bab_10k-113011.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark one)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: November 30, 2011

[ ]	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.

(Exact name of registrant as specified in its charter)

Delaware	36-4389547
(State or other jurisdiction of incorporation)	(IRS Employer or organization Identification No.)

500 Lake Cook Road, Suite 475 Deerfield, Illinois 60015

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number: (847) 948-7520

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Stock	NASDAQ/OTC

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X ] No

Indicate by check mark whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] Yes [ X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one): Large Accelerated Filer [ ], Accelerated Filer [ ], Non-Accelerated Filer [ ], Smaller Reporting Company [ X ].

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

State issuer's revenues for its most recent fiscal year: $3,023,276.

The aggregate market value of the voting common equity held by nonaffiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was: $3,012,163 based on 4,634,098 shares held by nonaffiliates as of May 31, 2011; Closing price ($.65) for said shares in the NASDAQ OTC Bulletin Board as of such date.

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 7,263,508 shares of Common Stock, as of February 23, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

See index to exhibits

RDGPreambleEnd

FORM 10-K INDEX

PART I
Item 1	Description of Business	3
Item 1A	Risk Factors	7
Item 2	Properties	7
Item 3	Legal Proceedings	7
Item 4	Submission of Matters to a Vote of Security Holders	7
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6.	Selected Financial Data	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 8.	Financial Statements and Supplementary Data	14
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	32
Item 9B	Other Information	32
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships, Related Transactions and Director Independence	37
Item 14.	Principal Accountant Fees and Services	37
PART IV
Item 15.	Exhibits and Financial Statement Schedules	38

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

BAB, Inc (“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. Systems was incorporated on December 2, 1992, and was primarily established to franchise Big Apple Bagel (“BAB”) specialty bagel retail stores. Operations was formed on August 30, 1995, primarily to operate Company-owned stores. The last one of the Company-owned stores was sold and became a franchise location November 30, 2011. BFC was established on February 15, 1996 to franchise “Brewster’s Coffee” concept coffee stores. My Favorite Muffin Too, Inc., a New Jersey corporation, was acquired on May 13, 1997. My Favorite Muffin Too, Inc. franchises My Favorite Muffin (“MFM”) concept muffin stores which are included as part of the Systems franchise operating and financial information. The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were acquired on February 1, 1999. All branded wholesale business uses this trademark.

The Company was incorporated under the laws of the State of Delaware on July 12, 2000. The Company currently operates franchises and licenses bagel and muffin retail units under the BAB and MFM trade names. At November 30, 2011, the Company had 101 franchise units and 8 licensed units in operation in 26 states. The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including under licensing agreements with Mrs. Fields Famous Brands (Mrs. Fields), Kohr Bros. Frozen Custard, Braeda Cafe, Kaleidoscoops, Green Beans Coffee, Sodexo and through direct home delivery of specialty muffin gift baskets and coffee.

The BAB franchised brand consists of units operating as “Big Apple Bagels,” featuring daily baked bagels, flavored cream cheeses, premium coffees, gourmet bagel sandwiches and other related products. Licensed BAB units serve the Company's par-baked frozen bagel and related products baked daily. BAB units are primarily concentrated in the Midwest and Western United States. The MFM brand consists of units operating as "My Favorite Muffin," featuring a large variety of freshly baked muffins, coffees and related products, and units operating as "My Favorite Muffin and Bagel Cafe," featuring these products as well as a variety of specialty bagel sandwiches and related products. MFM units are primarily in the Middle Atlantic States. Although the Company doesn't actively market Brewster's stand-alone franchises, Brewster's coffee products are sold in most franchised units.

The Company has grown significantly since its initial public offering through growth in franchise units and the development of alternative distribution channels for its branded products. The Company is leveraging on the natural synergy of distributing muffin products in existing BAB units and, alternatively, bagel products and Brewster's Coffee in existing MFM units. The Company expects to continue to realize efficiencies in servicing the combined base of BAB and MFM franchisees.

Net Income

The Company reported net income of $394,000 and $410,000 for the years ended November 30, 2011 and 2010, respectively.

Food Service Industry

Food service businesses are often affected by changes in consumer tastes; national, regional, and local economic conditions; demographic trends; traffic patterns; and the type, number and location of competing restaurants. Multi-unit food service chains, such as the Company's, can also be substantially adversely affected by publicity resulting from problems with food quality, illness, injury or other health concerns or operating issues stemming from one store or a limited number of stores. The food service business is also subject to the risk that shortages or interruptions in supply caused by adverse weather or other conditions could negatively affect the availability, quality and cost of ingredients and other food products. In addition, factors such as inflation, increased food and labor costs, regional weather conditions, availability and cost of suitable sites and the availability of experienced management and hourly employees may also adversely affect the food service industry in general and the Company's results of operations and financial condition in particular.

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CUSTOMERS

The Company’s franchisees represent a varied geographic and demographic group. Among some of the primary services the Company provides to its franchisees are marketing assistance, training, time-tested successful recipes, bulk purchasing discounts, food service knowledgeable personnel and brand recognition.

SUPPLIERS

The Company's major suppliers are Coffee Bean International, Dawn Food Products, Inc., Schreiber Foods, Coca-Cola and Hawkeye Foodservice. The Company is not dependent on any of these suppliers for future growth and profitability since like products purchased from these suppliers are available from other sources.

LOCATIONS

The Company has 101 franchised locations and 8 licensed units that are located in 26 states.

STORE OPERATIONS

BIG APPLE BAGELS--BAB franchised stores daily bake a variety of fresh bagels and offer up to 11 varieties of cream cheese spreads. Stores also offer a variety of breakfast and lunch bagel sandwiches, salads, soups, various dessert items, fruit smoothies, gourmet coffees and other beverages. A typical BAB store is in an area with a mix of both residential and commercial properties and ranges from 1,500 to 2,000 square feet. The Company's current store design is approximately 1,800 square feet, with seating capacity for 20 to 30 persons, and includes approximately 750 square feet devoted to production and baking. A satellite store is typically smaller than a production store, averaging 800 to 1,200 square feet. Although franchise stores may vary in size from other franchise stores, store layout is generally consistent.

MY FAVORITE MUFFIN--MFM franchised stores daily bake 20 to 25 varieties of muffins from over 250 recipes, plus a variety of bagels. They also serve gourmet coffees, beverages and, at My Favorite Muffin and Bagel Cafe locations, a variety of bagel sandwiches and related products. The typical MFM store design is approximately 1,800 square feet, with seating capacity for 20 to 30 persons.

BREWSTER'S COFFEE--Although the Company doesn't have, or actively market, Brewster's stand-alone franchises, Brewster's coffee products are sold in most of the franchised units.

FRANCHISING

The Company requires payment of an initial franchise fee per store, plus an ongoing 5% royalty on net sales. Additionally, BAB and MFM franchisees are members of a marketing fund requiring an ongoing 3% contribution, consisting of 1% for general system-wide marketing, and 2% for the local advertising and marketing. The Company currently requires a franchise fee of $25,000 on a franchisee's first full production BAB or MFM store. The fee for subsequent production stores is $20,000.

The Company's current Franchise Disclosure Document (“FDD”) provides for, among other things, the opportunity for prospective franchisees to enter into a Preliminary Agreement for their first production store. This agreement enables a prospective franchisee a period of 60 days in which to locate a site. The fee for this Preliminary Agreement is $10,000. If a site is not located and approved by the franchisor within the 60 days, the prospective franchisee will receive a refund of $7,000. If a site is approved, the entire $10,000 will be applied toward the initial franchise fee. See also last paragraph under "Government Regulation" section in this 10-K.

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The Company's Franchise Agreement provides a franchisee with the right to develop one store at a specific location. Each Franchise Agreement is for a term of 10 years with the right to renew. Franchisees are expected to be in operation no later than 10 months following the signing of the Franchise Agreement.

The Company currently advertises its franchising opportunities in directories, newspapers and the internet. In addition, prospective franchisees contact the Company as a result of patronizing an existing store.

