10-Q

FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 2012
[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _________________ Commission file number: 0-31555

BAB, Inc.

(Name of small business issuer in its charter)

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

 500 Lake Cook Road, Suite 475, Deerfield, Illinois 60015

(Address of principal executive offices) (Zip Code)

Issuer's telephone number (847) 948-7520

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. Yes x  No  o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x    No  o

Indicate by checkmark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer  o     Accelerated filer  o       Non-accelerated filer o   (Do not check if a smaller reporting company)      Smaller reporting company  x   

Indicate by checkmark whether the registrant is a shell company.   Yes  o    No x

As of October 09, 2012, BAB, Inc. had: 7,263,508 shares of Common Stock outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operation	10
Item 3	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4	Controls and Procedures	15
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3	Defaults Upon Senior Securities	16
Item 4	Mine Safety Disclosures	16
Item 5	Other Information	16
Item 6	Exhibits	16
SIGNATURE

2

PART I

ITEM 1.               FINANCIAL STATEMENTS

BAB, Inc.

Consolidated Balance Sheet

	August 31, 2012			November 30, 2011
	(unaudited)
ASSETS
Current Assets
Cash	$	1,238,710		$	1,236,125
Restricted cash		382,855			337,542
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $30,730 in 2012 and $32,008 in 2011 )		95,325			112,344
Marketing fund contributions receivable from franchisees and stores		16,631			19,942
Inventories		30,670			23,625
Prepaid expenses and other current assets		69,726			83,659
Total Current Assets		1,833,917			1,813,237
Property, plant and equipment (net of accumulated depreciation of $137,940 in 2012 and $133,294 in 2011)		5,725			10,371
Assets held for sale		9,458			9,458
Trademarks		442,285			442,285
Goodwill		1,493,771			1,493,771
Definite lived intangible assets (net of accumulated amortization of $51,268 in 2012 and $41,634 in 2011)		65,422			70,575
Deferred tax asset		248,000			248,000
Total Noncurrent Assets		2,264,661			2,274,460
Total Assets	$	4,098,578		$	4,087,697
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	27,752		$	27,752
Accounts payable		15,370			45,752
Accrued expenses and other current liabilities		295,978			523,545
Unexpended marketing fund contributions		398,784			357,739
Deferred franchise fee revenue		80,000			25,000
Deferred licensing revenue		4,167			26,250
Total Current Liabilities		822,051			1,006,038
Long-term debt (net of current portion)		124,832			124,832
Total Liabilities		946,883			1,130,870
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 August 31, 2012 and November 30, 2011)		13,508,257			13,508,257
Additional paid-in capital		987,034			987,034
Treasury stock		(222,781	)		(222,781	)
Accumulated deficit		(11,120,815	)		(11,315,683	)
Total Stockholders' Equity		3,151,695			2,956,827
Total Liabilities and Stockholders' Equity	$	4,098,578		$	4,087,697

SEE ACCOMPANYING NOTES

3

BAB, Inc.

Consolidated Statements of Income

For the Nine Months Ended August 31, 2012 and 2011

(Unaudited)

	3 months ended August 31,						9 months ended August 31,
	2012			2011			2012			2011
REVENUES
Royalty fees from franchised stores	$	463,113		$	445,287		$	1,395,115		$	1,307,931
Net sales by Company-owned stores		-			101,889			-			301,584
Franchise fees		5,000			5,000			47,500			149,300
Licensing fees and other income		118,826			117,830			537,602			423,572
Total Revenues		586,939			670,006			1,980,217			2,182,387
OPERATING EXPENSES
Store food, beverage and paper costs		-			33,683			-			102,836
Store payroll and other operating expenses		-			54,645			-			186,867
Selling, general and administrative expenses:
Payroll and payroll-related expenses		329,803			312,722			1,025,950			977,644
Occupancy		48,458			44,312			114,218			130,329
Advertising and promotion		17,696			18,953			48,750			54,810
Professional service fees		31,769			37,314			125,484			110,188
Travel		13,854			13,050			42,320			36,140
Depreciation and amortization		4,713			5,756			14,279			20,142
Other		76,381			72,917			250,786			305,659
Total Operating Expenses		522,674			593,352			1,621,787			1,924,615
Income from operations		64,265			76,654			358,430			257,772
Interest income		770			857			2,144			2,905
Interest expense		(1,812	)		(2,126	)		(5,436	)		(6,380	)
Income before provision for income taxes		63,223			75,385			355,138			254,297
Provision for income taxes
Current tax		-			5,000			15,000			5,000
Net Income	$	63,223		$	70,385		$	340,138		$	249,297
Earnings per share - Basic and Diluted		0.01			0.01			0.05			0.03
Weighted average shares outstanding - Basic		7,263,508			7,263,508			7,263,508			7,263,508
Effect of dilutive common stock		2,426			3,640			2,278			1,457
Weighted average shares outstanding - Diluted		7,265,934			7,267,148			7,265,786			7,264,965
Cash distributions declared per share	$	0.01		$	-		$	0.03		$	0.05

SEE ACCOMPANYING NOTES

4

BAB, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended August 31, 2012 and 2011

 (Unaudited)

	2012			2011
Operating activities
Net income	$	340,138		$	249,297
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization		14,279			20,142
Provision for uncollectible accounts, net of recoveries		(3,555	)		9,971
Share-based compensation		-			7,461
Changes in:
Trade accounts receivable and notes receivable		20,574			20,652
Restricted cash		(45,313	)		(86,935	)
Marketing fund contributions receivable		3,311			5,895
Inventories		(7,045	)		1,189
Prepaid expenses and other		13,935			(22,993	)
Accounts payable		(30,382	)		15,389
Accrued liabilities		(9,663	)		39,395
Unexpended marketing fund contributions		41,045			115,619
Deferred revenue		32,917			24,000
Net Cash Provided by Operating Activities		370,241			399,082
Investing activities
Purchase of equipment		-			(2,235	)
Capitalization of trademark renewals		(4,481	)		(2,178	)
Net Cash Used In Investing Activities		(4,481	)		(4,413	)
Financing activities
Cash distributions/dividends		(363,175	)		(363,177	)
Net Cash Used In Financing Activities		(363,175	)		(363,177	)
Net Increase in Cash		2,585			31,492
Cash, Beginning of Period		1,236,125			1,242,937
Cash, End of Period	$	1,238,710		$	1,274,429
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Income taxes paid	$	5,200		$	20,416

SEE ACCOMPANYING NOTES

5

BAB, Inc.

