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 August 31, 2015

[ ] 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 October 13, 2015 BAB, Inc. had: 7,263,508 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4	Controls and Procedures	12
PART II	OTHER INFORMATION	13
Item 1.	Legal Proceedings	13
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3	Defaults Upon Senior Securities	13
Item 4	Mine Safety Disclosures	13
Item 5	Other Information	13
Item 6	Exhibits	14
SIGNATURE		14

 i

PART I

ITEM 1. FINANCIAL STATEMENTS

BAB, Inc.

Consolidated Balance Sheets

	August 31, 2015			November 30, 2014
	(unaudited)
ASSETS
Current Assets
Cash	$	694,314		$	709,555
Restricted cash		359,716			420,834
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $40,972 in 2015 and $48,250 in 2014 )		139,986			182,975
Marketing fund contributions receivable from franchisees and stores		29,398			23,708
Inventories		24,538			25,519
Prepaid expenses and other current assets		85,877			73,943
Total Current Assets		1,333,829			1,436,534
Property, plant and equipment (net of accumulated depreciation of $149,472 in 2015 and $147,638 in 2014)		4,087			5,921
Trademarks		455,182			454,479
Goodwill		1,493,771			1,493,771
Definite lived intangible assets (net of accumulated amortization of $92,558 in 2015 and $81,689 in 2014)		26,818			35,187
Deferred tax asset		248,000			248,000
Total Noncurrent Assets		2,227,858			2,237,358
Total Assets	$	3,561,687		$	3,673,892
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	31,898		$	31,898
Accounts payable		21,026			10,845
Accrued expenses and other current liabilities		308,276			308,315
Unexpended marketing fund contributions		389,369			213,750
Deferred franchise fee revenue		50,000			40,000
Deferred licensing revenue		5,833			32,083
Total Current Liabilities		806,402			636,891
Long-term debt (net of current portion)		33,413			33,413
Total Liabilities		839,815			670,304
Stockholders' Equity
Preferred shares -$.001 par value; 4,000,000 authorized; no shares outstanding as of August 31, 2015 and November 30, 2014		-			-
Preferred shares -$.001 par value; 1,000,000 Series A authorized; no shares outstanding as of August 31, 2015 and November 30, 2014		-			-
Common stock -$.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of August 31, 2015 and November 30, 2014		13,508,257			13,508,257
Additional paid-in capital		987,034			987,034
Treasury stock		(222,781	)		(222,781	)
Accumulated deficit		(11,550,638	)		(11,268,922	)
Total Stockholders' Equity		2,721,872			3,003,588
Total Liabilities and Stockholders' Equity	$	3,561,687		$	3,673,892

SEE ACCOMPANYING NOTES

1

BAB, Inc.

Consolidated Statements of Income

For the Three and Nine Month Periods Ended August 31, 2015 and 2014

(Unaudited)

	Three months ended August 31,						Nine months ended August 31,
	2015			2014			2015			2014
REVENUES
Royalty fees from franchised stores	$	440,960		$	458,656		$	1,278,715		$	1,311,369
Franchise fees		50,000			37,500			80,000			272,500
Licensing fees and other income		118,351			104,060			310,746			322,559
Total Revenues		609,311			600,216			1,669,461			1,906,428
OPERATING EXPENSES
Selling, general and administrative expenses:
Payroll and payroll-related expenses		267,100			262,741			829,291			809,981
Occupancy		44,054			44,596			129,520			136,522
Advertising and promotion		13,598			11,223			40,945			27,394
Professional service fees		29,145			31,088			106,652			131,166
Travel		12,292			12,522			33,643			36,126
Employee benefit expense		39,715			24,816			114,038			77,817
Depreciation and amortization		4,176			4,522			12,703			13,636
Legal Settlement		-			-			243,046			-
Other		71,986			47,032			158,450			192,271
Total Operating Expenses		482,066			438,540			1,668,288			1,424,913
Income from operations		127,245			161,676			1,173			481,515
Interest income		306			87			1,478			353
Interest expense		(776	)		(1,138	)		(2,327	)		(3,412	)
Income before provision for income taxes		126,775			160,625			324			478,456
Provision for income taxes
Current tax benefit/(expense)		8,500			7,583			8,500			(7,417	)
Net Income	$	135,275		$	168,208		$	8,824		$	471,039
Earnings per share - Basic and Diluted	$	0.02		$	0.02		$	(0.00	)	$	0.07
Weighted average shares outstanding - Basic		7,263,508			7,263,508			7,263,508			7,263,508
Effect of dilutive common stock		-			-			-			-
Weighted average shares outstanding - Diluted		7,263,508			7,263,508			7,263,508			7,263,508
Cash distributions declared per share	$	0.01		$	0.01		$	0.04		$	0.05