COMPETITION

The quick service restaurant industry is intensely competitive with respect to product quality, concept, location, service and price. There are a number of national, regional and local chains operating both owned and franchised stores which compete with the Company on a national level or solely in a specific market or region. The Company believes that because the industry is extremely fragmented, there is a significant opportunity for expansion in the bagel, muffin and coffee concept chains.

The Company believes the primary direct competitors of its bagel concept units are Bruegger's Bagel Bakery and New World Coffee-Manhattan Bagel Inc., which operates under Einstein Bros. Bagels, Noah's NY Bagel and Manhattan Bagel Bakery brands. There are several other regional bagel chains with fewer than 50 stores, all of which may compete with the Company. There is no major national competitor in the muffin business, but there are a number of local and regional operators. Additionally, the Company competes directly with a number of national, regional and local coffee concept stores and brand names.

The Company also competes against numerous small, independently owned bagel bakeries and national fast food restaurants, such as Dunkin' Donuts, McDonald's, Panera and Starbucks that offer bagels, muffins, coffee and related products as part of their product offerings. Other competition includes supermarket bakery sections and prepackaged, fresh and frozen bagels. Certain of these competitors may have greater product and name recognition and larger financial, marketing and distribution capabilities than the Company. In addition, the Company believes the startup costs associated with opening a retail food establishment offering similar products on a stand-alone basis are competitive with the startup costs associated with opening its concept stores and, accordingly, such startup costs are not an impediment to entry into the retail bagel, muffin or coffee businesses.

The Company believes that its stores compete favorably in terms of food quality and taste, convenience and customer service and value, which the Company believes are important factors to its targeted customers. Competition in the food service industry is often affected by changes in consumer tastes, national, regional and local economic and real estate conditions, demographic trends, traffic patterns, the cost and availability of labor, consumer purchasing power, availability of product and local competitive factors. The Company attempts to manage or adapt to these factors, but not all such factors are within the Company's control, and such factors could cause the Company and some, or all, of its franchisees to be adversely affected.

The Company competes for qualified franchisees with a wide variety of investment opportunities in the restaurant business, as well as other industries. Investment opportunities in the bagel bakery cafe business include franchises offered by New World Coffee-Manhattan Bagel Inc. The Company's continued success is dependent on its reputation for providing high quality and value with respect to its service, products and franchises. This reputation is affected by the performance of its franchise stores and licensed units that sell branded products, over which the Company has limited control.

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TRADEMARKS AND SERVICE MARKS

The trademarks, trade names and service marks used by the Company contain common descriptive English words and thus may be subject to challenge by users of these words, alone or in combination with other words, to describe other services or products. Some persons or entities may have prior rights to these names or marks in their respective localities. Accordingly, there is no assurance that such names and marks are available in all locations. Any challenge, if successful, in whole or in part, could restrict the Company's use of the names and marks in areas in which the challenger is found to have used the name or mark prior to the Company's use. Any such restriction could limit the expansion of the Company's use of the names or marks into that region, and the Company and its franchisees may be materially and adversely affected.

The trademarks and service marks "Big Apple Bagels," "My Favorite Muffin" and "Brewster's Coffee" are registered under applicable federal trademark law. These marks are licensed by the Company to its franchisees pursuant to Franchise Agreements. In February 1999, the Company acquired the trademark of "Jacobs Bros. Bagels" upon purchasing certain assets of Jacobs Bros. The "Jacobs Bros. Bagels" mark is also registered under applicable federal trademark law.

The Company is aware of the use by other persons and entities in certain geographic areas of names and marks which are the same as or similar to the Company's names and marks. Some of these persons or entities may have prior rights to those names or marks in their respective localities. Therefore, there is no assurance that the names and marks are available in all locations. It is the Company's policy to pursue registration of its names and marks whenever possible and to vigorously oppose any infringement of its names and marks.

GOVERNMENT REGULATION

The Company is subject to the Trade Regulation Rule of the Federal Trade Commission (the "FTC") entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures'' (the "FTC Franchise Rule") and state and local laws and regulations that govern the offer, sale and termination of franchises and the refusal to renew franchises. Continued compliance with this broad federal, state and local regulatory network is essential and costly; the failure to comply with such regulations may have a material adverse effect on the Company and its franchisees. Violations of franchising laws and/or state laws and regulations regulating substantive aspects of doing business in a particular state could limit the Company's ability to sell franchises or subject the Company and its affiliates to rescission offers, monetary damages, penalties, imprisonment and/or injunctive proceedings. In addition, under court decisions in certain states, absolute vicarious liability may be imposed upon franchisors based upon claims made against franchisees. Even if the Company is able to obtain insurance coverage for such claims, there can be no assurance that such insurance will be sufficient to cover potential claims against the Company.

The Company and its franchisees are required to comply with federal, state and local government regulations applicable to consumer food service businesses, including those relating to the preparation and sale of food, minimum wage requirements, overtime, working and safety conditions, citizenship requirements, as well as regulations relating to zoning, construction, health and business licensing. Each store is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new Company-owned or franchise store, and failure to remain in compliance with applicable regulations could cause the temporary or permanent closing of an existing store. The Company believes that it is in material compliance with these provisions. Continued compliance with these federal, state and local laws and regulations is costly but essential, and failure to comply may have an adverse effect on the Company and its franchisees.

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The Company's franchising operations are subject to regulation by the FTC under the Uniform Franchise Act which requires, among other things, that the Company prepare and periodically update a comprehensive disclosure document known as a FDD in connection with the sale and operation of its franchises. In addition, some states require a franchisor to register its franchise with the state before it may offer a franchise to a prospective franchisee. The Company believes its FDD, together with any applicable state versions or supplements, comply with both the FTC guidelines and all applicable state laws regulating franchising in those states in which it has offered franchises.

The Company is also subject to a number of state laws, as well as foreign laws (to the extent it offers franchises outside of the United States), that regulate substantive aspects of the franchisor-franchisee relationship, including, but not limited to, those concerning termination and non-renewal of a franchise.

EMPLOYEES

As of November 30, 2011, the Company employed 17 persons in the Corporate headquarters, consisting of 15 full time and 2 part-time employees. 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.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 2. PROPERTIES

The Company's principal executive office, consisting of approximately 7,150 square feet, is located in Deerfield, Illinois and is leased. The Company elected to extend the lease term under the first amendment to the original lease and it expires September 30, 2018. There is an option to extend the lease for an additional five years.

ITEM 3. LEGAL PROCEEDINGS

We are party to legal proceedings arising in the ordinary course of business and may become subject to additional proceedings in the future. While management does not believe that any pending legal claims or proceedings will be resolved in a manner that would have a material adverse effect on our business, we cannot assure you of the ultimate outcome of any legal proceeding or contingency in which we are or may become involved.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth the quarterly high and low sale prices for the Company's common stock, as reported in the Nasdaq Small Cap Market for the two years ended November 30, 2011 and 2010. The Company's common stock is traded on the NASDAQ OTC-Bulletin Board under the symbol "BABB."

Year Ended: November 30, 2011	Low	High
First quarter	0.39	0.55
Second quarter	0.49	1.01
Third quarter	0.55	0.78
Fourth quarter	0.48	0.69

Year Ended: November 30, 2010	Low	High
First quarter	0.37	0.51
Second quarter	0.38	0.50
Third quarter	0.25	0.64
Fourth quarter	0.33	0.50

As of February 15, 2012, the Company's Common Stock was held by 163 holders of record. Registered ownership includes nominees who may hold securities on behalf of multiple beneficial owners. The Company estimates that the number of beneficial owners of its common stock at February 15, 2012, is approximately 1,100 based upon information provided by a proxy services firm.

STOCK OPTIONS

In May 2001, the Company's Board of Directors approved a Long-Term Incentive and Stock Option Plan (Plan), with an amendment in May 2003 to increase the Plan from the reserve of 1,100,000 shares to 1,400,000 shares of Common Stock for grant. A total of 1,400,000 stock options have been granted to directors, officers and employees. In 2011 and 2010, no options were granted. As of February 11, 2011, there were 1,031,627 stock options exercised or forfeited under the Plan. (See Note 6 of the audited consolidated financial statements included herein.)

