FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

BAB,, Inc.

(Name of small business issuer in its charter)

 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 checkmarkcheck mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or aan emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐  Accelerated filer ☐  Non-accelerated filer ☐  (Do not check if a smaller reporting company)   Smaller reporting company ☒  Emerging growth company ☐

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

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

As of October 13, 2017 April 15, 2019 BAB, Inc. had: 7,263,508 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I

BAB, Inc.

Consolidated Balance Sheets

SEESEE ACCOMPANYING NOTES

BAB, Inc.

Consolidated Statements of Income

For the Three and NineMonth Periods Ended August 31, 2017February 28, 2019 and 20168

 (Unaudited)

SEESEE ACCOMPANYING NOTES

BAB, Inc.

Consolidated Statements of Cash Flows

For the NineThree Months Ended August 31,2017February 28, 2019 and 20168

(Unaudited)

 SEE ACCOMPANYING NOTES

BAB, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and NineMonth Periods Ended August 31, 2017February 28, 2019 and 20162018

(Unaudited)

3.

5.6. 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 and has elected to early adopt ASU 2017-04 “Intangibles – Goodwill and Other” (Topic 350) in the first quarter ended February 28, 2017.

TheFollowing the guidelines contained in ASC 350, the Company tests goodwill and intangible assets that isare not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible.

The Company has consistently conductedelected to conduct its annual test during the first quarter. During the quarter ended February 28, 2019, management qualitatively assessed goodwill to determine whether testing iswas 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, 2017,2019, and a quantitative assessment was not considered necessary. There were no factors noted at August 31, 2017 that would require additional testing.

The impairment test performed November 30, 2016 was based on a fair market value calculation using a discounted cash flow model that incorporated management’s business plan projection for expected future cash flows. Based on the computation it was determined that no impairment had occurred. There have been no material changes in any of the three quarters of 2017 and it is believed that the cash flow projections are in line with current year income and expenses.

In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350), which is intended to simplify the test for goodwill impairment. To simplify the subsequent measurement of goodwill, the standard eliminates Step 2 from the goodwill impairment test. Instead, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this ASU are effective for the annual reporting periods beginning after December 15, 2019, including the interim periods within that reporting period. The Company elected to early adopt this guidance in the quarter ended February 28, 2017.

6. Recent and Adopted 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 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 is evaluating the impact that adoption of this guidance might have on the Company’s financial position, cash flows or 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 8373 franchised and 6 licensed units at February 28, 2019 compared to 80 franchised and 3 licensed units at August 31, 2017 compared to 86 franchised and 3 licensed units at August 31, 2016.February 28, 2018.  System-wide revenues for the ninethree months ended August 31, 2017February 28, 2019 were $26.3$7.8 million as compared to August 31, 2016February 28, 2018 which were $26.4$7.8 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 (Greenthrough a licensing agreement with 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.Coffee.

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 feeThere are two items involving revenue uponrecognition of contracts that require us to make subjective judgments: the openingdetermination of a franchise storewhich performance obligations are distinct within the context of the overall contract and the estimated stand alone selling price of each obligation. In instances where our contract includes significant customization or uponmodification services, the signing of a Master Franchise Agreement. Direct costs associated with the franchise salecustomization and modification services are deferred until the franchise fee revenue is recognized.  These costs include site approval, construction approval, commissions, blueprintsgenerally combined and training costs.recorded as one distinct performance obligation.

The Company earns licensing feesfees 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 August 31, 2017,February 28, 2019, the Company employed 1513 full-time employees 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 August 31, 2017February 28, 2019 versus Three Months Ended AugustFebruary 28, 2018 31, 2016

For the three months ended August 31, 2017February 28, 2019 and 2016,2018, the Company reported net income of $132,000$97,000 and $165,000,$101,000, respectively. Total revenue of $564,000 decreased $52,000,$712,000 increased $212,000, or 8.4%42.4%, for the three months ended August 31, 2017,February 28, 2019, as compared to total revenue of $616,000$500,000 for the three months ended August 31, 2016.February 28, 2018. Marketing revenue of $229,000 were included per adoption of ASC 606 and franchise fees increased $13,000, offset by a decrease of $12,000 in royalty revenue and an $18,000 decrease in licensing fees and other income. Adoption of ASC606 decreased net income for February 28, 2019 by $40,000, from $137,000 to $97,000. Adoption of ASC606 includes $229,000 in revenue for Marketing revenue and rebates, an increase of $4,000 in franchise fees, offset by a decrease in license fees of $13,000 and gift card breakage of $29,000 making revenues unadjusted for ASC606, $524,000 for February 28, 2019.

Royalty fee revenue of $447,000,$373,000, for the quarter ended August 31, 2017, increased $5,000,February 28, 2019, decreased $12,000, or 1.1%3.1%, from the $442,000$385,000 for quarter ended August 31, 2016.February 28, 2018.

