Note

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Uses of Estimates

The preparation of the financial statements and accompanying notes are in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates.

Accounts and Notes Receivable

Receivables are carried at original invoice amount less estimates for doubtful accounts. Management determines the allowance for doubtful accounts by reviewing and identifying troubled accounts and by using historical collection experience. A receivable is considered to be past due if any portion of the receivable balance is outstanding

days past the due date. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded as income when received. Certain receivables have been converted to unsecured interest-bearing notes.

Property, Plant and Equipment

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are

years for property and equipment and

years, or term of lease if less, for leasehold improvements. Maintenance and repairs are charged to expense as incurred. Expenditures that materially extend the useful lives of assets are capitalized.

Goodwill and Other Intangible Assets

Accounting Standard Codification (“ASC”)

350

“Goodwill and Other Intangible Assets” requires that assets with indefinite lives

longer be amortized, but instead be subject to annual impairment tests. The Company follows this guidance.

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, 2019,

management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy, and changes in the composition and carrying amounts of net assets. If this qualitative assessment indicates that it is more likely than

not

that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is then performed. After determining that there were

significant changes to the Company’s operations and overall business environment since the

first

quarter, management determined that the carrying value of goodwill was

not

impaired at

November 30, 2019,

and further analysis was

not

considered necessary.

Management reviewed the qualitative assessment conducted during the

first

quarter

2019

at year end and does

not

believe that any impairment exists at

November 30, 2019.

The net book value of goodwill and intangible assets with indefinite and definite lives are as follows:

	Goodwill		Trademarks		Definite Lived Intangibles			Total
Net Balance as of November 30, 2017	$	1,493,771	$	459,637	$	-		$	1,953,408
Additions		-		-		10,292			10,292
Amortization expense		-		-		(550	)		(550	)
Net Balance as of November 30, 2018	$	1,493,771	$	459,637	$	9,742		$	1,963,150
Additions		-		1,808		4,212			6,020
Amortization expense		-		-		(1,329	)		(1,329	)
Net Balance as of November 30, 2019	$	1,493,771	$	461,445	$	12,625		$	1,967,841

Advertising and Promotion Costs

The Company expenses advertising and promotion costs as incurred. All advertising and promotion costs were related to the Company’s franchise operations. Advertising and promotion expense was

$62,000

and

$14,000

2019

and

2018,

respectively.

Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The benefits from net operating losses carried forward

may

be impaired or limited in certain circumstances. In addition, a valuation allowance can be provided for deferred tax assets when it is more likely than

not

that all or some portion of the deferred tax asset will

not

be realized.

The Company files a consolidated U.S. income tax return and tax returns in various state jurisdictions. Review of the Company’s possible tax uncertainties as of

November 30, 2019

did

not

result in any positions requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax positions or other tax authority assessments, it would classify such expenses as part of the income tax provision. The Company has

not

changed any of its tax policies or adopted any new tax positions during the fiscal year ended

November 30, 2019

and believes it has filed appropriate tax returns in all jurisdictions for which it has nexus.

November 2015,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2015

17,

“Income Taxes (Topic

740

): Balance Sheet Classification of Deferred Taxes” (“ASU

2015

17”

). The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. The Company has adopted ASU

2015

for year ended

November 30, 2018.

In accordance with ASU

2015

17,

the deferred tax asset is classified as noncurrent on the balance sheet.

December 22, 2017

the Tax Cuts and Jobs Act (the “Act”) was signed into law. Among other provisions, the Act reduces the Federal statutory corporate income tax rate from

35%

21%.

This rate reduction resulted in a significant decrease in our provisions for income taxes for the year ended

November 30, 2018.

The Company’s income tax returns, which are filed as a consolidated return under Inc. for the years ending

November 30, 2016,

2017

and

2018

are subject to examination by the IRS and corresponding states, generally for

three

years after they are filed.

Leases

The company accounts for leases under ASC

842.

Lease arrangements are determined at the inception of the contract. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do

not

provide an implicit rate, we use an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The lease terms

may

include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company early adopted this standard at the commencement of the new lease beginning

October 1, 2018.

We have elected certain practical expedients available under the guidance, including a package of practical expedients which allow us to

not

reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. We have also elected to

not

recast its comparative periods.

ecently Adopted Accounting Pronouncements

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014

09,

Revenue from Contracts with Customers

(“Topic

606”

) and has since issued various amendments which provide additional clarification and implementation guidance on Topic

606.

This guidance establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted this new guidance effective the

first

day of fiscal

2019

using the modified retrospective transition method and applied Topic

606

to those contracts which were

not

completed as of

December 1, 2018.

The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of fiscal

2019.

In performing its analysis, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price. Comparative information from prior year periods has

not

been adjusted and continues to be reported under the accounting standards in effect for those periods under “Revenue Recognition” (“Topic

605”

). Refer to Note

for further disclosure of the impact of the new guidance.

March 2016,

the FASB issued ASU

2016

04,

Recognition of Breakage for Certain Prepaid Stored-Value Products

. The new guidance creates an exception under ASC

405

20,

Liabilities-Extinguishments of Liabilities

, to derecognize financial liabilities related to certain prepaid stored-value products using a revenue-like breakage model. In general, these liabilities

may

be extinguished proportionately in earnings as redemptions occur, or when redemption is remote if issuers are

not

entitled to the unredeemed stored value. The Company adopted this guidance effective

December 1, 2018

in connection with its adoption of Topic

606,

utilizing the modified retrospective method. Refer to Note

for further disclosure of the impact of the new guidance.

