FORM 10-KSB

               U.S. SECURITIES AND EXCHANGE COMMISSION
                         Washington, DC 20549

(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, 1998

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE 
      SECURITIES EXCHANGE ACT OF 1934

      For the transition period from ______ to ______

      Commission file number: 0-27068


                        BAB Holdings, Inc.
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          (Name of small business issuer in its charter)
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        Illinois                                36-3857339
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  	(State or other jurisdiction                (IRS Employer
  of incorporation or	organiztion)          Indentification No.)   


8501 West Higgins Road, Suite 320, Chicago, Illinois   	60631
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(Address of principal executive offices)             (Zip Code)

Issuer's telephone number:  (773) 380-6100


Securities registered under Section 12(g) of the Exchange Act: 

     Common Stock, no par value

Check whether the issuer: (1) filed all reports required to be 
filed by Section 13 or 15(d) of the Exchange Act during the past 
12 months (or for such shorter period that the registrant was 
required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days. 

[X] Yes       [ ] No 

Check if there is no disclosure of delinquent filers in response 
to Item 405 of Regulation S-B is not contained in this form, and 
no disclosure will 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-KSB or any 
amendment to this Form 10-KSB. [X] 

State issuer's revenues for its most recent fiscal year:  

$14,549,240

State the aggregate market value of the voting stock held by 
nonaffiliates computed by reference to the price at which the 
stock was sold, or the average bid and asked prices of such 
stock, as of a specified date within the past 60 days: $6,346,401 
based on 5,887,199 shares held by nonaffiliates as of February 
19, 1999, and the average of the closing bid ($1.031) and asked 
($1.125) prices for said shares in the Nasdaq SmallCap Market 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: 
8,521,706 shares of Common Stock, as of February 26, 1999. 


DOCUMENTS INCORPORATED BY REFERENCE 

The Company's definitive proxy materials to be filed on or before 
March 30, 1999 are incorporated by reference in Part III of Form 
10-KSB. In addition, certain exhibits identified in Part III, 
Item 13 are incorporated by reference to said exhibits as 
previously filed with the Commission. 

Transitional Small Business Disclosure Format (check one):

[ ] Yes       [X] No 

 
                          FORM 10-KSB INDEX
PART I

Item 1.   Description of Business
            Overview
            Risk Factors
            Recent Acquisitions
            Locations
            Store Operations
            Franchising
            Competition
            Trademarks and Service Marks
            Government Regulation
            Employees
            Year 2000 Issue

Item 2.   Description of Property
Item 3.   Legal Proceedings
Item 4.   Submission of Matters to a Vote of Security Holders

PART II

Item 5.  Market for the Common Equity and Related Stockholder Matters
Item 6.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations
Item 7.  Financial Statements
Item 8.  Changes in and Disagreement with Accountants on Accounting 
            and Financial Disclosure

PART III

Item 9.  Directors, Executive Officers, Promotors and Control Persons;
            Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
         Reports on Form 8-K
         Exhibits


                                PART I

ITEM 1.  DESCRIPTION OF BUSINESS 
--------------------------------


BAB Holdings, Inc. (the "Company") was incorporated under the laws of 
the State of Illinois on November 25, 1992 and currently operates, 
franchises and licenses bagel, muffin and coffee retail units under the 
Big Apple Bagels, My Favorite Muffin and Brewster's Coffee tradenames.  
At November 30, 1998, the Company had 293 units in operation in 32 
states and two Canadian provinces.  The Company additionally derives 
income from the sale of its trademark bagels, muffins and coffees 
through nontraditional channels of distribution including under 
licensing agreements with Host Marriott Services Corporation (Host 
Marriott), Mrs. Fields Cookies, Choice Picks Food Courts, and through 
direct home delivery of specialty muffin gift baskets and coffee.   

The Big Apple Bagels brand franchise and Company-owned stores feature 
daily baked "from scratch" bagels, flavored cream cheeses, premium 
coffees, gourmet bagel sandwiches and other related products.  Licensed 
Big Apple Bagels units serve the Company's par-baked or frozen dough
bagel products, freshly baked daily, and related products.  The My Favorite 
Muffin 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 Cafes," 
featuring these products as well as a variety of specialty bagel 
sandwiches and related products. The Company's Brewster's Coffee units 
are specialty coffee shops featuring a variety of premium arabica bean 
coffees--freshly brewed or in bulk--and related products.  Big Apple 
Bagels units are concentrated in the Midwest and Western United States, 
while My Favorite Muffin units are clustered in the Middle Atlantic 
States and Florida.  Brewster's Coffee units are currently located in 
Ohio.  The Brewster's coffee products are featured in all Company-owned 
and many of the franchised units. 

The Company has grown significantly since its initial public offering in 
November 1995 through growth in franchise units, Company-store 
development, acquisitions and the development of alternative 
distribution channels for its branded products.  The Company intends to 
continue its expansion through these means in the future.  With the 
acquisition of My Favorite Muffin Too, Inc. (MFM) on May 13, 1997, the 
Company immediately added 60 franchise and five Company-operated units.  
Through this acquisition the Company expects to continue to
leverage on the natural synergy of distributing muffin products in existing
Big Apple Bagels units and, alternatively, bagel products and Brewster's
Coffee in existing My Favorite Muffin units.  Additionally, in February 1999,
the Company acquired eight bagel store units and a commissary from a related 
group of entities doing business as Jacobs Bros. Bagels ("Jacobs Bros.") 
in Chicago, Illinois. The assets acquired  comprised only a portion of 
the assets of the related group of entities. Most of these units will be 
converted to Company-owned tri-branded stores and three will continue to 
operate under the Jacobs Bros. Bagels tradename.  The Company expects to 
realize efficiencies in servicing the combined base of Big Apple Bagels, 
My Favorite Muffin and Brewster's Coffee franchisees as a result of 
these acquisitions. 


RISK FACTORS 

Limited Operating History 

The Company was formed in November 1992.  As of November 30, 1998, the 
Company had 22 Company-owned stores and 271 franchised and licensed 
stores in operation.  The company's growth from 2 Company-owned and 59 
franchise units at the time of its initial public offering in November 
1995 has been achieved primarily through acquisitions.  Consequently, 
the Company's operating results achieved to date may not be indicative 
of the results that may be achieved in the future by the Company. 


Operating Losses 

The Company reported a loss from operations of $3,406,000 for the year 
ended November 30, 1997.   However,  the Company reported income from
operations of $515,000 for the year ended November 30, 1998 and believes 
that its franchising and licensing operations and its Company-owned 
stores will generate revenues sufficient to exceed the expenses 
necessary to support such operations in the foreseeable future.


Recent Acquisitions 

The Company's strategic plan has included growth through business 
acquisitions.  Since the beginning of fiscal 1997, the Company has 
completed the acquisitions of  Just Bagels, Inc. ("JBI"),  MFM and 
Jacobs Bros.   No assurance can be given that these or other 
acquisitions will be profitable or that the Company will successfully 
integrate, convert or operate any acquired businesses.

As a result of acquisitions, the Company has grown significantly in 
size, has expanded the geographic area in which it operates and has 
added product lines and distribution channels.  Any acquisition involves 
inherent uncertainties, such as the effect on the acquired businesses of 
integration into a larger organization and the availability of 
management resources to oversee the operations of the acquired business.  
The Company's ability to integrate the operations of acquired businesses 
is essential to its future success.  There can be no assurance as to the 
Company's ability to integrate new businesses nor as to its success in 
managing the significantly larger operations resulting therefrom.  
Additionally, amortization of intangible assets recorded as a result of 
the acquisitions will have a significant impact on future operating 
results.  During 1998 and 1997, the Company closed the stores acquired 
from JBI (see "Management's Discussion and Analysis" and Note 12 to the 
audited consolidated financial statements included herein.)


Recoverability of Intangible Assets

The Company has recorded significant intangible assets in connection 
with certain acquisitions.  Applicable accounting standards require the 
Company to review long-lived assets (such as goodwill and other 
identifiable intangible assets) to be held and used by the Company for 
impairment whenever events or changes in circumstances indicate that the 
carrying values of those assets may not be recoverable.  In the fourth 
quarter of fiscal 1997, the Company recorded a provision for impairment 
and store closures totaling $1,837,000.  Of this amount, approximately 
$323,000 related to goodwill and other intangible assets related to 
stores acquired which have been closed  (see "Management's Discussion 
and Analysis" and Note 12 to the audited consolidated financial 
statements included herein).  While management believes goodwill and 
other identifiable intangible assets recorded as of November 30, 1998 to 
be fairly stated, it is possible that charges to write down assets will  
be required in the future.  Any such charge could have a material 
adverse effect on the Company's financial results.