SEE ACCOMPANYING NOTES

2

BAB, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended August 31, 2015 and 2014

(Unaudited)

	For the nine months ended August 31,
	2015			2014
Operating activities
Net income	$	8,824		$	471,039
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization		12,703			13,636
Provision for uncollectible accounts, net of recoveries		(7,278	)		19,504
Loss on assets held for sale		-			3,783
Changes in:
Trade accounts receivable and notes receivable		50,267			(108,257	)
Restricted cash		61,118			176,444
Marketing fund contributions receivable		(5,690	)		(18,454	)
Inventories		981			(1,315	)
Prepaid expenses and other		(11,934	)		3,133
Accounts payable		10,181			(12,830	)
Accrued liabilities		(39	)		(5,856	)
Unexpended marketing fund contributions		175,619			(158,016	)
Deferred revenue		(16,250	)		(65,000	)
Net Cash Provided by Operating Activities		278,502			317,811
Investing activities
Capitalization of trademark renewals		(3,203	)		(7,644	)
Net Cash Used In Investing Activities		(3,203	)		(7,644	)
Financing activities
Cash distributions/dividends		(290,540	)		(363,177	)
Net Cash Used In Financing Activities		(290,540	)		(363,177	)
Net Decrease in Cash		(15,241	)		(53,010	)
Cash, Beginning of Period		709,555			683,891
Cash, End of Period	$	694,314		$	630,881
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	9,447		$	-

 SEE ACCOMPANYING NOTES

3

BAB, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Nine Month Periods Ended August 31, 2015 and 2014

(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 Coffee (“Brewster’s”), was established in 1996 and the coffee is sold in BAB and MFM locations as well as through license agreements. SweetDuet® (“SD”) frozen yogurt can be added as an additional brand in a BAB or MFM location. Operations was formed on August 30, 1995, primarily to operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels® (“Jacobs Bros.”) were acquired on February 1, 1999, and any branded wholesale business uses this trademark. Investments was incorporated September 9, 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 and SD trade names. At August 31, 2015, the Company had 81 franchise units and 5 licensed units in operation in 26 states. 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, Kaleidoscoops 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 Frozen Yogurt & Gourmet Muffins® 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, 2014 which was filed February 23, 2015 and amended on August 12, 2015.  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 August 31, 2015 are as follows:

Stores open:
Franchisee-owned stores	81
Licensed Units	5
	86
Unopened stores with Franchise
Agreements	6
Total operating units and units with Franchise Agreements	92

3. Earnings per Share

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

	For the three months ended August 31,				For the nine months ended August 31,
	2015		2014		2015		2014
Numerator:
Net income available to common shareholders	$	135,275	$	168,208	$	8,824	$	471,039
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.02	$	0.02		0.00		0.06

The Company excluded 237,500 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share, for the three and nine months ended August 31, 2015, because their inclusion would have been anti-dilutive. For the three and nine months ended August 31, 2014, the Company excluded 314,400 potential shares attributable to outstanding stock options from the calculation.

4.  Long-Term Debt

The Company’s outstanding debt consists of a note payable in the amount of $65,311 at August 31, 2015. 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, including principal and interest of $525,000. A payment of $35,000 is due October 1, 2015 and a final payment of $35,000 on 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 August 31, 2015, there were 1,162,500 stock options exercised or forfeited under the Plan. 