CASH DISTRIBUTION AND DIVIDEND POLICY

The Board of Directors declared a cash distribution/dividend on December 6, 2010, paid January 5, 2011 of $0.01 quarterly cash distribution/dividend and a $0.02 special distribution/dividend and February 25, May 23 and September 6, 2011 a distribution/dividend of $0.01 per share was declared and paid April 15, July 5, and October 4, 2011, respectively.

On November 28, 2011 a $0.01 quarterly cash distribution/dividend and a $0.02 special cash distribution/dividend was declared and paid January 4, 2012.

The Board of Directors declared a quarterly cash distribution/dividend of $0.01 per share on December 7, 2009, March 9, May 20, and September 3, 2010, paid January 4, April 14, July 8 and September 3, 2010.

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ITEM 6. SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The selected financial data contained herein has been derived from the consolidated financial statements of the Company included elsewhere in this Report on Form 10-K. The data should be read in conjunction with the consolidated financial statements and notes thereto. 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 and disclosures contained herein and throughout this Annual Report regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). In such cases, we may use words such as "believe," "intend," "expect," "anticipate" and the like. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. 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 franchisee 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 101 franchised and 8 licensed units at the end of 2011. Units in operation at the end of 2010 included 98 franchised, 7 licensed and 1 Company-owned store. System-wide revenues in 2011 and 2010 were $36 million.

The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees and from receipt of initial franchise fees. Through November 30, 2011 the Company received revenue from the operation of the Company-owned store. On November 30, 2011 the Company-owned store was sold to a franchisee. This sale will decrease the Company’s total revenues in future years, but it will not have a negative impact on its net income. 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 (Kohr Bros., Braeda Café, Kaleidoscoops, Green Beans Coffee, Sodexo and Mrs. Fields). Also included in licensing fees and other income is Operation’s Sign Shop results. For franchise consistency and convenience, the Sign Shop provides the majority of signage to franchisees and the former Company-owned store, including but not limited to, posters, menu panels, build charts, outside window stickers and counter signs.

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YEAR 2011 COMPARED TO YEAR 2010

Total revenues from all sources increased $109,000, or 3.7%, to $3,023,000 in 2011 from $2,914,000 in the prior year primarily due to increases in royalty revenue of $176,000 and royalty fees of $23,000, off-set by decreases in licensing fees of $47,000 and Company-owned store revenue of $42,000.

Royalty revenue from franchise stores increased $23,000, or 1.3%, to $1,760,000 in 2011 as compared to $1,737,000 in 2010. Franchise fee revenue increased $176,000, or 167.6%, to $281,000 in 2011 versus $105,000 in 2010. The Company opened 9 stores and transferred 8 stores in 2011 versus opening 4 franchise stores and transferring 5 in 2010. At November 30, 2011 the Company had 1 unit under development versus 3 at November 30, 2010. Company-owned store revenues decreased $42,000 or 9.4%, to $403,000 from $445,000 in 2010. Licensing fees and other income decreased $47,000, or 7.5%, to $579,000 in 2011 as compared to $626,000 in 2010. The decline in licensing and other income was primarily due to an $83,000 decrease in audit/settlement income in 2011 versus 2010. In addition, in 2010 there was $17,000 in gift card revenue and $5,000 from lease income versus none in 2011. This decline was offset by an increase in Sign Shop revenue of $48,000 and an increase in license fee revenue of $9,000.

Total operating expenses in 2011 were $2,620,000, or 86.7% of revenues, compared to total operating expenses in 2010 of $2,502,000, or 85.9% of total revenues. Total operating expenses increased $118,000, or 4.7% in 2011 compared to 2010.

Expenses for the former Company-owned store, which was sold and became a franchise location November 30, 2011, decreased $23,000, or 5.5%, in 2011, to $397,000, from $420,000 in 2010. Cost of goods sold in 2011 increased $3,000, or 2.2%, to $138,000 compared to $135,000 in 2010. Cost of goods sold as a percentage of sales was 34.2% in 2011 versus 30.3% in 2010.

Corporate office payroll and payroll related expenses increased $85,000, or 6.7%, in 2011, to $1,348,000, from $1,263,000, in 2010 primarily due to bonuses paid in 2011 versus 2010 and 2 additional employees, one full time and one part time hired in 2011. Professional fees decreased $36,000, or 21.3%, in 2011, to $133,000, from $169,000 in 2010 primarily due to decreased legal expenses for franchise collection expense. Travel increased $8,000, or 18.6%, to $51,000 in 2011, from $43,000 in 2010 due to increased travel for more store openings in 2011.

Interest income was $4,000 in 2011 versus $8,000 in 2010, as a result of lower interest rates.

Interest expense was $8,000 in 2011 versus $10,000 in 2010, as a result of less outstanding debt.

Net income totaled $394,000, or 13.0%, of revenue in 2011 as compared to $410,000, or 14.1%, of revenue in the prior year. Income tax expense for 2011 was $5,000 for Illinois state income taxes as net operating loss carryforwards were not allowed to offset taxable income in 2011. There was no income tax expense for 2010.

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LIQUIDITY AND CAPITAL RESOURCES

At November 30, 2011, the Company had working capital of $807,000 and unrestriced cash of $1,236,000. At November 30, 2010 the Company had working capital of $1,063,000 and unrestricted cash of $1,243,000.

During fiscal 2011, the Company had net income of $394,000 and operating activities provided cash of $464,000. The principal adjustments to reconcile net income to cash provided by operating activities were depreciation, amortization of $26,000, loss on assets held for sale, share-based compensation of $10,000 and provision for uncollectible accounts of $3,000. In addition changes in operating assets and liabilities totaled $27,000. During fiscal 2010, the Company had net income of $410,000 and operating activities provided cash of $527,000. The principal adjustments to reconcile net income to cash provided by operating activities were depreciation, amortization and value adjustment of $28,000, share-based compensation of $10,000 less the provision for uncollectible accounts of $8,000. In addition changes in operating assets and liabilities totaled $87,000.

During fiscal 2011, the Company used $8,000 for investing activities, comprised of $8,000 for purchases of equipment and $3,000 for trademark renewal, less $3,000 for proceeds from sale of equipment. During fiscal 2010, the Company used $41,000 for investing activities, comprised of $22,000 for purchases of equipment and $19,000 for trademark renewals.

For financing activities in fiscal 2011, $26,000 was used for repayment of debt and $436,000 for cash distributions/dividend payments to common stockholders. For financing activities in fiscal 2010, $25,000 was used for repayment of debt and $291,000 for cash distributions/dividend payments to common stockholders.

Although there can be no assurances that the Company will be able to pay cash distributions/dividends in the future, it is the Company’s intent that future cash distributions/dividends will be considered based on 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 distributions/dividends on a quarterly basis if warranted. On November 28, 2011, the Board of Directors authorized a $0.01 per share quarterly cash distribution/dividend and a $0.02 per share special cash distribution/dividend. The cash distribution/dividend was paid January 4, 2011.

The Company believes execution of its cash distribution/dividend policy will not have any material adverse effects on its cash or its ability to fund current operations or future capital investments.

The Company has no financial covenants on its outstanding debt.

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements, other than the lease commitments disclosed in Note 7 of the audited consolidated financial statements included herein.

CRITICAL ACCOUNTING POLICIES

The Company's significant accounting policies are presented in the Notes to the Consolidated Financial Statements (see Note 2 of the audited consolidated financial statements included herein). While all of the significant accounting policies impact the Company's Consolidated Financial Statements, some of the policies may be viewed to be more critical. The more critical policies are those that are most important to the portrayal of the Company's financial condition and results of operations and that require management's most difficult, subjective and/or complex judgments and estimates. Management bases its judgments and estimates on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of judgments and estimates form the basis for making judgments about the Company's value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions. Management believes the following are its most critical accounting policies because they require more significant judgments and estimates in preparation of its consolidated financial statements.