Rapid Growth 

The Company has grown significantly during the past year and expects  
continued growth in franchising and licensed product distribution to 
continue in the future.  The opening and success of franchised Big Apple 
Bagels, Brewster's Coffee and My Favorite Muffin stores will depend on 
various factors, including customer acceptance of these concepts in new 
markets, the availability of suitable sites, the negotiation of 
acceptable lease or purchase terms for new locations, permit and 
regulatory compliance, the ability to meet construction schedules, the 
financial and other capabilities of the Company and its franchisees, the 
ability of the Company to successfully manage this anticipated expansion 
and to hire and train personnel, and general economic and business 
conditions.  Not all of the foregoing factors are within the control of 
the Company. 

The Company will continue to require the implementation of enhanced 
operational and financial systems and additional management, 
operational, and financial resources.  Failure to implement these 
systems and add these resources could have a material adverse effect on 
the Company's results of operations and financial condition.  There can 
be no assurance that the Company will be able to manage its expanding 
operations effectively or that it will be able to maintain or accelerate 
its growth. 


Terms of Credit Facility and Availability of Capital 

In December 1998, the Company entered into a new bank credit facility 
for $1.75 million.  This new credit facility, which expires December 31, 
1999, replaces the previous secured line of credit in the amount of $2 
million, which expired on December 31, 1998.  This new credit line is 
secured by substantially all of the assets of the Company and is subject 
to essentially the same loan covenants as the expired line, including 
that the Company maintain a minimum net worth of $8 million and maintain 
a compensating cash balance of $250,000.  At December 31, 1998 the 
Company had borrowed the maximum amount available under the new line of 
credit.  

In January 1999, the Company obtained loan commitments totaling 
$1,350,000 from a finance company whereby the Company could borrow 
$950,000 to purchase certain assets of Jacobs Bros. and up to $400,000 
to purchase equipment and fund remodeling required for the units 
acquired in the purchase.  In February 1999, the Company borrowed 
$1,100,000 pursuant to these commitments.

The Company believes that its cash flows from current operations will 
provide sufficient working capital to enable the Company to meet 
operating requirements and compensating cash balance requirements for 
the foreseeable future, however, it is possible that additional 
financing will be required.  The Company does not represent that it will 
be able to obtain any required additional financing or that such 
financing, if obtained, will be on terms favorable or acceptable to the 
Company.  Any future equity financing may result in dilution to holders 
of the Common Stock and any future debt financing may reduce earnings.  
If the Company is unable to secure additional financing when needed, or 
at all, it could be required to significantly reduce the scope of its 
existing operations, or even to discontinue operations.  (See 
"Management's Discussion and Analysis" and Notes 5 and 13 to the audited  
consolidated financial statements included herein.)


Dependence on Franchisees 

The Company historically has received a significant portion of its 
revenues from initial franchise fees and continuing royalty payments 
from franchisees.  Although the Company uses established criteria to 
evaluate franchisees, there can be no assurance that franchisees will 
have the business ability or access to financial resources necessary to 
successfully develop or operate stores in a manner consistent with the 
Company's concepts and standards.  Additionally, no assurance can be 
given that desirable locations and acceptable leases can be obtained by 
franchisees.  If the Company's franchisees encounter business or 
operational difficulties, the Company's revenues will be adversely 
affected.  The poor performance of any franchisee may also negatively 
impact the Company's ability to sell new franchises.  Consequently, at 
present, the Company's financial prospects are substantially related to 
the success of the franchise stores, over which the Company has limited 
control.  There can be no assurance that the Company will be able to 
successfully attract new franchisees or that the Company's franchisees 
will be able to successfully develop and operate stores. 

Although the Company monitors franchisees' compliance with ongoing 
obligations on the basis of weekly revenue, and the Company's standard 
franchise agreement also grants the Company the right to audit the books 
and records of franchisees at any time, no assurance can be given that 
all franchisees will operate their stores in accordance with the 
Company's operating guidelines and in compliance with all material 
provisions of the franchise agreement, and the failure of franchisees to 
so operate their stores could have a material adverse impact on the 
Company's business.  The franchise agreement gives the Company the 
choice of seeking legal remedies, which could be time-consuming and 
expensive, and terminating the franchisee, which would diminish the 
Company's revenue until such time, if ever, as a new franchisee replaces 
the terminated franchisee. 


Competition 

The food service industry in general, and the fast food/take-out sector 
in particular, are highly competitive, and competition is likely to 
increase.  The Company believes that specialty bagel, muffin and coffee 
retail businesses are likely to become increasingly competitive.  The Company
competes against well-established food service companies with greater product
and name recognition and with larger financial, marketing, and distribution
capabilities than those of the Company, as well as innumerable local food
service establishments that offer products competitive with those offered by
the Company.  The Company's principal competitors include Bruegger's Bagel 
Bakery ("Bruegger's"), Chesapeake Bagel Bakery ("Chesapeake"), 
Einstein/Noah Bagel Corp. ("Einstein") and New World Coffee and Bagel 
(which recently acquired Manhattan Bagel).  In addition, other fast-food 
service providers, such as Dunkin' Donuts, have recently added bagels to 
their product offerings.  Any increase in the number of food service 
establishments in areas where the Company's or its franchisees' sites 
are located could have a material adverse effect on the Company's sales 
and revenues.  The Company competes for qualified franchisees with a 
wide variety of investment opportunities both in the food service 
business and in other industries.  Investment opportunities in the bagel 
store business include competing franchises offered by Bruegger's, 
Chesapeake, Einstein and New World Coffee and Bagel, as well as 
operators of individual stores and multi-store chains. 


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.  Such businesses are 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.  


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, and 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. 


Dependence on Personnel 

The Company's ability to develop and market its products and to achieve 
and maintain a competitive market position depends, in large part, on 
its ability to attract and retain qualified personnel and 
franchisees. Competition for such personnel is intense, and there can be 
no assurance that the Company will be able to attract and retain such 
personnel.


Trademarks/Service Marks 

The trademarks 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 those names or marks in their respective localities.  
Accordingly, there is no assurance that such marks are available in all 
locations.  Any challenge, if successful, in whole or in part, could 
restrict the Company's use of the marks in areas in which the challenger 
is found to have used the name prior to the Company's use.  Any such 
restriction could limit the expansion of the Company's use of the marks 
into that region, and the Company and its franchisees may be materially 
and adversely affected. 


Potential Effects of Antitakeover Provisions 

The Company is authorized to issue up to 4,000,000 shares of Preferred 
Stock, 120,000 shares of which have been designated Series A Convertible 
Preferred Stock.  The remaining authorized preferred stock may be issued 
in one or more series, the terms of which may be determined at the time 
of issuance by the Board of Directors, without further action by 
stockholders.  The issuance of any Preferred Stock could adversely 
affect the rights of the holders of Common Stock, and specific rights 
granted to holders of preferred stock could restrict the Company's 
ability to merge with or sell its assets to a third party, thereby 
preserving control of the Company by its then owners.  

Certain provisions of the Illinois Business Corporation Act (the 
"Illinois Act") restrict a publicly-held corporation from engaging in a 
"business combination" with an "interested shareholder" or its 
affiliates, unless the business combination is approved by the Board of 
Directors or by a supermajority vote of the stockholders.  These 
provisions of the Illinois Act could delay and make more difficult a 
business combination even if the business combination could be 
beneficial to the interests of the Company's shareholders. 


Possible Depressive Effect on Price of Common Stock from Future Sales of 
Common Stock

As of February 1999, 1,719,004 shares of Common Stock are issuable from 
time to time pursuant to the terms of the Company's outstanding Series A 
Convertible Preferred Stock and related warrants issued to the holders 
of the Company's Series A Convertible Preferred Stock and to the 
placement agent for such Preferred Stock.  In addition, the Company 
intends to file a registration statement covering the shares of Common 
Stock issuable under its Incentive Plan and Directors Plan, pursuant to 
which such shares, when issued, will be freely tradeable, except to the 
extent held by officers and directors who are limited to resale by Rule 
144 under the Securities Act of 1933 ("the Act").  Further, in 
connection with the Jacobs Bros. acquisition in February 1999, the 
Company  issued warrants for the purchase of 500,000 shares of Common 
Stock issued in consideration of the assets acquired and 160,000 shares 
of Common Stock to the investment bankers for services rendered in 
connection with the acquisition.  All of these shall have certain 
limited rights to registration, to make the issue fully tradeable.  In 
addition, pursuant to Rule 144 under the Act, these shares will be 
publicly tradeable in part beginning 5th year of the issuance. (See also 
"RECENT BUSINESS ACQUISITIONS" and "RECENT SALES OF UNREGISTERED 
SECURITIES.")

The sale, or availability for sale, of substantial additional amounts of 
Common Stock in the public market, in the offerings described above, 
could materially adversely affect the market price of the Common Stock 
and could impair the Company's ability to raise additional capital 
through the sale of its equity securities or debt financing.  


