3. Revenue Recognition

Franchise and related revenue

The Company sells individual franchises. The franchise agreements typically require the franchisee to pay an initial, non-refundable fee prior to opening the respective location(s), and continuing royalty fees on a weekly basis based upon a percentage of franchisee net sales. The initial term of franchise agreements are typically 10 years.  Subject to the Company’s approval, a franchisee may generally renew the franchise agreement upon its expiration.  If approved, a franchisee may transfer a franchise agreement to a new or existing franchisee, at which point a transfer fee is typically paid by the current owner which then terminates that franchise agreement. A franchise agreement is signed with the new franchisee with no franchise fee required. If a contract is terminated prior to its term, it is a breach of contract and a penalty is assessed based on a formula reviewed and approved by management. Revenue generated from a contract breach is termed settlement income by the Company and included in licensing fees and other income.

3. Revenue Recognition

Franchise and related revenue (continued)

Under the terms of our franchise agreements, the Company typically promises to provide franchise rights, pre-opening services such as blueprints, operational materials, planning and functional training courses, and ongoing services, such as management of the marketing fund. The Company considers certain pre-opening activities and the franchise rights and related ongoing services to represent two separate performance obligations. The franchise fee revenue has been allocated to the two separate performance obligations using a residual approach. The Company has estimated the value of performance obligations related to certain pre-opening activities deemed to be distinct based on cost plus an applicable margin, and assigned the remaining amount of the initial franchise fee to the franchise rights and ongoing services. Revenue allocated to preopening activities is recognized when (or as) these services are performed. Revenue allocated to franchise rights and ongoing services is deferred until the store opens, and recognized on a straight-line basis over the duration of the agreement, as this ensures that revenue recognition aligns with the customer’s access to the franchise right.

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 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.

Royalty revenue is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur.

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

3. Revenue Recognition (continued)

Gift Card Breakage Revenue

The Company sells gift cards to its customers in its retail stores and through its Corporate office. The Company’s gift cards do not have an expiration date and are not redeemable for cash except where required by law. Revenue from gift cards is recognized upon redemption in exchange for product and reported within franchisee store revenue and the royalty and marketing fees are paid and shown in the Condensed Consolidated Statements of Income. Until redemption, outstanding customer balances are recorded as a liability. An obligation is recorded at the time of sale of the gift card and it is included in accrued expenses on the Company’s Condensed Consolidated Balance Sheets.

The liability is reduced when the gift cards are redeemed by a franchise. Although there are no expiration dates for our gift cards, based on our analysis of historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage.” The Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and the corresponding revenue is included in licensing fees and other revenue. Significant judgments and estimates are required in determining the breakage rate and will be reassessed each quarter.

3. Revenue Recognition (continued)

Nontraditional and rebate revenue

As part of the Company’s franchise agreements, the franchisee purchases products and supplies from designated vendors.  The Company may receive various fees and rebates from the vendors and distributors on product purchases by franchisees.  In addition, the Company may collect various initial fees, and those fees are classified as deferred revenue in the balance sheet and straight lined over the life of the contract as deferred revenue in the balance sheet. The Company does not possess control of the products prior to their transfer to the franchisee and products are delivered to franchisees directly from the vendor or their distributors. The Company recognizes the rebates as franchisees purchase products and supplies from vendors or distributors and recognizes the initial fees over the contract life and the fees are reported as licensing fees and other income in the Condensed Consolidated Statements of Income.

Marketing Fund

Franchise agreements require the franchisee to pay continuing marketing fees on a weekly basis, based on a percentage of franchisee sales. Marketing fees are not paid on franchise wholesale sales. The balance sheet includes marketing fund cash, which is the restricted cash, accounts receivable and unexpended marketing fund contributions. Although the marketing fees are not separate performance obligations distinct from the underlying franchise right, the Company acts as the principal as it is primarily responsible for the fulfillment and control of the marketing services. As a result, the Company records marketing fees in revenues and related marketing fund expenditures in expenses in the Condensed Consolidated Statement of Income. The Company historically presented the net activities of the marketing fund within the balance sheet in the Condensed Consolidated Balance Sheet. While this reclassification impacts the gross amount of reported revenue and expenses the amounts will be offsetting, and there is no impact on net income.

3. Revenue Recognition (continued)

Disaggregation of Revenue

The following table presents disaggregation of revenue from contracts with customers for the three months ended February 28, 202329, 2024 and February 28, 2022:2023:

3. Revenue Recognition (continued)

Contract balances

The balance of contract liabilities includes franchise fees, license fees and vendor payments that have ongoing contract rights and the fees are being straight lined over the contract life. Contract liabilities also include marketing fund balances and gift card liability balances.