Notes to Unaudited Consolidated Financial Statements

Quarter and Year to Date Periods Ended August 31, 2012 and 2011

(Unaudited)

Note 1 - Nature of Operations

BAB, Inc 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 Bagels (“BAB”) specialty bagel retail stores.  Operations was formed on August 30, 1995, primarily to operate Company-owned stores, including one which currently serves as the franchise training facility.  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 franchises and licenses bagel and muffin retail units under the BAB and MFM trade names.

On May 7, 2012 the Company issued a press release announcing the launch of its new franchise concept, SweetDuet Frozen Yogurt & Gourmet Muffins, which it is preparing to roll out this year. While BAB will be offering franchises in all 50 states, its initial development focus is targeted for the Midwest, specifically Illinois, Michigan, Wisconsin and Ohio. As part of its introductory development plan, BAB will be donating 10% of the initial franchise fee from its first 50 units to the Cystic Fibrosis Foundation, of which BAB is a corporate sponsor.  SweetDuet, as its name implies, is a fusion concept, pairing self-serve frozen yogurt with BAB’s exclusive line of My Favorite Muffin gourmet muffins, broadening the shop’s offering and therefore differentiating itself from the numerous frozen yogurt outlets already populating the market. SweetDuet Frozen Yogurt & Gourmet Muffins shops will also include BAB’s Brewster’s Coffee and a streamlined breakfast menu. The concept is designed to work in 1600 square feet of space.  The SweetDuet concept will be included as part of the Systems franchise operating and financial information.

At August 31, 2012, the Company had 97 franchise units and 6 licensed units in operation in 24 states.  The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including to 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 accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2011 which was filed February 24, 2012.  In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim periods presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim periods and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

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2. Locations Open and Under Development

Locations which are open or under development at August 31, 2012 are as follows:

Locations open:
Franchisees	97
Licensed	6
Under development	4
Total	107

3. Earnings per Share

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

	For the 3 months ended August 31,				For the 9 months ended August 31,
	2012		2011		2012		2011
Numerator:
Net income available to common shareholders	$	63,223	$	70,385	$	340,138	$	249,297
Denominator:
Weighted average outstanding shares Basic		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.01	$	0.01	$	0.05	$	0.03
Effect of dilutive common stock		2,426		3,640		2,278		1,457
Weighted average outstanding shares Diluted		7,265,934		7,267,148		7,265,786		7,264,965
Earnings per share - Diluted	$	0.01	$	0.01	$	0.05	$	0.03

The Company excluded 350,400 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share for the three and nine months ended August 31, 2012 and 2011, respectively, because their inclusion would have been anti-dilutive.

4.  Long-Term Debt

The total debt balance of $152,584 represents a note payable to a former shareholder that requires an annual payment of $35,000, including interest at 4.75%, due October 1 and running through 2016.

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5.  Stock Options

In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (Plan).  The Plan reserves 1,400,000 shares of common stock for grant.  As of August 31, 2012, 1,400,000 stock options were granted to directors, officers and employees.  As of August 31, 2012, there were 1,031,627 stock options exercised or forfeited under the Plan. 

	9 Months Ended
	August 31, 2012		August 31, 2011
	Options		Options
Options Outstanding at beginning of period		368,373		368,373
Granted		0		0
Forfeited		0		0
Exercised		0		0
Options Outstanding at end of period		368,373		368,373

All compensation cost arising from share-based payment arrangements in payroll-related expenses were expensed as of November 30, 2011; there is no share-based compensation cost through August 31, 2012 but there was approximately $7,000 for the nine months ending August 31, 2011.

The Company uses historical volatility of common stock over a period equal to the expected life of the options to estimate their fair value.  The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. To value option grants and other awards for actual and pro forma stock-based compensation, the Company uses the Black-Scholes option valuation model. When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.

The Company’s stock option terms expire in 10 years and vary in vesting from immediate to a vesting period of five years.

The following table summarizes the stock options outstanding and exercisable at August 31, 2012:

Options Outstanding							Options Exercisable
Outstanding at 8/31/2012	Wghtd. Avg. Remaining Life		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value		Exercisable at 8/31/2012		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value
368,373		3.6	$	1.16	$	-		368,373	$	1.16	$	-

There is no computation for the aggregate intrinsic value in the table above because the outstanding options weighted average exercise price was greater than the Company’s closing stock price of $0.66 as of the last business day of the period ended August 31, 2012.  No options were exercised during the nine month period ended August 31, 2012.

8

 6. 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 29, 2012 and it was found that the carrying value of goodwill and intangible assets were not impaired.  No events or circumstances occurred in the third quarter of 2012 to indicate that an impairment test was necessary.

The impairment test performed February 29, 2012 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 has occurred.  An impairment test was performed at February 28, 2011 and based on the computation using discounted cash flows, it was also determined that no impairment occurred.

7. Segment Information

The following table presents segment information for the nine months ended August 31, 2012 and 2011:

	Net Revenues				Operating Income
	2012		2011		2012			2011
Company Store Operations	$	-	$	392,947	$	-		$	(94,236	)
Franchise Operations, Licensing Fees and Other Income		1,980,217		1,789,440		1,012,985			936,053
Subtotal	$	1,980,217	$	2,182,387	$	1,012,985		$	841,817
Corporate Expenses						(654,555	)		(584,046	)
Interest Expense, Net of Interest Income						(3,292	)		(3,474	)
Net Income Before Provision for Taxes						355,138			254,297
Current Tax Expense						15,000			5,000
Net Income					$	340,138		$	249,297

Segment assets changed for the Company-owned store segment at November 30, 2011, as the Company-owned location was converted to a franchise location.  The franchise operating and licensing fee segment assets were substantially unchanged for the nine months ended August 31, 2012 as compared to November 30, 2011.

8.  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.

9

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 August 31, 2012 that would have, or are expected to have, any significant effect on the Company’s consolidated financial position, cash flows or results of operations.

9.  Equity

There is no cash distribution/dividend payable included in accrued expenses for August 31, 2012.  A cash distribution/dividend in the amount of $0.01 per share, totaling $72,635 was declared on September 6, 2012, payable October 4, 2012 to shareholders of record as of September 19, 2012.  Included in accrued expenses and other liabilities at November 30, 2011 is a cash distribution/dividend payable in the amount of $217,905 declared November 28, 2011 and paid January 4, 2012.

ITEM 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, including statements regarding the development of the Company's business, the markets for the Company's products, anticipated capital expenditures, and the effects of completed and proposed acquisitions, and other statements contained herein regarding matters that are not historical facts, are forward-looking statements as is within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because such statements include risks and uncertainties, actual results could differ materially from those expressed or implied by such forward-looking statements as set forth in this report, the Company's Annual Report on Form 10-K and other reports that the Company files with the Securities and Exchange Commission. Certain risks and uncertainties are wholly or partially outside the control of the Company and its management, including its ability to attract new franchisees; the continued success of current franchisees; the effects of competition on franchisees and Company-owned store results; consumer acceptance of the Company's products in new and existing markets; fluctuation in development and operating costs; brand awareness; availability and terms of capital; adverse publicity; acceptance of new product offerings; availability of locations and terms of sites for store development; food, labor and employee benefit costs; changes in government regulation (including increases in the minimum wage); regional economic and weather conditions; the hiring, training, and retention of skilled corporate and restaurant management; and the integration and assimilation of acquired concepts. Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

10

General

There are 97 franchised and 6 licensed units at August 31, 2012.  Units in operation at August 31, 2011 included 1 Company-owned store, 97 franchised and 8 licensed units.  System-wide revenues for the nine months ended August 31, 2012 were $28.5 million as compared to August 31, 2011 which were $27.0 million.

The Company's revenues are derived primarily from the ongoing royalties paid to the Company by its franchisees and receipt of initial franchise fees.  Additionally, the Company derives revenue from the sale of licensed products (My Favorite Muffin mix, Big Apple Bagels cream cheese and Brewster's coffee), and through licensing and  nontraditional channels of distribution (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 revenue.  The Sign Shop provides the majority of signage, which includes but is not limited to, posters, menu panels, build charts, outside window stickers and counter signs to franchisees to provide consistency and convenience.

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 upon the opening of a franchise store. Direct costs associated with the franchise sale 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, scoop and bake muffin batter and par baked bagels from a third-party commercial bakery to the franchised and licensed units.

As of August 31, 2012, the Company employed 13 full-time and 3 part-time employees at the Corporate office.  The employees are responsible for corporate management and oversight, accounting, advertising and franchising.  None of the Company's employees are subject to any collective bargaining agreements and management considers its relations with its employees to be good.

Results of Operations

Three Months Ended August 31, 2012 versus Three Months Ended August 31, 2011

For the three months ended August 31, 2012 and 2011, the Company reported net income of $63,000 and $70,000, respectively.  Total revenue of $587,000 decreased $83,000, or 12.4%, for the three months ended August 31, 2012, as compared to total revenue of $670,000 for the three months ended August 31, 2011.  The decrease was a result of the Company-owned store being converted to a franchise location at November 30, 2011.  This represented a total revenue difference of $102,000, offset by a royalty and licensing/other income increase of $18,000 and $1,000, respectively.

Royalty fee revenue of $463,000, for the quarter ended August 31, 2012, increased $18,000, or 4.0%, from the $445,000 for quarter ended August 31, 2011.  The Company had 97 franchise locations at August 31, 2012 and 2011.

Franchise fee revenue was $5,000 for the quarters ended August 31, 2012 and 2011.  There was one store transferred during the third quarter in both 2012 and 2011.

11

Licensing fee and other income of $119,000, for the quarter ended August 31, 2012, increased $1,000, from $118,000 for the quarter ended August 31, 2011.  Sign Shop revenue increased $5,000 and settlement/default income increased $3,000, offset by a $7,000 decease in license fee revenue in the third quarter 2012 compared to the same period 2011.

The one Company-owned store became a franchisee on November 30, 2011.  There were no Company-owned store sales for the third quarter 2012 versus $102,000 for the third quarter of 2011.

Total operating expenses of $523,000 decreased $71,000, or 12.0%, for the quarter ended August 31, 2012, from $594,000 in 2011.  The decrease in total operating expenses in 2012 as compared to same period 2011 was primarily due to no Company-owned store expenses in the second quarter of 2012 versus $89,000 for the same period in 2011.  There was a $3,000 decrease in insurance expense and a $5,000 decrease in legal expenses.  This was offset by a $17,000 increase in payroll expense and a $7,000 increase in training and outside service expenses relating to the SweetDuet concept, and a $4,000 increase in occupancy expense in the second quarter 2012 versus same period 2011.

Interest income was $1,000 for August 31, 2012 and 2011.

Interest expense was $2,000 for August 31, 2012 and 2011.

There was no state income tax expense recorded in the third quarter of 2012 versus $5,000 in 2011 during the same period.

Earnings per share, as reported for basic and diluted outstanding shares for third quarters ended August 31, 2012 and 2011 was $0.01

Nine Months Ended August 31, 2012, versus Nine Months Ended August 31, 2011

For the nine months ended August 31, 2012, the Company reported net income of $340,000 versus $249,000 for the same period in 2011.  Total revenue of $1,980,000 decreased $202,000, or 9.3%, for the nine months ended August 31, 2012, as compared to total revenue of $2,182,000 for the nine months ended August 31, 2011.  This decrease in total revenues was due to the company-owned store being transferred to a franchisee at November 30, 2011.  Company-owned stores sales in 2011 were $302,000.  Royalty and licensing fee and other revenue increased $202,000, offset by a decrease in franchise fee revenue of $102,000 for the nine months ended August 31, 2012 versus same period 2011.

Royalty fee revenue of $1,395,000, for the nine months ended August 31, 2012, increased $87,000, or 6.7%, from $1,308,000 for the nine months ended August 31, 2011.  The Company had 97 franchise locations at August 31, 2012 and 2011.  Franchise sales increased due to a bagel sale in April and a muffin sale in August, a mild midwest winter and the improving economy for the fast casual food industry.

Franchise fee revenue of $47,000, for the nine months ended August 31, 2012, decreased $102,000, or 68.5%, from $149,000 for the nine months ended August 31, 2011.  One store opened and five transferred in 2012 compared to five store openings and six transfers during the same period in 2011.

Licensing fee and other income of $538,000, for the nine months ended August 31, 2012, increased $114,000, or 27.2%, from $424,000 for the nine months ended August 31, 2011.  In 2012 there was settlement income of $178,000, which included one settlement for a $171,000 versus $29,000 of settlement income in 2011.  This $149,000 increase was primarily offset by a $27,000 decrease in Sign Shop revenue and $7,000 of license fee revenue.

12

Total operating expenses of $1,622,000 decreased $303,000 or 15.7%, for the nine months ended August 31, 2012, from $1,925,000 in 2011.  There were no Company-owned store expenses in 2012 versus $290,000 in 2011. The remaining decrease in expenses for 2012 was a decrease in Sign Shop expenses of $21,000, a decrease in occupancy expense of $16,000, primarily relating to a construction credit applied to rent expense, a decrease of $16,000 for franchise development expense relating to fewer stores opened in 2012, a decrease of $14,000 in bad debt expense, a decrease in insurance expense of $12,000, a decrease in depreciation expense of $6,000 because there was no longer Company-owned store.  This was offset by an increase of $48,000 in payroll expense, relating to having a full time trainer and higher payroll tax rates, $15,000 in legal expenses primarily relating to SweetDuet and a $9,000 increase in filing expenses for newly instituted SEC required XBRL reporting.

Interest income of $2,000 decreased $1,000, for the nine months ended August 31, 2012, from $3,000 for the same period in 2011.  This was due to lower interest rates.

Interest expense of $5,000 decrease $1,000, for of the nine months ended August 31, 2012 from $6,000 for the same period in 2011.  This was due to a lower principal balance.

State income tax expense of $15,000 was recorded in 2012 versus $5,000 in 2011.

Earnings per share, as reported for basic and diluted outstanding shares for the nine months ended August 31, 2012, and 2011 was $0.05 and $0.03, respectively.

Liquidity and Capital Resources

At August 31, 2012, the Company had working capital of $1,012,000 and unrestricted cash of $1,239,000.  At November 30, 2011 the Company had working capital of $807,000 and unrestricted cash of $1,236,000.

During fiscal 2012, the Company had net income of $340,000 and operating activities provided cash of 370,000.  The principal adjustments to reconcile net income to cash generated in operating activities were depreciation and amortization of $14,000, less provision for uncollectible accounts of $4,000.  In addition, changes in operating assets and liabilities increased cash by $20,000.  During fiscal 2011, the Company had net income of $249,000 and operating activities provided cash of $399,000.  The principal adjustments to reconcile net income to cash provided by operating activities in 2011 were depreciation and amortization of $20,000, share-based compensation of $7,000 and the provision for uncollectible accounts of $10,000.  In addition changes in operating assets and liabilities increased cash by $113,000.

For the nine months ended August 31, 2012 and 2011, the Company used $4,000 for investing activities.

The Company used $363,000 for cash distribution/dividend payments during the nine month periods ended August 31, 2012 and 2011.

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 September 6, 2012, the Board of Directors authorized a $0.01 per share quarterly cash distribution/dividend.  The cash distribution was paid October 4, 2012 to shareholders of record as of September 19, 2012.

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.

13

Cash Distribution and Dividend Policy

It is the Company’s intent that future cash distributions/dividends will be considered after reviewing profitability expectations and financing needs and will be declared at the discretion of the Board of Directors.  Due to the general economic downturn and its impact on the Company, there can be no assurance that the Company will generate sufficient earnings to pay out cash distributions/dividends.  The Company will continue to analyze its ability to pay cash distributions/dividends on a quarterly basis.

The Company believes that for tax purposes the cash distribution declared in 2012 may be treated as a return of capital to stockholders depending on each stockholder’s basis or it may be treated as a dividend or a combination of the two.  Determination of whether it is a cash distribution, cash dividend or combination of the two will not be made until after December 31, 2012, as the classification or combination is dependent upon the Company’s earnings and profits for tax purposes for its fiscal year ending November 30, 2012.

The Company believes execution of this policy will not have any material adverse effect on its ability to fund current operations or future capital investments.

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 August 31, 2012 that would have, or are expected to have, any significant effect on the Company’s consolidated financial position, cash flows or results of operations.

Critical Accounting Policies

The Company has identified significant accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.  The Company's most critical accounting policies are related to revenue recognition, valuation of long-lived and intangible assets, deferred tax assets and the related valuation allowance.  Details regarding the Company's use of these policies and the related estimates are described in the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 2011, filed with the Securities and Exchange Commission on February 24, 2012.  There have been no material changes to the Company's critical accounting policies that impact the Company's financial condition, results of operations or cash flows for the nine months ended August 31, 2012.

14

ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 4.          CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of both our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report.  Based on such evaluation, both our Chief Executive Officer and Chief Financial Officer have concluded that, as of August 31, 2012 our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to our management, including our executive and financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the nine months of fiscal year 2012 to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Compliance with Section 404 of Sarbanes-Oxley Act

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

15

PART II

ITEM 1.          LEGAL PROCEEDINGS

None.

ITEM 2.          UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS

None.

ITEM 3.          DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.          MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.          OTHER INFORMATION

None.

ITEM 6.          EXHIBITS

See index to exhibits

SIGNATURE

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

BAB, Inc.

Dated:  October 10, 2012	/s/ Jeffrey M. Gorden
	Jeffrey M. Gorden
	Chief Financial Officer

16

INDEX TO EXHIBITS

(a)  EXHIBITS

The following exhibits are filed herewith.

INDEX NUMBER	DESCRIPTION
21.1	List of Subsidiaries of the Company
31.1	Section 302 of the Sarbanes-Oxley Act of 2002   Certification of Chief Executive Officer
31.2	Section 302 of the Sarbanes-Oxley Act of 2002   Certification of Chief Financial Officer
32.1	Section 906 of the Sarbanes-Oxley Act of 2002   Certification of Chief Executive Officer
32.2	Section 906 of the Sarbanes-Oxley Act of 2002   Certification of Chief Financial Officer

17

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF BAB, INC.

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

BAB Investments, Inc., an Illinois corporation

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14 (a) OR RULE 15d-14 (a) OF THE SECURITIES EXCHANGE ACT OF 1934.

I, Michael W. Evans, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of BAB, Inc.

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d -15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 10, 2012                                                                            by / s/ Michael W. Evans

Michael W. Evans, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14 (a) OR RULE 15d-14 (a) OF THE SECURITIES EXCHANGE ACT OF 1934.

I, Jeffrey M. Gorden, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of BAB, Inc.

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d -15(f)) for the registrant andhave:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.  

Date:  October 10, 2012                                                                                        By:  /s/ Jeffrey M. Gorden

Jeffrey M. Gorden, Chief Financial Officer 

EX-32.1

Exhibit 32.1

BAB, Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended August 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael W. Evans, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

Date:  October 10, 2012                                                                                                                                               By:          /s/ Michael W. Evans      

Michael W. Evans, Chief Executive Officer          

EX-32.2

Exhibit 32.2

BAB, Inc.

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the BAB, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended August 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey M. Gorden, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company.

Date:  October 10, 2012                                                                                                       By:          /s/ Jeffrey M. Gorden 

Jeffrey M. Gorden, Chief Financial Officer          

XML

Note 5 - Stock Options (Detail) - Summary of Stock Options Outstanding and Exercisable (USD $)	9 Months Ended
	Aug. 31, 2012	Nov. 30, 2011	Aug. 31, 2011	Nov. 30, 2010
	368,373	368,373	368,373	368,373
	3 years 219 days
(in Dollars per share)	$ 1.16
(in Dollars)	$ 0
	368,373
(in Dollars per share)	$ 1.16
(in Dollars)	$ 0

XML

Note 4 - Long-Term Debt

9 Months Ended

Aug. 31, 2012

Long-term Debt [Text Block]

4.  Long-Term Debt

The total debt balance of $152,584 represents a note payable to a former shareholder that requires an annual payment of $35,000, including interest at 4.75%, due October 1 and running through 2016.

XML

Note 3 - Earnings per Share

9 Months Ended

Aug. 31, 2012

Earnings Per Share [Text Block]

3. Earnings per Share

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

	For the 3 months ended August 31,				For the 9 months ended August 31,
	2012		2011		2012		2011
Numerator:
Net income available to common shareholders	$	63,223	$	70,385	$	340,138	$	249,297
Denominator:
Weighted average outstanding shares Basic		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.01	$	0.01	$	0.05	$	0.03
Effect of dilutive common stock		2,426		3,640		2,278		1,457
Weighted average outstanding shares Diluted		7,265,934		7,267,148		7,265,786		7,264,965
Earnings per share - Diluted	$	0.01	$	0.01	$	0.05	$	0.03

The Company excluded 350,400 potential shares attributable to outstanding stock options from the calculation of diluted earnings per share for the three and nine months ended August 31, 2012 and 2011, respectively, because their inclusion would have been anti-dilutive.

XML

Consolidated Balance Sheet (USD $)	Aug. 31, 2012	Nov. 30, 2011
Current Assets
Cash	$ 1,238,710	$ 1,236,125
Restricted cash	382,855	337,542
Receivables
Trade accounts and notes receivable (net of allowance for doubtful accounts of $30,730 in 2012 and $32,008 in 2011 )	95,325	112,344
Marketing fund contributions receivable from franchisees and stores	16,631	19,942
Inventories	30,670	23,625
Prepaid expenses and other current assets	69,726	83,659
Total Current Assets	1,833,917	1,813,237
Property, plant and equipment (net of accumulated depreciation of $137,940 in 2012 and $133,294 in 2011)	5,725	10,371
Assets held for sale	9,458	9,458
Trademarks	442,285	442,285
Goodwill	1,493,771	1,493,771
Definite lived intangible assets (net of accumulated amortization of $51,268 in 2012 and $41,634 in 2011)	65,422	70,575
Deferred tax asset	248,000	248,000
Total Noncurrent Assets	2,264,661	2,274,460
Total Assets	4,098,578	4,087,697
Current Liabilities
Current portion of long-term debt	27,752	27,752
Accounts payable	15,370	45,752
Accrued expenses and other current liabilities	295,978	523,545
Unexpended marketing fund contributions	398,784	357,739
Deferred franchise fee revenue	80,000	25,000
Deferred licensing revenue	4,167	26,250
Total Current Liabilities	822,051	1,006,038
Long-term debt (net of current portion)	124,832	124,832
Total Liabilities	946,883	1,130,870
Stockholders' Equity
Common stock ($.001 par value; 15,000,000 shares authorized; 8,466,953 shares issued and 7,263,508 shares outstanding as of August 31, 2012 and November 30, 2011)	13,508,257	13,508,257
Additional paid-in capital	987,034	987,034
Treasury stock	(222,781)	(222,781)
Accumulated deficit	(11,120,815)	(11,315,683)
Total Stockholders' Equity	3,151,695	2,956,827
Total Liabilities and Stockholders' Equity	$ 4,098,578	$ 4,087,697

XML

Note 1 - Nature of Operations

9 Months Ended

Aug. 31, 2012

Nature of Operations [Text Block]

Note 1 - Nature of Operations

BAB, Inc 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 Bagels (“BAB”) specialty bagel retail stores.  Operations was formed on August 30, 1995, primarily to operate Company-owned stores, including one which currently serves as the franchise training facility.  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 franchises and licenses bagel and muffin retail units under the BAB and MFM trade names.

On May 7, 2012 the Company issued a press release announcing the launch of its new franchise concept, SweetDuet Frozen Yogurt & Gourmet Muffins, which it is preparing to roll out this year. While BAB will be offering franchises in all 50 states, its initial development focus is targeted for the Midwest, specifically Illinois, Michigan, Wisconsin and Ohio. As part of its introductory development plan, BAB will be donating 10% of the initial franchise fee from its first 50 units to the Cystic Fibrosis Foundation, of which BAB is a corporate sponsor.  SweetDuet, as its name implies, is a fusion concept, pairing self-serve frozen yogurt with BAB’s exclusive line of My Favorite Muffin gourmet muffins, broadening the shop’s offering and therefore differentiating itself from the numerous frozen yogurt outlets already populating the market. SweetDuet Frozen Yogurt & Gourmet Muffins shops will also include BAB’s Brewster’s Coffee and a streamlined breakfast menu. The concept is designed to work in 1600 square feet of space.  The SweetDuet concept will be included as part of the Systems franchise operating and financial information.

At August 31, 2012, the Company had 97 franchise units and 6 licensed units in operation in 24 states.  The Company additionally derives income from the sale of its trademark bagels, muffins and coffee through nontraditional channels of distribution including to 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 accompanying condensed consolidated financial statements are unaudited. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 2011 which was filed February 24, 2012.  In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim periods presented include all adjustments, including normal recurring adjustments, necessary to fairly present the results of such interim periods and the financial position as of the end of said period. The results of operations for the interim period are not necessarily indicative of the results for the full year.

XML

Note 4 - Long-Term Debt (Detail) (USD $)		12 Months Ended
	Aug. 31, 2012	Sep. 30, 2012 Notes Payable, Other Payables [Member]
Long-term Debt	$ 152,584
Repayments of Related Party Debt		$ 35,000
Debt Instrument, Interest Rate, Stated Percentage		4.75%

XML

Note 5 - Stock Options (Detail) - Schedule of Share-based Compensation, Stock Options, Activity	9 Months Ended		135 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012
Options Outstanding at beginning of period	368,373	368,373
Granted	0	0	1,400,000
Forfeited	0	0
Exercised	0	0	1,031,627
Options Outstanding at end of period	368,373	368,373	368,373

XML

Note 2 - Locations Open and Under Development

9 Months Ended

Aug. 31, 2012

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

2. Locations Open and Under Development

Locations which are open or under development at August 31, 2012 are as follows:

Locations open:
Franchisees	97
Licensed	6
Under development	4
Total	107

XML

Consolidated Balance Sheet (Parentheticals) (USD $)	Aug. 31, 2012	Nov. 30, 2011
Allowance for doubtful accounts (in Dollars)	$ 30,730	$ 32,008
Accumulated depreciation, property, plant and equipment (in Dollars)	137,940	133,294
Definite lived intangible assets, accumulated amortization (in Dollars)	$ 51,268	$ 41,634
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	8,466,953	7,263,508
Common stock, shares outstanding	8,466,953	7,263,508

XML

Note 5 - Stock Options (Tables)

9 Months Ended

Aug. 31, 2012

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	9 Months Ended
	August 31, 2012		August 31, 2011
	Options		Options
Options Outstanding at beginning of period		368,373		368,373
Granted		0		0
Forfeited		0		0
Exercised		0		0
Options Outstanding at end of period		368,373		368,373

Schedule of Stock Options Roll Forward [Table Text Block]

Options Outstanding							Options Exercisable
Outstanding at 8/31/2012	Wghtd. Avg. Remaining Life		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value		Exercisable at 8/31/2012		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value
368,373		3.6	$	1.16	$	-		368,373	$	1.16	$	-

XML

Document And Entity Information	9 Months Ended
	Aug. 31, 2012	Oct. 09, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	BAB, INC.
Document Type	10-Q
Current Fiscal Year End Date	--11-30
Entity Common Stock, Shares Outstanding		7,263,508
Amendment Flag	false
Entity Central Index Key	0001123596
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Aug. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

Note 7 - Segment Information (Tables)

9 Months Ended

Aug. 31, 2012

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Net Revenues				Operating Income
	2012		2011		2012			2011
Company Store Operations	$	-	$	392,947	$	-		$	(94,236	)
Franchise Operations, Licensing Fees and Other Income		1,980,217		1,789,440		1,012,985			936,053
Subtotal	$	1,980,217	$	2,182,387	$	1,012,985		$	841,817
Corporate Expenses						(654,555	)		(584,046	)
Interest Expense, Net of Interest Income						(3,292	)		(3,474	)
Net Income Before Provision for Taxes						355,138			254,297
Current Tax Expense						15,000			5,000
Net Income					$	340,138		$	249,297

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Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012	Aug. 31, 2011
REVENUES
Royalty fees from franchised stores	$ 463,113	$ 445,287	$ 1,395,115	$ 1,307,931
Net sales by Company-owned stores		101,889		301,584
Franchise fees	5,000	5,000	47,500	149,300
Licensing fees and other income	118,826	117,830	537,602	423,572
Total Revenues	586,939	670,006	1,980,217	2,182,387
OPERATING EXPENSES
Store food, beverage and paper costs		33,683		102,836
Store payroll and other operating expenses		54,645		186,867
Selling, general and administrative expenses:
Payroll and payroll-related expenses	329,803	312,722	1,025,950	977,644
Occupancy	48,458	44,312	114,218	130,329
Advertising and promotion	17,696	18,953	48,750	54,810
Professional service fees	31,769	37,314	125,484	110,188
Travel	13,854	13,050	42,320	36,140
Depreciation and amortization	4,713	5,756	14,279	20,142
Other	76,381	72,917	250,786	305,659
Total Operating Expenses	522,674	593,352	1,621,787	1,924,615
Income from operations	64,265	76,654	358,430	257,772
Interest income	770	857	2,144	2,905
Interest expense	(1,812)	(2,126)	(5,436)	(6,380)
Income before provision for income taxes	63,223	75,385	355,138	254,297
Provision for income taxes
Current tax		5,000	15,000	5,000
Net Income	$ 63,223	$ 70,385	$ 340,138	$ 249,297
Earnings per share - Basic and Diluted (in Dollars per share)	$ 0.01	$ 0.01	$ 0.05	$ 0.03
Weighted average shares outstanding - Basic (in Shares)	7,263,508	7,263,508	7,263,508	7,263,508
Effect of dilutive common stock (in Shares)	2,426	3,640	2,278	1,457
Weighted average shares outstanding - Diluted (in Shares)	7,265,934	7,267,148	7,265,786	7,264,965
Cash distributions declared per share (in Dollars per share)	$ 0.01		$ 0.03	$ 0.05

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Note 7 - Segment Information

9 Months Ended

Aug. 31, 2012

Segment Reporting Disclosure [Text Block]

7. Segment Information

The following table presents segment information for the nine months ended August 31, 2012 and 2011:

	Net Revenues				Operating Income
	2012		2011		2012			2011
Company Store Operations	$	-	$	392,947	$	-		$	(94,236	)
Franchise Operations, Licensing Fees and Other Income		1,980,217		1,789,440		1,012,985			936,053
Subtotal	$	1,980,217	$	2,182,387	$	1,012,985		$	841,817
Corporate Expenses						(654,555	)		(584,046	)
Interest Expense, Net of Interest Income						(3,292	)		(3,474	)
Net Income Before Provision for Taxes						355,138			254,297
Current Tax Expense						15,000			5,000
Net Income					$	340,138		$	249,297

Segment assets changed for the Company-owned store segment at November 30, 2011, as the Company-owned location was converted to a franchise location.  The franchise operating and licensing fee segment assets were substantially unchanged for the nine months ended August 31, 2012 as compared to November 30, 2011.

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Note 6 - Goodwill and Other Intangible Assets

9 Months Ended

Aug. 31, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

 6. 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 29, 2012 and it was found that the carrying value of goodwill and intangible assets were not impaired.  No events or circumstances occurred in the third quarter of 2012 to indicate that an impairment test was necessary.

The impairment test performed February 29, 2012 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 has occurred.  An impairment test was performed at February 28, 2011 and based on the computation using discounted cash flows, it was also determined that no impairment occurred.

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Note 5 - Stock Options (Detail) (USD $)	9 Months Ended		135 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012	May 31, 2001
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant				1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	0	1,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	0	1,031,627
Share-based Compensation (in Dollars)	$ 7,000	$ 7,461
Share Price (in Dollars per share)	$ 0.66		$ 0.66

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Note 2 - Locations Open and Under Development (Detail) - Locations Open	Aug. 31, 2012
Locations	107
Franchisees [Member]
Locations	97
Licensed [Member]
Locations	6
Under Development [Member]
Locations	4

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Note 2 - Locations Open and Under Development (Tables)

9 Months Ended

Aug. 31, 2012

Schedule of Franchisor Disclosure [Table Text Block]

Locations open:
Franchisees	97
Licensed	6
Under development	4
Total	107

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Note 8 - Recent Accounting Pronouncements

9 Months Ended

Aug. 31, 2012

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

8.  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 August 31, 2012 that would have, or are expected to have, any significant effect on the Company’s consolidated financial position, cash flows or results of operations.

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Note 9 - Equity

9 Months Ended

Aug. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

9.  Equity

There is no cash distribution/dividend payable included in accrued expenses for August 31, 2012.  A cash distribution/dividend in the amount of $0.01 per share, totaling $72,635 was declared on September 6, 2012, payable October 4, 2012 to shareholders of record as of September 19, 2012.  Included in accrued expenses and other liabilities at November 30, 2011 is a cash distribution/dividend payable in the amount of $217,905 declared November 28, 2011 and paid January 4, 2012.

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Note 3 - Earnings per Share (Tables)

9 Months Ended

Aug. 31, 2012

Schedule of Calculation of Numerator and Denominator in Earnings Per Share [Table Text Block]

	For the 3 months ended August 31,				For the 9 months ended August 31,
	2012		2011		2012		2011
Numerator:
Net income available to common shareholders	$	63,223	$	70,385	$	340,138	$	249,297
Denominator:
Weighted average outstanding shares Basic		7,263,508		7,263,508		7,263,508		7,263,508
Earnings per Share - Basic	$	0.01	$	0.01	$	0.05	$	0.03
Effect of dilutive common stock		2,426		3,640		2,278		1,457
Weighted average outstanding shares Diluted		7,265,934		7,267,148		7,265,786		7,264,965
Earnings per share - Diluted	$	0.01	$	0.01	$	0.05	$	0.03

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Note 3 - Earnings per Share (Detail) - Computation of Basic and Diluted Earnings per Share (USD $)	3 Months Ended		9 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012	Aug. 31, 2011
Numerator:
Net income available to common shareholders (in Dollars)	$ 63,223	$ 70,385	$ 340,138	$ 249,297
Denominator:
Weighted average outstanding shares Basic	7,263,508	7,263,508	7,263,508	7,263,508
Earnings per Share - Basic (in Dollars per share)	$ 0.01	$ 0.01	$ 0.05	$ 0.03
Effect of dilutive common stock	2,426	3,640	2,278	1,457
Weighted average outstanding shares Diluted	7,265,934	7,267,148	7,265,786	7,264,965
Earnings per share - Diluted (in Dollars per share)	$ 0.01	$ 0.01	$ 0.05	$ 0.03

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Note 7 - Segment Information (Detail) - Segment Information (USD $)	3 Months Ended		9 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	Aug. 31, 2012	Aug. 31, 2011
Net Revenues	$ 586,939	$ 670,006	$ 1,980,217	$ 2,182,387
Operating Income			1,012,985	841,817
Corporate Expenses			(654,555)	(584,046)
Interest Expense, Net of Interest Income			(3,292)	(3,474)
Net Income Before Provision for Taxes	63,223	75,385	355,138	254,297
Current Tax Expense		5,000	15,000	5,000
Net Income	63,223	70,385	340,138	249,297
Company Store Operations [Member]
Net Revenues				392,947
Operating Income				(94,236)
Franchise Operations and Licensing Fees [Member]
Net Revenues			1,980,217	1,789,440
Operating Income			$ 1,012,985	$ 936,053

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Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Operating activities
Net income	$ 340,138	$ 249,297
Depreciation and amortization	14,279	20,142
Provision for uncollectible accounts, net of recoveries	(3,555)	9,971
Share-based compensation	7,000	7,461
Changes in:
Trade accounts receivable and notes receivable	20,574	20,652
Restricted cash	(45,313)	(86,935)
Marketing fund contributions receivable	3,311	5,895
Inventories	(7,045)	1,189
Prepaid expenses and other	13,935	(22,993)
Accounts payable	(30,382)	15,389
Accrued liabilities	(9,663)	39,395
Unexpended marketing fund contributions	41,045	115,619
Deferred revenue	32,917	24,000
Net Cash Provided by Operating Activities	370,241	399,082
Investing activities
Purchase of equipment		(2,235)
Capitalization of trademark renewals	(4,481)	(2,178)
Net Cash Used In Investing Activities	(4,481)	(4,413)
Financing activities
Cash distributions/dividends	(363,175)	(363,177)
Net Cash Used In Financing Activities	(363,175)	(363,177)
Net Increase in Cash	2,585	31,492
Cash, Beginning of Period	1,236,125	1,242,937
Cash, End of Period	1,238,710	1,274,429
Income taxes paid	$ 5,200	$ 20,416

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Note 5 - Stock Options

9 Months Ended

Aug. 31, 2012

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

5.  Stock Options

In May 2001, the Company approved a Long-Term Incentive and Stock Option Plan (Plan).  The Plan reserves 1,400,000 shares of common stock for grant.  As of August 31, 2012, 1,400,000 stock options were granted to directors, officers and employees.  As of August 31, 2012, there were 1,031,627 stock options exercised or forfeited under the Plan. 

	9 Months Ended
	August 31, 2012		August 31, 2011
	Options		Options
Options Outstanding at beginning of period		368,373		368,373
Granted		0		0
Forfeited		0		0
Exercised		0		0
Options Outstanding at end of period		368,373		368,373

All compensation cost arising from share-based payment arrangements in payroll-related expenses were expensed as of November 30, 2011; there is no share-based compensation cost through August 31, 2012 but there was approximately $7,000 for the nine months ending August 31, 2011.

The Company uses historical volatility of common stock over a period equal to the expected life of the options to estimate their fair value.  The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. To value option grants and other awards for actual and pro forma stock-based compensation, the Company uses the Black-Scholes option valuation model. When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.

The Company’s stock option terms expire in 10 years and vary in vesting from immediate to a vesting period of five years.

The following table summarizes the stock options outstanding and exercisable at August 31, 2012:

Options Outstanding							Options Exercisable
Outstanding at 8/31/2012	Wghtd. Avg. Remaining Life		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value		Exercisable at 8/31/2012		Wghtd. Avg. Exercise Price		Aggregate Intrinsic Value
368,373		3.6	$	1.16	$	-		368,373	$	1.16	$	-

There is no computation for the aggregate intrinsic value in the table above because the outstanding options weighted average exercise price was greater than the Company’s closing stock price of $0.66 as of the last business day of the period ended August 31, 2012.  No options were exercised during the nine month period ended August 31, 2012.

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Note 9 - Equity (Detail) (USD $)	Oct. 04, 2012	Aug. 31, 2012	Jan. 04, 2012
Dividends Payable, Amount Per Share (in Dollars per share)		$ 0.01
Dividends Payable, Current	$ 72,635		$ 217,905

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Note 3 - Earnings per Share (Detail)	3 Months Ended	9 Months Ended
	Aug. 31, 2012	Aug. 31, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	350,400	350,400