Effects of Delisting From Nasdaq SmallCap Market

If the Company fails to maintain the qualification for its Common Stock 
to trade on the Nasdaq SmallCap Market, its Common Stock could be 
delisted from Nasdaq.  In such event, trading, if any, in such 
securities would thereafter be conducted in the over-the-counter markets 
in the so-called "pink sheets" or the National Association of Securities 
Dealer's "Electronic Bulletin Board."  Consequently, the liquidity of 
the Company's securities would likely be impaired, not only in the 
number of shares which could be bought and sold, but also through delays 
in the timing of the transactions, reduction in security analysts' and 
the news media coverage, if any, of the Company, and the lower prices 
for the Company's securities than might otherwise prevail.


Penny Stock Regulation

In the event the Company's securities are delisted from the Nasdaq 
SmallCap Market, as described above, the Company's securities could 
become subject to the rules and regulations under the Securities 
Exchange Act of 1934 relating to "penny stocks" (the "Penny Stock 
Rule"), which impose additional sales practice requirements on broker-
dealers who sell such securities to persons other than established 
customers and certain institutional investors.  Penny stocks generally 
are equity securities with a price of less than $5.00 (other than 
securities registered on certain national securities exchanges or 
authorized for quotation on the Nasdaq system, provided that current 
price and volume information with respect to transactions in that 
security is provided by the exchange or system).  For transactions 
covered by the Penny Stock Rule, a broker-dealer must, among other 
things, make a special suitability determination for the purchaser and 
have received the purchaser's written consent to the transaction prior 
to sale.  Consequently, the Penny Stock Rule may reduce the level of 
trading activity in the secondary market for the Company's securities, 
may adversely affect the ability of broker-dealers to sell the Company's 
securities and may adversely affect the ability of purchasers in this 
offering to sell any of the securities acquired hereby in the secondary 
market.


RECENT BUSINESS ACQUISITIONS

In January 1997, the Company completed the acquisition of JBI and its 
affiliate, franchisees of the Company, operating a total of four stores 
in southern California.  The total purchase price paid was $770,000, 
including $120,000 related to a noncompetition agreement with the former 
owners of JBI and was paid in part through the forgiveness of notes 
receivable and other receivables from  JBI of approximately $486,000.  
The stores acquired were closed in 1997 and 1998 (see "Management's 
Discussion and Analysis" and Note 11 to the audited consolidated 
financial statements included herein).

On May 13, 1997, the Company acquired My Favorite Muffin Too, Inc., a 
New Jersey corporation.  MFM franchised and operated muffin and bagel 
specialty retail stores concentrated primarily in the eastern United 
States and Florida, and had 60 franchise and 5 Company-operated units in 
operation.  MFM was merged into BAB Acquisition Corporation, a wholly 
owned subsidiary of the Company, with MFM being the surviving entity.  
The acquisition through merger was completed by exchanging 150 shares of 
MFM common stock held equally by Owen Stern, Ruth Stern and Ilona Stern 
(the "Sellers"), for 432,608 shares of the Company's common stock, 
restricted as to transfer until January 1, 1999, and $259,000 in cash.  
In addition to current liabilities, the Company has assumed 
approximately $350,000 of MFM's existing bank debt. The Company has 
retained two of the three Sellers as employees of the Company pursuant 
to employment contracts, through May 8, 2001 for Owen Stern, and through 
May 8, 2000 for Ruth Stern. (See "Management's Discussion and Analysis" 
and Note 11 to the audited consolidated financial statements included 
herein).

On February 1, 1999 the Company acquired certain assets of Jacobs Bros. 
which include eight retail bagel stores and a central commissary 
facility in exchange for $950,000 in cash and warrants for the purchase 
of an aggregate of 500,000 shares of Common Stock at an exercise price 
of $1.25 per share as to 275,000 shares and $1.50 per share as to 
225,000 shares.  These warrants are first exercisable on February 1, 
2000 and expire on January 31, 2006. Further, the Company entered into 
noncompetition agreements with two former principals of Jacobs Bros. 
totaling $210,000 to be paid over varying periods. (See "Management's 
Discussion and Analysis" and Note 13 to the audited consolidated 
financial statements included herein).


LOCATIONS 

The following table sets forth the states and provinces in which the 
Company's units were located as of November 30, 1998. 

<TABLE>
<CAPTION>
                     COMPANY
STATE/PROVINCE        OWNED    FRANCHISED  LICENSED  TOTAL
---------------      -------   ----------  --------  -----
<S>                     <C>        <C>         <C>     <C>

UNITED STATES:
Alabama                            1                    1
Arizona                                        1        1
California              8          2                   10
Colorado                           6                    6
Connecticut                        1           2        3
Florida                           12           9       21
Georgia                            3           6        9
Illinois                2         37           7       46
Indiana                            7                    7
Iowa                              10                   10
Kentucky                           3                    3
Maryland                                       3        3 
Massachusetts                      1                    1
Michigan                          23           3       26
Minnesota                          7           1        8
Missouri                                       7        7
Nebraska                           3                    3
Nevada                             2           5        7
New Jersey                        18           8       26
New York                           2          11       13
North Carolina                                 5        5
Ohio                    2         10           2       13
Oregon                             1                    1
Pennsylvania            3         11           1       15
South Carolina                     1                    1
Tennessee                                      1        1
Texas                              6                    6
Utah                               2                    2
Virginia                           1                    1
Washington                         2                    2
West Virginia                      1                    1
Wisconsin               7         17           3       27
CANADA:
British Columbia                   1           2        3
Ontario                            3                    3
                     -----     ------       -----    -----
Total                  22        194          77      293
                     =====     ======       =====    =====
</TABLE>

STORE OPERATIONS

BIG APPLE BAGELS--Big Apple Bagels franchised and Company-owned stores 
daily bake "from scratch" over 18 varieties of fresh bagels and prepare 
up to 18 varieties of cream cheese spreads. Licensed units under Host 
Marriot, and Choice Picks Food Courts serve the Company's par-baked 
frozen bagel products, freshly baked daily.   Stores also offer a 
variety of breakfast and lunch bagel sandwiches, soups, various dessert 
items, and gourmet coffees and other beverages.   A typical Big Apple 
Bagels franchise or Company-owned store is located within a three-mile 
radius of at least 25,000 residents in an area with a mix of both 
residential and commercial properties. The average Company-owned or 
franchised store ranges from 1,500 to 2,000 square feet. The Company's 
current store design is approximately 2,000 square feet, with seating 
capacity for 30 to 40 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 Company-owned stores, and from other 
franchise stores, store layout is generally consistent.  Licensed units 
are generally located in airports, travel plazas, hotels, and 
universities.
   
MY FAVORITE MUFFIN--My Favorite Muffin franchised and Company-owned 
stores bake 20 to 25 varieties of muffins daily, from over 400 recipes, 
plus a variety of bagels.  They also serve gourmet coffees, beverages 
and, at My Favorite Muffin and Bagel Caf, locations, a variety of bagel 
sandwiches and related products.  While a number of MFM units are 
located in shopping mall locations with minimal square footage of  400 
to 800 square feet, the typical strip mall prototype unit is 
approximately 2,000 square feet with seating for 30 to 40 persons.  A 
typical MFM franchise or Company-owned store is located within a three-
mile radius of at least 25,000 residents in an area with a mix of both 
residential and commercial properties.
  
BREWSTER'S COFFEE--Brewster's Coffee licensed units serve a variety of 
arabica bean coffees, both freshly brewed and in bulk, and related 
products such as bagels, muffins and other beverages.  The typical 
Brewster's coffee location is approximately 1,500 square feet and offers 
seating for 20 to 30 persons and is generally located in high traffic 
urban or suburban location.  


FRANCHISING

The Company requires payment of an initial franchise fee per store, plus 
a 5% royalty on net sales.  Additionally, Big Apple Bagels ("BAB") 
franchisees are members of a national marketing fund requiring a 2% 
contribution based on net sales.  MFM franchisees pay a 1% net sales 
contribution to a national marketing fund. The Company currently 
requires a franchise fee of $25,000 on a franchisee's first BAB or MFM 
store.  The fee for subsequent production stores is $20,000 and $15,000 
for satellite and kiosk stores. 

The Company has revised its Uniform Franchise Offering Circular to 
provide 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 "Government 
Regulation."

The Company's franchise agreements provide a franchisee with the right 
to develop one store at a specific location. Each franchise agreement is 
for a term of ten years with the right to renew. A franchisee is 
required to be in operation not later than ten months following the 
signing of the franchise agreement. 

Area development agreements, which may be granted to new or existing 
franchisees, provide that a franchisee may open a predetermined number 
of concept stores within a defined geographic area (an "Area of 
Exclusivity"). The Area of Exclusivity is negotiated prior to the 
signing of the area development agreement and varies by agreement as to 
size of the area, the number of stores required, and the schedule for 
store development and opening. The Company's current area development 
fee is $5,000 per store to be developed. As additional franchise 
agreements are executed, additional franchise fees are collected. The 
area development fee is not refundable if no franchise agreement is 
executed. 