Segments

Accounting standards have established annual reporting standards for an enterprise’s operating segments and related disclosures about its products, services, geographic areas and major customers. The Company’s operations were a single reportable segment and an international segment. The international segment operations are immaterial.

Statement of Cash Flows

November 2016,

the FASB issued ASU

No.

2016

18,

Statement of Cash Flows (Topic

230

): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), (“ASU

2016

18”

). ASU

2016

requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this new guidance on

December 1, 2018

using a retrospective transition method, and restated the cash flow statement for the prior period presented.

The chart below shows the cash and restricted cash within the consolidated statements of cash flows as of

November 30, 2019

and

November 30, 2018

were as follows:

	November 30, 2019		November 30, 2018

Cash	$	1,095,235	$	1,065,265
Restricted cash		400,434		443,962
Total cash and restricted cash	$	1,495,669	$	1,509,227

Earnings Per Share

The Company computes earnings per share (“EPS”) under ASC

260

“Earnings per Share.” Basic net earnings are divided by the weighted average number of common shares outstanding during the year to calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to the potential dilution that could occur if options or other contracts to issue common stock were exercised and resulted in the issuance of additional common shares.

	2019		2018
Numerator:
Net income available to common shareholders	$	449,093	$	507,875

Denominator:
Weighted average outstanding shares
Basic and diluted		7,263,508		7,263,508
Earnings per Share - Basic and diluted	$	0.06	$	0.07

November 30, 2019

and

2018,

there are

common stock equivalents. In addition, the weighted average shares do

not

include any effects for potential shares related to the Preferred Shares Rights Agreement.

Revenue Recognition

The Company adopted Topic

606

December 1, 2018

using the modified retrospective transition method and recorded an increase to opening accumulated deficit of

$84,000.

The adoption of this standard update resulted in

tax impact. The Company adopted Topic

606

only for contracts with remaining performance obligations as of

December 1, 2018.

Comparative information from prior year periods has

not

been adjusted and continues to be reported under the accounting standards in effect for those periods under Topic

605.

The adoption changed the timing of recognition of initial franchise fees, development fees, the reporting of advertising fund contributions and related expenditures, as well as timing of the recognition of gift card breakage.

The cumulative effects of the changes made to the Condensed Consolidated Balance Sheets as of

December 1, 2018,

for the adoption of Topic

606

were as follows:

	Balance at November 30, 2018			Adjustments Due to ASC 606			Balance at December 1, 2018

Assets
Other assets	$	66,295		$	(1,348	)	$	64,947
Liabilities
Accrued gift card liability		146,290			2,742			149,032
Other current liabilities
Deferred revenue		27,000			82,225			109,225
Shareholders (deficit) equity
Accumulated deficit		(11,272,448	)		(83,619	)		(11,356,067	)

The following table presents disaggregation of revenue from contracts with customers for the year ended

November 30, 2019

and

2018:

	For fiscal year ended November 30, 2019		For year ended November 30, 2018 (1)

Revenue recognized at a point in time
Sign Shop revenue	$	2,409	$	5,627
Settlement revenue		80,307		171,052
Total revenue at a point in time		82,716		176,679
Revenue recognized over time
Royalty revenue		1,645,639		1,665,016
Franchise fees		33,817		34,500
License fees		19,875		15,000
Gift card revenue		4,494		26,260
Nontraditional revenue		295,208		255,876
Marketing fund revenue		987,943		-
Total revenue over time		2,986,976		1,996,652
Grand total	$	3,069,692	$	2,173,331

(

)

As disclosed in Note

prior period amounts have

not

been adjusted under the modified retrospective method of adoption of Topic

606.

Royalty fees from franchised stores represent a

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

weeks’ actual reported sales.

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

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

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.

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. Under the previous standards, initial franchise fees paid by franchisees for each arrangement were deferred until the store opened and were recognized as revenue in their entirety on that date. Upon adoption of Topic

606,

the Company determined that certain pre-opening activities, and the franchise rights and related ongoing services, represented

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 income is recognized during the respective franchise agreement based on the royalties earned each period as the underlying franchise store sales occur. Adoption of ASC

606

will

not

change when the royalty revenue is recognized. This new guidance did

not

impact the recognition of royalty income.

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.

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.

Previously, under Topic

605,

the Company recognized revenue from gift cards on an annual basis in the

first

quarter per a management policy that was formulated based on when the likelihood of the gift card being redeemed by the customer was remote (also referred to as “breakage”) and the Company determined that it did

not

have a legal obligation to remit the unredeemed gift cards to the relevant jurisdictions. The Company determined the gift card breakage amount based upon its historical redemption patterns. Gift card breakage revenue was previously included in licensing fees and other revenue in the Condensed Consolidated Statements of Operations. Under Topic

606,

the Company recognizes gift card breakage proportional to actual gift card redemptions on a quarterly basis and it 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.

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. Under adoption of ASC

606

the revenue recognition did

not

change, 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. Under Topic

606,

the Company has determined that 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

impact on net income.