Franchise fee revenues of $10,000,$13,000, for the quarter ended August 31, 2017, decreased $50,000, or 83.3% from the $60,000February 28, 2019, versus none for the quarter ended August 31, 2016.February 28, 2018. There were no store openings and two transfers in the quarter ended August 31, 2017 compared to two stores opened and two transfers2019 versus none in the three months ending August 31, 2016.2018. In addition, there was a $3,000 franchise fee revenue increase for adoption of ASC606 in fiscal 2019.

Licensing fee and other income of $107,000,$97,000, for the quarter ended August 31, 2017,February 28, 2019, decreased $7,000,$18,000, or 6.1%15.7% from $114,000$115,000 for the quarter ended August 31, 2016.February 28, 2018. License fees and settlement income decreased $4,000 and gift card breakage revenue decreased $25,000, offset by an increase in rebate revenue of $11,000 in 2019 compared to 2018. The decrease in gift card breakage revenue was primarily due to decreased Sign Shop revenues for the third quarter ended August 31, 2017adoption of ASC 606 in fiscal 2019. The gift card breakage revenue would have increased $6,000 in 2019 compared to 2018 without the same quarter 2016.adoption.

Total operating expenses of $432,000,$611,000, for the quarter ended August 31, 2017 decreased $19,000,February 28, 2019 increased $226,000, or 4.2%58.7% from $451,000$385,000 for the quarter ended August 31, 2016.February 28, 2018. The 2017 decreaseincrease was primarily due to a decrease in franchise development2019 adoption of $16,000, a decrease in professional servicesASC 606 including marketing expenses of $8,000, a decrease$229,000. Marketing revenue and marketing expenses offset each other. There was an increase of $4,000 each for advertising and amortization and a decrease of $3,000 for Sign Shop cost of goods sold. These were offset by increases$9,000 in payroll and payroll related expensestax expense, and increase in advertising expense of $11,000, an$10,000 and increase in employee benefit expense of $3,000$12,000 and an increase in franchise development of $2,000$3,000, offset by a decrease in occupancy of $20,000 a decrease in uncollectible accounts of $10,000 and a decrease in general expenses of $7,000 for the third quarter 20173 months ended February 28, 2019 compared to the same period in 2016.2018.

Earnings per share, as reported for basic and diluted outstanding shares for the quarter ended August 31, 2017February 28, 2019 and 20162018 was $0.02.$0.01.

Nine Months Ended August 31, 2017 versus Nine Months Ended August 31, 2016

For the nine months ended August 31, 2017 and 2016, the Company reported net income of $321,000 and $386,000, respectively. Total revenue of $1,664,000 decreased $97,000, or 5.5%, for the nine months ended August 31, 2017, as compared to total revenue of $1,761,000 for the nine months ended August 31, 2016.

Royalty fee revenue of $1,295,000, for the nine months ended August 31, 2017, decreased $4,000, or 0.3%, from the $1,299,000 for the nine months ended August 31, 2016. Royalty revenues were primarily flat and 2016 was leap year and included one additional day’s sales.

Franchise fee revenues of $50,000, for the nine months ended August 31, 2017, decreased $28,000, or 35.9%, from the $78,000 for the nine months ended August 31, 2016. One store was opened and five transfers for the nine months in 2017 compared to two stores opened and six transfers in the nine months same period in 2016.

Licensing fee and other income of $319,000, for the nine months ended August 31, 2017, decreased $66,000, or 17.1%, from $385,000 for the nine months ended August 31, 2016. The decrease in 2017 was primarily due to a one time nontraditional vendor rebate payment in 2016 of $40,000, a decrease in Sign Shop revenue of $15,000, a decrease in nontraditional income of $6,000 and a decrease in settlement fees of $5,000 compared to same period 2016.

Total operating expenses of $1,344,000 decreased $31,000, or 2.3%, for the nine months ended August 31, 2017, from $1,375,000 for the same period 2016. The decrease was primarily due to a decrease in Sign Shop cost of goods sold of $24,000, advertising expenses of $14,000, amortization expense of $4,000 and a decrease in franchise development of $2,000 for the nine months ended August 31, 2017 compared to the same period 2016. This was offset by an increase in employee benefit expense of $6,000 and an increase in general expenses of $6,000 for the nine months ended August 31, 2017 compared to the same period 2016.

There was no income tax expense recorded for the nine months ended August 31, 2017 and 2016.

Earnings per share, as reported for basic and diluted outstanding shares for the nine months ended August 31, 2017 and 2016 was $0.04 and $0.05 per share, respectively.

Liquidity and Capital Resources

At August 31, 2017,February 28, 2019, the Company had working capital of $589,000$645,000 and unrestricted cash of $746,000.$966,000. At November 30, 20162018 the Company had working capital of $557,000$756,000 and unrestricted cash of $907,000.$1,065,000.