The Company currently advertises its franchising opportunities at 
franchise trade shows and in directories, newspapers and business 
opportunity magazines worldwide. In addition, a substantial number of 
prospective franchisees contact the Company as a result of patronizing 
an existing store.  

In February 1997, the Company entered an agreement with Franchise 
Mortgage Acceptance Company, LLC ("FMAC") of Greenwich, Connecticut to 
provide financing to qualified existing franchisees for the purpose of 
adding second or subsequent units. FMAC has reserved a total of $25 
million for the program, which is expected to assist in increasing the 
number of units in the Company's franchise system.   Pursuant to the 
agreement, the Company guarantees up to 10% of the amount funded by FMAC 
in each 12-month period commencing from the date the first financing is 
funded.  As of November 30, 1998, FMAC has advanced funds totaling 
$1,040,000 to franchisees. 
	

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 may 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 that the most direct competitors of its bagel 
concept units are New World Coffee and Bagel (which recently acquired 
the operations of Manhattan Bagel), Bruegger's, Chesapeake, and 
Einstein, all of which are also franchisors.  There are several other 
regional bagel chains with fewer than fifty stores, all of which may be 
expected to compete with the Company.  There is currently not a 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 brandnames.  

The Company competes, and can be anticipated to compete, against 
numerous small independently owned bagel bakeries, and national fast 
food restaurants, such as Dunkin' Donuts, that offer bagels and muffins 
as part of their breakfast food offerings and supermarket bakery 
sections. In particular, the Company's bagels compete against Lenders 
Bagels and other brands of fresh and frozen bagels offered in 
supermarkets. 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 that 
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 
taste, food quality, convenience, 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 taste; 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 area developers and franchisees to be adversely affected. 

The Company competes for qualified franchisees with a wide variety of 
investment opportunities in the restaurant business and in other 
industries. The Company's continued success is dependent to a 
substantial extent on its reputation for providing high quality and 
value with respect to its service, products and franchises, and this 
reputation may be affected not only by the performance of Company-owned 
stores but also by the performance of its franchise stores, over which 
the Company has limited control.

 
TRADEMARKS AND SERVICE MARKS 

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, and the Company has 
licensed the "Big Apple Bagels" mark to Big Apple Bagels, Inc., a 
corporation which is wholly owned by Paul C. Stolzer, a principal 
stockholder and a former director and president of the Company.  Mr. 
Stolzer served as a consultant to the Company through February 1999.  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 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 marks are available in all 
locations. It is the Company's policy to pursue registration of its 
marks whenever possible and to vigorously oppose any infringement of its 
marks. 


GOVERNMENT REGULATION 

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, and 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. 

The Company's franchising operations are subject to regulation by the 
Federal Trade Commission (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 
Uniform Franchise Offering Circular ("UFOC"), 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 UFOCs, 
together with any applicable state versions or supplements, complies 
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, 1998, the Company employed 307 persons. Of these 
individuals, 266 work in the Company-owned stores and the majority are 
part-time employees. The remaining employees are responsible for 
oversight of franchising and Company-store operations.  None of the 
Company's employees are subject to any collective bargaining agreements, 
and management considers its relations with its employees to be good. 


YEAR 2000 ISSUE

The Year 2000 issue is the result of computer programs written to 
identify the applicable year with two digits rather than four.  As 
written, these programs may identify the year "00" as 1900 rather than 
2000, which could result in system miscalculations or systems failure 
leading to potentially substantial business disruptions.  

The Year 2000 problem could affect computers, software and other 
equipment used, operated or maintained by the Company.  Accordingly, the 
Company has adopted a Year 2000 plan which consists of  identifying all 
of its internal computer programs, systems and hardware and contacting 
its vendors to obtain assurance that each product is Year 2000-
compliant.  During this process, one exception was identified in the 
Company's point of sale hardware and software for certain restaurant 
units.  The Company expects to incur capital costs totaling 
approximately $10,000 to purchase Year 2000-compliant hardware and 
software for those units.  The Company presently believes that all of 
its information technology systems will be Year 2000 compliant in a 
timely manner. Costs related to the Year 2000, other than the cost 
related to the point of sale system, are not expected to be material.

In addition, the Company is currently in the process of identifying all 
significant third party vendors, including the Company's landlords, 
equipment vendors, service providers, banks and utility companies and 
assessing the impact on the Company if those vendors are not Year 2000-
compliant.  To date, the Company is not aware of any third party vendors 
whose malfunctions would materially disrupt the Company's business.  
However, third party compliance efforts are outside the Company's 
control.  To the extent that the Company determines that a significant 
vendor is not likely to be Year 2000 compliant, the Company intends to 
develop contingency plans which include obtaining alternative sources 
for any product or service material to the business.   There can be no 
assurance that all of the Company's material third party vendors will be 
Year 2000 compliant or that the Company will successfully develop and 
implement satisfactory contingency plans on a timely basis.  The 
occurrence of any such event could materially impact the financial 
condition or results of operations of the Company. 


ITEM 2.  DESCRIPTION OF PROPERTY 
--------------------------------

The Company's principal executive office, consisting of approximately 
7,300 square feet, is located in Chicago, Illinois and is leased 
pursuant to two leases, expiring in March 2000 and June 1999.  The 
Company believes that these facilities will be adequate to meet its 
needs for the remainder of the term of the two leases. The Company 
expects to renew the leases on the current space under terms favorable 
to the Company.  As a result, no relocation expense is anticipated in 
the foreseeable future.  In connection with the MFM acquisition, the 
Company assumed a lease on approximately 6,600 square feet of office 
space used as the former MFM corporate headquarters, expiring in 
September 2000. In October 1997, the Company entered into 2 agreements 
to sublease the entire facility.  These sublease agreements expire in 
March 2000 and September 2000, respectively. Additionally, the Company 
leases space for each of its Company-owned stores. Lease terms for these 
stores are generally for initial terms of five years and contain options 
for renewal for one or more five-year terms.  (See Note 6 to the audited 
consolidated financial statements included herein.) 


ITEM 3.  LEGAL PROCEEDINGS 
--------------------------

None.


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

During the fourth quarter of the fiscal year ended November 30, 1998, no 
matter was submitted to a vote of security holders. 


                                 PART II


ITEM 5.  MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 
---------------------------------------------------------------------

The following table sets forth the quarterly high and low sale prices 
for the Company's Common Stock, as reported in the Nasdaq SmallCap 
Market for the two years ended November 30,1998. The Company's Common 
Stock is traded under the symbol "BAGL."

<TABLE>
<CAPTION>
                                           LOW           HIGH
                                          -----          ----
   <S>                                    <C>            <C>
   YEAR ENDED NOVEMBER 30, 1997
   First quarter....................      $3.13          $8.25
   Second quarter...................       2.50           4.50
   Third quarter....................       2.50           3.63
   Fourth quarter...................       1.06           3.63
   YEAR ENDED NOVEMBER 30, 1998
   First quarter....................      $ .63          $1.38
   Second quarter...................        .63           1.44
   Third quarter....................        .63           1.33
   Fourth quarter...................        .50           1.00
</TABLE>

As  of February 24, 1999, the Company's Common Stock was held of record 
by 208 holders. 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 10, 1999 is 2,800, based upon information provided by a proxy 
services firm.


DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common 
Stock, and the Board of Directors currently intends to retain all 
earnings, if any, for use in the Company's business for the foreseeable 
future. Any future determination as to declaration and payment of 
dividends will be made at the discretion of the Board of Directors, 
subject to the existence of any covenants restricting the payment of 
dividends. 


RECENT SALES OF UNREGISTERED SECURITIES

On March 27, 1997, the Company authorized and issued a series of 
convertible Preferred Stock which has liquidation and dividend rights 
senior to that of Common Stock. Such securities were offered and sold 
without registration under the Securities Act of 1933 (the "Act") in 
reliance upon Sections 4 (2) and 4(6) of the Act.  See Note 8 to the 
audited consolidated financial statements included herein and Exhibit 
4.4 to the report on Form 10-QSB filed for the quarter ended February 
28, 1997 for further information.

On May 13, 1997, the Company issued a total of 432,608 shares of Common 
Stock to acquire MFM.  Such securities were offered and sold without 
registration under the Act in reliance upon Section 4(2) of the Act.  
See Note 11 to the audited consolidated financial statements included 
herein and Form 8-K filed with the Commission on May 28, 1997 (as 
amended on July 23, 1997 and December 15, 1997.)

On February 1, 1999 the Company issued warrants for purchase of an 
aggregate of 500,000 shares of the Company's Common Stock in connection 
with  the acquisition of certain assets of Jacobs Bros.  These warrants 
are exercisable at an exercise price of $1.25 per share as to 275,000 
shares and $1.50 per share as to 225,000 shares commencing February 1, 
2000 and ending on January 31, 2006. The warrants were offered and sold 
without registration under the Act in reliance upon Section 4(2) of the 
Act.