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Revenue Recognition

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.

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.

Long-Lived Assets

Property and equipment are recorded at cost. Improvements and replacements are capitalized, while expenditures for maintenance and routine repairs that don't extend the life of the asset are charged to expense as incurred. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Property, equipment and leasehold improvements are stated at cost, less accumulated depreciation. Estimated useful lives for the purpose of depreciation and amortization are 3 to 7 years for property and equipment and 10 years, or the term of the lease if less, for leasehold improvements.

Following the guidelines contained in ASC 350, the corporation 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. Goodwill and intangible assets were tested at the end of the first fiscal quarter, February 28, 2011 and 2010 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment tests performed at February 28, 2011 and 2010 were based on a discounted cash flow model using management’s business plan projected for expected future cash flows. Based on the computation of the discounted cash flows, it was determined that the fair value of goodwill and intangible assets were not impaired.

Concentrations of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist primarily of royalty and wholesale accounts receivables. The Company believes it has maintained adequate reserves for doubtful accounts. The Company reviews the collectibility of receivables periodically taking into account payment history and industry conditions.

Valuation Allowance and Deferred Taxes

A valuation allowance is the portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.

As of November 30, 2011, the Company has cumulative net operating loss carryforwards expiring between 2012 and 2029 for U.S. federal income tax purposes of approximately $5,857,000. A valuation allowance has been established for $1,756,000 at November 30, 2011 for the deferred tax benefit related to those loss carryforwards and other net deferred tax assets for which it is considered more likely than not that the benefit will not be realized. (See Note 3 of the audited consolidated financial statements included herein.)

- 12 -

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income. The new guidance requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of equity. For public entities, the guidance is effective for fiscal years beginning after December 15, 2011. The Company believes that adoption of this guidance will not have any impact on the Company’s consolidated financial position, cash flows or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other. The new guidance is intended to simplify goodwill impairment testing by permitting an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying value before performing the two-step goodwill impairment test that exists currently. The guidance includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment. ASU 2011-08 is effective for goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company believes that adoption of this guidance will not have a material impact 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, 2011 that would have, or are expected to have, any significant effect on the Company’s consolidated financial position, cash flows or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In regard to interest, foreign currency and commodity price risk the Company does not believe that these are significant risk factors.

- 13 -

ITEM 8. FINANCIAL STATEMENTS

The Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm is included immediately following.

BAB, Inc.

Years Ended November 30, 2011 and 2010

C o n t e n t s

Report of Independent Registered Public Accounting Firm	15

Consolidated Balance Sheets	16

Consolidated Statements of Income	17

Consolidated Statements of Stockholders’ Equity	18

Consolidated Statements of Cash Flows	19

Notes to the Consolidated Financial Statements	20 - 31

- 14 -

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors of BAB, Inc.

We have audited the accompanying consolidated balance sheets of BAB, Inc. and subsidiaries as of November 30, 2011 and 2010 and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BAB, Inc. and subsidiaries as of November 30, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

By: /s/ Sassetti LLC

(formerly Frank L Sassetti & Co.)

Oak Park, Illinois

February 24, 2012

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RDGXBRLParseBegin

BAB, Inc

Consolidated Balance Sheets

November 30, 2011 and 2010

	2011			2010
ASSETS
Current Assets
Cash	$	1,236,125		$	1,242,937
Restricted cash		337,542			257,395
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $32,008 in 2011 and $26,787 in 2010 )		112,344			130,252
Marketing fund contributions receivable from franchisees and stores		19,942			19,184
Inventories		23,625			34,105
Prepaid expenses and other current assets		83,659			89,993
Total Current Assets		1,813,237			1,773,866

Property, plant and equipment (net of accumulated depreciation of $133,294 in 2011 and $126,424 in 2010)		10,371			32,359
Assets held for sale		9,458			-
Trademarks		442,285			442,285
Goodwill		1,493,771			1,493,771
Definite lived intangible assets (net of accumulated amortization of $41,634 in 2011 and $29,072 in 2010)		70,575			80,309
Deferred tax asset		248,000			248,000
Total Noncurrent Assets		2,274,460			2,296,724
Total Assets	$	4,087,697		$	4,070,590

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	27,752		$	26,494
Accounts payable		45,752			36,949
Accrued expenses and other current liabilities		523,545			271,358
Unexpended marketing fund contributions		357,739			238,870
Deferred franchise fee revenue		25,000			100,000
Deferred licensing revenue		26,250			37,500
Total Current Liabilities		1,006,038			711,171

Long-term debt (net of current portion)		124,832			152,584
Total Liabilities		1,130,870			863,755

Stockholders' Equity
Common stock ($.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of November 30, 2011 and November 30, 2010		13,508,257			13,508,257
Additional paid-in capital		987,034			977,389
Treasury stock		(222,781	)		(222,781	)
Accumulated deficit		(11,315,683	)		(11,056,030	)
Total Stockholders' Equity		2,956,827			3,206,835
Total Liabilities and Stockholders' Equity	$	4,087,697		$	4,070,590

See accompanying notes

- 16 -

BAB, Inc

Consolidated Statements of Income

Years Ended November 30, 2011 and 2010

	2011			2010
REVENUES
Royalty fees from franchised stores	$	1,760,240		$	1,737,361
Net sales by Company-owned store		403,006			445,157
Franchise fees		281,200			105,000
Licensing fees and other income		578,830			626,223
Total Revenues		3,023,276			2,913,741

OPERATING EXPENSES
Store food, beverage and paper costs		137,676			134,957
Store payroll and other operating expenses		259,472			285,436
Selling, general and administrative expenses:
Payroll and payroll-related expenses		1,348,204			1,263,261
Occupancy		174,892			145,824
Advertising and promotion		72,862			69,356
Professional service fees		133,238			168,791
Travel		50,516			42,687
Depreciation and amortization		26,389			28,404
Other		416,371			363,511
Total Operating Expenses		2,619,620			2,502,227
Income from operations		403,656			411,514
Interest income		3,703			7,521
Interest expense		(8,296	)		(9,507	)
Income before provision for income taxes		399,063			409,528
Provision for income taxes
Current tax		5,000			-
Net Income	$	394,063		$	409,528

Net Income per share - Basic and Diluted	$	0.05		$	0.06

Weighted average shares outstanding - Basic		7,263,508			7,263,508
Effect of dilutive common stock		1,757			-
Weighted average shares outstanding - Diluted		7,265,265			7,263,508
Cash distributions declared per share	$	0.06		$	0.04

See accompanying notes

- 17 -

BAB, Inc

Consolidated Statements of Stockholders’ Equity

Years Ended November 30, 2011 and 2010

					Additional
	Common Stock				Paid-In		Treasury Stock						Accumulated
	Shares		Amount		Capital		Shares			Amount			Deficit			Total
November 30, 2009		8,466,953	$	13,508,257	$	967,441		(1,203,445	)	$	(222,781	)	$	(11,175,018	)	$	3,077,899
Stock Compensation Expense						9,948											9,948
Dividends Declared														(290,540	)		(290,540	)
Net Income														409,528			409,528
November 30, 2010		8,466,953		13,508,257		977,389		(1,203,445	)		(222,781	)		(11,056,030	)		3,206,835

Stock Compensation Expense						9,645											9,645
Dividends Declared														(653,716	)		(653,716	)
Net Loss														394,063			394,063
November 30, 2011		8,466,953	$	13,508,257	$	987,034		(1,203,445	)	$	(222,781	)	$	(11,315,683	)	$	2,956,827

See accompanying notes

- 18 -

BAB, Inc

Consolidated Statements of Cash Flows

Years Ended November 30, 2011 and 2010

	2011			2010
Operating activities
Net income	$	394,063		$	409,528
Depreciation and amortization		26,389			28,404
Provision for uncollectible accounts, net of recoveries		2,719			(8,084	)
Loss on assets held for sale		4,053			-
Share-based compensation		9,645			9,948
Changes in:
Trade accounts receivable and notes receivable		15,189			(18,822	)
Restricted cash		(80,147	)		(45,647	)
Marketing fund contributions receivable		(758	)		(4,975	)
Inventories		10,480			3,841
Prepaid expenses and other		6,333			15,988
Accounts payable		8,803			(26	)
Accrued liabilities		34,282			3,281
Unexpended marketing fund contributions		118,869			65,659
Deferred revenue		(86,250	)		67,917
Net Cash Provided by Operating Activities		463,670			527,012

