| Significant Accounting Policies [Text Block] |
Note 2 - 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. The preparation of financial statements 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Royalty fees from franchised stores represent a 5% fee on net retail and wholesale sales of franchised units. Royalty revenues are recognized on an accrual basis using actual franchise receipts. Generally, franchisees report and remit royalties on a weekly basis. The majority of month-end receipts are recorded on an accrual basis based on actual numbers from reports received from franchisees shortly after the month-end. Estimates are utilized in certain instances where actual numbers have not been received and such estimates are based on the average of the last 10 weeks’ actual reported sales. The Company recognizes franchise fee revenue on the store’s opening. Direct costs associated with the sale of franchises are deferred until the franchise fee revenue is recognized. These costs include site approval, construction approval, commissions, blueprints and training costs. Revenue Recognition (Continued) 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 owned by the Master Franchisee (“MF”), and/or franchised locations. There was an initial payment of $100,000 paid upon execution of the agreement, $50,000 is due upon the opening of the first BAB location or 12 months after execution of the agreement and $50,000 is due upon opening of the second location or eighteen months after execution of the agreement. MF owned BAB locations will pay a 3% royalty and service fee on gross sales. 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 par baked bagels from a third-party commercial bakery to the franchised and licensed units. Big Apple Bagels®, SweetDuet Frozen Yogurt and Gourmet Muffins® and My Favorite Muffin® open, licensed units and unopened stores for which a Franchise Agreement has been executed, are as follows: | | | | | | | | | | | | | | | | | | | | | | 87 | | | | 97 | | | | | | 5 | | | | 5 | | | | | | 92 | | | | 102 | | Unopened stores with Franchise Agreements: | | | 5 | | | | 3 | | Total operating units and units with Franchise Agreements | | | 97 | | | | 105 | | License fees and other income primarily consist of license fees, Sign Shop revenues and defaulted and terminated franchise contract revenues. Revenue is recorded on an accrual basis. Actual amounts are used to record the majority of license fees although at times it is necessary to use estimates. Revenues and expenses recorded for the Sign Shop, as well as defaulted and terminated franchise contract revenue, are actual amounts. 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 confined to a single reportable segment operating in the United States in fiscal 2014. A Marketing Fund has been established for BAB, MFM and SD. Franchised stores are required to contribute a fixed percentage of their net retail sales to the Marketing Fund. Liabilities for unexpended funds received from franchisees are included as a separate line item in accrued expenses and Marketing Fund cash accounts are included in restricted funds in the accompanying Balance Sheet. The Marketing Fund also derives revenues from rebates paid by certain vendors on the sale of BAB and MFM licensed products to franchisees. As of November 30, 2014 and 2013, the Marketing Fund cash balances, which are restricted, were $190,000 and $350,000, respectively. In September 2013 BAB, Inc. opened an interest bearing account with UBS Financial Services in the amount of $231,000. The account is included in restricted cash and is pledge for a bond. The account balance is 150% of the judgment against BAB Operations which is $154,030. An appeal is being filed in Appellate court because BAB management and their attorney believe that the Circuit Court of Cook County’s ruling in favor of the landlord will be reversed. Effective January 1, 2013 the FDIC maximum insurance on all interest and noninterest bearing checking accounts is $250,000 for each entity. From January 1, 2013 the Company exceeded FDIC limits on its operating and marketing accounts but did not experience any losses. 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 90 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. Inventories are valued at the lower of cost or market under the first-in, first-out (FIFO) method. Property, Plant and Equipment Property and 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 3 to 7 years for property and equipment and 10 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 no longer be amortized, but instead be subject to annual impairment tests. The Company follows this guidance. Goodwill and Other Intangible Assets (Continued) 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, 2014 and it was found that the carrying value of goodwill and intangible assets were not impaired. The impairment test performed February 28, 2014 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 was needed. An impairment test was performed at February 28, 2013 and based on the computation using discounted cash flows, it was also determined that no impairment occurred. The net book value of goodwill and intangible assets with indefinite and definite lives are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Balance as of November 30, 2012 | | $ | 1,493,771 | | | $ | 445,022 | | | $ | 59,710 | | | $ | 1,998,503 | | | | | | - | | | | 3,000 | | | | 1,420 | | | | 4,420 | | | | | | - | | | | - | | | | (13,327 | ) | | | (13,327 | ) | Net Balance as of November 30, 2013 | | | 1,493,771 | | | | 448,022 | | | | 47,803 | | | | 1,989,596 | | | | | | - | | | | 6,457 | | | | 1,186 | | | | 7,643 | | | | | | - | | | | - | | | | (13,802 | ) | | | (13,802 | ) | Net Balance as of November 30, 2014 | | $ | 1,493,771 | | | $ | 454,479 | | | $ | 35,187 | | | $ | 1,983,437 | | Definite lived intangible assets are being amortized over their useful lives. The estimated amortization expense for each of the next three remaining years is as follows: | | | | | | | | | | | | | | | | | | 14,075 | | | | | | | 14,075 | | | | | | | 7,037 | | | | | | $ | 35,187 | | Advertising and Promotion Costs The Company expenses advertising and promotion costs as incurred. Advertising and promotion expense was $38,000 and $61,000 in 2014 and 2013, respectively. All advertising and promotion costs were related to the Company’s franchise operations. 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, 2014 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, 2014 and believes it has filed appropriate tax returns in all jurisdictions for which it has nexus. The Company’s income tax returns for the years ending November 30, 2011, 2012 and 2013 are subject to examination by the IRS and corresponding states, generally for three years after they are filed. (See Note 3.) 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. | | | | | | | | | | | | | | | | | | Net income available to common shareholders | | $ | 511,946 | | | $ | 350,533 | | | | | | | | | | | | | | | | | | | | | | Weighted average outstanding shares | | | | | | | | | | | | | 7,263,508 | | | | 7,263,508 | | Earnings per Share - Basic | | $ | 0.07 | | | $ | 0.05 | | | | | | | | | | | | Effect of dilutive common stock | | | - | | | | 5,100 | | Weighted average outstanding shares | | | | | | | | | | | | | 7,263,508 | | | | 7,268,608 | | Earnings per share - Diluted | | $ | 0.07 | | | $ | 0.05 | | Earnings Per Share (Continued) At November 30, 2014 and 2013 there are 314,000 and 350,000, respectively of unexercised options that are not included in the computation of dilutive EPS because their impact would be antidilutive due to the market price of the common stock being lower than the option prices. In addition, the weighted average shares do not include any effects for potential shares related to the Preferred Shares Rights Agreement. The Company recognizes compensation cost using a fair-value based method for all share-based payments granted after November 30, 2006, plus any awards granted to employees up through November 30, 2006 that remain unvested at that time. The Company had no recorded compensation expense arising from share-based payment arrangements for the Company’s stock option plan in 2014 or 2013. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash, accounts receivable, notes receivable, accounts payable and short-term debt approximate their fair values because of the relatively short maturity of these instruments. The carrying value of long-term debt, including the current portion, approximate fair value based upon market prices for the same or similar instruments. 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, 2016. The Company will adopt ASU 2014-09 for fiscal year ending November 30, 2018 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 November 30, 2014 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or results of operations. |
BRL Workbook is intended for proofing purposes only.