On February 26, 1999 the Company issued a total of 160,000 shares of 
Common Stock in connection with services rendered in the Jacobs Bros. 
aquisition, including 65,000 shares which may be deemed to be 
beneficially owned by David Epstein, a member of the Board of Directors 
of the Company.  Such securities were offered and sold without 
registration under the Act in reliance upon Section 4(2) of the Act.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 
------------------------------------------------------------------------

The selected financial data contained herein have been derived from the 
consolidated financial statements of the Company included elsewhere in 
this Report on Form 10-KSB. 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 contained 
herein 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). 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 

Since its inception in November 1992, the Company has grown to 22 
Company-owned stores and 271 franchised and licensed units at the end of 
fiscal 1998.  Units in operation at the end of fiscal 1997 included 28 
Company owned stores and 229 franchised and licensed units.  System-wide 
revenues in fiscal 1998 reached $79 million compared to $62 million in 
the year ago period.  The increase is due, in part, to the 1997 
acquisition of MFM which contributed approximately $20.6 million to 
system-wide sales in fiscal 1998, an increase of $8.5 million over its 
contribution in the prior fiscal year.  This rapid expansion in 
operations significantly affects the comparability of results of 
operations of the Company in several ways.

The Company's revenues are derived primarily from the operation of 
Company-owned stores, initial franchise fees and ongoing royalties paid 
to the Company by its franchisees. Additionally, the Company has 
significantly increased revenue derived from the sale of licensed 
products as a result of purchasing trademarks (My Favorite Muffin and 
Brewster's) and licensing contracts (licenses with Host Marriott), and 
by directly entering into licensing agreements (Choice Picks Food 
Courts, Oberweis Dairy and Mrs. Fields Cookies).  The increase in 
overall revenues has reduced the dependence on the initial franchise 
fees as a source of income.

On May 13, 1997, the Company completed the acquisition of MFM.  This 
acquisition augmented the Company's existing product offerings with a 
premium muffin product and provided additional points of distribution 
for the Company's branded bagel and coffee products.  It is expected 
that the introduction of MFM muffin products will enhance the revenue 
potential of the Company's bagel stores and result in operating leverage 
as corporate overhead is spread over the additional acquired units (58 
franchise and 3 Company-operated units at November 30, 1998.)  The 
Company has reduced the number of MFM employees, subleased the office 
space which was formerly the MFM headquarters in New Jersey, and has 
completed the integration of MFM operations into its Chicago, Illinois 
headquarters.  Since the process of integration of MFM products into the 
Company's existing units does not entail any significant increase in 
administrative overhead (the Company already has significant 
infrastructure in place to oversee franchisee and Company stores 
operations), the Company experienced improved profitability during 
fiscal 1998 due to increased retail sales and royalty revenues 
attributable to these products. 

During the fourth quarter of fiscal 1997, management identified certain 
under-performing stores which were operating at a loss and which, based 
on the estimated future cash flows, were considered to be impaired.  
Four of the seven stores which were considered to be impaired were 
located in the southern California market.  In accordance with the 
Financial Accounting Standards Board Standard No. 121, "Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be 
Disposed Of" and the Emerging Issues Task Force Issue No. 94-3, 
"Liability Recognition of Costs to Exit an Activity," management 
recorded a provision for impairment of assets and store closures which 
totaled approximately $1,837,000.  Approximately $1,333,000 represents a 
noncash write-down of property and equipment and goodwill associated 
with these units, and the remainder represents a reserve for store 
closing costs.  One store was closed during fiscal 1997 and the 
remaining units were closed during the first quarter of 1998.  These 
store closings improved cash flow from remaining Company-store 
operations and the profitability of operations overall.

With the increase in both franchise and licensed operations and the 
acquisition of MFM, the Company has experienced increases in payroll, 
occupancy and overhead costs in the corporate offices. At November 30, 
1998, the Company had 41 employees at the corporate level who oversee 
operations of the franchise, licensed and Company-owned store 
operations, down from 54 at the end of 1997.  Selling, general and 
administrative expenses are down in fiscal 1998 from fiscal 1997 both as 
a percentage of  revenue and also in absolute dollars.  Efficiencies 
have resulted in selling, general and administrative expenses decreasing 
9.7% in 1998 over 1997, which translates into a reduction of $636,000 
which was achieved with a modest increase in revenue.   Management 
expects that these costs, as a percentage of revenue,  will continue to 
decline as additional franchise and Company-owned units are added.  
Additionally, as the Company approximately doubled the space at the 
corporate headquarters in late 1996 through subletting an office suite 
adjacent to the Company's existing offices, it is anticipated that the 
Company will not require additional office facilities in fiscal 1999. 
The Company is currently negotiating a new lease combining the two 
leases and anticipates that such negotiations will be successful in 
producing an acceptable new lease for the existing space. The Company 
believes it is in a position to continue to leverage selling, general 
and administrative expenses against increased revenues anticipated in 
fiscal 1999. 


RESULTS OF OPERATIONS 

The following table sets forth, for the fiscal years 1998 and 1997, 
revenue by type and as a percentage of total revenue during the year (in 
thousands): 
<TABLE>
<CAPTION>
                                       Year ended November 30,
                              -----------------------------------------
                                   1998           1997       Inc.(Dec.)
                              --------------  -------------  ----------
   <S>                         <C>     <C>    <C>     <C>      <C>
   Selected Revenue Data:
   Company-owned stores.....  $8,930   61.4    $9,846  69.5%   $ (916)
   Royalty fees from 
     franchised stores......  $3,178   21.8     2,367  16.7%      811
   Franchise and area 
     development fees.......  $1,104    7.6     1,005   7.1%       99 
   Licensing fees and 
     other income...........  $1,337    9.2       948   6.7%      389
                              ------- ------  ------ ------    ------
   Total                     $14,549  100.0%  $14,166 100.0%    $ 383
                              ======= ======  ======  ======    ======         
</TABLE>


FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

Total revenues increased 3% to $14,549,000 in 1998 from $14,166,000 in 
the prior year. The reduction in the rate of revenue growth as compared 
to that achieved in prior years was anticipated due to the closing of 
seven Company-owned stores identified as impaired in the fourth quarter 
of 1997 and the six additional units which were closed or sold as 
franchised units in the current fiscal year.  The reduction in the 
number of units operating during fiscal 1998 versus fiscal 1997 resulted 
in the 9% decrease in revenues generated by Company-owned stores.  
Royalty fees from franchise stores increased by 34% to $3,178,000 in 
fiscal 1998 from $2,367,000 in fiscal 1997 principally due to the 
addition of the 60 MFM franchised units in May 1997.  Franchise and area 
development fee revenue increased 10 % from the year-ago period and is 
attributed to an expanded presence in the international market. Finally, 
licensing fees and other income increased by 41% in fiscal 1998 from the 
previous year as the Company continued to develop various nontraditional 
channels of distribution, including commissions received on the sale of 
Brewster's Coffee to its franchisees and licensees, fees paid by Host 
Marriott licensed units based on retail sales, and commissions received 
from a third party commercial baker on sales of par-baked Big Apple 
Bagels to all licensed units.  

Food, beverage and paper costs incurred at the Company-owned stores 
decreased 9% from the prior year, which is consistent with decrease in 
the related revenues.  Store payroll and other costs decreased by 
$646,000, or 11%, from $5,859,000 recorded in  fiscal 1997.  The 
reduction in store payroll and other costs have resulted in an improved 
contribution to profitability by Company-owned stores of over 1% from 
that experienced in the prior year. 

The 1997 results of operations include the decision to close under-
performing stores, which resulted in the recognition of a fourth quarter 
1997 charge of approximately $1,837,000, or $0. 25 per share.   
Approximately 73% of this charge to net income, or $1,333,000, 
represents a noncash write-down of property and equipment and associated 
goodwill to fair market value.  The remainder represents a reserve 
established to accrue for future noncancelable lease obligations, plus 
the costs to close the stores.  (See Note 12 to the audited consolidated 
financial statements included herein.)

Selling, general and administrative expenses decreased by $636,000 in 
1998 to $5,930,000.  The increasing base of Company-owned and franchised 
stores has resulted in a favorable trend with respect to overhead costs 
--- fiscal year 1998 costs represented 40.8% of revenues and fiscal year 
1997 costs represented 46.4% of revenues.  Payroll-related expenses 
increased in 1998 by $204,000.  Depreciation and amortization decreased 
in 1998 by 21% due to the disposition of equipment, furniture and 
fixtures from the closed stores. Other selling, general and 
administrative expenses decreased  from 11.8% of revenue to 9.1% of revenue 
in fiscal 1998. Excluding depreciation and amortization, fiscal 1998 
selling, general and administrative expenses were less than 33% of total 
revenues compared to 36% in the year ago period as the Company continues 
to experience operating leverage from its increasing revenue base.

