3. Revenue Recognition (continued)

Contract balances

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

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

(a) represents the estimate for the remainder of 2021

The Company has elected to apply certain practical expedients as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligations that are a part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. As such, sales-based royalty and marketing income, as well as gift card breakage revenue, is not included in the above transaction price chart.

4. Units Open and Under Development

Units which are open or under development at August 31, 2021February 28, 2022 are as follows:

5. Earnings per Share

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

6. Goodwill and Other Intangible Assets

Accounting Standard Codification (“ASC”) 350 “Goodwill and Other Intangible Assets” requires that assets with indefinite lives no longer be amortized, but instead be subject to annual impairment tests.

Following the guidelines contained in ASC 350, the Company tests goodwill and intangible assets that are not subject to amortization for impairment annually or more frequently if events or circumstances indicate that impairment is possible. The Company has elected to conduct its annual test during the first quarter. During the quartersquarter ended February 28, 20212022 and February 28, 2021, 29,2020,management qualitatively assessed goodwill to determine whether testing was necessary. Factors that management considers in this assessment include macroeconomic conditions, industry and market considerations, overall financial performance (both current and projected), changes in management and strategy, and changes in the composition and carrying amounts of net assets. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than it’s carrying value, a quantitative assessment is then performed.

Although the COVID-19 pandemic has caused significant disruption to our industry, the Company has beenwas able to recover much quicker than expectedadjust expenses and get a Paycheck Protection Program loan for fiscal 2020 royalty revenues were 83.7% of fiscaland early 20192021. royalty revenues through August 31, 2020. We find the same trendOur franchise systems sales recovered to pre-pandemic levels in middle 2021 and, the royalty sales numbers continue to stay consistent with royalty revenue down 1.0% compared tothe pre-pandemic numbers. Based on the qualitative analysis conducted during the quarter, management does 2019not royalty revenue throughbelieve that an impairment exists at August 31.February 28, 2022.

7. Lease Commitments

The Company rents its office under an operating lease which requires it to pay base rent, real estate taxes, insurance and general repairs and maintenance. A lease was signed in June of 2018, effective October 1, 2018, expiring on March 31, 2024 with an option to renew for a 5-year period. A six-month rent abatement and tenant allowance was provided in the lease, with any unused portion to be applied to base rent. The unused portion was determined to be $21,300. The renewal option has not been included in the measurement of the lease liability.

Monthly rent expense is recognized on a straight-line basis over the term of the lease. At August 31, 2021February 28, 2022 the remaining lease term was 3125 months. The operating lease is included in the balance sheet at the present value of the lease payments at a 5.25% discount rate. The discount rate was considered to be an estimate of the Company’s incremental borrowing rate.

7. Lease Commitments (continued)

Gross future minimum annual rental commitments as of August 31, 2021February 28, 2022 are as follows:

8. PayrollPaycheck Protection Program Loan

On May 1, 2020, BAB Systems, Inc. received loan proceeds of $228,155 from Lake Forest Bank and Trust Company, N.A., pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title 1 of the CARES Act, which was enacted March 27, 2020.

On December 9, 2020 the PPP loan in the amount of $228,155 and related accrued interest was forgiven by the Small Business Administration (“SBA”). The amount forgiven is recognized as loan forgiveness income during the first quarter, ended February 28, 2021.

9. Income Taxes

For the three months ended February 28, 2022 the Company recorded deferred taxes of $17,000 and current tax expense of $8,750 for an effective tax rate of 29.0% compared to $11,000 of current tax expense and $21,000 of deferred tax expense February 28, 2021 for an effective tax rate of 8.8%. The significant reduction in the 2021 effective tax rate is because of the nontaxable Paycheck Protection Program loan forgiveness in December 2020 of $228,000.

10. Stockholder’s Equity

On December 9, 2020March 7, 2022 the Payroll Protection Program loan was forgiven by the Small Business Administration (“SBA”). Among other provisions, the CARES Act eliminated federal tax on the forgivenessBoard of the SBA loan. States were allowedDirectors declared a $0.01 cash distribution/dividend per share to determine whether they would follow the federal government forgiveness. Illinois has adopted the federal government forgiveness program.

In fiscalstockholders of record as of 2021,March 29, 2022, the Company’s income included the $228,000 of PPP loan forgiveness, but it is excluded from federal and state tax calculations as a permanent difference, thereby reducing the federal and state effective rate from the customary statutory tax rate used to compute income tax expense at the federal rate of 21% and a state rate of 7.11%, which is net of the federal tax effect for fiscalpayable 2020April 18, 2022. and 2021. The effective tax rate for the nine months of fiscal 2021 is 19.4% versus 16.6% for the same period in 2020.