Investing activities
Purchase of equipment		(8,317	)		(21,969	)
Proceeds from sale of equipment		2,967			-
Capitalization of trademark renewals		(2,828	)		(18,800	)
Net Cash Used In Investing Activities		(8,178	)		(40,769	)

Financing activities
Repayment of borrowings		(26,494	)		(25,292	)
Cash distributions/dividends		(435,810	)		(290,540	)
Net Cash Used In Financing Activities		(462,304	)		(315,832	)

Net (Decrease) Increase in Cash		(6,812	)		170,411
Cash, Beginning of Period		1,242,937			1,072,526
Cash, End of Period	$	1,236,125		$	1,242,937

Supplemental disclosure of cash flow information:
Interest paid	$	8,506		$	9,708
Income taxes paid	$	20,416		$	852

See accompanying notes

- 19 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 1 - Nature of Operations

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.

Use of Estimates

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.

Revenue Recognition

- 20 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 2 - Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

Big Apple Bagels and My Favorite Muffin stores which are open, licensed units and unopened stores for which a Franchise Agreement has been executed, are as follows:

	2011		2010
Operating Units
BAB Operations, Inc.-owned		-		1
Franchisee-owned stores		101		98
Licensed Units		8		7
		109		106
Unopened stores with Franchise Agreements:		1		3
Total operating units and units with Franchise Agreements		110		109

License fees and other income primarily consist of license fees, Sign Shop results 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 Sign Shop as well as defaulted and terminated franchise contract revenue are actual amounts.

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 confined to two reportable segments operating in the United States; the former Company-owned store and franchise operations. The Company-owned store became a franchise unit November 30, 2011 leaving only one reportable segment going forward.

Marketing Fund

The Company established a Marketing Fund in 1994. Franchise-operated units and any Company-owned 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 licensed products to franchisees.

- 21 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 2 - Summary of Significant Accounting Policies (Continued)

Cash

As of November 30, 2011 and 2010, the Marketing Fund cash balances, which are restricted, were $337,542 and $219,432, respectively. Also included in restricted cash was $37,963 in 2010 for a certificate of deposit that served as collateral for a Letter of Credit that was required for the Company’s office lease. Upon renewal in 2011 this was no longer required.

Deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 for interest bearing accounts. Non-interest bearing business checking accounts are insured to an unlimited amount through December 31, 2012. The Company currently maintains account balances within FDIC limits but at times could exceed them.

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

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 (formerly SFAS No. 142) “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.

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, 2011 and it was found that the carrying value of goodwill and intangible assets were not impaired.

The impairment test performed February 28, 2011 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, 2010 and based on the computation using discounted cash flows, it was also determined that no impairment occurred.

- 22 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 2 - Summary of Significant Accounting Policies (Continued)

Goodwill and Other Intangible Assets (Continued)

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, 2009	$	1,493,771	$	434,960	$	79,794		$	2,008,525
Additions		-		7,325		11,475			18,800
Amortization expense		-		-		(10,960	)		(10,960	)
Net Balance as of November 30, 2010		1,493,771		442,285		80,309			2,016,365
Additions		-		-		2,828			2,828
Amortization expense		-		-		(12,562	)		(12,562	)
Net Balance as of November 30, 2011	$	1,493,771	$	442,285	$	70,575		$	2,006,631

Definite lived intangible assets are being amortized over their useful lives. The estimated amortization expense for each of the next five fiscal years and thereafter is as follows:

Fiscal Period	Definite Lived Intangibles

2012	$	12,832
2013		12,832
2014		12,832
2015		12,832
2016		12,832
thereafter		6,415
Total	$	70,575

- 23 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 2 - Summary of Significant Accounting Policies (Continued)

Advertising and Promotion Costs

The Company expenses advertising and promotion costs as incurred. Advertising and promotion expense was $72,862 and $69,356 in 2011 and 2010, respectively. Included in advertising expense was $50,859 and $36,707 in 2011 and 2010, respectively, related to the Company’s franchise operations.

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, 2011 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, 2011 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, 2008, 2009 and 2010 are subject to examination by the IRS and corresponding states, generally for three years after they are filed. (See Note 3.)

Earnings Per Share

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

	2011		2010
Numerator:
Net income available to common shareholders	$	394,063	$	409,528

Denominator:
Weighted average outstanding shares
Basic		7,263,508		7,263,508
Earnings per Share - Basic	$	0.05	$	0.06

Effect of dilutive common stock		1,757		-
Weighted average outstanding shares
Diluted		7,265,265		7,263,508
Earnings per share - Diluted	$	0.05	$	0.06

- 24 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 2 - Summary of Significant Accounting Policies (Continued)

Earnings Per Share (Continued)

At November 30, 2011 there are 360,400 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 higher than the option prices. At November 30, 2010 there were 368,373 unexercised options that were not included in diluted EPS because their impact would be antidilutive due to the market price of the common stock being higher than the option prices.

Stock-Based Compensation

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 recorded compensation expense arising from share-based payment arrangements in payroll-related expenses on the Consolidated Statement of Income for the Company’s stock option plan of $9,645 and $9,948 for the years ended November 30, 2011 and 2010, respectively.

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

- 25 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 3 – Income Taxes

The effective tax rate used to compute income tax expense (benefit) and deferred tax assets and liabilities is a federal rate of 34% and a state rate of 5.94%, net of the federal tax effect.

The components of the Company’s current provision (benefit) for income taxes are as follows:

	2011		2010
Current
Federal	$	-	$	-
State		5,000		-
Deferred		-		-
Total	$	5,000	$	-

A reconciliation of the expected income tax expense (benefit) to the recorded income tax expense (benefit) is as follows:

	2011			2010

Federal income tax (benefit) provision computed at federal statutory rate	$	133,981		$	139,240
State income taxes net of federal tax provision		23,407			19,731
Other adjustments, including an increase in state tax rate		(50,736	)		8,382
Change in valuation allowance		(101,652	)		(167,353	)
Income Tax Provision (Benefit)	$	5,000		$	-

- 26 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 3 – Income Taxes (Continued)

The components of the Company’s deferred tax assets and liabilities for federal and state income taxes consist of the following:

	2011			2010
Deferred revenue	$	20,469		$	53,375
Deferred rent		4,534			2,031
Marketing Fund net contributions		134,814			85,179
Allowance for doubtful accounts and notes receivable		12,784			10,398
Accrued expenses		48,437			17,967
Net operating loss carryforwards		2,339,392			2,310,363
Valuation allowance		(1,755,814	)		(1,857,466	)
Total Deferred Income Tax Assets	$	804,616		$	621,847

Depreciation and amortization	$	(556,196	)	$	(369,062	)
Franchise Costs		(420	)		(4,785	)
Total Deferred Income Tax Liabilities	$	(556,616	)	$	(373,847	)
Total Net Deferred Tax Assets/Liabilities	$	248,000		$	248,000

As of November 30, 2011 the Company has net operating loss carryforwards expiring between 2012 and 2029 for U.S. federal income tax purposes of approximately $5,857,267. The Company routinely reviews the future realization of tax assets based on projected future reversals of taxable temporary differences, available tax planning strategies and projected future taxable income. A valuation allowance has been established for $1,755,814 and $1,857,466 as of November 30, 2011 and 2010, respectively, for the deferred tax benefit related to those loss carryforwards and other deferred tax assets, that are more likely than not that the deferred tax asset will not be realized. The decrease in the valuation allowance of $101,652 in 2011 is a result of the recognition of a portion of the net operating loss carryforwards and an increase in deferred tax liabilities relating primarily to depreciation and amortization.

- 27 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 4 - Long-Term Debt

On September 6, 2002, the Company signed a note payable requiring annual installments of $35,000, including interest at a rate of 4.75% per annum, for a term of 15 years, in the original amount of $385,531. The Company purchased and retired 1,380,040 shares of BAB common stock from a former stockholder. The balance of this note payable was $152,584 and $179,078 as of November 30, 2011 and 2010, respectively.

As of November 30, 2011, annual maturities on long-term obligations due are as follows:

Year Ending November 30:
2012	$	27,752
2013		29,070
2014		30,451
2015		31,898
2016		33,413
Total	$	152,584

Note 5 - Stockholders’ Equity

On November 28, 2011 a $0.01 quarterly cash distribution/dividend and a $0.02 special cash distribution/dividend was declared and paid January 4, 2012.

Note 6 - Stock Options

In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (“Plan”). The Plan reserved 1,400,000 shares of common stock for grant, all of which have been granted as of November 30, 2009. The Plan terminated on May 25, 2011. The Plan permitted granting of awards to employees and non-employee Directors and agents of the Company in the form of stock appreciation rights, stock awards and stock options. The Plan was administered by a Committee of the Board of Directors appointed by the Board. The Plan gave broad powers to the Board and Committee to administer and interpret the Plan, including the authority to select the individuals to be granted options and rights and to prescribe the particular form and conditions of each option or right granted.

- 28 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 6 - Stock Options (Continued)

Under the Plan, the exercise price of each option equals the market price of the Company’s stock on the date of grant. The options granted vary in vesting from immediate to a vesting period over five years. The options granted are exercisable within a 10 year period from the date of grant. All stock issued from the granted options must be held for one year from date of exercise. Options issued and outstanding expire on various dates through November 28, 2016. The range of exercise prices of options outstanding at November 30, 2011 are $0.46 to $1.38.

During fiscal 2011 and 2010 no options were granted or exercised. Activity under the Plan during the two years ended November 30 is as follows:

	2011				2010
	Options		Weighted average exercise price		Options		Weighted average exercise price
Options outstanding at beginning of year		368,373	$	1.156		368,373	$	1.156
Forfeited		-				-
Outstanding at end of year		368,373	$	1.156		368,373	$	1.156

Options Outstanding and Exercisable
Range of exercise price	Options outstanding		Weighted average remaining contractual life		Weighted average exercise price
$0.46		7,973		2.0	$	0.460
$0.60		10,000		2.6	$	0.600
$0.88 - $0.97		61,900		3.2	$	0.938
$0.86		20,000		3.5	$	0.860
$1.15 - $1.27		68,500		4.0	$	1.220
$0.97		20,000		5.0	$	0.970
$1.25 - $1.38		180,000		5.0	$	1.322
		368,373			$	1.156

- 29 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 6 - Stock Options (Continued)

The aggregate intrinsic value in the table below is before income taxes, based on the Company’s closing stock price of $0.58 as of the last business day of the period ended November 30, 2011. There were no options exercised in 2011 or 2010.

Options Outstanding							Options Exercisable
Outstanding at 11/30/2011	Wghtd. Avg. Remaining Life		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value		Exercisable at 11/30/2011		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value
368,373		4.30	$	1.16	$	-		368,373	$	1.16	$	-

The Company recorded compensation cost arising from share-based payment arrangements in payroll-related expenses on the Consolidated Statement of Income for the Company’s stock option plan of $9,645 and $9,948 for the years ended November 30, 2011 and 2010, respectively. Compensation expense was completed in 2011 and there will be no further payroll-related expense from the stock options currently outstanding.

Note 7 - Commitments

The Company rents its Corporate office, and rented its former Company-owned store location under leases which require it to pay base rent, real estate taxes, insurance and general repairs and maintenance. In October 2011, the Corporate office lease was extended through September 30, 2018. The former Company-owned store lease will expire December 31, 2011 and will not be renewed. The Company-owned store was sold November 30, 2011 and a one month sub-lease agreement with the new franchisee was signed. The franchisee entered into its own lease with the landlord effective January 1, 2012. Rent expense for the years ended November 30, 2011 and 2010 was $149,089 and $156,836, respectively. Monthly rent is recorded on a straight-line basis over the term of the lease with a deferred rent liability being recognized. As of November 30, 2011, future minimum annual rental commitments under the Corporate lease are as follows:

Year Ending November 30:
2012	$	97,635
2013		110,434
2014		113,709
2015		116,983
2016		120,257
Thereafter		250,040
Total	$	809,058

Note 8 – Employee Benefit Plan

The Company maintains a qualified 401(k) plan which allows eligible participants to make pretax contributions. Company contributions are discretionary. The Company did not make a contribution in 2011 or 2010.

- 30 -

BAB, Inc

Notes to the Consolidated Financial Statements

November 30, 2011 and 2010

Note 9 - Segment Information

Segment information has been reclassified to reflect licensing fees revenue, goodwill and certain definite lived assets and the amortization expense related to these intangibles in Systems, so as to reflect a truer segment income stream and asset relationship, as the business is focused on the franchise division.

The following table presents segment information for the years ended November 30, 2011 and 2010: There were no sales to any individual customer during either year that represented 10% or more of net sales.

	Net Revenues				Operating Income
	2011		2010		2011			2010
Company Store Operations	$	544,190	$	542,285	$	(116,632	)	$	(137,274	)
Franchise Operations and Licensing Fees		2,479,086		2,371,456		1,352,698			1,434,622
	$	3,023,276	$	2,913,741	$	1,236,066		$	1,297,348
Corporate Expenses						(832,409	)		(885,834	)
Interest Income, Net of Interest Expense						(4,594	)		(1,986	)
Net Income before provision for taxes						399,063			409,528
Current tax expense						5,000			-
Net Income					$	394,063		$	409,528

Operating Segment Data

	Identifiable Assets		Capital and Intangible Expenditures			Depreciation and Amortization
Year Ended November 30, 2011:
Company Store Operations	$	65,729	$	355,556		$	362,139
Franchise Operations (other than goodwill)		695,551		(12,273	)		8,045
Definite Lived Intangible Assets		70,576		2,828			(12,562	)
Goodwill and Other Intangible Assets		1,936,057		-			-
	$	2,767,913	$	346,111		$	357,622

Year Ended November 30, 2010:
Company Store Operations	$	49,126	$	4,714		$	5,911
Franchise Operations (other than goodwill)		672,169		17,255			11,533
Definite Lived Intangible Assets		80,309		11,475			10,960
Goodwill and Other Intangible Assets		1,936,056		7,325			-
	$	2,737,660	$	40,769		$	28,404

Reconciliation to Total Assets as Reported

	2011		2010
Assets-Total reportable segments - Identifiable assets	$	2,767,913	$	2,737,660

Unallocated Amounts
Cash		1,236,125		1,242,937
Prepaid expenses and other current assets		83,659		89,993
Total Consolidated Assets	$	4,087,697	$	4,070,590

RDGXBRLParseEnd

- 31 -

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

In connection with the audits of the Company’s consolidated financial statements for each of the fiscal years ended November 30, 2011 and 2010, and through the date of this Current Report, there were: (1) no disagreements between the Company and Sassetti LLC (formerly, Frank L. Sassetti & Co.) on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

BAB, Inc.’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Item 307 of Regulation S-K of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures were 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.

Internal Control Over Financial Reporting

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and the Chief Financial Officer, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

Based on our evaluation under the framework described above, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s internal controls and procedures were effective over financial reporting as of November 30, 2011.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls or in other factors that could materially affect these controls over financial reporting during the last fiscal quarter. We have not identified any significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

ITEM 9B. OTHER INFORMATION

None.

- 32 -

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who beneficially own more than ten percent of the Company's Common Stock, to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (the "SEC"). Executive officers, directors and greater than ten percent beneficial owners are required by the SEC to furnish the Company with copies of all Section 16(a) forms they file.

Based upon a review of the copies of such forms furnished to the Company, the Company believes that all Section 16(a) filing requirements applicable to its executive officers and directors were met during the year ended November 30, 2011.

BAB, Inc. (the Company) has a formally established Code of Ethics, pursuant to Section 406 of the Sarbanes-Oxley Act. In order to view the Code of Ethics in its entirety, see the BAB, Inc. Annual Report, Part III, Item 9, dated November 30, 2007 and filed with the Securities and Exchange Commission on February 28, 2008.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the cash compensation by executive officers that received annual salary and bonus compensation of more than $100,000 during years 2011 and 2010 (the "Named Executive Officers"). The Company has no employment agreements with any of its executive officers.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Options Awards ($)	Nonequity Incentive Plan Compensation (S)	Non-qualified deferred Compensation earnings (S)	All other compensation ($)	Total ($)
Michael W. Evans	2011	249,831	40,184	-	-	-	-	-	290,015
President and CEO	2010	249,831	33,898	-	-	-	-	-	283,729

Michael K. Murtaugh	2011	187,380	30,139	-	-	-	-	-	217,519
Vice President and General Counsel	2010	187,380	25,424	-	-	-	-	-	212,804

Jeffrey M Gorden	2011	133,686	5,000	-	-	-	-	-	138,686
Chief Financial Officer	2010	133,686	-	-	-	-	-	-	133,686

- 33 -

The following tables set forth any stock or stock options awarded to executive officers that that are exercisable and not yet exercised or unexercisable as of November 30, 2011:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Name	Number of securities underlying unexercised options (#) Exercisable		Number of securities underlying unexercised options (#) Unexercisable		Equity incentive plan awards: number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date
Michael W. Evans		20,000		-		-		0.97		2015
President and CEO		20,000		-		-		1.27		2016
		50,000		-		-		1.38		2016

Michael K. Murtaugh		20,000		-		-		0.97		2015
Vice President and General Counsel		20,000		-		-		1.27		2016
		50,000		-		-		1.38		2016

Jeffrey M Gorden		1,833		-		-		0.46		2014
Chief Financial Officer		6,000		-		-		0.88		2015
		5,000		-		-		1.15		2015
		25,000		-		-		1.25		2016

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

(Continued)

Name

Number of shares or units of stock that have not vested

(#)

Market value of shares or units of stock that have not vested

($)

Equity incentive plan awards: number of unearned shares, units or other rights that have not vested

(#)

Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested

($)

Michael W. Evans

President and CEO

Michael K. Murtaugh

Vice President and General Counsel

Jeffrey M Gorden

Chief Financial Officer

- 34 -

The following table sets forth any compensation paid to directors during fiscal year ended November 30, 2011:

DIRECTOR COMPENSATION

Compensation for fiscal year ended November 30, 2011

Name	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Non-qualifies deferred compensation earnings ($)		All other compensation ($)		Total ($)
Steven Feldman		1,900		-		-		-		-		-		1,900

James Lentz		1,900		-		-		-		-		-		1,900

Indemnification of Directors and Officers

The Company's Certificate of Incorporation limits personal liability for breach of fiduciary duty by its directors to the fullest extent permitted by the Delaware General Corporation Law (the "Delaware Law"). Such Certificate eliminates the personal liability of directors to the Company and its shareholders for damages occasioned by breach of fiduciary duty, except for liability based on breach of the director's duty of loyalty to the Company, liability for acts or omissions not made in good faith, liability for acts or omissions involving intentional misconduct, liability based on payments or improper dividends, liability based on violation of state securities laws, and liability for acts occurring prior to the date such provision was added. Any amendment to or repeal of such provisions in the Company's Certificate of Incorporation shall not adversely affect any right or protection of a director of the Company for with respect to any acts or omissions of such director occurring prior to such amendment or repeal.

In addition to the Delaware Law, the Company's Bylaws provide that officers and directors of the Company have the right to indemnification from the Company for liability arising out of certain actions to the fullest extent permissible by law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers or persons controlling the Company pursuant to such indemnification provisions, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

- 35 -

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth as of February 13, 2012 the record and beneficial ownership of Common Stock held by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (ii) each current director; (iii) each "named executive officer" (as defined in Regulation S-B, Item 402 under the Securities Act of 1933); and (iv) all executive officers and directors of the Company as a group. Securities reported as "beneficially owned" include those for which the named persons may exercise voting power or investment power, alone or with others. Voting power and investment power are not shared with others unless so stated. The number and percent of shares of Common Stock of the Company beneficially owned by each such person as of February 13, 2012 includes the number of shares which such person has the right to acquire within sixty (60) days after such date.

Name and Address	Shares			Percentage
Michael W. Evans 500 Lake Cook Road, Suite 475 Deerfield, IL 60015		1,588,190	(1)(2)(3)		21.09

Michael K. Murtaugh 500 Lake Cook Road, Suite 475 Deerfield, IL 60015		1,113,054	(1)		14.78

Jeffrey M. Gorden 500 Lake Cook Road, Suite 475 Deerfield, IL 60015		42,845	(4)		0.57

Steven G. Feldman 750 Estate Drive, Suite 104 Deerfield, IL 60015		40,000	(5)		0.53

James A. Lentz 1415 College Lane South Wheaton, IL 60189		34,932	(6)		0.46

All executive officers and directors as a group (5 persons)		2,819,021	(1)(2)(3)(4)(5)(6)		37.43

(1) Includes 90,000 stock options fully exercisable as of 2/17/12.

(2) Includes 3,500 shares inherited by spouse.

(3) Includes 62,222 shares held by children.

(4) Includes 37,833 stock options fully exercisable as of 2/17/12.

(5) Includes 30,000 stock options fully exercisable as of 2/17/12.

(6) Includes 20,000 stock options fully exercisable as of 2/17/12.

- 36 -

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

There are no transactions between the Company and related parties, including officers and directors of the Company. It is the Company's policy that it will not enter into any transactions with officers, directors or beneficial owners of more than 5% of the Company's Common Stock, or any entity controlled by or under common control with any such person, on terms less favorable to the Company than could be obtained from unaffiliated third parties and all such transactions require the consent of the majority of disinterested members of the Board of Directors.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Board of Directors upon recommendation of the Audit Committee, appointed the firm Sassetti LLC (formerly Frank L. Sassetti & Co.), certified public accountants, for 2011 audit and tax services.

The audit reports of Sassetti LLC. on the consolidated financial statements of BAB, Inc. and Subsidiaries as of and for the years ended November 30, 2011 and 2010 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.

Audit fees relate to audit work performed on the financial statements as well as work that generally only the independent auditor can reasonably be expected to provide, including discussions surrounding the proper application of financial accounting and/or reporting standards and reviews of the financial statements included in quarterly reports filed on Form 10-Q. Fees for audit services provided by Sassetti LLC in fiscal 2011 and 2010 were $62,200.

Tax compliance services provided by Sassetti LLC for were $12,200 for 2011 and 2010.

During the years ended November 30, 2011 and 2010, Sassetti LLC did not perform any other services for the Company.

Preapproval of Policies and Procedures by Audit Committee

The accountants provide a quote for services to the Audit Committee before work begins for the fiscal year. After discussion, the Audit Committee then makes a recommendation to the Board of Directors on whether to accept the proposal.

Percentage of Services Approved by Audit Committee

All services were approved by the Audit Committee.

- 37 -

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Documents filed as part of this report:

(1)

Financial Statements

Consolidated Balance Sheets as at November 30, 2011 and 2010 and the Consolidated Statements of Income, Shareholders’ Equity and Cash Flows for the years ended November 30, 2011 and 2010 are reported on by Sassetti LLC. These statements are prepared in accordance with United States GAAP.

(2)

Financial Statement Schedules - none

(b) INDEX TO EXHIBITS

The following Exhibits are filed herewith:

INDEX NUMBER	DESCRIPTION
3.1	Articles of Incorporation (See Form 10-KSB for year ended November 30, 2006)
3.2	Bylaws of the Company (See Form 10-KSB for year ended November 30, 2006)
21.1	List of Subsidiaries of the Company
31.1, 31.2	Section 302 of the Sarbanes-Oxley Act of 2002
32.1, 32.2	Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

* XBRL	Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

- 38 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BAB, INC.