	For the nine months ended August 31,
	2015			2014
Options outstanding at beginning of year		314,400			368,373
Granted		-			-
Forfeited or expired		(76,900	)		(53,973	)
Exercised		-			-
Outstanding at end of year		237,500			314,400

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 option terms 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 August 31, 2015:

Options Outstanding							Options Exercisable
Outstanding	Wghtd. Avg.		Wghtd. Avg.		Aggregate		Exercisable		Wghtd. Avg.		Aggregate
at 8/31/15	Remaining Life		Exercise Price		Intrinsic Value		at 8/31/15		Exercise Price		Intrinsic Value
237,500		1.05	$	1.28	$	-		237,500	$	1.28	$	-

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 $0.55 as of the last business day of the period ended August 31, 2015. There were 76,900 unexercised options that expired and no options exercised during the nine month period ended August 31, 2015.

 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 28, 2015 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment test performed February 28, 2015 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. There were no factors noted at August 31, 2015 that would require additional testing.

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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 the Company, for annual periods 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 or results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of August 31, 2015 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 September 2, 2015 the Board of Directors declared a $0.01 cash dividend/distribution to shareholders of record as of September 21, 2015, payable October 9, 2015.

On June 4, 2015 the Board of Directors declared a $0.01 cash dividend/distribution to shareholders of record as of June 18, 2015, paid on July 8, 2015.

On March 2, 2015 the Board of Directors declared a $0.01 cash distribution/dividend to shareholders of record as of March 20, 2015, paid on April 10, 2015.

The Board of Directors declared a cash distribution/dividend on December 3, 2014 of $0.02 which consisted of a $0.01 quarterly and a $0.01 special cash distribution/dividend per share paid on January 6, 2015.

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 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.

The Company had previously reported that 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 2015 and payment was made in the second quarter 2015 and it includes 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 81 franchised and 5 licensed units at August 31, 2015 compared to 90 franchised and 5 licensed units at August 31, 2014.  System-wide revenues for the nine months ended August 31, 2015 were $26.0 million as compared to August 31, 2014 which were $26.8 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 (Kohr Bros., Kaleidoscoops 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.

8

In 2014 a Master Franchise Agreement (“MFA”) was entered into with a Dubai based organization which includes ten Middle East Countries. The MFA is for $200,000, is nonrefundable and represents full payment for the MFA and the first fifteen stores owned by the Master Franchisee (“MF”), and/or franchised locations. There was an initial payment of $100,000, $50,000 was paid in April of this year and $50,000 was paid in September of 2015. All BAB locations under the MFA operated by a franchisee will pay BAB Systems 50% of the current royalty and service fee payable to the MF. The first Big Apple Bagels location, which is owned by the MF, is currently under development.

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 August 31, 2015, the Company employed 15 full-time and 2 part-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, 2015 versus Three Months Ended August 31, 2014

For the three months ended August 31, 2015 and 2014, the Company reported net income of $135,000 and $168,000, respectively. Total revenue of $609,000 increased $9,000, or 1.5%, for the three months ended August 31, 2015, as compared to total revenue of $600,000 for the three months ended August 31, 2014.

Royalty fee revenue of $441,000, for the quarter ended August 31, 2015, decreased $18,000, or 3.9%, from the $459,000 for quarter ended August 31, 2014. There were fewer locations in 2015 versus same period in 2014.

Franchise fee revenues of $50,000, for the quarter ended August 31, 2015, increased $13,000 as compared to the same quarter 2014. There were two stores opened in the three months ending August 31, 2015 compared to one store opening and three transfers in the same period 2014.

Licensing fee and other income of $118,000, for the quarter ended August 31, 2015, increased $14,000, or 13.5% from $104,000 for the quarter ended August 31, 2014. The increase in licensing fees and other income was primarily due to an increase in Sign Shop revenue for the third quarter 2015 compared to same period 2014.

Total operating expenses of $482,000, for the quarter ended August 31, 2015 increased $43,000, or 9.8% from $439,000 for the quarter ended August 31, 2014. The 2015 increase was primarily due to an increase in Sign Shop cost of goods of $12,000, an increase in employee benefit expense of $15,000, an increase in franchise development expense of $7,000, an increase in payroll and payroll tax expense of $4,000 and an increase in general operating expenses of $5,000 compared to the same period 2014.

Interest expense and interest income netted to less than a $1,000 in the quarter ended August 31, 2015 as compared to $1,000 in net interest expense for the same period 2014.

Earnings per share, as reported for basic and diluted outstanding shares for each of the second quarters ended August 31, 2015 and 2014 was $0.02 per share.

9

Nine Months Ended August 31, 2015 versus Nine Months Ended August 31, 2014

For the nine months ended August 31, 2015 and 2014, the Company reported net income of $9,000 and net income of $471,000, respectively. Total revenue of $1,669,000 decreased $237,000, or 12.4%, for the nine months ended August 31, 2015, as compared to total revenue of $1,906,000 for the nine months ended August 31, 2014.

Royalty fee revenue of $1,278,000, for the nine months ended August 31, 2015, decreased $33,000, or 2.5%, from the $1,311,000 for the nine months ended August 31, 2014. Royalty revenues were down because there are fewer operating units in 2015 versus 2014.

Franchise fee revenues of $80,000, for the nine months ended August 31, 2015, decreased $192,000 as compared to the same quarter 2014. Two full production stores opened, one BAB Express store opened and three stores transferred in 2015 compared to two stores opened, five stores transferred and an International Master Franchise Agreement was signed with a UAE franchisee in 2014.

Licensing fee and other income of $311,000, for the nine months ended August 31, 2015, decreased $12,000, or 3.7%, from $323,000 for the nine months ended August 31, 2014. The $12,000 decrease in 2015 was primarily due to a $13,000 decrease in Sign Shop revenue and a $21,000 decrease in nontraditional revenue, offset by $22,000 of settlement income compared to the same period in 2014.

Total operating expenses of $1,668,000 increased $243,000, or 17.1%, for the nine months ended August 31, 2015, from $1,425,000 for the same period 2014. The increase in total operating expenses in 2015 as compared to same period 2014 was primarily due to an increase of $243,000 for a legal settlement in 2015 where there were no such expenses in 2014. In addition, payroll related expenses increased $19,000, primarily due to the fiscal 2015 employee Christmas bonus, franchise sales advertising increased $14,000, and employee benefit expense increased $36,000 primarily due to an increase in health insurance premiums and a Company 401(k) matching program started January 1, 2015 for the nine months ended August 31, 2015 compared to the same period in 2014. The increases were offset by decreases in legal expenses of $24,000 and a reduction in bad debt reserve of $26,000 a decrease in occupancy expense of $8,000, a decrease in franchise development expense of $7,000 and a decrease in Sign Shop cost of goods of $7,000 for the nine months ended August 31, 2015 compared to the same period in 2014.

Interest income and interest expense for the nine months ended August 31, 2015 and 2014 netted to $1,000 and $3,000, respectively.

There was a $9,000 credit to income tax expense for the nine months ended August 31, 2015 versus a $7,000 income tax expense for the nine months ended August 31, 2014 due to changes in estimates.

Earnings per share, as reported for basic and diluted outstanding shares for the nine months ended August 31, 2015 was $0.00 per share compared to income of $0.06 in 2014.

10

Liquidity and Capital Resources

At August 31, 2015, the Company had working capital of $527,000 and unrestricted cash of $694,000. At November 30, 2014 the Company had working capital of $800,000 and unrestricted cash of $710,000.

During the nine months ended August 31, 2015, the Company had net income of $9,000 and operating activities provided cash of $279,000. The principal adjustments to reconcile the net income to cash provided in operating activities for the nine months ending August 31, 2015 were depreciation and amortization of $13,000 less a provision for uncollectible accounts of $7,000. In addition, changes in operating assets and liabilities increased cash by $264,000. During August 31, 2014, the Company had net income of $471,000 and operating activities provided cash of $318,000. The principal adjustments to reconcile net income to cash provided by operating activities for the nine months ending August 31, 2014 were depreciation and amortization of $14,000, a loss on assets held for sale of $4,000 and a provision for uncollectible accounts of $20,000. In addition changes in operating assets and liabilities decreased cash by $190,000.

The Company used $3,000 and $8,000 for investing activities for the nine months ended August 31, 2015 and 2014, respectively.

The Company used $291,000 and $363,000 for cash distribution/dividend payments during the nine month period ended August 31, 2015 and 2014, respectively.

On September 2, 2015, the Board of Directors authorized a $0.01 per share cash distribution/dividend to shareholders of record as of September 21, 2015, payable October 9, 2015. 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 2015 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, 2015, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2015.