During the ninethree months ended August 31, 2016,February 28, 2019, the Company had net income of $321,000$97,000 and operating activities provided cash of $139,000.$97,000. The principal adjustments to reconcile the net lossincome to cash provided in operating activities for the ninethree months ending August 31, 2016 were depreciationFebruary 28, 2019 was an increase in noncash lease expense of $26,000 and amortization of $11,000 less a decrease in the provision for uncollectible accounts of $5,000.$11,000. In addition, changes in operating assets and liabilities decreased cash by $188,000.$15,000. During August 31, 2016,the three months ended February 28, 2018, the Company had net income of $386,000$101,000 and operating activities provided cash of $348,000.$152,000. The principal adjustments to reconcile the net lossincome to cash provided in operating activities for the ninethree months ending August 31, 2016 were depreciation and amortization of $15,000 lessFebruary 28, 2018 was a decrease in the provision for uncollectible accounts of $4,000.$1,000. In addition, changes in operating assets and liabilities decreasedincreased cash by $50,000.$52,000.

The Company used $9,000 and $4,000 forThe Company’s investing activities were insignificant for the ninethree months ended August 31, 2017February 28, 2019 and 2016, respectively.2018. 

The Company used $291,000$218,000 and $363,000$145,000 for cash distribution/dividend payments during the ninethree month periodperiods ended August 31, 2017February 28, 2019 and 2016, respectively.2018.

On September 7, 2017,March 13, 2019, the Board of Directors declared a $0.01 per share quarterly cash distribution/dividend to shareholders of record as of September 25, 2017, payable October 13, 2017.March 29, 2019, to be paid April 18, 2019. 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.

Cash Distribution and Dividend Policy

It is the Company’sCompany’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, thereThere 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 2017 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 isdistributions are considered a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2017,2019, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2017.2019.

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.

Recent and Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350), which is intended to simplify the test for goodwill impairment. To simplify the subsequent measurement of goodwill, the standard eliminates Step 2 from the goodwill impairment test. Instead, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The amendments in this ASU are effective for the annual reporting periods beginning after December 15, 2019, including the interim periods within that reporting period. The Company elected to early adopt this guidance in the quarter ended February 28, 2017.

Revenue from Contracts with Customers, ASU 2014-09 (Topic 606) 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’sstandard’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 ASUstandard 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.  The Company has adopted this standard effective December 1, 2019. See note 3 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 is evaluating the impact thatof adoption of this guidance might have on the Company’s financial position, cash flows or results of operations.

On February 25, 2016,We have evaluated the FASB issued ASU No. 2016-02, Leases, requiring lesseesimpact of our franchise contributions to recognize a right-of-use asset and a lease liability onsubsequent expenditures from our marketing fund. We have determined we are 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 leasesprincipal 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 ofthese arrangements and under 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 transitionwe have included them as revenue and requires application of the new guidance at the beginning of the earliest comparative period presented.expense items.   The Company will adopt ASU 2016-02has adopted this standard effective December 1, 2019. See note 3 for fiscal year ending November 30, 2019 and the Company is evaluating the impact thatof adoption of this guidance might have on the Company’sCompany’s financial position, cash flows orand results of operations.

In March 2016, the Financial Accounting Standards BoardFASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products.Products. The amendmentsnew guidance creates an exception under ASC 405-20, Liabilities-Extinguishments of Liabilities, to derecognize financial liabilities related to certain prepaid stored-value prodpucts using a revenue-like breakage model. In general, these liabilities may be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are not entitled to the unredeemed stored value. The Company adopted this guidance effective December 1, 2018 in connection with its adoption of Topic 606, utilizing the modified retrospective method. Refer to Note 3 for further disclosure of the impact of the new guidance.

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 ASU are designed to providetotal 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. The Company adopted this new guidance on December 1, 2018 using a retrospective transition method, and eliminate diversity inrestated 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 effectivecash flow statement for the annual reporting periods beginning after December 15, 2017, including the interim periods within that reporting period. Early adoption is permitted. The Company is still evaluating the impact the guidance will have on the Company’s financial position, cash flows or results of operations.prior period presented. 

 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. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company will adopt ASU 2015-17 during the year ended November 30, 2018, on a retrospective basis. The effect of this change is not expected to materially alter the Company’s financial position as a whole.

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

Critical Accounting Policies

The Company has identified other significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.  The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, deferred tax assets and the related valuation allowance.  Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2016,2018, filed with the Securities and Exchange Commission on February 23, 2017.  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 or nine months ended August 31, 2017.25, 2019. 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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 August 31, 2017February 28, 2019 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 ninethree months of fiscal year 20172019 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

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

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

None.

None.

Not applicable

None.

See index to exhibits

INDEX TO EXHIBITS

(a)  EXHIBITS

The following exhibits are filed herewith.

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.

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INDEX TO EXHIBITS

(a)  EXHIBITS

The following exhibits are filed herewith.

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