not
subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the
first
quarter. During the quarter ended
February 28, 2018,
management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy, and changes in the composition and carrying amounts of net assets. If this qualitative assessment indicates that it is more likely than
not
that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is then performed. Based on a qualitative evaluation, management determined that the carrying value of goodwill was
not
impaired at
February 28, 2018,
and a quantitative assessment was
not
considered necessary.
 
Management reviewed the qualitative assessment conducted during the
first
quarter
2018
at year end and does
not
believe that any impairment exists at
November 30, 2018.
 
The net book value of goodwill and intangible assets with indefinite and definite lives are as follows:
 
   
Goodwill
   
Trademarks
   
Definite Lived Intangibles
   
Total
 
                                 
Net Balance as of November 30, 2016
  $
1,493,771
    $
455,182
    $
9,108
    $
1,958,061
 
Additions
   
-
     
4,455
     
-
     
4,455
 
Amortization expense
   
-
     
-
     
(9,108
)    
(9,108
)
Net Balance as of November 30, 2017
  $
1,493,771
    $
459,637
    $
-
    $
1,953,408
 
Additions
   
-
     
-
     
10,292
     
10,292
 
Amortization expense
   
-
     
-
     
(550
)    
(550
)
Net Balance as of November 30, 2018
  $
1,493,771
    $
459,637
    $
9,742
    $
1,963,150
 
 
Advertising and Promotion Costs
 
The Company expenses advertising and promotion costs as incurred. Advertising and promotion expense was
$14,000
and
$24,000
in
2018
and
2017,
respectively. All advertising and promotion costs were related to the Company’s franchise operations.
 
Income Taxes
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The benefits from net operating losses carried forward
may
be impaired or limited in certain circumstances. In addition, a valuation allowance can be provided for deferred tax assets when it is more likely than
not
that all or some portion of the deferred tax asset will
not
be realized.
 
The Company files a consolidated U.S. income tax return and tax returns in various state jurisdictions. Review of the Company’s possible tax uncertainties as of
November 30, 2018
did
not
result in any positions requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax positions or other tax authority assessments, it would classify such expenses as part of the income tax provision. The Company has
not
changed any of its tax policies or adopted any new tax positions during the fiscal year ended
November 30, 2018
and believes it has filed appropriate tax returns in all jurisdictions for which it has nexus.
 
In
November 2015,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No.
2015
-
17,
“Income Taxes (Topic
740
): Balance Sheet Classification of Deferred Taxes” (“ASU
2015
-
17”
). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. The Company has adopted ASU
2015
-
17
during the year ended
November 30, 2018.
In accordance with ASU
2015
-
17,
the deferred tax asset is classified as noncurrent on the balance sheet.
 
On
December 22, 2017
the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces the Federal statutory corporate income tax rate from
35%
to
21%.
This rate reduction resulted in a significant decrease in our provisions for income taxes for the year ended
November 30, 2018.
 
The Company’s income tax returns, which are filed as a consolidated return under Inc. for the years ending
November 30, 2015,
2016
and
2017
are subject to examination by the IRS and corresponding states, generally for
three
years after they are filed.
 
Earnings Per Share
 
The Company computes earnings per share (“EPS”) under ASC
260
“Earnings per Share.” Basic net earnings are divided by the weighted average number of common shares outstanding during the year to calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to the potential dilution that could occur if options or other contracts to issue common stock were exercised and resulted in the issuance of additional common shares.
 
   
2018
   
2017
 
Numerator:
 
 
 
 
 
 
 
 
Net income available to common shareholders
  $
507,875
    $
454,173
 
                 
Denominator:
 
 
 
 
 
 
 
 
Weighted average outstanding shares
               
Basic and diluted
   
7,263,508
     
7,263,508
 
Earnings per Share - Basic and diluted
  $
0.07
    $
0.06
 
 
At
November 30, 2018
and
2017,
there are
no
common stock equivalents. In addition, the weighted average shares do
not
include any effects for potential shares related to the Preferred Shares Rights Agreement.
 
Fair Value of Financial Instruments
 
The carrying amounts of financial instruments including cash, accounts receivable, notes receivable, accounts payable and short-term debt approximate their fair values because of the relatively short maturity of these instruments. The carrying value of long-term debt, including the current portion, approximate fair value based upon market prices for the same or similar instruments.
 
Leases
 
Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets. 
 
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do
not
provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms
may
include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
 
For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
 
Gift Card Policy
 
Included in accounts payable and accrued expenses at
November 30, 2018
and
2017
were liabilities of
$146,300
and
$156,400,
respectively for unredeemed gift cards. We reduce the liability for gift cards when redeemed by a franchisee. If a gift card is
not
redeemed, we recognize revenue when the likelihood of its redemption becomes remote, generally
6
years from the date of issuance.
 