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.

11

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 the Company, for annual periods 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 or results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of August 31, 2015 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, 2014, filed with the Securities and Exchange Commission on February 23, 2015.  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, 2015.

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, 2015 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.

12

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 nine months of fiscal year 2015 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.

The Company had previously reported that 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 2015 and payment was made in the second quarter 2015 and it includes the judgment, attorney’s fees and interest. 

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.

13

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: October 13, 2015	/s/ Geraldine Conn
	Geraldine Conn
	Chief Financial Officer

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 Incentive and Stock Option Plan (See Form 10-K/A for year ended November 30, 2014)
10.2	Long-Term Debt (See Form 10-K/A for year ended November 30, 2014)
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.

14

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: October 13, 2015	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: October 13, 2015	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 August 31, 2015, 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:  October 13, 2015	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 August 31, 2015, 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:  October 13, 2015	By:	/s/ Geraldine Conn
		Geraldine Conn, Chief Financial Officer

XML

Note 5 - Stock Options - Aggregate Intrinsic Value (Details)	9 Months Ended
	Aug. 31, 2015 USD ($) $ / shares shares
Outstanding (in shares) | shares	237,500
Wghtd. Avg. Remaining Life	1 year 18 days
Wghtd. Avg. Exercise Price (in dollars per share)	$ 1.28
Aggregate Intrinsic Value | $	$ 0
Exercisable (in shares) | shares	237,500
Wghtd. Avg. Exercise Price, Exercisable (in dollars per share)	$ 1.28
Aggregate Intrinsic Value, Exercisable | $	$ 0

XML

Note 4 - Long-term Debt

9 Months Ended

Aug. 31, 2015

Notes to Financial Statements

Long-term Debt [Text Block]

4.  Long-Term Debt

The Company’s outstanding debt consists of a note payable in the amount of $65,311 at August 31, 2015. 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, including principal and interest of $525,000. A payment of $35,000 is due October 1, 2015 and a final payment of $35,000 on October 1, 2016.

XML

Note 3 - Earnings Per Share

9 Months Ended

Aug. 31, 2015

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 August 31,				For the nine months ended August 31,
	2015		2014		2015		2014
Numerator:
Net income available to common shareholders	$	135,275	$	168,208	$	8,824	$	471,039
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.02	$	0.02		0.00		0.06

The Company excluded 237,500 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share, for the three and nine months ended August 31, 2015, because their inclusion would have been anti-dilutive. For the three and nine months ended August 31, 2014, the Company excluded 314,400 potential shares attributable to outstanding stock options from the calculation.

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Aug. 31, 2015	Nov. 30, 2014
Series A Preferred Stock [Member]
Stockholders' Equity
Preferred shares
Cash	$ 694,314	$ 709,555
Restricted cash	359,716	420,834
Trade accounts and notes receivable (net of allowance for doubtful accounts of $40,972 in 2015 and $48,250 in 2014 )	139,986	182,975
Marketing fund contributions receivable from franchisees and stores	29,398	23,708
Inventories	24,538	25,519
Prepaid expenses and other current assets	85,877	73,943
Total Current Assets	1,333,829	1,436,534
Property, plant and equipment (net of accumulated depreciation of $149,472 in 2015 and $147,638 in 2014)	4,087	5,921
Trademarks	455,182	454,479
Goodwill	1,493,771	1,493,771
Definite lived intangible assets (net of accumulated amortization of $92,558 in 2015 and $81,689 in 2014)	26,818	35,187
Deferred tax asset	248,000	248,000
Total Noncurrent Assets	2,227,858	2,237,358
Total Assets	3,561,687	3,673,892
Current portion of long-term debt	31,898	31,898
Accounts payable	21,026	10,845
Accrued expenses and other current liabilities	308,276	308,315
Unexpended marketing fund contributions	389,369	213,750
Deferred franchise fee revenue	50,000	40,000
Deferred licensing revenue	5,833	32,083
Total Current Liabilities	806,402	636,891
Long-term debt (net of current portion)	33,413	33,413
Total Liabilities	$ 839,815	$ 670,304
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 August 31, 2015 and November 30, 2014	$ 13,508,257	$ 13,508,257
Additional paid-in capital	987,034	987,034
Treasury stock	(222,781)	(222,781)
Accumulated deficit	(11,550,638)	(11,268,922)
Total Stockholders' Equity	2,721,872	3,003,588
Total Liabilities and Stockholders' Equity	$ 3,561,687	$ 3,673,892

XML

Note 1 - Nature of Operations

9 Months Ended

Aug. 31, 2015

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 Coffee (“Brewster’s”), was established in 1996 and the coffee is sold in BAB and MFM locations as well as through license agreements. SweetDuet® (“SD”) frozen yogurt can be added as an additional brand in a BAB or MFM location. Operations was formed on August 30, 1995, primarily to operate Company-owned stores of which there are currently none. The assets of Jacobs Bros. Bagels® (“Jacobs Bros.”) were acquired on February 1, 1999, and any branded wholesale business uses this trademark. Investments was incorporated September 9, 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 and SD trade names. At August 31, 2015, the Company had 81 franchise units and 5 licensed units in operation in 26 states. 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, Kaleidoscoops 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 Frozen Yogurt & Gourmet Muffins® 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, 2014 which was filed February 23, 2015 and amended on August 12, 2015.  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 4 - Long-term Debt (Details Textual) - USD ($)		9 Months Ended
	Sep. 06, 2002	Aug. 31, 2015
Due October 1, 2015 [Member]
Debt Instrument, Periodic Payment		$ 35,000
Due October 1, 2016 [Member]
Debt Instrument, Periodic Payment		35,000
Notes Payable, Noncurrent		$ 65,311
Debt Instrument, Periodic Payment	$ 35,000
Debt Instrument, Interest Rate, Stated Percentage	4.75%
Debt Instrument, Term	15 years
Debt Instrument, Principal and Interest Amount	$ 525,000

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Note 5 - Stock Options - Stock Option Activity (Details) - shares	9 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Options outstanding at beginning of year (in shares)	314,400	368,373
Forfeited or expired (in shares)	(76,900)	(53,973)
Outstanding at end of year (in shares)	237,500	314,400

XML

Note 2 - Units Open and Under Development

9 Months Ended

Aug. 31, 2015

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 August 31, 2015 are as follows:

Stores open:
Franchisee-owned stores	81
Licensed Units	5
	86
Unopened stores with Franchise
Agreements	6
Total operating units and units with Franchise Agreements	92

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Aug. 31, 2015	Nov. 30, 2014
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	$ 40,972	$ 48,250
Accumulated depreciation, property, plant and equipment	149,472	147,638
Definite lived intangible assets, accumulated amortization	$ 92,558	$ 81,689
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, authorized (in shares)	15,000,000	15,000,000
Common stock, issued (in shares)	8,466,953	7,263,508
Common stock, outstanding (in shares)	8,466,953	7,263,508

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Note 5 - Stock Options (Tables)

9 Months Ended

Aug. 31, 2015

Notes Tables

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

	For the nine months ended August 31,
	2015			2014
Options outstanding at beginning of year		314,400			368,373
Granted		-			-
Forfeited or expired		(76,900	)		(53,973	)
Exercised		-			-
Outstanding at end of year		237,500			314,400

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 8/31/15	Remaining Life		Exercise Price		Intrinsic Value		at 8/31/15		Exercise Price		Intrinsic Value
237,500		1.05	$	1.28	$	-		237,500	$	1.28	$	-

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Document And Entity Information - shares	9 Months Ended
	Aug. 31, 2015	Oct. 13, 2015
Entity Registrant Name	BAB, INC.
Entity Central Index Key	0001123596
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	Aug. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Amendment Flag	false

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Note 1 - Nature of Operations (Details Textual)	Aug. 31, 2015
Franchised Units [Member]
Number of Stores	81
Number of Wholly Owned Subsidiaries	3
Number of Stores	92

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Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2015	Aug. 31, 2014
REVENUES
Royalty fees from franchised stores	$ 440,960	$ 458,656	$ 1,278,715	$ 1,311,369
Franchise fees	50,000	37,500	80,000	272,500
Licensing fees and other income	118,351	104,060	310,746	322,559
Total Revenues	609,311	600,216	1,669,461	1,906,428
Selling, general and administrative expenses:
Payroll and payroll-related expenses	267,100	262,741	829,291	809,981
Occupancy	44,054	44,596	129,520	136,522
Advertising and promotion	13,598	11,223	40,945	27,394
Professional service fees	29,145	31,088	106,652	131,166
Travel	12,292	12,522	33,643	36,126
Employee benefit expense	39,715	24,816	114,038	77,817
Depreciation and amortization	$ 4,176	$ 4,522	12,703	$ 13,636
Legal Settlement			243,046
Other	$ 71,986	$ 47,032	158,450	$ 192,271
Total Operating Expenses	482,066	438,540	1,668,288	1,424,913
Income from operations	127,245	161,676	1,173	481,515
Interest income	306	87	1,478	353
Interest expense	(776)	(1,138)	(2,327)	(3,412)
Income before provision for income taxes	126,775	160,625	324	478,456
Provision for income taxes
Current tax benefit/(expense)	(8,500)	(7,583)	(8,500)	7,417
Net Income	$ 135,275	$ 168,208	$ 8,824	$ 471,039
Earnings per share - Basic and Diluted (in dollars per share)	$ 0.02	$ 0.02	$ 0	$ 0.07
Weighted average shares outstanding - Basic (in shares)	7,263,508	7,263,508	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	7,263,508	7,263,508
Cash distributions declared per share (in dollars per share)	$ 0.01	$ 0.01	$ 0.04	$ 0.05

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Note 7 - Recent Accounting Pronouncements

9 Months Ended

Aug. 31, 2015

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 the Company, for annual periods 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 or results of operations.

Management does not believe that there are any other recently issued and effective or not yet effective pronouncements as of August 31, 2015 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 6 - Goodwill and Other Intangible Assets

9 Months Ended

Aug. 31, 2015

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 28, 2015 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment test performed February 28, 2015 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. There were no factors noted at August 31, 2015 that would require additional testing.

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Note 5 - Stock Options (Details Textual) - $ / shares	1 Months Ended	9 Months Ended
	May. 31, 2001	Aug. 31, 2015
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		5 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures	1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises and Forfeitures in Period		1,162,500
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share Price		$ 0.55
Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period		76,900

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Note 2 - Units Open and Under Development - Operating Units (Details)	Aug. 31, 2015
Franchised Units [Member]
Number of Stores	81
Entity Operated Units [Member]
Number of Stores	5
Total Franchised Owned and Licensed Units [Member]
Number of Stores	86
Unopened Store [Member]
Number of Stores	6
Number of Stores	92

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Note 2 - Units Open and Under Development (Tables)

9 Months Ended

Aug. 31, 2015

Notes Tables

Schedule of Franchisor Disclosure [Table Text Block]

Stores open:
Franchisee-owned stores	81
Licensed Units	5
	86
Unopened stores with Franchise
Agreements	6
Total operating units and units with Franchise Agreements	92

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Note 8 - Stockholder's Equity

9 Months Ended

Aug. 31, 2015

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

8. Stockholder’s Equity

On September 2, 2015 the Board of Directors declared a $0.01 cash dividend/distribution to shareholders of record as of September 21, 2015, payable October 9, 2015.

On June 4, 2015 the Board of Directors declared a $0.01 cash dividend/distribution to shareholders of record as of June 18, 2015, paid on July 8, 2015.

On March 2, 2015 the Board of Directors declared a $0.01 cash distribution/dividend to shareholders of record as of March 20, 2015, paid on April 10, 2015.

The Board of Directors declared a cash distribution/dividend on December 3, 2014 of $0.02 which consisted of a $0.01 quarterly and a $0.01 special cash distribution/dividend per share paid on January 6, 2015.

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Note 9 - Contingencies

9 Months Ended

Aug. 31, 2015

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 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.

The Company had previously reported that 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 2015 and payment was made in the second quarter 2015 and it includes the judgment, attorney’s fees and interest. 