By /s/ Michael W. Evans

Michael W. Evans, Chief Executive Officer and President (Principal Executive Officer)

Dated: February 24, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Dated: February 24, 2012

By /s/ Michael W. Evans

Michael W. Evans, Chief Executive Officer and President (Principal Executive Officer)

Dated: February 24, 2012

By /s/ Michael K. Murtaugh

Michael K. Murtaugh, Director and Vice President/General Counsel and Secretary

Dated: February 24, 2012

By /s/ Jeffrey M. Gorden

Jeffrey M. Gorden, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Dated: February 24, 2012

By /s/ Steven G. Feldman

Steven G. Feldman, Director

Dated: February 24, 2012

By /s/ James A. Lentz

James A. Lentz, Director

- 39 -

EXHIBIT 3.1 - Certificate of Incorporation

See Form 10-KSB for year ended November 30, 2006

EXHIBIT 3.2 - Bylaws of BAB, Inc.

See Form 10-KSB for year ended November 30, 2006

EXHIBIT 21.1 – List of Subsidiaries of the Company

BAB Systems, Inc., an Illinois corporation

BAB Operations, Inc., an Illinois corporation

Brewster’s Franchise Corporation, an Illinois corporation

My Favorite Muffin Too, Inc., a New Jersey corporation

- 40 -

Consolidated Balance Sheets (USD $)

Nov. 30, 2011

Nov. 30, 2010

Current Assets

Cash

$ 1,236,125

$ 1,242,937

Restricted cash

337,542

257,395

Receivables

Trade accounts and notes receivable (net of allowance for doubtful accounts of $32,008 in 2011 and $26,787 in 2010 )

112,344

130,252

Marketing fund contributions receivable from franchisees and stores

19,942

19,184

Inventories

23,625

34,105

Prepaid expenses and other current assets

83,659

89,993

Total Current Assets

1,813,237

1,773,866

Property, plant and equipment (net of accumulated depreciation of $133,294 in 2011 and $126,424 in 2010)

10,371

32,359

Assets held for sale

9,458

Trademarks

442,285

Goodwill

1,493,771

Definite lived intangible assets (net of accumulated amortization of $41,634 in 2011 and $29,072 in 2010)

70,575

80,309

Deferred tax asset

248,000

Total Noncurrent Assets

2,274,460

2,296,724

Total Assets

4,087,697

4,070,590

Current Liabilities

Current portion of long-term debt

27,752

26,494

Accounts payable

45,752

36,949

Accrued expenses and other current liabilities

523,545

271,358

Unexpended marketing fund contributions

357,739

238,870

Deferred franchise fee revenue

25,000

100,000

Deferred licensing revenue

26,250

37,500

Total Current Liabilities

1,006,038

711,171

Long-term debt (net of current portion)

124,832

152,584

Total Liabilities

1,130,870

863,755

Common stock ($.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of November 30, 2011 and November 30, 2010

13,508,257

Additional paid-in capital

987,034

977,389

Treasury stock

(222,781)

Accumulated deficit

(11,315,683)

(11,056,030)

Total Stockholders' Equity

2,956,827

3,206,835

Total Liabilities and Stockholders' Equity

$ 4,087,697

$ 4,070,590

Consolidated Statements of Cash Flows (Unaudited) (USD $)

12 Months Ended

Nov. 30, 2011

Nov. 30, 2010

Net income

$ 394,063

$ 409,528

Depreciation and amortization

26,389

28,404

Provision for uncollectible accounts, net of recoveries

2,719

(8,084)

Loss on assets held for sale

4,053

Share-based compensation

9,645

9,948

Changes in:

Trade accounts receivable and notes receivable

15,189

(18,822)

Restricted cash

(80,147)

(45,647)

Marketing fund contributions receivable

(758)

(4,975)

Inventories

10,480

3,841

Prepaid expenses and other

6,333

15,988

Accounts payable

8,803

(26)

Accrued liabilities

34,282

3,281

Unexpended marketing fund contributions

118,869

65,659

Deferred revenue

(86,250)

67,917

Net Cash Provided by Operating Activities

463,670

527,012

Purchase of equipment

(8,317)

(21,969)

Proceeds from sale of equipment

2,967

Capitalization of trademark renewals

(2,828)

(18,800)

Net Cash Used In Investing Activities

(8,178)

(40,769)

Repayment of borrowings

(26,494)

(25,292)

Cash distributions/dividends

(435,810)

(290,540)

Net Cash Used In Financing Activities

(462,304)

(315,832)

Net (Decrease) Increase in Cash

(6,812)

170,411

Cash, Beginning of Period

1,242,937

1,072,526

Cash, End of Period

1,236,125

1,242,937

Interest paid

8,506

9,708

Income taxes paid

$ 20,416

$ 852

Note 1 - Nature of Operations

12 Months Ended

Nov. 30, 2011

Nature of Operations [Text Block]

Note 1 - Nature of Operations

Consolidated Balance Sheets (Parentheticals) (USD $)

Nov. 30, 2011

Nov. 30, 2010

Allowance for doubtful accounts (in Dollars)

$ 32,008

$ 26,787

Accumulated depreciation (in Dollars)

133,294

126,424

Definite lived intangible assets, accumulated amortization (in Dollars)

$ 41,634

$ 29,072

Common stock, par value (in Dollars per share)

$ 0.001

Common stock, shares authorized

15,000,000

Common stock, shares issued

8,466,953

Common stock, shares outstanding

7,263,508

Document And Entity Information (USD $)

12 Months Ended

Nov. 30, 2011

Feb. 23, 2012

May 31, 2011

Document and Entity Information [Abstract]

Entity Registrant Name

BAB, INC.

Document Type

10-K

Current Fiscal Year End Date

--11-30

Entity Common Stock, Shares Outstanding

7,263,508

Entity Public Float

$ 3,012,163

Amendment Flag

false

Entity Central Index Key

0001123596

Entity Current Reporting Status

Yes

Entity Voluntary Filers

Entity Filer Category

Smaller Reporting Company

Entity Well-known Seasoned Issuer

Document Period End Date

Nov. 30, 2011

Document Fiscal Year Focus

2011

Document Fiscal Period Focus

Consolidated Statements of Income (USD $)

12 Months Ended

Nov. 30, 2011

Nov. 30, 2010

REVENUES

Royalty fees from franchised stores

$ 1,760,240

$ 1,737,361

Net sales by Company-owned store

403,006

445,157

Franchise fees

281,200

105,000

Licensing fees and other income

578,830

626,223

Total Revenues

3,023,276

2,913,741

OPERATING EXPENSES

Store food, beverage and paper costs

137,676

134,957

Store payroll and other operating expenses

259,472

285,436

Selling, general and administrative expenses:

Payroll and payroll-related expenses

1,348,204

1,263,261

Occupancy

174,892

145,824

Advertising and promotion

72,862

69,356

Professional service fees

133,238

168,791

Travel

50,516

42,687

Depreciation and amortization

26,389

28,404

Other

416,371

363,511

Total Operating Expenses

2,619,620

2,502,227

Income from operations

403,656

411,514

Interest income

3,703

7,521

Interest expense

(8,296)

(9,507)

Income before provision for income taxes

399,063

409,528

Provision for income taxes

Current tax

5,000

Net Income

$ 394,063

$ 409,528

Net Income per share - Basic and Diluted (in Dollars per share)

$ 0.05

$ 0.06

Weighted average shares outstanding - Basic (in Shares)

7,263,508

Effect of dilutive common stock (in Shares)

1,757

Weighted average shares outstanding - Diluted (in Shares)

7,265,265

7,263,508

Cash distributions declared per share (in Dollars per share)

$ 0.06

$ 0.04

Note 5 - Stockholders' Equity

12 Months Ended

Nov. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

Note 5 - Stockholders’ Equity

On November 28, 2011 a $0.01 quarterly cash distribution/dividend and a $0.02 special cash distribution/dividend was declared and paid January 4, 2012.