3. Revenue Recognition (continued)

Transaction price allocated to remaining performance obligations (franchise agreements and license fee agreement) for the year ended November 30:

4. Units Open and Under Development

Units which are open or under development at February 29, 2024 and February 28, 2023 and 2022 are as follows:

5. Earnings per Share

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

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.

Following the guidelines contained in ASC 350, the Company 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, 202329, 2024 and February 28, 2022,2023, 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 it’s carrying value, a quantitative assessment is then performed. Based on the qualitative analysis conducted during thethis quarter, management does not believe that an impairment existedexists at February 28, 2023.29, 2024.

7. Lease Receivable Commitments

The Company leases restaurant equipment to a certain franchise under a sales-type lease agreement. The lease agreement does not contain any non-lease components. The lease term is for a period of seven years, beginning June 1, 2022 and ending June 1, 2029. The lease requires weekly payments of $121 for a total 365 payments, and a final optional buy-out payment of $4,800, which management believes estimates residual value. At February 28, 2023,29, 2024, management does not believe the unguaranteed residual asset value of $4,800 to be impaired.

During the first quarterthree months ending February 28, 2023,29, 2024, the Company recorded interest income from the lease receivable of $121.$102.

The sales lease is included in the balance sheet at the current value of the lease payments at a 1.25% discount rate, which reflects the rate implicit in the lease agreement.

Future minimum lease payments receivable as of February 28, 202329, 2024 are as follows:

8. Lease Commitments

The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. AThe lease effective during the quarter was signed in June of 2018, effective October 1, 2018, expiring on March 31, 2024. On February 15, 2024, a lease amendment was signed, effective April 1, 2024 for a 6-year period, expiring March 31, 2030, with an option to renew for a 5-year period. A six-monthThe amendment continues to require the Company to pay base rent, real estate taxes, insurance and general repairs and maintenance. The amendment includes a ten-month rent abatement over the lease term, specifically defined in the agreement, and tenant allowance was provided in the lease, with any unused portionamount of $158,940. The tenant allowance is to be applied evenly to base rent. The unused portion was determined to be $21,300.the 62 months that were not abated. The renewal option has not been included in the measurement of the lease liability.

Monthly rent expense is recognized on a straight-line basis over the term of the lease. At February 28, 202329, 2024 the weighted average remaining lease term was 1373 months. The operating lease amendment is includedreflected in the balance of the Lease Liability on the balance sheet at the present value of the lease payments at a 5.25%using an 8.50% discount rate. The discount rate was considered to be an estimate of the Company’s incremental borrowing rate.

Gross future minimum annual rental commitments as of February 28, 202329, 2024 are as follows:

9. Income Taxes

For the three months ended February 28, 202329, 2024, the Company recorded current and deferred tax expense of $14,200$39,000 for an effective tax rate of 28.7%28.4% compared to $25,750$14,200 of current and deferred tax expense for the three months ended February 28, 20222023 for an effective tax rate of 29.0%28.7%.

10. Stockholder’s Equity

On March 6, 2024 the Board of Directors (“Board”) declared a $0.01 quarterly cash distribution, payable on April 12, 2024 to shareholders of record as of March 21, 2024. On December 11, 2023 the Board declared a $0.02 cash distribution/dividend per share, $0.01 quarterly and $0.01 special to stockholders of record as of December 27, 2023, paid January 16, 2024.

On September 12, 2023 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of September 28, 2023, payable October 18, 2023. On June 6, 2023 the Board declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2023, paid on July 11, 2023. On March 13, 2023 the Board of Directors declared a $0.01 distribution/dividend per share to stockholders of record as of March 30, 2023, payablepaid on April 19, 2023. On December 07, 2022 the Board of Directors declared a $0.02 cash distribution/dividend per share, $0.01 quarterly and $0.01 special, to stockholders of record as of December 22, 2022,, paid January 11, 2023.2023.

On September 9, 2022 the Board of Directors declared a $0.01 distribution/dividend per share to stockholders of record as of September 28, 2022, paid October 20, 2022. On June 3, 2022 the Board of Directors declared a $0.01 distribution/dividend per share to stockholders of record as of June 22, 2022, paid July 11, 2022. On March 7, 2022 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of March 29, 2022, paid April 18, 2022. On December 06, 2021 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of December 22, 2021, paid January 11, 2022.