10. Stockholder’s Equity

On September 10,December 06, 2021 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of SeptemberDecember 22, 2021, paid January 11, 2022.

On January 27, 2021 payablethe Board of Directors declared a $0.01 quarterly cash distribution/dividend per share to stockholders of record as of October 18,February 10, 2021 and paid February 24, 2021. On March 17, 2021 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of April 1, 2021, paid April 22, 2021. On June 3, 2021 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of June 21, 2021, paid July 12, 2021. On March 17,September 10, 2021 the Board of Directors declared a $0.01 cash distribution/dividend per share to stockholders of record as of April 1,September 27, 2021, paid April 22, 2021. On January 27, 2021 the Board of Directors declared a $0.01 quarterly cash distribution/dividend per share to stockholders of record as of February 10, 2021 and paid February 24,October 18, 2021.

On

January 9, 2020. On March 4, 2020, a $0.0110. quarterly cash distribution/dividend per share was declared to stockholders of record as of March 23, 2020 and paid April 08, 2020.Stockholder’s Equity (continued)

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

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

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

On June 18, 2014 an amendment to the Preferred Shares Rights Agreement was filed appointing American Stock Transfer & Trust Company, LLC as successor to Illinois Stock Transfer Company. All original rights and provisions remain unchanged. On August 18, 2015 an amendment was filed to the Preferred Shares Rights Agreement changing the final expiration date to mean the fifth anniversary of the date of the original agreement. All other original rights and provisions remain the same. On May 22, 2017 an amendment was filed extending the final expiration date to mean the seventh anniversary date of the original agreement. All other original rights and provisions remain the same. On February 22, 2019 an amendment was filed extending the final expiration date to mean the ninth anniversary date of the original agreement. All other original rights and provisions remain the same. On March 4, 2021 an amendment was filed extending the final expiration date to mean the eleventh anniversary date of the original agreement. All other original rights and provisions remain the same.

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 69 franchised and 4 licensed units at February 28, 2022 compared to 71 franchised and 3 licensed units at August 31, 2021 compared to 72 franchised and 7 licensed units at August 31, 2020.February 28, 2021.  System-wide revenues for the ninethree months ended August 31, 2021February 28, 2022 were $25.5$8.6 million and August 31, 2020February 28, 2021 was $20.7$7.3 million.

The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees and receipt of initial franchise fees.  Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese and Brewster's coffee), and through nontraditional channels of distribution.

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

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

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

As of August 31, 2021,February 28, 2022, the Company employed 13 full-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, 2021February 28, 2022 versus Three Months Ended August 31, 2020February 28, 2021

For the three months ended August 31,February 28, 2022 and February 28, 2021, and August 31, 2020, the Company reported net income of $133,000$63,000 and $104,000,$333,000, respectively. Total revenue of $789,000$738,000 increased $165,000,$15,000, or 26.4%2.1%, for the three months ended August 31, 2021,February 28, 2022, as compared to total revenue of $624,000$723,000 for the three months ended August 31, 2020.February 28, 2021.

Royalty fee revenue of $455,000,$414,000, for the quarter ended August 31, 2021,February 28, 2022, increased $80,000,$67,000, or 21.3%19.3%, from the $375,000$347,000 for quarter ended August 31, 2020.February 28, 2021. In mid to late March of 2020, due to2021 there was still some slight COVID-19 most restaurants closed temporarily with many state-imposed restrictions duringconcerns for restaurant patrons which is reflected in the months to follow in 2020 and early 2021. The primary reasonlower royalty revenue increased in 2021 was because stores had begun to reopen from the prior year. During the pandemic, they had developed and incorporated on-line order, delivery and curb-side pickup systems, which continued to support sales into 2021. These systems were not yet fully utilized during the third quarter of 2020.volume.

Franchise fee revenue of $4,000,$9,000, for the quarter ended August 31, 2021,February 28, 2022, decreased $1,000,$8,000, or 20.0%47.1%, from the $5,000$17,000 for the quarter ended August 31, 2020. InFebruary 28, 2021. First quarter 2022 included a transfer fee and normal monthly franchise fee amortization revenue, compared to 2021 which had no transfers and 2020 there were no transfers.included $12,000 of franchise fee termination revenue and normal monthly franchise amortization revenue.

Licensing fee and other income of $66,000,$70,000, for the quarter ended August 31, 2021,February 28, 2022, decreased $6,000$88,000 or 8.3%55.7% from $72,000$158,000 for same quarter 2020.2021. Settlement income decreased $88,000 in the first quarter 2022 compared to same period 2021 because of a store closure settlement.