Income from operations was $515,000 in fiscal 1998 versus a loss from 
operations of $3,406,000 in fiscal 1997. Interest income increased to 
$119,000 in fiscal 1998 from $75,000 in the prior year due to the 
increase in notes receivable during fiscal 1998. Interest expense was 
$206,000 during 1998 versus $75,000 in 1997 as a result of the increased 
borrowing on the Company's credit facility.

Income before taxes totaled $483,000 during the current fiscal year as 
compared to a loss of $3,402,000 in the prior year.  A benefit for 
income taxes of $164,000 was recorded during fiscal 1998 due principally 
to a reduction in the valuation allowance established for the tax 
benefit of net deductible temporary differences and operating loss 
carryforwards.  In the prior year, the Company had fully reserved the 
deferred tax asset.

The net income in fiscal 1998 was $647,000 versus a net loss of 
$3,402,000 for fiscal 1997.  Preferred dividends accumulated during 1998 
of $148,000 compared to $648,000 in the prior year.  Approximately 
$387,000 of the dividend accumulated in the prior year was attributable 
to the 15% discount available to holders of the Preferred Stock in 
acquiring Common Stock upon ultimate conversion.  Such discounts must be 
recognized as dividends under generally accepted accounting principles.  
In addition, the Company was  obligated to issue warrants to purchase 
two shares of Common Stock for each share of Preferred Stock on August 
1, 1997.  The value of these two-year warrants was recorded as a 
Preferred Stock dividend of $138,000.  The preferred dividends 
attributable to the conversion discount and the warrants was fully 
recognized in fiscal 1997.  (See Note 8 of the audited consolidated 
financial statements included herein.)

Net income attributable to holders of common stock was $499,000, or $.06 
per share (basic and diluted), for fiscal 1998 versus a net loss 
attributable to common shareholders of $4,050,000, or $0.55 per share 
(basic and diluted), in the prior fiscal year.  (See Note 9 of the 
audited consolidated financial statements included herein.)

On a pro forma basis, had the acquisitions of MFM and JBI occurred at 
the beginning of fiscal 1997, revenues for fiscal 1997 would have been 
$15,421,000. The net loss on a pro forma basis for 1997 would have been 
$3,500,000.     Pro forma net loss per share would have been 
approximately $0.54 for the fiscal year ended November 1997. 


LIQUIDITY AND CAPITAL RESOURCES 

The net cash provided by operating activities totaled $303,000 during 
fiscal 1998.  Cash provided principally represents net income, adjusted 
for the deferred tax benefit and depreciation and amortization, of 
$1,647,000 plus $350,000 in prepaid license fee which will be earned in 
fiscal 1999 and 2000, a reduction of prepaids and other current assets 
of $386,000.  Cash provided in fiscal 1998 is offset by principally due 
to the overall increase in accounts and notes receivables totaling 
$625,000 and the reduction in payables, accrued liabilities and reserves 
of $1,210,000.  The net cash used in operating activities totaled 
$1,220,000 in fiscal 1997.

Cash used for investing activities during 1998 totaled $146,000, and was 
used primarily for the purchase of property, equipment and trademarks 
offset by loan repayments.  In the prior year, cash used for investing 
activities totaled $3,814,000 which consisted primarily of $3,795,000 
used for the purchase of property and equipment associated with the 
acquisition and development of 20 Company-owned units.  The net cash 
used in investing activities totaled $1,220,000 in fiscal 1997.

Financing activities provided $3,261,000 during fiscal 1997.  In April 
1997, the Company completed the sale of 87,710 shares of Preferred Stock 
in a private placement to qualified investors, netting approximately $2 
million after placement agent commissions and fees.  Additionally, in 
April 1997, the Company entered into a $2 million secured line of credit 
agreement ("the Line") with a bank expiring in December 1998.  Maximum 
borrowing under the Line was limited to a borrowing base of 80% of 
accounts receivable under 90 days and 40% of the cost of equipment, 
furniture and fixtures.  Interest was payable monthly at prime plus 1%  
with principal due upon maturity at December 31, 1998. 

Financing activities provided a total of $153,000 during fiscal 1998.  
This was substantially the net amount of borrowings and repayments on 
the Line.  At November 30, 1998, the Company had $1,877,000 outstanding 
against the Line.

The Line was secured by substantially all of the assets of the Company 
and required, among other things, that the Company maintain minimum net 
worth of $8 million and a compensating cash balance of $250,000.  From 
time to time during fiscal 1998, the Company fell below the compensating 
cash balance requirement and obtained waivers from the bank to lower the 
requirement for specified periods of time.  In December 1998, the 
Company repaid $127,000 and replaced the Line with a $1.75 million line 
of credit facility which matures at December 31, 1999 on terms 
essentially the same as the Line.  However, in the event the Company's 
cash balances fall below the compensating cash balance requirements, the 
Company can cure the default by paying  additional interest in the 
amount of prime plus 4% on the difference between $250,000 and the cash 
balance.

In January 1999, the Company obtained loan commitments totaling 
$1,350,000 from a finance company whereby the Company could borrow 
$950,000 to purchase certain assets of Jacobs Bros. and up to $400,000 
to purchase equipment and fund remodeling required for the units 
acquired in the purchase.  In February 1999, the Company borrowed 
$1,100,000 pursuant to these commitments.

The Company believes that improved cash flow from existing operations 
will be sufficient to fulfill its working capital requirements for the 
foreseeable future.  


ITEM 7.  FINANCIAL STATEMENTS 
-----------------------------

The Consolidated Financial Statements and Report of Independent Auditors 
is included immediately following. 


                         BAB HOLDINGS, INC.

               CONSOLIDATED FINANCIAL STATEMENTS AND
                   INDEPENDENT AUDITOR'S REPORT

              YEARS ENDED NOVEMBER 30, 1998 AND 1997

<PAGE>

                         BAB HOLDINGS, INC.

              Years Ended November 30, 1998 and 1997


                          C O N T E N T S
                          ---------------

	                                       Reference	      Page

Independent Auditor's Report                               1

Consolidated Balance Sheets             Exhibit A          2

Consolidated Statements of Operations   Exhibit B          3

Consolidated Statements of 
   Stockholders' Equity                 Exhibit C          4

Consolidated Statements of 
   Cash Flows                           Exhibit D        5-6

Notes to Consolidated Financial 
   Statements                                           7-23

<PAGE>

                      INDEPENDENT AUDITOR'S REPORT
                      ----------------------------


Stockholders and Board of Directors 
BAB Holdings, Inc.
Chicago, Illinois


We have audited the accompanying consolidated balance sheet of BAB HOLDINGS, 
INC. as of November 30, 1998, and the  related  consolidated statements of 
operations, stockholders' equity and cash flows for the year then ended.  
These financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these financial statements 
based on our audit.  The consolidated financial statements of BAB HOLDINGS, 
INC.  as of and for the year ended November 30, 1997, were audited by other 
auditors whose report dated February 27, 1998, expressed an unqualified 
opinion on those statements.
 
We conducted our audit in accordance with generally accepted auditing 
standards.  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 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 audit provides a reasonable basis 
for our opinion. 

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial  position  of  BAB HOLDINGS, 
INC. as of November 30, 1998, and the  consolidated results of its operations  
and its cash flows for the year then ended in conformity  with  generally 
accepted  accounting principles.

                              /s/ Blackman Kallick Bartelstein, LLP



February 6, 1999

<PAGE>

<TABLE>
<CAPTION>
                              BAB HOLDINGS, INC.