On May 6, 2013, the Board of Directors (“Board”) of BAB, Inc. authorized and declared a dividend distribution of one right for each outstanding share of the common stock of BAB, Inc.the Company to stockholders of record at the close of business on May 13, 2013. Each right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Series A Participating Preferred Stock of the Company at an exercise price of $0.90 per one-thousandth of a Preferred Share, subject to adjustment. The complete terms of the Rights are set forth in a Preferred Shares Rights Agreement, dated May 6, 2013, between the Company and IST Shareholder Services, as rights agent.

The Board adopted the Rights Agreement to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, it works by imposing a significant penalty upon any person or group, other than exempt person as defined in the agreement, that acquires 15% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. However, neither the Rights Agreement nor the Rights should interfere with any merger, tender or exchange offer or other business combination approved by the Board.

Full details about the Rights Plan are contained in a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission on May 7, 2013.

On June 18, 2014 an amendment to the Preferred Shares Rights Agreement was filed appointing American Stock Transfer & Trust Company, LLC as successor to Illinois Stock Transfer Company. All original rights and provisions remain unchanged. 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. On May 22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights and provisions remain the same. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the original agreement. All other original rights and provisions remain the same. On March 4, 2021 an amendment was filed extending the final expiration date to mean the eleventh anniversary date of the original agreement. All other original rights and provisions remain the same. On April 4, 2023 an amendment was filed extending the final expiration date to mean the fourteenth anniversary date of the original agreement. All other original rights and provisions remain the same.

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 64 franchised and 4 licensed units at February 29, 2024 compared to 68 franchised and 4 licensed units at February 28, 2023 compared to 69 franchised and 4 licensed units at February 28, 2022.2023.  System-wide revenues for the three months ended February 28, 202329, 2024 were $9.2$9.6 million and February 28, 20222023 was $8.6$9.2 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 and Brewster's coffee), and through nontraditional channels of distribution.

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

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

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

As of February 28, 2023,29, 2024, the Company employed 1211 full-time employees and one part-time employee at the Corporate office. The employees are responsible for corporate management and oversight, accounting, advertising and franchising.  None of the Company's employees are subject to any collective bargaining agreements and management considers its relations with its employees to be good.

Results of Operations

Three Months Ended February 28, 202329, 2024 versus Three Months Ended February 28, 20222023

For the three months ended February 28, 202329, 2024 and February 28, 2022,2023, the Company reported net income of $35,000$99,000 and $63,000,$35,000, respectively. Total revenue of $746,000$836,000 increased $8,000,$90,000, or 1.0%12.1%, for the three months ended February 28, 2023,29, 2024, as compared to total revenue of $738,000$746,000 for the three months ended February 28, 2022.2023.

Royalty fee revenue of $443,000,$460,000, for the quarter ended February 28, 2023,29, 2024, increased $29,000,$17,000, or 7.0%3.8%, from the $414,000$443,000 for quarter ended February 28, 2022. The2023. Sales continue to increase in royalties for the quarter ended February 28, 2023 compared to the quarter ended February 28, 2022, was primarily due to franchisees’because of continued increase in usage of online orderingtraditional and delivery services in their areas and an increase in pricing.digital marketing campaigns.

Franchise fee revenue was $4,000,$10,000, for the quarter ended February 28, 2023, decreased $5,000,29, 2024, an increase of $6,000, or 55.6%150.0%, from $9,000$4,000 for February 28, 2022.2023. In the first quarter 20232024 there were nowas one store transfers, compared to one transfer in same period in 2022.opened and then both years had normal annual amortization. Licensing fee and other income of $60,000,$107,000, for the quarter ended February 28, 2023, decreased $10,00029, 2024, increased $47,000 or 14.3%78.3% from $70,000$60,000 for same quarter 2022.2023. Settlement revenue increased in the first quarter 2024 by $19,000 and license fee and other revenue increased by $23,000 compared to same period 2023.

Marketing Fund revenues of $259,000, for the quarter ended February 29, 2024, increased $21,000, or 8.8% from $238,000 for the quarter ended February 28, 2023, decreased $7,000, or 2.9% from $245,000 for the quarter ended February 28, 2022.2023.

Total operating expenses of $714,000, for the quarter ended February 29, 2024, increased $18,000, or 2.6% from $696,000 for the quarter ended February 28, 2023, increased $46,000, or 7.1% from $650,000 for the quarter ended February 28, 2022.2023. The increase was primarily related to an increase in, payroll expensemarketing fund expenses of $36,000. Employees received a Holiday bonus$21,000, an increase in December 2022, increasing fiscal 2023 payroll expense by $36,000 and there was no employee Holiday bonusprovision for uncollectible accounts of $23,000, an increase in the same period 2022. In addition, in the first quarterfranchise development of fiscal 2023, there were increases in occupancy expense of $1,000, professional services of $9,000 and other of $12,000 which included $6,000 of computer and maintenance expense, $2,000 in business insurance, $3,000 in general expenses and a change in bad debt provision of $1,000,$5,000, offset by a decrease in Marketing Fundpayroll and payroll related expenses of $16,000, a decrease in business insurance of $5,000, a decrease in advertising and promotion expenses of $3,000 and a decrease in general expenses of $7,000 travel expense of $1,000 and employee benefit expense of $3,000.compared to the quarter ended February 28, 2023.

For the three months ended February 28, 202329, 2024 the provision for income tax was $14,000,$39,000, compared to $26,000$14,000 for the three months ending February 28, 2022.2023.

Earnings per share, as reported for basic and diluted outstanding shares, was $0.01 for the quarters wasquarter ended February 29, 2024 and $0.00 earnings for quarter ended February 28, 2023 versus $0.01 For February 28, 2022.2023.

Liquidity and Capital Resources

At February 29, 2024, the Company had working capital of $1,529,000 and unrestricted cash of $1,890,000. At February 28, 2023 the Company had working capital of $1,288,000, and unrestricted cash of $1,598,000. At

During the three months ended February 28, 202229, 2024, the Company had working capitalnet income of $1,159,000$99,000 and unrestrictedoperating activities provided cash of $1,494,000.

$192,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the three months ending February 29, 2024 was depreciation and amortization of $1,000, noncash lease expense $25,000 and $23,000 provision for uncollectible accounts, less deferred tax expense of $22,000. In addition, changes in operating assets and liabilities increased cash by $67,000. During the three months ended February 28, 2023, the Company had net income of $35,000 and operating activities provided cash of $180,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the three months ending February 28, 2023 was depreciation and amortization of $1,000, and noncash lease expense of $25,000. In addition, changes in operating assets and liabilities increased cash by $119,000. During the three months ended February 28, 2022, the Company had net income of $63,000 and operating activities provided cash of $142,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the three months ending February 28, 2022 was depreciation and amortization of $1,000, deferred tax expense of $17,000 and noncash lease expense of $25,000, less the recovery of uncollectible accounts of $1,000. In addition, changes in operating assets and liabilities increased cash by $37,000. 

The Company had no investing activity for the first three months of 2023 compared to $10,000 for same period 2022.2024 or 2023.

Cash distributions/dividends used $145,000 in financing activities for the three months ending February 29, 2024 and February 28, 2023, and $73,000 for the three months ending February 28, 2022.  respectively.

Cash Distribution and Dividend Policy

The Company continues to monitor any possibly re-occurring impact of the Coronavirus variants on its operations when determining the future cash distribution/dividend payments. It is the Company’s intent that future cash distributions/dividend payments will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis. For 2023,2024, a $0.02 cash distribution was declared for the first quarter and a $0.01 cash distribution has been declared for the firstsecond quarter.

Determination of whether distributions are considered a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2023,2024, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2023.2024.

RecentAdopted Accounting PronouncementsPolicies

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2023.2022. The Company will adoptadopted ASU 2016-13 forin the first quarter of fiscal year ending November 30, 2025.2024 and there was no material financial change. Enhanced disclosures are found in the Summary of Significant Accounting Policies.

Recent Accounting Pronouncements

In December 2019,2023, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for2023-09, “Improvements to Income Taxes,”Tax Disclosures” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-122023-09 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2019-122023-09 are effective for public business entities for fiscal years beginning after December 15, 2023,2024, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-122023-09 for fiscal year ending November 30, 2025.2026.

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of February 28, 202329, 2024 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

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, 2022,2023, filed with the Securities and Exchange Commission on February 24, 2023.26, 2024. 

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 February 28, 202329, 2024 our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

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 ending February 28, 202329, 2024 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 may be subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of such proceedings or claims cannot be predicted with certainty, management does not believe that the outcome of any of such proceedings or claims will have a material effect on our financial position. We know of no pending or threatened proceeding or claim to which we are or will be a party.

None.

None.

Not applicable

Amendment No. 5 to the Company’s Preferred Shares Rights Agreement dated May 6, 2013 was filed on March 8, 2021. The amendment revises the definition of “Final Expiration Date” to mean the eleventh anniversary of the date of the Preferred Shares Rights Agreement.None

(a)  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.