Marketing Fund revenues of $264,000,$245,000, for the quarter ended August 31, 2021,February 28, 2022, increased $91,000,$44,000, or 52.6%.21.9% from $201,000 for the quarter ended February 28, 2021. The primary reason Marketing Fund revenue increased in 20212022 is that store revenues were lowerincreased in 2020 because of COVID-19, resulting in lower marketing revenue.2022.

Total operating expenses of $591,000,$650,000, for the quarter ended August 31, 2021,February 28, 2022, increased $70,000,$64,000, or 13.4%10.9% from $521,000$586,000 for the quarter ended August 31, 2020.February 28, 2021. The increase was primarily related to an increase in Marketing Fund expenses of $91,000, advertising$44,000, payroll expense increasedof $26,000, employee benefit expense of $4,000 Sign Shop cost of sales increased $2,000 and general operating expenses increased $8,000 compared to 2020. These increases wereof $4,000, offset by a $14,000 decrease in professional fees of $11,000, a decrease in payroll of $10,000, employee benefits of $10,000 and a decrease in occupancy of $4,000 in 2021 compared to 2020.fees.

For the three months ended August 31, 2021February 28, 2022 the provision for income tax was $66,000,$26,000, compared to no incomea $32,000 tax provision for the three months ending August 31, 2020. In 2021 the deferred tax liability increased due to the utilization and expiration of Federal NOL’s, increasing the tax provision in the third quarterFebruary 28, 2021.

Earnings per share, as reported for basic and diluted outstanding shares for the quartersquarter ended August 31, 2021February 2022 and August 31, 2020 was $0.02 and $0.01, respectively.

Nine Months Ended August 31, 2021 versus Nine Months Ended August 31, 2020

For the nine months ended August 31, 2021 and August 31, 2020, the Company reported net income of $553,000 and $75,000, respectively. Total revenue of $2,260,000 increased $589,000, or 35.2%, for the nine months ended August 31, 2021, as compared to total revenue of $1,672,000 for the nine months ended August 31, 2020.

Royalty fee revenue of $1,222,000, for the nine months ended August 31, 2021, increased $221,000, or 22.1%, from the $1,001,000 for nine months ended August 31, 2020. The primary reason royalty revenue increased in 2021 was the effects of restaurants being closed$0.01 and restricted services in mid-March through August 2020 due to COVID-19.

Franchise fee revenues of $30,000, for the nine months ended August 31, 2021, increased $18,000, or 150.0%, from the $12,000 for the nine months ended August 31, 2020. In 2021 a store closed that had not been fully amortized, resulting in $12,000 of franchise fees recognized. In 2021, there was one transfer for $5,000 compared to none in 2020 and $5,000 for 2021 and $4,000 for 2020 of franchise fee amortization.

Licensing fee and other income of $292,000, for the nine months ended August 31, 2021, increased $80,000 or 37.9% from $211,000 for same period 2020. There was a $90,000 increase in settlement income and a $6,000 increase in Sign Shop revenue, offset by a $14,000 decrease in license fee revenue and a $2,000 decrease in nontraditional revenue in 2021 compared to 2020.

Marketing Fund revenues of $716,000, for the nine months ended August 31, 2021, increased $269,000, or 60.2% from $447,000. The primary reason Marketing Fund revenue increased was the nine months of 2021 marketing fees were collected at their normal rate, while in 2020 marketing fees were waived to assist franchisees during COVID-19 from mid-March through the end of May 2020 and also, sales in 2020 were lower and less marketing revenue was collected.

Total operating expenses of $1,803,000, for the nine months ended August 31, 2021, increased $221,000, or 14.0% from $1,582,000 for the same period 2020. The increase was primarily related to an increase in Marketing Fund expenses of $269,000, a $6,000 increase in business insurance, a $6,000 increase in SEC and filing expense and a $5,000 increase in Sign Shop cost of goods sold in 2021 compared to 2020. The increases were offset by decreases to payroll of $20,000, a $14,000 decrease in advertising and a $14,000 decrease in employee benefits due to an employee retiring, a $10,000 decrease in legal expenses, a $5,000 in franchise development due to a credit from vendor, and a $3,000 decrease in occupancy due to CAM charge recovery in 2021 versus 2020.

On May 1, 2020 the Company received loan proceeds of $228,000 through the CARES Act offered by the Treasury Department and Small Business Administration. On December 9, 2020 the Company was notified that the loan was forgiven in full, including any accrued interest. The cash received was used to pay employees, employee benefits, rent and utilities.

