FORM 10-QSB
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: February 28, 2006
[ ] 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 (I.R.S. Employer
organization) 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
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 x No __
As of April 7, 2006, BAB, Inc. had : 7,222,265 shares of Common Stock
outstanding.
TABLE OF CONTENTS
PART I
Item 1. Financial Information
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 3 Controls and Procedures
PART II
Item 1. Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURE
PART I
ITEM 1. FINANCIAL INFORMATION
BAB, Inc.
Condensed Consolidated Balance Sheet
February 28, 2006
(Unaudited)
ASSETS
Current Assets
Cash $ 1,539.690
Restricted cash 174,880
Receivables
Trade accounts receivable (net of allowance for doubtful
accounts of $73,763) 128,652
Marketing Fund contributions receivable from franchisees and stores 38,560
Notes receivable (net of allowance for doubtful accounts of $14,879) 16,500
Inventories 50,862
Prepaid expenses and other current assets 107,582
----------------
Total Current Assets 2,056,726
----------------
Property, plant and equipment, net 138,468
Notes receivable (net of current portion) 2,734
Trademarks 763,667
Goodwill 3,542,772
Other (net of accumulated amortization of $295,619) 9,763
----------------
Total Noncurrent Assets 4,457,404
----------------
Total Assets $ 6,514,130
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 269,343
Accounts payable 58,958
Accrued expenses and other current liabilities 369,507
Unexpended Marketing Fund contributions 137,514
Deferred franchise fee revenue 145,000
Deferred revenue 65,329
----------------
Total Current Liabilities 1,045,651
----------------
Long-term debt net of current portion 381,659
Deferred revenue net of current portion 74,815
----------------
Total Noncurrent Liabilities 456,474
----------------
Total Liabilities 1,502,125
----------------
Stockholders' Equity (Deficit)
Common stock 13,508,230
Additional paid-in capital
876,398
Treasury stock (222,781)
Accumulated deficit (9,149,842)
----------------
Total Stockholders' Equity 5,012,005
----------------
Total Liabilities and Stockholders' Equity $ 6,514,130
================
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
3 months ended
--------------
February 28, 2006 February 28, 2005
----------------- -----------------
REVENUES
Net sales by Company-owned stores $ 143,113 $ 345,338
Royalty fees from franchised stores 533,773 540,896
Franchise fees 100,000 30,000
Licensing fees and other income 199,289 287,330
-------------- --------------
Total Revenues 976,175 1,203,564
-------------- --------------
OPERATING EXPENSES
Food, beverage and paper costs 50,193 117,416
Store payroll and other operating expenses 145,358 286,100
Selling, general and administrative expenses:
Payroll-related expenses 380,037 336,935
Occupancy 34,805 33,688
Advertising and promotion 30,990 41,243
Professional service fees 52,094 53,120
Travel expenses 18,004 20,339
Depreciation and amortization 17,692 21,199
Other 123,703 180,912
-------------- --------------
Total Operating Expenses 852,876 1,090,952
-------------- --------------
Income from operations 123,299 112,612
Interest income 649 2,520
Interest expense (8,684) (12,149)
Other income 400 --
-------------- --------------
Income before provision for income taxes $ 115,664 $ 102,983
Provision for income taxes
Current -- --
Deferred -- --
-------------- --------------
-- --
-------------- --------------
Net Income $ 115,664 $ 102,983
Net Income per share - Basic and Diluted $0.02 $0.01
-------------- --------------
Weighted average number of shares outstanding - Basic 7,221,838 7,150,603
Weighted average number of shares outstanding - Diluted 7,265,124 7,308,929
Cash dividends per share $0.08 $0.08
============== ==============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
3 months ended
--------------
February 28, 2006 February 28, 2005
----------------- -----------------
Cash Flows from Operating Activities
Net Income $ 115,664 $ 102,983
Depreciation and amortization 17,692 21,199
Provision for doubtful accounts (net of recoveries) 0 12,000
Loss on sale or disposal of property and equipment 17,151 --
Changes in:
Trade accounts receivable (17,432) 8,681
Restricted cash 29,175 37,950
Marketing Fund contributions receivable (8,171) (531)
Inventories 14,393 (8,262)
Prepaid expenses and other assets 27,906 (26,308)
Accounts payable (34,470) (43,952)
Accrued expenses and other current liabilities (137,772) (72,020)
Deferred revenue (83,415) 113,251
Unexpended Marketing Fund Contributions (21,399) (35,589)
------------- --------------
Net Cash (Used in)Provided by Operating Activities (80,678) 109,402
------------- --------------
Investing Activities
Proceeds from notes receivable 48,205 11,543
Purchases of property and equipment (6,941) --
Proceeds from sale of property and equipment 5,000 --
------------- --------------
Net Cash Provided by Investing Activities 46,264 11,543
------------- --------------
Financing Activities
Repayment of long-term debt (60,129) (56,847)
Dividends paid (577,781) (572,982)
Proceeds from exercise of stock options 5,490 20,469
------------- --------------
Net Cash Used in Financing Activities (632,420) (609,360)
------------- --------------
Net Decrease in Cash (666,834) (488,415)
Cash, Beginning of Year $ 2,206,524 $ 2,194,834
Cash, End of First Quarter $ 1,539,690 $ 1,706,419
============= ==============
Supplemental disclosure of cash flow information:
Interest paid $ 5,571 $ 8,399
============= ==============
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
BAB, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Nature of Operations
BAB, Inc. (the "Company") was incorporated under the laws of the State of
Delaware on July 12, 2000. The Company currently operates, franchises and
licenses bagel, muffin and coffee retail units under the Big Apple Bagels
("BAB"), My Favorite Muffin ("MFM") and Brewster's Coffee trade names. The
Company additionally derives income from the sale of its trademark bagels,
muffins and coffee through nontraditional channels of distribution, including
license agreements and direct home delivery of specialty muffin gift baskets and
coffee.
The Company has four wholly owned subsidiaries: BAB Systems, Inc. (Systems); BAB
Operations, Inc. (Operations); Brewster's Franchise Corporation (BFC); and My
Favorite Muffin Too, Inc. (MFM). Systems was incorporated on December 2, 1992,
and was primarily established to franchise BAB specialty bagel retail stores.
Operations was formed on August 30, 1995, primarily to operate Company-owned
stores. There is currently one Company-owned store which serves as the franchise
training facility. BFC was established on February 15, 1996 to franchise
"Brewster's Coffee" concept coffee stores. MFM, a New Jersey corporation, was
acquired on May 13, 1997. MFM franchises "MFM" concept muffin stores. The assets
of Jacobs Bros. Bagels (Jacobs Bros.) were acquired on February 1, 1999. (See
Note 6 in 10-KSB/A filed 4/14/06.)
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-KSB/A for the year ended November 30, 2005
which was filed April 14, 2006. In the opinion of the Company's management, the
condensed consolidated financial statements for the unaudited interim periods
presented include all adjustments, including normal recurring adjustments,
necessary to fairly present the results of such interim periods 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.
2. Stores Open and Under Development
Stores which are open or under development at February 28, 2006 are as follows:
Stores open:
Company-owned 1
Franchisees 144
Licensed 4
Under Development 5
----
Total 154
3. Earnings per Share
The following table sets forth the computation of basic and diluted earnings
per share:
3 months ended
--------------
February 28, 2006 February 29, 2005
----------------- -----------------
Numerator:
Net income available to common
shareholders $ 115,664 $ 102,983
Denominator:
Weighted average outstanding 7,221,838 7,150,603
shares - Basic
Earnings per share - Basic $0.02 $0.01
Effect of dilutive common stock
equivalent
shares - from stock options outstanding 43,286 158,326
Weighted average outstanding 7,265,124 7,308,929
shares - Diluted
Earnings per share - Diluted $0.02 $0.01
4. Long Term Debt
On June 25, 2004, the Company entered into a Business Loan and Security
Agreement ("Bank Agreement") with Associated Bank which provides for a term loan
in the original amount of $723,700. The term loan under the Bank Agreement is
secured by substantially all of the assets of the Company and is being repaid in
monthly installments of $21,900, including interest at a rate of 5.5 percent per
annum, with final payment due July 1, 2007.
5. Stock Options
In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan
(Plan). The Plan reserves 1,400,000 shares of common stock for grant. A total of
1,185,000 stock options have been granted since Plan inception. In 2005, 2004,
2003 and 2002, 95,000, 115,000, 300,000 and 600,000 stock options, respectively,
were granted to directors, officers and employees. On December 7, 2005, 75,000
options were granted, leaving 215,000 options available for grant. As of
February 28, 2006, there were 960,951 stock options exercised or forfeited under
the Plan.
3 months ended
February 28, 2006 February 28, 2005
----------------- -----------------
Options Options
Options Outstanding at 163,034 258,486
beginning of period
Granted 75,000 75,000
Forfeited (666) (500)
Exercised (13,319) (132,784)
-------- ---------
Options Outstanding at end of 224,049 200,202
period
The Company uses the intrinsic method, as allowed by SFAS 123, "Accounting for
Stock-Based Compensation," to account for stock options granted to employees and
directors. No compensation expense is recognized for stock options because the
exercise price of the options is at least equal to the market price of the
underlying stock on the grant date. The pro forma impact of utilizing the fair
value method to account for stock-based employee compensation, on an annual
basis is presented in Note 6 of the Company's audited financial statements
presented in the 10-KSB/A filed April 14, 2006.
For those companies that do not elect to change their method of accounting for
stock-based employee compensation, SFAS Statement No. 148 required increased
disclosure of the pro forma impact of applying the fair value method to the
reported operating results. The increased disclosure requirements apply to the
Company's interim and annual financial statements. Had employee compensation
expense for the Company's Plan been recorded in the financial statements,
consistent with provisions of SFAS Statement No. 123, net income would have been
reduced by $10,985 for the 3 months ended February 28, 2006 and $5,650 for the 3
months ended February 28, 2005 based on the Black-Scholes option-pricing model.
The following table illustrates the effect on net income and earnings per share:
3 months ended
--------------
February 28, 2005 February 28, 2005
----------------- -----------------
Pro forma impact of fair value method
Reported net income $ 115,664 $ 102,983
Less: fair value impact of employee stock
compensation (10,985) (5,650)
--------------- --------------
Pro forma net income $ 104,679 $ 97,333
Earnings per common share
Basic and diluted - as reported $ 0.02 $ 0.01
Basic and diluted- pro forma $ 0.02 $ 0.01
Weighted average Black-Scholes fair value
assumptions (new options issued)
Risk free interest rate 4.39% 3.71%
Expected life 10.0 yrs 6.0 yrs
Expected volatility 1.228 1.530
Expected dividend yield 7.0% 5.0%
6. Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, goodwill and indefinite-lived intangible assets
are tested for impairment upon adoption of the standard and annually thereafter.
SFAS No. 142 requires that goodwill be tested for impairment using a two-step
process. The first step is to identify a potential impairment and the second
step measures the amount of the impairment loss, if any. Goodwill is deemed to
be impaired if the carrying amount of a reporting unit's net assets exceeds its
estimated fair value. SFAS No. 142 requires that indefinite-lived intangible
assets be tested for impairment using a one-step process, which consists of a
comparison of the fair value to the carrying value of the intangible asset.
Intangible assets are deemed to be impaired if the net book value exceeds the
estimated fair value. The Company completed its annual goodwill impairment
assessment during the first quarter ended February 28, 2006, and it indicated no
impairment of goodwill.
Net intangible assets with definitive lives, representing master lease
origination fees with an original cost of $95,382, totaled $9,763, net of
accumulated amortization expense of $85,619, as of February 28, 2006.
Amortization expense of intangible assets with a definitive life for the first
three months ended February 28, 2006 was $2,300. The estimated amortization
expense on these intangible assets is $9,200 in 2006 and $2,900 in 2007.
7. Commitments and Contingencies
None
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-KSB 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 Company-owned
store results; 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
The Company has 1 Company-owned store and 144 franchised and 4 licensed units at
February 28, 2006. Units in operation at February 28, 2005 included 3
Company-owned stores and 149 franchised and 5 licensed units. System-wide
revenues in the three months ended February 28, 2006 were $11.1 million as
compared to February 28, 2005 which were $11.5 million.
The Company's revenues are derived primarily from ongoing royalties paid to the
Company by its franchisees, from the operation of Company-owned stores and
receipt of franchise fees. Additionally, the Company derives revenue from the
sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese
and Brewster's coffee), and through licensing agreements (Chartwell, Kohr Bros.
and Mrs. Fields Famous Brands).
At February 28, 2006, the Company had 19 employees at the Corporate level to
oversee operations of the franchise, licensed and Company-owned store
operations, as compared to 22 employees, including 1 part-time, at February 28,
2005.
Results of Operations
Three months Ended February 28, 2006 versus Three Months Ended
February 28, 2005.
For the three months ended February 28, 2006, the Company reported net income of
$116,000 versus net income of $103,000 for the same period in 2005. Total
revenues decreased by $227,000, or 18.9% for the three months ended February 28,
2006, as compared to the same period in 2005, due to a decrease in Company-owned
store revenues of $202,000, a decrease in royalty revenue of $7,000 and a
decrease in licensing fee and other income of $88,000, offset by an increase in
franchise fee revenue of $70,000.
The decrease of $202,000, in Company-owned stores for the first quarter 2006 as
compared to same period 2005, was due to Company-owned stores sold or closed
during 2005 and 2006.
Royalty revenue was down $7,000, or 1.3% for the three months ended February 28,
2006, as compared to the three months ended February 28, 2005. The Company had
149 franchise locations at February 28, 2005 as compared to 144 locations at
February 28, 2006.
Franchise fee revenues increased by $70,000, in comparison to 2005. In the 3
months ended February 28, 2006, there were 4 new franchise store openings for
revenue totaling $100,000 versus 3 transfers, a default and an early termination
fee totaling $30,000 in the same period 2005.
Licensing fee and other revenue decreased by $88,000, or 30.6% in the first
quarter of 2006 as compared to same period 2005. This decrease in 2006 revenues
was the result of a decrease in Sign Shop revenues of $53,000, a decrease in
sublease rental income of $16,000 due to the sublessee taking over the lease, a
$17,000 loss from sale of assets from a closed Company-owned location and a
decrease in license fee revenue of $2,000. Sign Shop revenue decreased because
it benefited in the 1st Quarter of 2005 from work generated from the Franchise
Convention held in the 4th quarter of 2004.
Company-owned store food, beverage and paper costs decreased $67,000, or 57.3%,
in the first quarter of 2006 as compared to the same period 2005. Company-owned
closed locations were responsible for $66,000 of the decrease. Under
management's continued effort to reduce costs, the one operating Company-owned
store location reduced direct expenses, $6,000, excluding cost of goods, going
from $73,000 in 2005 to $67,000 in 2006.
Total operating expenses for the three months ended February 28, 2006 were
$853,000, down $238,000, or 21.8%, from $1,091,000 for same period 2005. This
decrease was primarily due to the closure of Company-owned stores in 2005 and
2006. Total operating expenses as a percent of revenues were 87.4% for the
quarter ended February 28, 2006 versus 90.6% for the same period 2005.
Interest income decreased $2,000 because of lower notes receivable balances and
interest expense decreased $3,000 because of lower outstanding debt balance in
the first quarter 2006, compared to the same period 2005 (See note 4, Long Term
Debt).
Net income per share as reported for basic and fully diluted outstanding shares
for the three months ended February 28, 2006 is $0.02 versus $0.01 for February
28, 2005.
Liquidity and Capital Resources
-------------------------------
The net cash used in operating activities totaled ($81,000) for the three months
ended February 28, 2006, versus cash provided from operating activities of
$109,000 for the same period 2005. Cash used in operating activities principally
represents net income of $116,000, plus depreciation and amortization of
$18,000, a loss on disposal of equipment of $17,000, reduction in restricted
cash of $29,000, a reduction in inventories of $14,000 and a decrease in prepaid
assets of $28,000. Uses of funds were provided by an increase to accounts
receivable of ($17,000), an increase to Marketing Fund contributions receivable
of ($8,000), a decrease in deferred revenue of ($83,000), a decrease in accrued
expenses and other accrued liabilities ($138,000), a decrease in unexpended
Marketing Fund contributions ($21,000) and a decrease in accounts payable of
($34,000).