Recent Accounting Pronouncements
 
On 
February 25, 2016, 
the FASB issued ASU 
No.
 
2016
-
02,
 Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after 
December 15, 2018. 
Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented.  The Company early adopted this standard at the commencement of the new lease beginning 
October 1, 2018.  
The Company has classified the new office lease as an operating lease. The adoption of ASU 
No.
 
2016
-
02
 increased the Company’s total assets and liabilities by
$
494,000
 based on a discounted calculation of the future lease payments. A discount rate of 
5.25%
 was used for the present value calculation of the future lease payments. The results on its operations is equal to amortization of the asset, net of the present value discount, on a straight line basis over the lease term.
 
Revenue from Contracts with Customers, ASU
2014
-
09
establishes a comprehensive revenue recognition standard for virtually all industries in U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. The standard requires
five
basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, (v) recognize revenue when (or as) the entity satisfies a performance obligation. Entities will generally be required to make more estimates and use more judgment than under current guidance, which will be highlighted for users through increased disclosure requirements.
 
The standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. We have evaluated franchise fees and have determined that under the new standard the franchise fee is
not
separate and distinct from the overall franchise right. Franchise fees received will be recorded as deferred revenue and recognized as revenue over the term of each respective franchise agreement, typically
10
years.  Under previous GAAP standards, franchise fees and costs associated with opening a franchise location were netted and the balance of the franchise fee was recognized when the location was opened for business. Upon adoption of Topic
606
in fiscal
2019
franchise fees less nonspecific expenses will be amortized over the life of the franchise contract and specific expenses being recognized immediately. This new standard, as compared to previous years will decrease franchise fee revenue by approximately
$20,000
and
$25,000
for each BAB and MFM location opened, respectively.  The retrospective adjustment to franchise fee revenue for
2019
will increase franchise revenue by approximately
$14,000
and the cumulative adjustment as of
December 1, 2018
will reduce retained earnings by approximately
$83,000.
 
In addition, we have evaluated the impact of our franchise contributions to and subsequent expenditures from our marketing fund. We act as an agent in regard to these franchisee contributions and expenditures and under prior GAAP standards, we have
not
currently included them in our Consolidated Statements of Income. Upon adoption of Topic
606,
we have determined we are the principal in these arrangements and under the new standard we will include them as revenue and expense items.  Additionally, we have determined that the advertising services provided to franchisees are highly interrelated with the franchise right and therefore
not
distinct. Franchisees remit to us a percentage of restaurant sales as consideration for providing the advertising services. As a result, revenues for advertising services are recognized when the related sales occur based on the application of the sales-based royalty exception within Topic
606.
We believe the approximate impact on revenues and expenses for
2019,
based on
2018
numbers, will increase both revenue and expenses by approximately
$
988,000
.
There will
not
be an impact on our net income. 
 
The ASU is effective for the Company, for fiscal years beginning after
December 15, 2017.
The Company will adopt ASU
2014
-
09
for fiscal year ending
November 30, 2019
and the Company does
not
believe that the impact of adoption of this guidance will have a material effect on the Company’s financial position, cash flows or results of operations.
 
In
March 2016,
the Financial Accounting Standards Board issued ASU
2016
-
04,
 Liabilities – Extinguishments of Liabilities (Subtopic
405
-
20
): Recognition of Breakage for Certain Prepaid Stored-Value Products. The amendments in the ASU are designed to provide guidance and eliminate diversity in the accounting for derecognition of prepaid stored-value product liabilities. Typically, a prepaid stored-value product liability is to be derecognized when it is probable that a significant reversal of the recognized breakage amount will
not
subsequently occur. This is when the likelihood of the product holder exercising its remaining rights becomes remote. This estimate shall be updated at the end of each period. The amendments in this ASU are effective for the annual reporting periods beginning after
December 15, 2017.
The Company currently follows a policy of recognizing breakage revenue after a card has been issued and
not
returned for a predetermined period per the Company policy. Revenue is recognized in the
first
quarter each year for breakage of prepaid stored-value products. This standard will be adopted in fiscal
2019.
The Company does
not
believe that adoption of this guidance will have a material impact on the Company’s financial position, cash flows or results of operations.
 
 In
November 2016,
the FASB issued ASU
No.
 
2016
-
18,
 Statement of Cash Flows (Topic
230
): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), (“ASU
2016
-
18”
). ASU
2016
-
18
requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU
2016
-
18
is effective for all interim and annual reporting periods beginning after
December 15, 2017.
Early adoption is permitted. We do
not
expect the adoption of ASU
2016
-
18
to have a material impact on our Consolidated Statements of Cash Flows.
 
Management does
not
believe that there are any other recently issued and effective or
not
yet effective pronouncements as of
November 30, 2018
that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations.