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, 2009





o
            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 registeredCommon 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.  o 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. o 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 o 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).  o Yes o 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.o





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  o, Accelerated
Filer  o,
Non-Accelerated Filer  o, 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  o   No  x





State
issuer's revenues for its most recent fiscal year: $3,172,905





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: $1,562,766 based on 3,811,625 shares held by nonaffiliates as of
May 31, 2009; Closing price ($.41) 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: 7,263,508shares of Common Stock,
as of February 12, 2010.





DOCUMENTS
INCORPORATED BY REFERENCE


See index
to exhibits










FORM10-K INDEX





PART
      IItem
      1
            Description of
      Business
            3Item
      1A
            Risk Factors
            7Item
      2
            Properties
            7Item
      3
            Legal
      Proceedings
            7Item
      4
            Submission of
      Matters to a Vote of Security Holders
            7PART
      IIItem
      5.
            Market for Registrant’s Common
      Equity, Related Stockholder Mattersand Issuer Purchases
      ofEquity
      Securities
            8Item
      6.
            SelectedFinancial
      Data
            9Item
      7.
            Management’sDiscussion and Analysis of
      Financial Condition and Results of Operations
            9Item
      7A.
            Quantitative and Qualitative
      Disclosures About Market Risk
            13Item
      8.
            Financial Statementsand Supplementary
      Data
            14Item
      9.
            Changes in and
      Disagreement with Accountants on Accounting and Financial
      Disclosure
            32Item
      9A.
            Controls and
      Procedures
            32Item
      9B
            Other
      Information
            32PART
      IIIItem
      10.
            Directors, Executive
      Officers and Corporate Governance
            33Item
      11.
            Executive
      Compensation
            33Item
      12.
            Security Ownership
      of Certain Beneficial Owners and Management and Related Stockholder
      Matters
            35Item
      13.
            Certain Relationships, Related
      Transactionsand
      Director Independence
            36Item
      14.
            Principal Accountant
      Fees and Services
            37PART
      IVItem
      15.
            Exhibits and Financial Statement
      Schedules
            38


- 2
-
 Index


PARTI





ITEM
1. DESCRIPTION OF BUSINESS





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 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 (“MFM”) concept muffin
stores.  The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were
acquired on February 1, 1999. All branded wholesale business uses this
trademark.





BAB, Inc.
(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 Big Apple Bagels ("BAB") and My Favorite Muffin
("MFM") trade names. At November 30, 2009, the Company had 108 units in
operation in 26 states, including 2 International units in United Arab
Emirates. 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 and through direct home delivery of
specialty muffin gift baskets and coffee.





The BAB
brand franchised and Company-owned stores feature 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
the Company-owned store and 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.





Operating
Loss





The
Company reported a net loss of $2,066,000 for the year ended November 30, 2009,
and net income of $623,000 for the year ended November 30, 2008.  The 2009
net loss was due to a goodwill impairment of $2,399,000 recorded in the first
quarter of 2009 (see Note 2, Goodwill and Other Intangible Assets). Excluding
the goodwill impairment, the Company had net income of $333,000.  The
Company believes that with its continued focus on franchising and licensing
operations and cost control it will be profitable.





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.


- 3
-
 Index


CUSTOMERS





The
Company-owned store sells to the general public; therefore, the Company is not
dependent on a particular customer or small group of customers.  Regarding
the Company's franchising operation, the 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,   Hawkeye Foodservice and Coca-Cola. 
The Company is not dependent on any of these suppliers for future growth and
profitability since the products purchased from these suppliers are available
from other sources.





LOCATIONS





The
Company has 105 franchised locations, 2 licensees and 1 Company-owned
store.   Of the 105 locations, 103 are locatedin 25 states and 2
International units are located in the United Arab Emirates.





STORE
OPERATIONS





BIG APPLE
BAGELS--BAB franchised and the Company-owned store 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 750 square feet devoted to production and
baking. A satellite store is typically smaller than a production store,
averaging 600 to 1,000 square feet. Although franchise stores may vary in size
from the Company-owned store and from other franchise stores, store layout is
generally consistent.





MY
FAVORITE MUFFIN--MFM franchised stores bake 20 to 25 varieties of muffins daily,
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. While some MFM units are
located in shopping malls with minimal square footage of 400 to 800 square feet,
the typical retail center prototype unit is approximately 1,800 square feet with
seating 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 the Company-owned
store and 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.


- 4
-
 Index


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, the internet and business opportunity magazines
worldwide.  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.  In the supermarket bakery sections, the Company's
bagels compete against Thomas' Bagels and other brands of 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 may be affected
not only by the performance of the Company-owned store but also by the
performance of its franchise stores, over which the Company has limited control.


- 5
-
 Index


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," "Brewster's Coffee" and "My
Favorite Muffin" 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.


- 6
-
 Index


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, 2009, the Company employed 24 persons, consisting of 9 working
in the Company-owned store, of which 8 are part-time employees.  The
remaining 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.





ITEM2. PROPERTIES





The
Company's principal executive office, consisting of approximately 7,150 square
feet, is located in Deerfield, Illinois and is leased pursuant to a lease
expiring February 28, 2011.  Additionally, the Company leases space for its
Company-owned store. The first option to renew the Company-owned store lease was
executed on January 1, 2007 for a term of five years with one additional five
year renewal option available.





ITEM3. LEGAL PROCEEDINGS





None





ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None


- 7
-
 Index


PART
II





ITEM5. 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, 2009 and 2008.  The Company's common stock is
traded on the NASDAQ OTC-Bulletin Board under the symbol
"BABB."





Year
      Ended: November 30, 2009
            
            Low
            
            
            HighFirst
      quarter
            
            
            0.41
            
            
            
            0.92Second
      quarter
            
            
            0.36
            
            
            
            0.59Third
      quarter
            
            
            0.35
            
            
            
            0.51Fourth
      quarter
            
            
            0.36
            
            
            
            0.50Year
      Ended: November 30, 2008
            
            Low
            
            
            HighFirst
      quarter
            
            
            0.76
            
            
            
            1.00Second
      quarter
            
            
            0.80
            
            
            
            1.00Third
      quarter
            
            
            0.78
            
            
            
            0.95Fourth
      quarter
            
            
            0.62
            
            
            
            1.10





As of
February 12, 2010, the Company's Common Stock was held by 171 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 12, 2010, is approximately 1,300 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 2009 and 2008, no options were
granted.  As of February 12, 2010, there were 1,031,627 stock options
exercised or forfeited under the Plan.  (See Note 6 of the audited
consolidated financial statements included herein.)





DIVIDEND
POLICY





The Board
of Directors of the Company declared a quarterly cash dividend of $.02 per share
on December 4, 2008, to be paid on January 2, 2009 in the amount of $145,270 to
stockholders of record as of December 18, 2008.  The Board of
Directors of the Company declared a quarterly cash dividend of $.01 per share on
March 9, May 22 and September 7, 2009.  These dividends were payable
on April 13, July 8, and October 5, 2009, respectively, in the amount of $72,635
each.  On December 7, 2009, the Board of Directors authorized a $.01
per share quarterly cash dividend in the amount of $72,635.  The
dividend was paid January 4, 2010 to shareholders of record as of December 21,
2009.





The Board
of Directors of the Company declared quarterly cash dividends of $.02 per share
on March 5, June 13, and September 10, 2008.  These dividends were
payable on April 10, July 8, and October 6, 2008, respectively, in the amount of
$145,270 each.





Although there can be no assurances
that the Company will be able to pay dividends in the future, it is the
Company’s intent that future 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 dividends on a quarterly basis if warranted.


- 8
-
 Index


ITEM6.  SELECTED FINANCIAL DATA





Not
required for smaller reporting companies.





ITEM7.  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 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.





GENERAL





The
Company has 105 franchised, 2 licensed units, and 1 Company-owned store as
of the end of 2009. Units in operation at the end of 2008 included 114
franchised, 3 licensed and 1 Company-owned store.  System-wide revenues in
2009 were $38 million compared to $44 million in 2008.





The
Company's revenues are derived primarily from the ongoing royalties paid to the
Company by its franchisees, from the operation of the Company-owned store 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
agreements (Kohr Bros. and Mrs. Fields).  Also included in licensing
fees and other income is Operation’s Sign Shop which provides for franchise
consistency and convenience the majority of signage to franchisees and the
Company-owned store, including but not limited to, posters, menu panels, build
charts, outside window stickers and counter signs.


- 9
-
 Index


YEAR
2009 COMPARED TO YEAR 2008





Total
revenues from all sources decreased $605,000, or 16.0%, to $3,173,000 in 2009
from $3,778,000 in the prior year primarily due to a decrease in all sources of
income.





Royalty
revenue from franchise stores was down $274,000, or 12.9%, to $1,842,000 in 2009
as compared to $2,116,000 in 2008.  Franchise fee revenue decreased
$83,000, or 50.3%, to $82,000 in 2009 versus $165,000 in 2008.  The Company
opened 4 stores with 1 opened at reduced fees and there were 3 transfers in 2009
versus 8 opened stores, 5 at reduced fees and 10 transfers in
2008.  At November 30, 2009 the Company had 2 units under development
versus 5 at November 30, 2008.  Company-owned store revenues decreased
$52,000 or 10.0%, to $468,000 from $520,000 in 2008.  Licensing fees
and other income decreased $195,000, or 20.0%, to $781,000 in 2009 as compared
to $976,000 in 2008.  The decline was primarily due to decreases in 2009
license fee revenues of $95,000, defaulted and terminated franchise contract
fees of $42,000 and non-redeemed gift certificate revenue of $36,000 compared to
2008.





Total
operating expenses excluding goodwill impairment were $2,844,000, or 89.6%, of
total revenues for 2009 versus $3,173,000, or 84.0%, for 2008. Total operating
expenses excluding goodwill impairment decreased $329,000 in 2009 compared to
2008.  Including the goodwill impairment of $2,399,000 the total 2009
expenses were $5,243,000 or an increase of $2,070,000 compared to
2008.





Expenses
for Company-owned stores decreased $34,000, or 5.4%, in 2009, to $592,000, from
$626,000 in 2008.  Cost of goods sold 2009 decreased $27,000, or
16.1%, to $141,000 in 2009 compared to $168,000 in 2008.  Cost of
goods sold percentage to sales decreased 2.1% in 2009 to 30.2% compared to 32.3%
in 2008.





Corporate
office payroll and payroll related expenses decreased $202,000, or 13.5%, in
2009, to $1,289,000, from $1,491,000, in 2008. Advertising and promotion expense
decreased $65,000, or 46.8%, in 2009, to $74,000, from $139,000 in 2008
primarily due to reducing advertising, negotiating lower prices and placing
advertisements in less expensive publications.  Travel decreased
$16,000, or 18.0%, to $73,000 in 2009, from $89,000 in 2008 due to better cost
control and operational efficiencies.  There was a reduction in
depreciation and amortization expense of $8,000, or 20.5%, in 2009, to $31,000,
from $39,000, in 2008.  Goodwill impairment was $2,399,000 in 2009
versus no impairment in 2008.





Income
from operations, excluding goodwill impairment, for the period ended November
30, 2009 was $329,000 as compared to $605,000 in 2008.  Loss from
operations including goodwill impairment for 2009 was $2,070,000.





Interest
income decreased $16,000, to $15,000, in 2009, compared to $31,000, in 2008, as
a result of lower interest rates and lower cash balances to invest.





Interest
expense decreased $1,000 to $11,000 in 2009, compared to $12,000 in 2008,
primarily due to a decrease in outstanding debt.





Net
income before tax, excluding goodwill impairment totaled $333,000, or 10.5%, of
revenue in 2009 as compared to $623,000, or 16.5%, of revenue in the prior
year.  Income tax expense for 2009 was $252,000, which relates to
increasing the valuation allowance for deferred tax assets which are more likely
than not to be realized.  There were no taxes for 2008. The net
loss for 2009 including goodwill impairment and tax expense was
$2,318,000.  The 2009 goodwill impairment of $2,399,000 was a non-cash
expense and no further impairment of goodwill is anticipated at this
time.


- 10
-
 Index


LIQUIDITY
AND CAPITAL RESOURCES





The net
cash provided from operating activities totaled $279,000 during 2009. Cash
provided from operating activities is comprised of a net loss of $2,318,000,
plus depreciation and amortization of $31,000, goodwill impairment of
$2,399,000, tax valuation expense of $252,000, share-based compensation of
$10,000 and bad debt of $36,000, plus changes in restricted cash of $82,000,
inventories of $13,000 and prepaid expenses and other of $40,000, less changes
in trade accounts and notes receivable of $35,000, marketing fund contributions
receivable of $1,000, accounts payable of $12,000, accrued liabilities of
$45,000, unexpended Marketing Fund contributions of $81,000 and deferred revenue
of $92,000.  Cash provided from operating activities in 2008 totaled
$504,000, comprised of net income of $623,000, plus depreciation and
amortization of $39,000, share-based compensation of $25,000 and bad debt of
$2,000, plus changes in trade accounts and notes receivable of $4,000, marketing
fund contributions receivable of $24,000, accounts payable of $9,000 and
unexpended Marketing Fund contributions of $1,000, less changes in restricted
cash of $22,000, inventory of $7,000, prepaid expenses and other of $16,000,
accrued liabilities of $57,000 and deferred revenue of $120,000.





Cash used
for investing activities during 2009 totaled $26,000, consisting of purchase of
equipment of $1,000 and trademark renewal expenditures of
$25,000.  Cash used for investing activities during 2008 totaled
$57,000, consisting of the purchase of equipment of $1,000 and trademark renewal
expenditures of $56,000.





Financing
activities used $387,000 during 2009, due to the repayment of notes payable of
$24,000 and the payment of dividends equal to $363,000.  Financing
activities used $750,000 during 2008, due to the repayment of notes payable of
$23,000 and the payment of dividends equal to $727,000.





Although
there can be no assurances that the Company will be able to pay dividends in the
future, it is the Company’s intent that future 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 dividends on a quarterly basis if
warranted.  On December 7, 2009, the Board of Directors authorized a
$0.01 per share quarterly cash dividend.  The dividend was paid
January 4, 2010 to shareholders of record as of December 21, 2009.





The
Company believes execution of its 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.


- 11
-
 Index


Revenue
Recognition





Royalty
fees from franchised stores represent a fee of 5% 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 last 10
weeks’ average.





The
Company recognizes franchise fee revenue upon the opening of a franchise store.
Direct costs associated with the franchise sales 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, 2009 and it was found that the carrying
value of goodwill and intangible assets were impaired.





An
impairment test was performed at February 28, 2009 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 exceeded their
carrying value by $2,399,000.





A charge
of $2,399,000 was recorded for the year ended November 30, 2009 after the
impairment testing was completed during the first quarter
2009.  Management does not believe that any further impairment exists
at November 30, 2009.  There was no impairment charge recorded in
2008. (See Note 2 of the consolidated financial statements included
herein.)





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, 2009, the Company has cumulative net operating loss carryforwards
expiring between 2012 and 2029 for U.S. federal income tax purposes of
approximately $6,209,000.   A valuation allowance has been established
for $2,025,000 at November 30, 2009 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
-
 Index


Recent Accounting
Pronouncements





In April
2008, the FASB issued new standards which provided guidance on how to determine
the useful life of intangible assets by amending the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets. This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. These
standards are effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years
and will be adopted beginning in the first quarter of fiscal
2010.  The adoption of this guidance is not expected to have any
impact on our consolidated financial position, cash flows or results of
operations.





In April
2009, the FASB issued additional guidance under the “Financial Instruments
Topic” of the ASC.  This topic requires disclosure of the carrying amount and the
fair value of all financial instruments for interim and annual financial
statements of SEC-reporting entities (even if the financial instrument is not
recognized in the balance sheet), including the methods and significant
assumptions used to estimate the fair values and any changes in such methods and
assumptions.  This topic also requires disclosures in summarized
financial information in interim financial statements.  The Company
adopted this additional guidance as of November 30, 2009.  The
adoption of this additional guidance did not have any impact on our consolidated
financial position, cash flows or results of operations.





In May
2009, the FASB issued new standards for subsequent events, which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The new standards are effective for interim and annual
reporting periods ending after June 15, 2009. We adopted the new standards
during fiscal 2009 and, as the pronouncement only requires additional
disclosures, the adoption did not have an impact on our consolidated financial
position, cash flows or results of operations.  We have evaluated
subsequent events through February 23, 2010, the date that these consolidated
financial statements were issued.





In June
2009, the FASB issued the FASB Accounting Standards Codification   (the
“Codification”) for financial statements issued for interim and annual periods
ending after September 15, 2009, which was effective for us beginning in the
fourth quarter of fiscal 2009. The Codification became the single authoritative
source for GAAP. Accordingly, previous references to GAAP accounting standards
are no longer used in our disclosures, including these Notes to the Financial
Statements. The Codification does not affect our consolidated financial
position, cash flows or results of operations.





ITEM7A.  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
-
 Index


ITEM8. FINANCIAL STATEMENTS





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





BAB,
Inc.


Years
Ended November 30, 2009 and 2008





C o n t e n t
s




Report
      of Independent Registered Public Accounting Firm
            15Consolidated
      Balance Sheets
            16Consolidated
      Statements of Income
            17Consolidated
      Statements of Stockholders’
      Equity
            18Consolidated
      Statements of Cash Flows
            19Notes
      to Consolidated Financial Statements
            20


- 14
-
 Index


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. as of November
30, 2009 and 2008 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 financial position of BAB, Inc. as of November 30,
2009 and 2008, 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/
Frank L. Sassetti & Company





Oak Park,
Illinois


February
23, 2010


- 15
-
 Index


BAB,
Inc


Consolidated
Balance Sheets


November
30, 2009 and 2008





2009
            
            
            2008ASSETSCurrent
      AssetsCash
            
            $
            1,072,526
            
            
            $
            1,207,108Restricted
      cash
            
            
            211,748
            
            
            
            293,994ReceivablesTrade
      accounts and notes receivable (net of allowance for doubtful accounts of
      $8,712 in 2009 and $3,841 in 2008)
            
            
            103,346
            
            
            
            104,153Marketing
      fund contributions receivable from franchisees and stores
            
            
            14,209
            
            
            
            13,245Inventories
            
            
            37,946
            
            
            
            51,331Prepaid
      expenses and other current assets
            
            
            105,981
            
            
            
            145,953Total
      Current Assets
            
            
            1,545,756
            
            
            
            1,815,784Property,
      plant and equipment (net of accumulated depreciation of $575,407 in 2009
      and $554,111 in 2008)
            
            
            27,834
            
            
            
            47,980Trademarks
            
            
            434,960
            
            
            
            763,667Goodwill
            
            
            1,493,771
            
            
            
            3,542,772Definite
      lived intangible assets (net of accumulated amortization of $113,494 in
      2009 and $103,560 in 2008)
            
            
            79,794
            
            
            
            86,324Deferred
      tax asset
            
            
            248,000
            
            
            
            500,000Total
      Noncurrent Assets
            
            
            2,284,359
            
            
            
            4,940,743Total
      Assets
            
            $
            3,830,115
            
            
            $
            6,756,527LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesCurrent
      portion of long-term debt
            
            $
            25,292
            
            
            $
            24,145Accounts
      payable
            
            
            36,975
            
            
            
            49,353Accrued
      expenses and other current liabilities
            
            
            268,077
            
            
            
            313,329Unexpended
      marketing fund contributions
            
            
            173,211
            
            
            
            254,493Deferred
      franchise fee revenue
            
            
            30,000
            
            
            
            125,000Deferred
      licensing revenue
            
            
            39,583
            
            
            
            36,996Total
      Current Liabilities
            
            
            573,138
            
            
            
            803,316Long-term
      debt (net of current portion)
            
            
            179,078
            
            
            
            204,371Total
      Noncurrent Liabilities
            
            
            179,078
            
            
            
            204,371Total
      Liabilities
            
            
            752,216
            
            
            
            1,007,687Stockholders'
      EquityCommon
      stock ($.001 par value; 15,000,000 shares authorized; 8,466,953 shares
      issued and 7,263,508 shares outstanding as of November 30, 2009 and
      2008
            
            
            13,508,257
            
            
            
            13,508,257Additional
      paid-in capital
            
            
            967,441
            
            
            
            957,264Treasury
      stock
            
            
            (222,781
            )
            
            
            (222,781
            )Accumulated
      deficit
            
            
            (11,175,018
            )
            
            
            (8,493,900
            )Total
      Stockholders' Equity
            
            
            3,077,899
            
            
            
            5,748,840Total
      Liabilities and Stockholders' Equity
            
            $
            3,830,115
            
            
            $
            6,756,527


See
accompanying notes


- 16
-
 Index


BAB,
Inc


Consolidated
Statements of Income


November
30, 2009 and 2008





2009
            
            
            2008REVENUESRoyalty
      fees from franchised stores
            
            $
            1,842,382
            
            
            $
            2,116,285Net
      sales by Company-owned stores
            
            
            468,072
            
            
            
            520,466Franchise
      fees
            
            
            81,500
            
            
            
            165,000Licensing
      fees and other income
            
            
            780,951
            
            
            
            976,059Total
      Revenues
            
            
            3,172,905
            
            
            
            3,777,810OPERATING
      EXPENSESStore
      food, beverage and paper costs
            
            
            141,435
            
            
            
            167,991Store
      payroll and other operating expenses
            
            
            450,651
            
            
            
            458,066Selling,
      general and administrative expenses:Payroll
      and payroll-related expenses
            
            
            1,288,947
            
            
            
            1,490,938Occupancy
            
            
            142,386
            
            
            
            140,198Advertising
      and promotion
            
            
            73,549
            
            
            
            139,127Professional
      service fees
            
            
            186,076
            
            
            
            189,082Travel
      expenses
            
            
            73,168
            
            
            
            88,533Depreciation
      and amortization
            
            
            31,231
            
            
            
            38,960Other
            
            
            456,424
            
            
            
            460,290Goodwill
      Impairment
            
            
            2,399,057
            
            
            
            -Total
      Operating Expenses
            
            
            5,242,924
            
            
            
            3,173,185Income
      (Loss) from operations
            
            
            (2,070,019
            )
            
            
            604,625Interest
      income
            
            
            14,739
            
            
            
            30,520Interest
      expense
            
            
            (10,663
            )
            
            
            (11,767
            )Income
      (Loss) before provision for income taxes
            
            
            (2,065,943
            )
            
            
            623,378Provision
      for income taxesCurrent
      tax expense
            
            
            -
            
            
            
            -Deferred
      tax expense
            
            
            252,000
            
            
            
            -252,000
            
            
            
            -Net 
      Income (Loss)
            
            $
            (2,317,943
            )
            
            $
            623,378Net
      Income (Loss) per share - Basic and Diluted
            
            $
            (0.32
            )
            
            $
            0.09Weighted
      average shares outstanding - Basic
            
            
            7,263,508
            
            
            
            7,263,508Weighted
      average shares outstanding - Diluted
            
            
            7,263,508
            
            
            
            7,271,732Cash
      dividends declared per share
            
            $
            0.05
            
            
            $
            0.06





See
accompanying notes


- 17
-
 Index


BAB,
Inc


Consolidated
Statements of Stockholders’ Equity


November
30, 2009 and 2008





AdditionalCommon
      Stock
            
            
            Paid-In
            
            
            Treasury
      Stock
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Shares
            
            
            Amount
            
            
            Deficit
            
            
            TotalNovember
      30, 2007
            
            
            8,466,953
            
            
            $
            13,508,257
            
            
            $
            932,038
            
            
            
            (1,203,445
            )
            
            $
            (222,781
            )
            
            $
            (8,681,467
            )
            
            $
            5,536,047Stock
      Compensation Expense
            
            
            
            
            
            
            
            
            
            
            25,226
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            25,226Dividends
      Declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (435,811
            )
            
            
            (435,811
            )Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            623,378
            
            
            
            623,378November
      30, 2008
            
            
            8,466,953
            
            
            
            13,508,257
            
            
            
            957,264
            
            
            
            (1,203,445
            )
            
            
            (222,781
            )
            
            
            (8,493,900
            )
            
            
            5,748,840Stock
      Compensation Expense
            
            
            
            
            
            
            
            
            
            
            10,177
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            10,177Dividends
      Declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (363,175
            )
            
            
            (363,175
            )Net
      Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,317,943
            )
            
            
            (2,317,943
            )November
      30, 2009
            
            
            8,466,953
            
            
            $
            13,508,257
            
            
            $
            967,441
            
            
            
            (1,203,445
            )
            
            $
            (222,781
            )
            
            $
            (11,175,018
            )
            
            $
            3,077,899





See
accompanying notes


- 18
-
 Index


BAB,
Inc


Consolidated
Statements of Cash Flow


November
30, 2009 and 2008





2009
            
            
            2008Operating
      activitiesNet
      (loss) income
            
            $
            (2,317,943
            )
            
            $
            623,378Depreciation
      and amortization
            
            
            31,231
            
            
            
            38,960Impairment
      -other intangibles
            
            
            2,399,057
            
            
            
            -Deferred
      tax expense
            
            
            252,000Provision
      for uncollectible accounts, net of recoveries
            
            
            36,021
            
            
            
            2,072Share-based
      compensation
            
            
            10,177
            
            
            
            25,226Changes
      in:Trade
      accounts receivable and notes receivable
            
            
            (35,214
            )
            
            
            4,055Restricted
      cash
            
            
            82,246
            
            
            
            (22,024
            )Marketing
      fund contributions receivable
            
            
            (964
            )
            
            
            23,511Inventories
            
            
            13,385
            
            
            
            (7,385
            )Prepaid
      expenses and other
            
            
            39,972
            
            
            
            (16,377
            )Accounts
      payable
            
            
            (12,378
            )
            
            
            8,883Accrued
      liabilities
            
            
            (45,252
            )
            
            
            (57,201
            )Unexpended
      marketing fund contributions
            
            
            (81,282
            )
            
            
            877Deferred
      revenue
            
            
            (92,413
            )
            
            
            (119,647
            )Net
      Cash Provided by Operating Activities
            
            
            278,643
            
            
            
            504,328Investing
      activitiesPurchase
      of equipment
            
            
            (1,150
            )
            
            
            (991
            )Proceeds
      from sale of equipment
            
            
            -
            
            
            
            200Capitalization
      of trademark renewals
            
            
            (24,754
            )
            
            
            (56,392
            )Net
      Cash Used In Investing Activities
            
            
            (25,904
            )
            
            
            (57,183
            )Financing
      activitiesRepayment
      of borrowings
            
            
            (24,146
            )
            
            
            (23,051
            )Payment
      of dividends
            
            
            (363,175
            )
            
            
            (727,278
            )Net
      Cash Used In Financing Activities
            
            
            (387,321
            )
            
            
            (750,329
            )Net
      Decrease in Cash
            
            
            (134,582
            )
            
            
            (303,184
            )Cash,
      Beginning of Period
            
            
            1,207,108
            
            
            
            1,510,292Cash,
      End of Period
            
            $
            1,072,526
            
            
            $
            1,207,108Supplemental
      disclosure of cash flow information:Interest
      paid
            
            $
            10,855
            
            
            $
            11,949Income
      taxes paid
            
            $
            9,797
            
            
            $
            -





See
accompanying notes


- 19
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
1 - Nature of Operations





BAB, Inc.
the (“Company”) was incorporated under the laws of the State of Delaware on July
12, 2000.  The Company currently operates, franchises and licenses
bagel, muffin and coffee retail units under the Big Apple Bagels (“BAB”) and My
Favorite Muffin (“MFM”) trade names.  The Company additionally derives
income from the sale of its trademark bagels, muffin mix, cream cheese and
coffee through nontraditional channels of distribution, including under license
agreements and through direct home delivery of specialty muffin baskets and
coffee.





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 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 (“MFM”) concept muffin
stores.  The assets of Jacobs Bros. Bagels (“Jacobs Bros.”) were
acquired on February 1, 1999. All branded wholesale business uses this
trademark.








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





Royalty
fees from franchised stores represent a fee of 5% 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 last 10
weeks’ average.





The
Company recognizes franchise fee revenue upon the opening of a franchise
store.  Direct costs associated with franchise sales are deferred
until the franchise fee revenue is recognized.  These costs include
site approval, construction approval, commissions, blueprints and training
costs.


- 20
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
2 - Summary of Significant Accounting Policies (Continued)





Revenue Recognition
(Continued)





The
Company earns a licensing fee from the sale of par-baked bagels, from the sale
of coffee and from the sale of BAB and MFM branded product to the franchised and
licensed units noted in the table below.  The licensing fees received
are derived from these proprietary or recommended products sold primarily to the
franchise network.  The Company records revenues on an accrual basis
based on actual and estimated sales to the franchise units.





Stores
which have been opened, and unopened stores for which a Franchise Agreement has
been executed at November 30, 2009 and 2008 are as follows:





2009
            
            
            2008Stores
      openedCompany-owned
            
            
            1
            
            
            
            1Franchisee-owned
            
            
            105
            
            
            
            114Licensed
            
            
            2
            
            
            
            3108
            
            
            
            118Unopened
      storesFranchise
      Agreement
            
            
            2
            
            
            
            5110
            
            
            
            123





License
fees and other income primarily consist of license fees, Sign Shop revenues, and
defaulted and terminated franchise contract revenues.  Revenue is
recorded on an accrual basis.  Actual amounts are used to record the
majority of license fees although at times it is necessary to use estimates.
Revenues recorded for Sign Shop and 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 are confined to
two reportable segments operating in the United States; Company-owned stores and
franchise operations.





Marketing
Fund





The
Company established a Marketing Fund during 1994.  Domestic
franchise-operated units and the Company-owned store are required to contribute
a fixed percentage based on 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
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
2 - Summary of Significant Accounting Policies (Continued)





Cash





As of
November 30, 2009 and 2008, the Marketing Fund cash balances, which are
restricted, were $158,747 and $240,993, respectively.  Also included
in restricted cash at both November 30, 2009 and 2008 is $53,001 for a
certificate of deposit that serves as collateral for a Letter of Credit that is
required for the Company’s office lease.





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 June 30, 2010.  If
the Federal Reserve Bank does not extend the unlimited insured amount past June
30, 2010 the deposits may from time to time exceed federally insured
limits.





Accounts and Notes
Receivable





Receivables
are carried at original invoice amount less estimates made for doubtful
accounts.  Certain receivables have been converted to unsecured
interest-bearing notes.  Management determines the allowances for
doubtful accounts by reviewing and identifying troubled accounts on a periodic
basis by using historical experience applied to an aging of
accounts.  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





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





The
Company’s intangible assets consist of trademarks and goodwill. 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 no longer amortizes goodwill and other intangible assets, but instead on
an annual basis the Company’s intangible assets are tested for
impairment.





Following
the guidelines contained in ASC 350, the Company tests goodwill and intangible
assets that are not subject to amortization for impairment annually or more
frequently if events or circumstances indicate that impairment is
possible.  Goodwill and intangible assets were tested at the end of
the first fiscal quarter, February 28, 2009 and it was found that the carrying
value of goodwill and intangible assets were impaired.


- 22
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
2 - Summary of Significant Accounting Policies (Continued)





Goodwill and Other
Intangible Assets (Cont’d)





The
Company tests goodwill and intangible assets that are not subject to
amortization for impairment annually or more frequently if events or
circumstances indicate that impairment is possible.





Goodwill
and intangible assets were tested at the end of the first quarter, February 28,
2009 and it was found that the carrying value of goodwill and intangible assets
were impaired based on a discounted cash flow model using management’s business
plan projected for expected cash flows.  Based on the computation of
the discounted cash flows, it was determined that the fair value of goodwill and
intangible assets exceeded their carrying value by $2,399,057.





A charge
of $2,399,057 was recorded for the year ended November 30, 2009 after the
impairment testing was completed during the first quarter
2009.  Management does not believe that any further impairment exists
at November 30, 2009.  There was no impairment charge recorded in
2008.





The net
book value of goodwill and intangible assets with indefinite and definite lives
are as follows:





Goodwill
            
            
            Trademarks
            
            
            Definite
      Lived Intangibles
            
            
            TotalNet
      Balance as of November 30, 2007
            
            $
            3,542,772
            
            
            $
            763,667
            
            
            $
            36,204
            
            
            $
            4,342,643Additions
            
            
            -
            
            
            
            -
            
            
            
            56,392
            
            
            
            56,392Amortization
      expense
            
            
            
            
            
            
            
            
            
            
            (6,272
            )
            
            
            (6,272
            )Net
      Balance as of November 30, 2008
            
            
            3,542,772
            
            
            
            763,667
            
            
            
            86,324
            
            
            
            4,392,763Additions
            
            
            
            
            
            
            21,349
            
            
            
            3,405
            
            
            
            24,754Impairment
      charges
            
            
            (2,049,001
            )
            
            
            (350,056
            )
            
            
            -
            
            
            
            (2,399,057
            )Amortization
      expense
            
            
            
            
            
            
            
            
            
            
            (9,935
            )
            
            
            (9,935
            )Net
      Balance as of November 30, 2009
            
            $
            1,493,771
            
            
            $
            434,960
            
            
            $
            79,794
            
            
            $
            2,008,525





Definitive
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 Intangibles2010
            
            $
            10,6392011
            
            
            10,6392012
            
            
            10,6392013
            
            
            10,6392014
            
            
            10,639thereafter
            
            
            26,599Total
            
            $
            79,794


- 23
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





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 $73,549 and $139,127
in 2009 and 2008, respectively.  Included in advertising expense was
$36,535 and $96,760 in 2009 and 2008, 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, 2009 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, 2009 and
believes it has filed appropriate tax returns in all jurisdictions for which it
has nexus.  This review included the Company’s net deferred income tax
asset of $248,000, which management believes will be realized over future
profitable years.  (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.





2009
            
            
            2008Numerator:Net
      income (loss) available to common shareholders
            
            $
            (2,317,943
            )
            
            $
            623,378Denominator:Weighted
      average outstanding sharesBasic
            
            
            7,263,508
            
            
            
            7,263,508Earnings
      (Loss) per Share - Basic
            
            $
            (0.32
            )
            
            $
            0.09Effect
      of dilutive common stock
            
            
            -
            
            
            
            8,224Weighted
      average outstanding sharesDiluted
            
            
            7,263,508
            
            
            
            7,271,732Earnings
      (Loss) per share - Diluted
            
            $
            (0.32
            )
            
            $
            0.09





At
November 30, 2009 and 2008, there are 368,373 and 309,500, respectively of
unexercised options that are not included in the computation of dilutive EPS
because their impact would be antidilutive due to the loss in 2009 and the
market price of the common stock was higher than the option prices for
2008.


- 24
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
2 - Summary of Significant Accounting Policies (Continued)





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 $10,177 and $25,226
for the years ended November 30, 2009 and 2008, 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





In April
2008, the FASB issued new standards which provided guidance on how to determine
the useful life of intangible assets by amending the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets. This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset acquisitions. These
standards are effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years
and will be adopted beginning in the first quarter of fiscal
2010.  The adoption of this guidance is not expected to have any
impact on the Company’s consolidated financial position, cash flows or results
of operations.





In April
2009, the FASB issued additional guidance under the “Financial Instruments
Topic” of the ASC.  This topic requires disclosure of the carrying amount and the
fair value of all financial instruments for interim and annual financial
statements of SEC-reporting entities (even if the financial instrument is not
recognized in the balance sheet), including the methods and significant
assumptions used to estimate the fair values and any changes in such methods and
assumptions.  This topic also requires disclosures in summarized
financial information in interim financial statements.  The Company
adopted this additional guidance as of November 30, 2009.  The
adoption of this additional guidance did not have any impact on the Company’s
consolidated financial position, cash flows or results of
operations.





In May
2009, the FASB issued new standards for subsequent events, which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The new standards are effective for interim and annual
reporting periods ending after June 15, 2009. The Company adopted the new
standards during fiscal 2009 and, as the pronouncement only requires additional
disclosures, the adoption did not have an impact on the Company’s consolidated
financial position, cash flows or results of operations.  The Company
has evaluated subsequent events through February 23, 2010, the date that these
consolidated financial statements were issued.


- 25
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
2 - Summary of Significant Accounting Policies (Continued)





Recent Accounting
Pronouncements (Continued)





In June
2009, the FASB issued the FASB Accounting Standards Codification   (the
“Codification”) for financial statements issued for interim and annual periods
ending after September 15, 2009, which was effective for the Company beginning
in the fourth quarter of fiscal 2009. The Codification became the single
authoritative source for GAAP. Accordingly, previous references to GAAP
accounting standards are no longer used in the Company’s disclosures, including
these Notes to the Financial Statements. The Codification does not affect the
Company’s consolidated financial position, cash flows or results of
operations.





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 4.8%, net of
the federal tax effect.





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





2009
            
            
            2008CurrentFederal
            
            $
            -
            
            
            $
            -State
            
            
            -
            
            
            
            -Deferred
            
            
            252,000
            
            
            
            -Total
            
            $
            252,000
            
            
            $
            -





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





2009
            
            
            2008Federal
      income tax (benefit) provision computed at federal statutory
      rate
            
            $
            (702,421
            )
            
            $
            211,949State
      income taxes net of federal tax provision
            
            
            (99,537
            )
            
            
            30,034Other
      adjustments
            
            
            17,869
            
            
            
            1,589Change
      in valuation allowance
            
            
            1,036,089
            
            
            
            (243,572
            )Income
      Tax Provision (Benefit)
            
            $
            252,000
            
            
            $
            -


- 26
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





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:





2009
            
            
            2008Deferred
      revenue
            
            $
            27,011
            
            
            $
            62,884Deferred
      rent revenue
            
            
            9,279
            
            
            
            15,215Marketing
      Fund net contributions
            
            
            61,623
            
            
            
            93,549Allowance
      for doubtful accounts
            
            
            3,382
            
            
            
            535Allowance
      for doubtful accounts-notes receivable
            
            
            -
            
            
            
            956Accrued
      expenses
            
            
            17,967
            
            
            
            20,706Net
      operating loss carryforwards
            
            
            2,410,188
            
            
            
            2,348,092Valuation
      allowance
            
            
            (2,024,819
            )
            
            
            (988,730
            )Total
      Deferred Income Tax Assets
            
            $
            504,631
            
            
            $
            1,553,207Depreciation
      and amortization
            
            $
            (255,178
            )
            
            $
            (1,044,931
            )Franchise
      Costs
            
            
            (1,453
            )
            
            
            (8,276
            )Total
      Deferred Income Tax Liabilities
            
            $
            (256,631
            )
            
            $
            (1,053,207
            )Total
      Net Deferred Tax Assets/Liabilities
            
            $
            248,000
            
            
            $
            500,000





As of
November 30, 2009, the Company has net operating loss carryforwards expiring
between 2012 and 2029 for U.S. federal income tax purposes of approximately
$6,209,000.  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 $2,024,819 and
$988,730 as of November 30, 2009 and 2008, 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 increase in the valuation allowance of $1,036,089 in
2009 is a result of the net operating loss carryforward added in 2009, a
reduction of certain other deferred tax assets and a decrease in deferred tax
liabilities relating primarily to reduction of book value for goodwill and
intangibles related to the impairment.








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 $204,370 and
$228,516 as of November 30, 2009 and 2008, respectively.


- 27
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
4 - Long-Term Debt (Continued)





As of
November 30, 2009, annual maturities on long-term obligations due are as
follows:





Year
      Ending November 30:2010
            
            $
            25,2922011
            
            
            26,4942012
            
            
            27,7522013
            
            
            29,0702014
            
            
            30,451Thereafter
            
            
            65,311Total
            
            $
            204,370








Note 5 - Stockholders’
Equity





On
December 4, 2008, a $.02 per share quarterly dividend was declared and was paid
January 2, 2009 to stockholders of record as of December 18, 2008.  On
March 9, May 22, and September 7, 2009, a $.01 per share dividend was declared,
and was paid on April 13, July 8, and October 5, 2009,
respectively.  On December 7, 2009, a $.01 per share quarterly cash
dividend was declared and paid January 4, 2010 to shareholders of record as of
December 21, 2009.  On March 5, June 13, and September 10, 2008, a
$.02 per share dividend was declared, and was paid on April 10, July 8, and
October 6, 2008, respectively.








Note
6 - 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, all of which have been granted as of November 30, 2009.  The
Plan will terminate on May 25, 2011.  The Plan permits 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 is currently administered by a Committee of the
Board of Directors appointed by the Board.  The Plan gives 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.





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, 2009 are $0.46 to $1.38.


- 28
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
6 - Stock Options and (Continued)





During
fiscal 2009 and 2008 there were no options granted or
exercised.  Activity under the Plan during the two years ended
November 30 is as follows:





2009
            
            
            2008Options
            
            
            Weighted
      average exercise price
            
            
            Options
            
            
            Weighted
      average exercise priceOptions
      outstanding at beginning of year
            
            
            369,373
            
            
            $
            1.156
            
            
            
            392,373
            
            
            $
            1.156Forfeited
            
            
            (1,000
            )
            
            $
            1.15
            
            
            
            (23,000
            )
            
            $
            1.129Outstanding
      at end of year
            
            
            368,373
            
            
            $
            1.156
            
            
            
            369,373
            
            
            $
            1.156





Options Outstanding
            
            
            Options ExercisableRange of exercise price
            
            
            Options outstanding
            
            
            Weighted average remaining contractual
      life
            
            
            Weighted average exercise
    price
            
            
            Options exercisable
            
            
            Weighted average exercise
    price$
            0.46
            
            
            
            7,973
            
            
            
            4.0
            
            
            $
            0.460
            
            
            
            7,973
            
            
            $
            0.460$
            0.60
            
            
            
            10,000
            
            
            
            4.6
            
            
            $
            0.600
            
            
            
            10,000
            
            
            $
            0.600$
            0.88
      - $0.97
            
            
            
            61,900
            
            
            
            5.2
            
            
            $
            0.938
            
            
            
            61,900
            
            
            $
            0.938$
            0.86
            
            
            
            20,000
            
            
            
            6.5
            
            
            $
            0.860
            
            
            
            20,000
            
            
            $
            0.860$
            1.15
      - $1.27
            
            
            
            68,500
            
            
            
            6.0
            
            
            $
            1.22
            
            
            
            68,500
            
            
            $
            1.220$
            0.97
            
            
            
            20,000
            
            
            
            7.0
            
            
            $
            0.970
            
            
            
            20,000
            
            
            $
            0.970$
            1.25
      - $1.38
            
            
            
            180,000
            
            
            
            7.0
            
            
            $
            1.322
            
            
            
            --
            
            
            
            --368,373
            
            
            
            
            
            
            $
            1.156
            
            
            
            188,373
            
            
            $
            0.998


The
aggregate intrinsic value in the table below is before income taxes, based on
the Company’s closing stock price of $.50 as of the last business day of the
period ended November 30, 2009.  There were no options exercised in
2009 or 2008.





Options
      Outstanding
            
            
            Options
      ExercisableOutstanding
            
            
            Wghtd.
      Avg.
            
            Wghtd.
      Avg.
            
            
            Aggregate
            
            
            Exercisable
            
            
            Wghtd.
      Avg.
            
            
            Aggregateat
      11/30/09
            
            
            Remaining
      Life
            
            Exercise
      Price
            
            
            Intrinsic
      Value
            
            
            at
      11/30/09
            
            
            Exercise
      Price
            
            
            Intrinsic
      Value368,373
            
            
            
            6.30
            
            
            $
            1.16
            
            
            $
            -
            
            
            
            188,373
            
            
            $
            1.00
            
            
            $
            -





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 $10,177 and $25,226 for the years ended November
30, 2009 and 2008, respectively.


- 29
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





Note
7 - Commitments





The
Company rents its Corporate Office, Company-owned store and property occupied by
two tenants located in Lincoln, NE under leases which require it to pay real
estate taxes, insurance and general repairs and maintenance.  Rent
expense for the years ended November 30, 2009 and 2008 was $165,334 and
$123,898, net of sublease income of $107,203 and $130,420,
respectively.  The Lincoln NE facility that is sub-leased, expires at
the end of December 2009 and will not be renewed.  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, 2009, future
minimum annual rental commitments under leases, net of sublease income of $5,825
in 2010 are as follows:





Year
      Ending November 30:2010
            
            $
            155,5972011
            
            
            72,8592012
            
            
            3,849Total
            
            $
            232,305








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 2009 or
2008.


- 30
-
 Index


BAB,
Inc


Notes
to the Consolidated Financial Statements


November
30, 2009 and 2008





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 tables present segment information for the years ended November 30,
2009 and 2008:





Net
      Revenues
            
            
            Operating
      Income (Loss)2009
            
            
            2008
            
            
            2009
            
            
            2008Company
      Store Operations
            
            $
            747,526
            
            
            $
            822,224
            
            
            $
            (198,093
            )
            
            $
            (148,007
            )Franchise
      Operations and Licensing Fees
            
            
            2,425,379
            
            
            
            2,955,586
            
            
            
            (993,097
            )
            
            
            1,719,059$
            3,172,905
            
            
            $
            3,777,810
            
            
            $
            (1,191,190
            )
            
            $
            1,571,052Corporate
      Expenses
            
            
            
            
            
            
            
            
            
            
            (878,828
            )
            
            
            (966,427
            )Interest
      Income, Net of Interest Expense
            
            
            
            
            
            
            
            
            
            
            4,075
            
            
            
            18,753Net
      Income (Loss) before provision for taxes
            
            
            
            
            
            
            
            
            
            
            (2,065,943
            )
            
            
            623,378Deferred
      tax expense
            
            
            
            
            
            
            
            
            
            
            252,000
            
            
            
            -Net
      Income (Loss)
            
            
            
            
            
            
            
            
            
            $
            (2,317,943
            )
            
            $
            623,378Operating
      Segment Data




Identifiable Assets
            
            
            Capital and Intangible
      Expenditures
            
            
            Depreciation and
    Amortization
            
            
            Goodwill and Other Intangible
      ImpairmentYear
      Ended November 30, 2009:Company
      Store Operations
            
            $
            57,424
            
            
            $
            -
            
            
            $
            4,246
            
            
            $
            -Franchise
      Operations (other than goodwill)
            
            
            625,911
            
            
            
            1,150
            
            
            
            17,051Definite
      Lived Intangible Assets
            
            
            79,794
            
            
            
            3,404
            
            
            
            9,934Goodwill
      and Other Intangible Assets
            
            
            1,928,731
            
            
            
            21,350
            
            
            
            
            
            
            
            2,399,057$
            2,691,860
            
            
            $
            25,904
            
            
            $
            31,231
            
            
            $
            2,399,057Year
      Ended November 30, 2008:Company
      Store Operations
            
            $
            74,336
            
            
            $
            1,091
            
            
            $
            6,522
            
            
            $
            -Franchise
      Operations (other than goodwill)
            
            
            642,373
            
            
            
            
            
            
            
            26,166Definite
      Lived Intangible Assets
            
            
            86,324
            
            
            
            56,392
            
            
            
            6,272Goodwill
      and Other Intangible Assets
            
            
            4,306,439$
            5,109,472
            
            
            $
            57,483
            
            
            $
            38,960
            
            
            $
            -Reconciliation
      to Total Assets as Reported
            
            
            
            
            
            
            2009
            
            
            
            2008Assets-Total
      reportable segments - Identifiable assets
            
            
            
            
            
            $
            2,691,860
            
            
            $
            5,109,472Unallocated
      AmountsCash
            
            
            
            
            
            
            1,284,274
            
            
            
            1,501,102Prepaid
      expenses and other current assets
            
            
            
            
            
            
            105,981
            
            
            
            145,953Total
      Consolidated Assets
            
            
            
            
            
            $
            4,082,115
            
            
            $
            6,756,527





There
were no sales to any individual customer during either year in the two-year
period ended November 30, 2009 that represented 10% or more of net
sales.


- 31
-
 Index


ITEM9. 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, 2009 and 2008, and through the
date of this Current Report, there were: (1) no disagreements between the
Company and Frank L. Sassetti & Company on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures.





ITEM9A. 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.





ITEM9A(t). CONTROL AND
PROCEDURES





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, 2009.





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
temporary 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.





ITEM9B. OTHER INFORMATION





None.


- 32
-
 Index


PART
III





ITEM10. 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,
2009.





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.





ITEM11. 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
2009 and 2008 (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
            
            2009
            
            
            249,831
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            26,027
            
            
            
            275,858President
      and CEO
            
            2008
            
            
            249,831
            
            
            
            57,187
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            29,239
            
            
            
            336,257Michael
      K. Murtaugh
            
            2009
            
            
            187,380
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            24,189
            
            
            
            211,569Vice
      President and General Counsel
            
            2008
            
            
            187,380
            
            
            
            42,891
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            23,383
            
            
            
            253,654Jeffrey
      M Gorden
            
            2009
            
            
            133,686
            
            
            
            5,350
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            10,863
            
            
            
            149,899Chief
      Financial Officer
            
            2008
            
            
            133,686
            
            
            
            8,800
            
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            10,214
            
            
            
            152,700




- 33
-
 Index




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, 2009:





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 dateMichael
      W. Evans
            
            
            20,000
            
            
            
            
            
            
            -
            
            
            
            .97
            
            
            
            2015President
      and CEO
            
            
            20,000
            
            
            
            
            
            
            -
            
            
            
            1.27
            
            
            
            201650,000
            
            
            
            -
            
            
            
            1.38
            
            
            
            2016Michael
      K. Murtaugh
            
            
            20,000
            
            
            
            
            
            
            
            -
            
            
            
            .97
            
            
            
            2015Vice
      President and General
            
            
            20,000
            
            
            
            
            
            
            
            -
            
            
            
            1.27
            
            
            
            2016Counsel
            
            
            
            
            
            
            50,000
            
            
            
            -
            
            
            
            1.38
            
            
            
            2016Jeffrey
      M Gorden
            
            
            1,833
            
            
            
            
            
            
            
            -
            
            
            
            .51
            
            
            
            2014Chief
      Financial Officer
            
            
            6,000
            
            
            
            
            
            
            
            -
            
            
            
            .88
            
            
            
            20155,000
            
            
            
            
            
            
            
            -
            
            
            
            1.15
            
            
            
            201525,000
            
            
            
            -
            
            
            
            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
-
 Index


The
following table sets forth any compensation paid to directors during fiscal year
ended November 30, 2009:





DIRECTOR
COMPENSATION


Compensation
for fiscal year ended November 30, 2009








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
            
            
            2,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,500James
      Lentz
            
            
            2,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,500





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.





ITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The
following table sets forth as of February 12, 2010 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 12, 2010 includes the number of shares which such person
has the right to acquire within sixty (60) days after such date.


- 35
-
 Index




Name
      and Address
            
            Shares
            
            PercentageMichael
      W. Evans
              500
      Lake Cook Road, Suite 475
              Deerfield,
      IL 60015
            
            2,839,946(1)(2)(3)(5)
            
            38.34Michael
      K. Murtaugh
              500
      Lake Cook Road, Suite 475
              Deerfield,
      IL 60015
            
            2,613,533
      (1)(2)(4)(6)
            
            35.29Holdings
      Investment, LLC
              220
      DeWindt Road
              Winnetka,
      IL 60093
            
            2,096,195
      (1)
            
            28.30Jeffrey
      M. Gorden
              500
      Lake Cook Road, Suite 475
              Deerfield,
      IL 60015
            
            92,500
      (7)
            
            1.25Steven
      G. Feldman
              750
      Estate Drive, Suite 104
              Deerfield,
      IL 60015
            
            40,000
      (8)
            
            .54James
      A. Lentz
              1415
      College Lane South
              Wheaton,
      IL 60189
            
            34,932
      (9)
            
            .48All
      executive officers and directors as a group (5 persons)
            
            3,524,716(1)(2)(3)(4)(5)(6)(7)(8) (9)
            
            48.53





(1)
Includes all shares held of record by Holdings Investments, LLC. Messrs. Evans
and Murtaugh are members and managers of the LLC and together control all voting
power of the stock owned by the LLC.


(2)
Includes 40,000 stock options fully exercisable as of 2/12/10.


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


(4)
Includes 22,222 shares held by children.


(5)
Includes 62,222 shares held by children.


(6)
Includes 5,004 shares held in an IRA.


(7)
Includes 12,833 stock options fully exercisable as of 2/12/10.


(8)
Includes 30,000 stock options fully exercisable as of 2/12/10.


(9)
Includes 20,000 stock options fully exercisable as of 2/12/10.





ITEM13.  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.


- 36
-
 Index


ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





The Board
of Directors upon recommendation of the Audit Committee, appointed the firm
Frank L. Sassetti & Company, certified public accountants, for 2009 audit
and tax services.





The audit
reports of Frank L. Sassetti & Company on the consolidated financial
statements of BAB, Inc. and Subsidiaries as of and for the years ended November
30, 2009 and 2008 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 Frank L. Sassetti & Company in fiscal 2009 amounted to
$62,300.  Fees for audit services provided by Frank L. Sassetti &
Company for fiscal 2008 amounted to $60,600.





Tax
compliance services were provided by Frank L. Sassetti & Company for 2009
and 2008 with fees billed in the amount of $12,200 and $11,000,
respectively.





During
the years ended November 30, 2009 and 2008, Frank L. Sassetti & Company 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
-
 Index


PART
IV





ITEM15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.





(a) Documents filed as part of this
report:





(1)
            Financial
      Statements





Consolidated
Balance Sheets as at November 30, 2009 and 2008 and the Consolidated Statements
of Income (Loss), Shareholders’ Equity and Cash Flows for the years ended
November 30, 2009 and 2008 are reported on by Frank L. Sassetti and
Company  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
            DESCRIPTION3.1
            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 Company31.1, 31.2
            Section
      302 of the Sarbanes-Oxley Act of 200232.1, 32.2
            Section
      906 of the Sarbanes-Oxley Act of
2002





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 23, 2010





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 23, 2010


By /s/
Michael W. Evans


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





Dated:
February 23, 2010


By /s/
Michael K. Murtaugh


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


- 38
-
 Index


Dated:
February 23, 2010


By /s/
Jeffrey M. Gorden


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





Dated:
February 23, 2010


By /s/
Steven G. Feldman


Steven G.
Feldman, Director





Dated:
February 23, 2010


By /s/
James A. Lentz


James A.
Lentz, Director





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






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