Cash provided from investing activities during the first quarter of 2006 totaled
$46,000, and was provided by collection of notes receivable of $48,000 and sale
of equipment of $5,000, offset by purchases of equipment of ($7,000). Cash
provided from investing activities during 2005 totaled $12,000, and was provided
from collection of notes receivable.
Financing activities used ($632,000) during the first quarter of 2006, due to
the repayment of notes payable of ($60,000) and the payment of cash dividends
($578,000), offset by proceeds from the exercise of stock options in the amount
of $5,000. In fiscal 2005 for this same period, financing activities used
($609,000) due to repayment of notes payable of ($57,000) and payment of cash
dividends of ($573,000), offset by proceeds from the exercise of stock options
in the amount of $21,000.
It is the Company's intent that future dividends will be considered after
reviewing returns to shareholders, 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 dividends on a
quarterly basis.
The Company believes execution of this policy will not have any material adverse
effects on its ability to fund current operations or future capital investments.
Dividend Policy
Although there can be no assurances that the Company will be able to pay
dividends in the future, it is the Company's intent that future dividends will
be considered after reviewing returns to shareholders, 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 dividends on a quarterly basis.
The Company has no financial covenants on any of its outstanding debt.
Recent Accounting Pronouncements
In December 2003, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement, which is effective
for years ending after December 15, 2003 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," and provides alternative methods of transition for a
voluntary change to the fair value-based methods of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 regardless of the accounting method used to account
for stock-based compensation. The Company has chosen to continue to account for
stock-based compensation of employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. The effects of the enhanced
disclosure provisions as defined by SFAS 148 are included in Note 5 of this
report.
In December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets-an
amendment to APB Opinion No. 29." This Statement amends APB 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. Provisions of this Statement are effective for fiscal periods
beginning after June 15, 2005. Adoption of SFAS No. 153 is not expected to have
a material impact on the Company's consolidated financial position, results of
operations or cash flows.
In December 2004, the FASB issues SFAS No. 123(R), "Share-Based Payment." SFAS
No. 123(R) establishes accounting standards for transactions in which a company
exchanges its equity instruments for goods or services. In particular, this
Statement will require companies to record compensation expense for all
share-based payments, such as employee stock options, at fair market value. This
Statement is effective as of the beginning of the first annual reporting period
that begins after December 15, 2005 (the Company's period beginning December 1,
2006). Adoption of SFAS No. 123(R) is not expected to have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
This Statement replaces APB Opinion No. 20, "Accounting Changes," and FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements,"
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This Statement shall
be effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. Early adoption is permitted for
accounting changes and correction of errors made in fiscal years beginning after
the date this Statement is issued. Adoption of SFAS No. 154 is not expected to
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
Management has considered all other recently issued accounting pronouncements
and does not believe that the adoption of such pronouncements will have a
material impact on the Company's financial statements.
Critical Accounting Policies
The Company has identified significant accounting policies that, as a result of
the judgements, 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 the following areas: revenue recognition, long-lived assets,
concentrations of credit risks, valuation allowance and deferred taxes. Details
regarding the Company's use of these policies and the related estimates are
described in the Company's Annual Report on Form 10-KSB/A for the fiscal year
ended November 30, 2005, filed with the Securities and Exchange Commission on
April 14, 2006. 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 months ended February 28, 2006.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure controls
The Chief Executive Officer and the Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as
amended) as of February 28, 2006. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on that evaluation, Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of such date to ensure that information required to
be disclosed in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission rules and forms.
Internal control over financial reporting
The Chief Executive Officer and the Chief Financial Officer confirm that there
was no change in the Company's internal control over financial reporting during
the quarter ended February 28, 2006 that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See index to exhibits
(b) REPORTS ON FORM 8-K
3/13/06 On March 10, 2006, the Board of Directors of BAB, Inc. authorized a
$0.02 per share quarterly cash dividend. The dividend is payable April 13, 2006
to stockholders of record as of March 23, 2006.
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: April 14, 2006 /s/ Jeffrey M. Gorden
---------------------
Jeffrey M. Gorden
Chief Financial Officer
INDEX TO EXHIBITS
(a) EXHIBITS
The following exhibits are filed herewith.
INDEX NUMBER DESCRIPTION
21.1 List of Subsidiaries of the Company
31.1 Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer
31.2 Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer
32.1 Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer
32.2 Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer