BAB, Inc. Navigates Revenue Dip with Strong Cost Controls, Boosting Net Income

TL;DR

**BABB's net income jumped despite falling revenue, proving they can squeeze profits even as their franchise system shrinks – a cautious buy for value, but watch that top line.**

AI Summary

BAB, Inc. (BABB) reported a mixed financial performance for the nine months ended August 31, 2025. Total revenues decreased by 9.89% to $2,334,220 from $2,590,707 in the prior year, primarily driven by a significant drop in marketing fund revenue, which fell by 26.58% to $631,025 from $859,516. Royalty fees from franchised stores also saw a slight decline of 0.78% to $1,480,809. Despite the revenue decline, net income increased by 8.32% to $438,188 from $404,518, largely due to a 14.05% reduction in total operating expenses, which decreased to $1,767,451 from $2,077,353. This expense reduction was significantly influenced by lower marketing fund expenses, which mirrored the revenue decline. The company's cash and restricted cash increased by $89,470 to $2,426,760 at August 31, 2025, compared to $2,337,290 at the beginning of the period. BAB, Inc. had 60 franchise units and 4 licensed units in operation across 18 states, with 4 additional units under development as of August 31, 2025.

Why It Matters

For investors, BABB's ability to increase net income despite a revenue decline signals effective cost management, which is crucial in a competitive quick-service restaurant market. The decrease in marketing fund revenue and expenses could indicate a strategic shift or reduced franchisee participation, potentially impacting brand visibility and future growth. Employees and franchisees might face evolving support structures or marketing initiatives. In the broader market, this performance highlights the challenges smaller franchise operators face in maintaining top-line growth while demonstrating resilience through operational efficiency, potentially influencing investor sentiment towards similar micro-cap franchise models.

Risk Assessment

Risk Level: medium — The risk level is medium due to declining total revenues, specifically a 26.58% drop in marketing fund revenue and a 0.78% decrease in royalty fees for the nine months ended August 31, 2025. While net income increased, this was largely driven by a corresponding reduction in marketing fund expenses, suggesting a potential contraction in marketing efforts that could impact future growth and brand visibility for its 60 franchise units.

Analyst Insight

Investors should closely monitor BABB's revenue trends, particularly royalty and franchise fees, to assess the health of its core business and franchise system. While cost controls are commendable, sustained revenue declines could signal deeper issues. Consider this a 'hold' until there's clearer evidence of top-line stabilization or growth strategies beyond expense management.

Financial Highlights

debt To Equity

0.44

revenue

$2,334,220

operating Margin

N/A

total Assets

$4,916,166

total Debt

$1,499,936

net Income

$438,188

eps

N/A

gross Margin

N/A

cash Position

$2,426,760

revenue Growth

-9.89%

Revenue Breakdown

Key Numbers

• $2,334,220 — Total Revenues (Decreased by 9.89% for the nine months ended August 31, 2025, compared to $2,590,707 in the prior year.)
• $438,188 — Net Income (Increased by 8.32% for the nine months ended August 31, 2025, compared to $404,518 in the prior year.)
• $631,025 — Marketing Fund Revenue (Decreased by 26.58% for the nine months ended August 31, 2025, from $859,516.)
• $1,480,809 — Royalty Fees from Franchised Stores (Decreased by 0.78% for the nine months ended August 31, 2025, from $1,492,463.)
• $1,767,451 — Total Operating Expenses (Decreased by 14.05% for the nine months ended August 31, 2025, from $2,077,353.)
• $2,426,760 — Cash and Restricted Cash (Increased by $89,470 at August 31, 2025, from $2,337,290 at the beginning of the period.)
• 60 — Franchise Units (Number of franchise units in operation as of August 31, 2025.)
• 7,263,508 — Common Stock Outstanding (Shares outstanding as of October 10, 2025.)

Key Players & Entities

• BAB, Inc. (company) — franchisor of bagel and muffin retail units
• Big Apple Bagels (company) — franchised brand of BAB, Inc.
• My Favorite Muffin (company) — acquired brand of BAB, Inc.
• SweetDuet (company) — frozen yogurt brand offered by BAB, Inc.
• Athletes HQ Systems, Inc. (company) — minority investment of BAB, Inc.
• SEC (regulator) — U.S. Securities and Exchange Commission
• Delaware (regulator) — state of incorporation for BAB, Inc.
• Bloomberg (company) — financial news outlet

FAQ

Risk Factors

• Dependence on Franchise Model [high — market]: The company's revenue is heavily reliant on royalty fees from franchised stores and marketing fund contributions. A decline in these revenues, as seen in the current period (-0.78% and -26.58% respectively), poses a significant risk to overall financial performance. The company operates 60 franchise units and 4 licensed units, indicating a concentrated business model.
• Marketing Fund Management [medium — operational]: The substantial decrease in marketing fund revenue (-26.58%) and corresponding decrease in marketing fund expenses suggests potential challenges in managing or generating revenue from these funds. This could impact the effectiveness of marketing initiatives and franchisee satisfaction.
• Revenue Decline Impact [medium — financial]: Total revenues decreased by 9.89% to $2,334,220. While net income increased due to expense cuts, a sustained revenue decline could pressure profitability if cost-saving measures are exhausted or become unsustainable.
• Franchise Regulations [low — regulatory]: Operating a franchise model subjects BAB, Inc. to various federal and state regulations governing franchise relationships. Non-compliance or changes in these regulations could lead to legal challenges and financial penalties.

Industry Context

BAB, Inc. operates within the franchise services sector, which is characterized by a reliance on franchisee success and adherence to brand standards. The industry is sensitive to economic downturns that can impact consumer spending and franchisee profitability. Competition can arise from other franchise systems and independent businesses offering similar products or services.

Regulatory Implications

As a franchisor, BAB, Inc. is subject to franchise disclosure regulations (like the FTC Franchise Rule in the U.S.) and state-specific franchise laws. Compliance with these regulations is crucial to avoid legal disputes and maintain operational integrity. Changes in these laws could impact franchise agreements and revenue streams.

What Investors Should Do

1. Monitor marketing fund revenue trends
2. Analyze expense reduction sustainability
3. Evaluate franchise unit growth pipeline

Key Dates

• 2025-08-31: End of Nine Months Reporting Period — Key financial results for the period, including revenue, expenses, and net income, are reported. Total assets stood at $4,916,166 and total liabilities at $1,499,936.
• 2024-11-30: End of Fiscal Year 2024 — Audited financial statements for the previous fiscal year, providing a baseline for comparison. Total assets were $4,843,801 and total liabilities were $1,502,583.
• 2025-10-10: Common Stock Outstanding Date — Reported 7,263,508 shares of common stock outstanding, relevant for per-share calculations and investor ownership.

Glossary

Marketing fund revenue

Revenue generated from contributions made by franchisees and stores to a central marketing fund, used for advertising and promotional activities. (A significant revenue stream for BAB, Inc., which experienced a notable decline of 26.58% in the current period.)

Royalty fees from franchised stores

Payments made by franchisees to the franchisor (BAB, Inc.) based on a percentage of their sales, typically as part of the franchise agreement. (The largest revenue component for BAB, Inc., showing a slight decrease of 0.78%.)

Accumulated deficit

The cumulative net losses of a company since its inception, offset by any net profits. (BAB, Inc. has a significant accumulated deficit of $10,856,280 as of August 31, 2025, indicating historical unprofitability.)

Operating lease right of use

An asset recognized under accounting standards for leases, representing the right to use an underlying asset for the lease term. (Represents a significant non-current asset, decreasing from $365,714 to $323,392, reflecting lease obligations.)

Year-Over-Year Comparison

Compared to the prior year, BAB, Inc. experienced a notable 9.89% decrease in total revenues, primarily driven by a sharp 26.58% drop in marketing fund revenue and a slight 0.78% decline in royalty fees. Despite this revenue contraction, net income saw an 8.32% increase, a positive development attributed to a significant 14.05% reduction in total operating expenses. The company's cash position strengthened, with cash and restricted cash increasing by $89,470. Total assets grew slightly to $4,916,166 from $4,843,801, while total liabilities decreased marginally to $1,499,936 from $1,502,583.

Filing Documents

• babs20250831_10q.htm (10-Q) — 751KB
• ex_866915.htm (EX-21.1) — 1KB
• ex_866916.htm (EX-31.1) — 13KB
• ex_866917.htm (EX-31.2) — 13KB
• ex_866918.htm (EX-32.1) — 5KB
• ex_866919.htm (EX-32.2) — 4KB
• 0001437749-25-030841.txt ( ) — 4810KB
• babb-20250831.xsd (EX-101.SCH) — 48KB
• babb-20250831_def.xml (EX-101.DEF) — 279KB
• babb-20250831_lab.xml (EX-101.LAB) — 267KB
• babb-20250831_pre.xml (EX-101.PRE) — 309KB
• babb-20250831_cal.xml (EX-101.CAL) — 41KB
• babs20250831_10q_htm.xml (XML) — 843KB

Financial Statements

Financial Statements 3 Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 20 Item 4

Controls and Procedures

Controls and Procedures 20 PART II OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 21 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3 Defaults Upon Senior Securities 21 Item 4 Mine Safety Disclosures 21 Item 5 Other Information 21 Item 6 Exhibits 22 SIGNATURE 23 2 PART I ITEM 1.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS BAB, Inc. Consolidated Balance Sheets August 31, 2025 November 30, 2024 (unaudited) (audited) ASSETS Current Assets Cash $ 2,031,735 $ 2,177,586 Restricted cash 395,025 159,704 Receivables Trade accounts and notes receivable (net of allowance for credit losses of $ 50,129 in 2025 and $ 51,103 in 2024) 80,538 70,090 Marketing fund contributions receivable from franchisees and stores 22,797 17,394 Prepaid expenses and other current assets 89,718 84,825 Total Current Assets 2,619,813 2,509,599 Property, plant and equipment (net of accumulated depreciation of $ 159,514 in 2025 and $ 159,414 in 2024) 3,497 - Trademarks 461,445 461,445 Goodwill 1,493,771 1,493,771 Definite lived intangible assets (net of accumulated amortization of $ 145,606 in 2025 and $ 142,664 in 2024) 14,248 13,272 Operating lease right of use 323,392 365,714 Total Noncurrent Assets 2,296,353 2,334,202 Total Assets $ 4,916,166 $ 4,843,801 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 1,774 $ 1,313 Income tax payable 67,708 80,695 Accrued expenses and other current liabilities 279,249 409,179 Unexpended marketing fund contributions 403,895 164,756 Deferred franchise fee revenue 21,203 21,353 Current portion operating lease liability 53,222 47,846 Total Current Liabilities 827,051 725,142 Long-term Liabilities (net of current portion) Operating lease liability 293,595 330,215 Deferred franchise revenue 125,371 130,094 Deferred tax liability 253,919 317,132 Total Long-term Liabilities 672,885 777,441 Total Liabilities $ 1,499,936 $ 1,502,583 Stockholders' Equity Preferred shares -$ .001 par value; 4,000,000 authorized; no shares outstanding as of August 31, 2025 and November 30, 2024 - - Preferred shares -$ .001 par value; 1,000,000 Series A authorized; no shares outstanding as of August 31, 2025 and

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