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Note 3 - Earnings Per Share (Tables)

9 Months Ended

Aug. 31, 2015

Notes Tables

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

	For the three months ended August 31,				For the nine months ended August 31,
	2015		2014		2015		2014
Numerator:
Net income available to common shareholders	$	135,275	$	168,208	$	8,824	$	471,039
Denominator:
Weighted average outstanding shares
Basic and diluted common stock		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.02	$	0.02		0.00		0.06

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Note 3 - Earnings Per Share - Computation of Earnings Per Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2015	Aug. 31, 2014
Net income available to common shareholders	$ 135,275	$ 168,208	$ 8,824	$ 471,039
Weighted average outstanding shares
Basic and diluted common stock (in shares)	7,263,508	7,263,508	7,263,508	7,263,508
Earnings per Share - Basic (in dollars per share)	$ 0.02	$ 0.02	$ 0	$ 0.06

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Note 8 - Stockholder's Equity (Details Textual) - $ / shares					3 Months Ended		9 Months Ended
	Sep. 02, 2015	Jun. 04, 2015	Mar. 02, 2015	Dec. 03, 2014	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2015	Aug. 31, 2014
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 0.01
Quarterly Dividend [Member]
Common Stock, Dividends, Per Share, Declared				$ 0.01
Special Cash Distribution [Member]
Common Stock, Dividends, Per Share, Declared				0.01
Common Stock, Dividends, Per Share, Declared		$ 0.01	$ 0.01	$ 0.02	$ 0.01	$ 0.01	$ 0.04	$ 0.05

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Aug. 31, 2015	Aug. 31, 2014
Operating activities
Net income	$ 8,824	$ 471,039
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	12,703	13,636
Provision for uncollectible accounts, net of recoveries	$ (7,278)	19,504
Loss on assets held for sale		3,783
Changes in:
Trade accounts receivable and notes receivable	$ 50,267	(108,257)
Restricted cash	61,118	176,444
Marketing fund contributions receivable	(5,690)	(18,454)
Inventories	981	(1,315)
Prepaid expenses and other	(11,934)	3,133
Accounts payable	10,181	(12,830)
Accrued liabilities	(39)	(5,856)
Unexpended marketing fund contributions	175,619	(158,016)
Deferred revenue	(16,250)	(65,000)
Net Cash Provided by Operating Activities	278,502	317,811
Investing activities
Capitalization of trademark renewals	(3,203)	(7,644)
Net Cash Used In Investing Activities	(3,203)	(7,644)
Financing activities
Cash distributions/dividends	(290,540)	(363,177)
Net Cash Used In Financing Activities	(290,540)	(363,177)
Net Decrease in Cash	(15,241)	(53,010)
Cash, Beginning of Period	709,555	683,891
Cash, End of Period	694,314	630,881
Supplemental disclosure of cash flow information:
Interest paid	0	$ 0
Income taxes paid	$ 9,447

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Note 5 - Stock Options

9 Months Ended

Aug. 31, 2015

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 August 31, 2015, there were 1,162,500 stock options exercised or forfeited under the Plan. 

	For the nine months ended August 31,
	2015			2014
Options outstanding at beginning of year		314,400			368,373
Granted		-			-
Forfeited or expired		(76,900	)		(53,973	)
Exercised		-			-
Outstanding at end of year		237,500			314,400

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 option terms 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 August 31, 2015:

Options Outstanding							Options Exercisable
Outstanding	Wghtd. Avg.		Wghtd. Avg.		Aggregate		Exercisable		Wghtd. Avg.		Aggregate
at 8/31/15	Remaining Life		Exercise Price		Intrinsic Value		at 8/31/15		Exercise Price		Intrinsic Value
237,500		1.05	$	1.28	$	-		237,500	$	1.28	$	-

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 $0.55 as of the last business day of the period ended August 31, 2015. There were 76,900 unexercised options that expired and no options exercised during the nine month period ended August 31, 2015.

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Note 9 - Contingencies (Details Textual) - USD ($)	3 Months Ended			9 Months Ended
	Aug. 31, 2015	Feb. 28, 2015	Aug. 31, 2014	Aug. 31, 2015	Aug. 31, 2014
Litigation Settlement, Expense		$ 243,000		$ 243,046

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Note 3 - Earnings Per Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Aug. 31, 2015	Aug. 31, 2014	Aug. 31, 2015	Aug. 31, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	237,500	314,400	237,500	314,400