For the nine months ended August 31, 2021 the provision for income tax was $133,000 compared to a $15,000 income tax provision for the nine months ending August 31, 2020.$0.05, respectively. In 2021 the deferred tax liability increased due to the utilization and expiration of Federal NOL’s, increasing the tax provisionPaycheck Protection Program loan forgiveness accounted for 2021. In fiscal 2021, the Company’s income also included the $228,000 of PPP debt forgiveness, but it is excluded from federal and state tax calculations as a permanent difference, thereby reducing the federal and state effective rate from the statutory federal rate of 21% and a state rate of 7.11%, which is net$0.03 of the federal tax effect. The effective tax rate for the nine months of fiscal 2021 is 19.4% versus 16.6% for the same period in 2020.

Earnings$0.05 earnings per share, as reported for basic and diluted outstanding shares for the nine months ended August 31, 2021 and August 31, 2020 was $0.08 and $0.01 respectively.share.

Liquidity and Capital Resources

At August 31,February 28, 2022, the Company had working capital of $1,159,000 and unrestricted cash of $1,494,000. At February 28, 2021 the Company had working capital of $1,172,000$976,000 and unrestricted cash of $1,458,000. At August 31, 2020 the Company had working capital of $735,000 and unrestricted cash of $1,077,000.$1,333,000.

During the ninethree months ended August 31, 2021,February 28, 2022, the Company had net income of $553,000$63,000 and operating activities provided cash of $595,000.$142,000. The principal adjustments to reconcile the net income to cash provided by operating activities for the ninethree months ending August 31, 2021February 28, 2022 was depreciation and amortization of $4,000,$1,000, deferred tax expense of $102,000$17,000 and noncash lease expense of $74,000,$25,000, less PPP loan forgiveness of $228,000 and the recovery of uncollectible accounts of $2,000.$1,000. In addition, changes in operating assets and liabilities increased cash by $93,000.$37,000. During the ninethree months ended August 31, 2020,February 28, 2021, the Company had net income of $75,000$333,000 and operating activities usedprovided cash of $49,000.$162,000. The principal adjustments to reconcile the net income to cash used inprovided by operating activities for the ninethree months ending August 31, 2020February 28, 2021 was depreciation and amortization of $2,000$1,000, deferred tax expense of $21,000 and noncash lease expense of $74,000,$25,000, less PPP loan forgiveness of $228,000 and the provision for uncollectible accounts of $8,000.$1,000. In addition, changes in operating assets and liabilities decreasedincreased cash by $193,000.$10,000. 

The Company had investing activities of $3,000$10,000 for trademark capitalizationan equipment deposit for the ninethree months ended August 31, 2021February 28, 2022 and 2020.no investing activity in same period 2021.

Cash distributions/dividends used $218,000$73,000 in financing activities in 2021 versus $291,000 of cash distributions/dividends for the same period 2020. On August 1, 2020 the Company received loan proceeds of $228,000 through the CARES act offered by the Treasury Departmentthree months ending February 28, 2022 and Small Business Administration.  The loan was forgiven in the first quarter of 2021.  See Note 8 for additional information.  

Cash Distribution and Dividend Policy

The Company will continuecontinues to monitor theany possibly re-occurring impact of the Coronavirus Pandemicvariants on its operations when determining the future cash distribution/dividend payments. CashIt is the Company’s intent that future cash distributions/dividend payments will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors. The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis. For fiscal 20212022 a $0.01 cash distribution havehas been declared for the first second and thirdsecond quarters.

Determination of whether distributions are considered a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2021,2022, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2021.2022.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope, including trade receivables. The amendments in this update broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The guidance in ASU 2016-13 is effective for public companies for fiscal years and for interim periods with those fiscal years beginning after December 15, 2020.2023. The Company will adopt ASU 2019-132019-13 for fiscal year ending November 30, 20222024 and the adoption of this guidance is not expected to have any material impact on the Company’s financial position, cash flows or results of operations.operations.

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

Management does not believe that there are any recently issued and effective or not yet effective accounting pronouncements as of August 31, 2021February 28, 2022 that would have or are expected to have any significant effect on the Company’s financial position, cash flows or income statement.

Critical Accounting Policies

The Company has identified other significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.  The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, deferred tax assets and the related valuation allowance.  Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2020,2021, filed with the Securities and Exchange Commission on February 26, 2021.25, 2022. 

BAB, Inc. has no interest, currency or derivative market risk.

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, 2021February 28, 2022 our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the ninethree months of fiscal year 20212022 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Compliance with Section 404 of Sarbanes-Oxley Act

The Company is in compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Act”).

PART II

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

None.

None.

Not applicable

Amendment No. 5 to the Company’s Preferred Shares Rights Agreement dated May 6, 2013 was filed on March 8, 2021. The amendment revises the definition of “Final Expiration Date” to mean the eleventh anniversary of the date of the Preferred Shares Rights Agreement.

(a)  EXHIBITS

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BAB, Inc.