                          Consolidated Balance Sheets

                           November 30, 1998 and 1997

                                     ASSETS
                                     ------
                                                    1998         1997
                                                -----------   -----------
<S>                                             <C>          <C>        
Current Assets:
  Cash and cash equivalents, including 
   restricted cash of $218,646 in 1998
   and $285,442 in 1997                          $   700,162  $   389,896
  Receivables
     Trade accounts receivable, net of
      allowance for doubtful accounts of
      $341,000 in 1998 and $217,000 in 1997        1,181,282      988,992
     National Marketing Fund contributions
      receivable                                     309,633      382,432
     Notes receivable, net of allowance for
      doubtful accounts of $20,000 in 1998 
      and 1997                                       444,560      203,230
  Inventories                                        298,501      344,424
  Deferred franchise costs                            18,227       76,805
  Assets held for sale                                     -      170,500
  Prepaid expenses and other current assets          206,952      422,913
  Deferred income taxes                              431,719            -
                                                  ----------   ----------
          Total Current Assets                     3,591,036    2,979,192

Property and Equipment
  Leasehold improvements                           2,618,906    2,690,940
  Furniture and fixtures                             744,833      686,542
  Equipment                                        2,513,715    2,513,289
  Construction in progress                            68,543       80,830
                                                  ----------   ----------
                                                   5,945,997    5,971,601
  Less accumulated depreciation                   (1,743,800)    (882,693)
                                                  ----------   ----------
          Total Property and Equipment, Net        4,202,197    5,088,908

Notes Receivable                                   1,086,100      785,065
                                                  ----------   ----------
Intangibles
  Patents, trademarks and copyrights, net of
   accumulated amortization of $90,374 in 1998
   and $56,025 in 1997                               568,683      527,140
  Goodwill, net of accumulated amortization
   of $164,806 in 1998 and $101,629 in 1997        2,591,515    2,599,393
  Franchise contract rights, net of accumulated
   amortization of $152,375 in 1998 and 
   $60,442 in 1997                                 1,919,909    2,011,842
  Other assets, net of accumulated amortization
   of $235,056 in 1998 and $424,855 in 1997          485,551      635,706
                                                  ----------   ----------
           Total Intangibles, Net                  5,565,658    5,774,081
                                                  ----------   ----------
                                                 $14,444,991  $14,627,246
                                                  ==========   ==========
</TABLE>

The accompanying notes are an intergral part of the consolidated financial
statements.

<PAGE>

<TABLE>
<CAPTION>
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
                                                    1998           1997                   
                                               ------------    ------------
<S>                                          <C>             <C>         
Current Liabilities
  Accounts payable                             $  1,014,734    $  1,603,661
  Accrued liabilities                               714,789         768,977
  Reserve for closed store expenses                  36,388         504,203
  Accrued professional and other services           214,972         227,895
  Unexpended National Marketing Fund 
   contributions                                    465,173         522,722
  Long-term debt due within one year                134,814          26,143
  Deferred franchise fee revenue                    360,500         642,000
                                               ------------    ------------
          Total Current Liabilites                2,941,370       4,295,601
                                               ------------    ------------
Noncurrent Liabilities
  Deferred revenue                                  263,996               -
  Deferred income taxes                             251,719               -
  Long-term debt, net of portion included
   in current liabilities                         1,759,954       1,676,895
                                               ------------    ------------
          Total Noncurrent Liabilities            2,275,169       1,676,895
                                               ------------    ------------
          Total Liabilities                       5,217,039       5,972,496
                                               ------------    ------------
Stockholders' Equity:
  Common stock, no par value; 20,000,000 
   shares authorized; 8,655,006 shares and
   7,981,630 shares issued, respectively;
   and 8,361,706 shares and 7,711,630 shares
   outstanding, respectively                     11,430,452      10,908,062
  Preferred stock, $0.01 par value; 3,880,000
   shares authorized; no shares issued  
   and outstanding                                        -              - 
  Series A Preferred stock, $25.00 par value,
   120,000 shares authorized; 60,000 shares and
   78,710 issued and outstanding, respectively    1,548,731       1,862,035       
  Treasury stock at cost, 293,300 shares and
   270,000 shares, respectively                     (36,067)        (17,500)
  Additional paid-in capital                      1,252,402       1,368,619
  Accumulated deficit                            (4,967,566)     (5,466,466)
                                               ------------    ------------
         Total Stockholders' Equity               9,227,952       8,654,750
                                               ------------    ------------
                                               $ 14,444,991    $ 14,627,246
                                               ============    ============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>       
                               BAB HOLDINGS, INC.

                      Consolidated Statements of Operations

                      Years Ended November 30, 1998 and 1997
             
                                                   1998          1997 
                                               -----------    -----------
<S>                                         <C>             <C>
Revenues
  Net sales by Company-owned stores            $ 8,929,664    $ 9,846,020
  Royalty fees from franchised stores            3,178,262      2,367,220 
  Franchise and area development fees            1,104,000      1,005,545
  Licensing fees and other income                1,337,314        947,658
                                               -----------    -----------
            Total Revenues                      14,549,240     14,166,443

Operating Costs and Expenses
  Food, beverage, and paper costs                2,998,079      3,309,504
  Store payroll and other operating expenses     5,213,359      5,859,322
  Provision for impairments and store closures    (107,699)     1,836,981
  Selling, general, and administrative expenses:
     Payroll-related expenses                    2,262,616      2,058,644
     Advertising and promotion                     532,678        603,373
     Professional service fees                     362,360        514,319
     Franchise-related expenses                    261,287        232,964
     Depreciation and amortization               1,180,259      1,490,329 
     Other                                       1,331,146      1,666,659  
                                               -----------    -----------
             Total Selling, General and          
               Administrative Expenses           5,930,346      6,566,288
                                               -----------    -----------
             Total Operating Costs                      
               and Expenses                     14,034,085     17,572,095
                                               -----------    -----------
Income (Loss) from Operations                      515,155     (3,405,652)

Interest Income                                    119,244         74,513

Interest Expense                                  (205,618)       (74,651)

Other Income                                        54,022          3,701
                                               -----------    -----------
Income (Loss) Before Taxes                         482,803     (3,402,089)

Provision (Benefit) for Income Taxes
  Current                                           16,039              -
  Deferred                                        (180,000)             -
                                               -----------    -----------
                                                  (163,961)             -
                                               -----------    -----------
Net Income (Loss)                                  646,764     (3,402,089)

Preferred Stock Dividends Accumulated             (147,864)      (648,197)   
                                               -----------    -----------
Net Income (Loss) Attributable to 
 Common Stockholders                           $   498,900    $(4,050,286)
                                               ===========    ===========

Income (Loss) Per Share - Basic and Diluted    $      0.06    $     (0.55)
                                               ===========    ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>
<TABLE>
<CAPTION>
                             BAB HOLDINGS, INC.

               Consolidated Statements of Shareholders' Equity

                    Years Ended November 30, 1998 and 1997

                                             SERIES A
                         COMMON STOCK     PREFERRED STOCK      TREASURY STOCK
                        SHARES   AMOUNT   SHARES   AMOUNT    SHARES     AMOUNT
                        ---------------   ---------------- --------- -------
<S>                  <C>        <C>        <C>     <C>      <C>        <C>
Balance as of 
  November 30, 1996  7,413,069 $ 9,218,522     --  $     --   (270,000)$(17,500)
Issuance of Common
  Stock in 
  Acquisitions         458,219   1,441,355     --        --       --        --
Termination of Options
  Issued in Connection
  with Acquisition          --          --     --        --       --        --
Issuance of
  Preferred Stock           --          -- 87,710  1,558,519      --        --
Issuance of Warrants        --          --     --         --      --        --
Preferred Dividend
  Accumulated               --          --     --    510,668      --        --
Conversion of 
  Preferred to
  Common Stock         110,342     248,185 (9,000)  (207,152)     --        --
Net Loss                    --         --      --         --      --        --
                    ----------  ----------  ------ ----------  -------   ------
Balance as of
  November 30, 1997  7,981,630  10,908,062  78,710  1,862,035 (270,000)(17,500)
Termination of 
  Options Issued in
  Connection with
  Acquisition               --          --      --         --       --     --
Purchase Of Treasury
  Stock                     --          --      --         --  (23,300)(18,567)
Preferred Dividends
  Accumulated               --          --      --    147,864       --      --
Preferred Dividends
  Paid                      --          --      --    (19,995)      --      --
Conversion of Preferred
  to Common Stock      673,376     522,390 (18,710)  (441,173)      --      --
Net Income                  --          --      --         --       --      --
                    ---------- -----------  ------ ---------- --------  ------
Balance as of
  November 30, 1998  8,655,006 $11,430,452  60,000 $1,548,731 (293,300)$(36,067)
                    ========== ===========  ====== ========== ========  =======
</TABLE>
                       (WIDE TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>

                                   ADDITIONAL                                  
                                    PAID-IN      ACCUMULATED                    
                                    CAPITAL        DEFICIT         TOTAL       
                                  -----------    -----------    -----------
<S>                                <C>           <C>            <C>
Balance as of November 30, 1996    $1,010,167   $(1,416,180)    $ 8,795,009
Issuance of Common Stock
   in Acquisitions                         --            --       1,441,355
Termination of Options Issued
   in Connection with Acquisition    (125,000)           --        (125,000)
Issuance of Preferred Stock           386,956            --       1,945,475
Issuance of Warrants                  137,529      (137,529)             --
Preferred Dividends Accumulated            --      (510,668)             --
Conversion of Preferred to
   Common Stock                       (41,033)           --              --
Net Loss                                   --    (3,402,089)     (3,402,089)
                                  -----------    -----------    -----------
Balance as of November 30, 1997     1,368,619    (5,466,466)      8,654,750
Termination of Options Issued
  in Connection with Acquistions      (35,000)           --         (35,000)
Purchase of Treasury Stock                 --            --         (18,567)
Preferred Dividends Accumulated            --      (147,864)             --
Preferred Dividends Paid                   --            --         (19,995)
Conversion of Preferred to
   Common Stock                       (81,217)           --              --
Net Income                                          646,764         646,764
                                  -----------    ----------     -----------
Balance as of November 30, 1998   $ 1,252,402   $(4,967,566)    $ 9,227,952
                                  ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>

<TABLE>
<CAPTION>
                                BAB HOLDINGS, INC.

                      Consolidated Statements of Cash Flows

                      Years Ended November 30, 1998 and 1997

                                                         1998         1997
                                                     -----------   ----------
<S>                                                   <C>          <C>
Cash Flows from Operating Activities
  Net income (loss)                                  $  646,764    $(3,402,089)
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
     Depreciation and amortization                     1,180,259     1,490,329
     Provision for impairment and closure                      -     1,836,981
     Deferred preopening store cost                            -      (240,927)
     Deferred revenue                                    350,000             -
     Benefit for deferred income taxes                  (180,000)            -
     Gain on sale of property and equipment              (10,393)            -
     (Increase) decrease in
         Trade accounts receivable                      (207,290)     (432,604)
         National Marketing Fund contributions
          receivable                                      72,799      (245,779)
         Inventories                                      45,923      (211,614) 
         Deferred franchise costs                         58,578       (21,319)
         Notes receivable                               (491,003)     (138,632) 
         Prepaid expenses and other assets               386,461      (215,653)
         Amounts due from affiliate                            -       (88,653)
      Increase (decrease) in
         Accounts payable                               (588,927)      176,318
         Accrued professional and other services         (12,923)     (178,331)
         Reserve for closed store expenses              (467,815)            -
         Accrued liabilities                            (140,192)       75,157
         Unexpended National Marketing Fund             
          franchisee contributions                       (57,549)     358,840
         Deferred franchise fee revenue                 (281,500)      17,600
                                                       ----------    ---------
         Total Adjustments                              (343,572)    2,181,713
                                                       ----------    ---------
         Net Cash Provided by (Used in)
          Operating Activities                           303,192    (1,220,376)
                                                       ---------     ---------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE>

<TABLE>
<CAPTION>
                               BAB HOLDINGS, INC.

                Consolidated Statements of Cash Flows (continued)

                     Years Ended November 30, 1998 and 1997

                                                        1998           1997
                                                    ------------   ------------
<S>                                                 <C>           <C>        
Cash Flows from Investing Activities
  Purchases of property and equipment               $   (198,295)  $(3,679,705)
  Sale of property and equipment                          33,484        57,400
  Purchase of MFM                                              -      (115,551)
  Purchase of trademarks                                 (75,892)      (16,236)
  Purchases of other assets                                    -      (120,000)
  Loan disbursements                                     (13,263)      (74,201)
  Loan repayments                                        138,900        77,748
  Other                                                  (31,029)       56,440
                                                     -----------   -----------
         Net Cash Used in Investing Activities          (146,095)   (3,814,105)
                                                     -----------   -----------
Cash Flows from Financing Activities
  Borrowing on line of credit                            337,500     1,675,975
  Debt repayments                                       (145,769)     (364,037)
  Proceeds from issuance of preferred stock                    -     2,192,750
  Payment of preferred stock issuance costs                    -      (247,275)
  Other                                                  (38,562)        3,671 
                                                     -----------   -----------
          Net Cash Provided by Financing Activities      153,169     3,261,084
                                                     -----------   -----------
Net Increase (Decrease) in Cash and Cash Equivalents     310,266    (1,773,397)

Cash and Cash Equivalents, Beginning of Year             389,896     2,163,293
                                                     -----------    ----------
Cash and Cash Equivalents, End of Year               $   700,162    $  389,896
                                                     ===========    ==========
</TABLE>

The accompanying notes are an integral part of the consolidated financial 
statements.

<PAGE>

                            BAB HOLDINGS, INC.

               Notes to Consolidated Financial Statements

                  Years Ended November 30, 1998 and 1997

------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

BAB Holdings, Inc. (the Company) is an Illinois corporation incorporated 
on November 25, 1992. The Company has four wholly owned subsidiaries: 
BAB Operations, Inc. (Operations); BAB Systems, Inc. (Systems); 
Brewster's Franchise Corporation (BFC); and My Favorite Muffin Too, Inc. 
(MFM).   Systems was incorporated on December 2, 1992, and was primarily 
established to franchise "Big Apple Bagels" specialty bagel retail 
stores.   Systems has a wholly owned subsidiary, Systems Investments, 
Inc. (Investments), which was created to operate the first Company-owned 
"Big Apple Bagels" store which, until December 1995, also operated as 
the franchise training facility.   Investments also owned a 50% interest 
in a joint venture which operated a franchise satellite store.   During 
fiscal 1997, the stores operated by Investments and by the joint venture 
were sold and are currently operating as franchised stores.   As of 
November 1998, Systems Investments, Inc. was dissolved and merged into 
the parent company, Systems.  Operations was formed on August 
30, 1995, primarily to operate Company-owned stores, currently "Big 
Apple Bagels" and "Brewster's Coffee" concept 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.   MFM, a New Jersey corporation, was acquired on 
May 13, 1997. MFM franchises and operates Company-owned "My Favorite 
Muffin" concept muffin stores.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of the 
Company and its direct and indirect wholly owned subsidiaries.   All 
intercompany accounts and transactions have been eliminated in 
consolidation.   

Cash Equivalents
----------------

The Company classifies as cash equivalents all highly liquid investments,
primarily composed of money market mutual funds, certificates of deposit 
and government agency notes, which are convertible to a known amount of 
cash and carry an insignificant risk of change in value.

Inventories
-----------

Inventories are valued at the lower of cost, determined on a first-in, 
first-out (FIFO) basis, or market.

Depreciation and Amortization
-----------------------------

Leasehold improvements and equipment are stated at cost, less 
accumulated depreciation.  Depreciation is calculated on the straight-
line method over the estimated useful lives of the assets.  Estimated 
useful lives for the purposes of depreciation are:  leasehold 
improvements - ten years or term of lease if less; machinery, equipment 
and fixtures - five to seven years.

The Company's intangible assets consist primarily of patents, 
trademarks, copyrights, organization costs, contract rights, 
noncompetition agreements and goodwill.  Organization costs are 
primarily incorporation fees and legal fees associated with initial 
Uniform Franchise Offering Circulars related to operations and are being 
amortized over five years.   Patents, trademarks and copyrights are 
being amortized over 17 years.  Franchise contract rights acquired in 
the MFM acquisition are amortized over 20 years.  Contract rights 
allocated to license agreements assumed by the Company in the 
acquisition of Strathmore Bagels Franchise Corporation are being 
amortized over 8.5 years, the remaining life of the contract.   
Noncompetition agreements are amortized over the term of the agreements, 
which is six years.   Goodwill recorded as a result of acquisitions is 
being amortized over 40 years.  Amortization expense recorded in the 
accompanying consolidated statements of operations for the years ended 
November 30, 1998 and 1997 was $326,089 and $549,640, respectively.

Stock Options
-------------

The Company uses the intrinsic method to account for stock options 
granted for employees and directors.  No compensation expense is 
recognized for stock options because the exercise price of the option is 
at least equal to the market price of the underlying stock on the grant 
date.  Stock options granted as consideration in purchase acquisitions 
have been recorded as an addition to additional paid-in capital in the 
accompanying balance sheet based on the fair value of such options on 
the date of the acquisition.

Revenue Recognition
-------------------

Royalty fees from franchised stores represent a fee of 5% of net retail 
sales of franchised units.  Royalty revenues are recognized on the 
accrual basis. 

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, 
purchase of cash registers, and training costs.

Area development agreement revenue is recognized on a pro rata basis as 
each store covered by the agreement opens.   At the termination of an 
agreement, any remaining deferred franchise and area development 
agreement revenue is recognized as such amounts are not refundable.

In addition to Company-operated and franchised stores, the Company acts 
as licensor of "Big Apple Bagels" units owned and operated primarily by 
Host Marriott Services (Host Marriott).  Included below in "licensed 
units" are those units located primarily in airport and travel plazas.  
In fiscal 1998 and 1997, the Company opened additional units pursuant to 
other licensing arrangements.  The Company derives a licensing fee from 
certain sales at these units as well as a sales commission from the sale 
of par-baked bagels to these units by a third-party commercial bakery.

Stores which have been opened, and unopened stores for which an 
agreement has been executed at November 30, 1998 or 1997, or area 
development fees collected are as follows (excluding six Company-owned 
stores which were closed subsequent to year end [see Note 12]):

<TABLE>
<CAPTION>
                                         1998     1997
                                         ----     ----
   <S>                                   <C>      <C>
   Stores opened:
      Company-owned                        22       28
      Franchisee-owned                    194      182
      Licensed                             77       47
                                         ----     ----
                                          293      257
   Unopened stores:
      Franchise agreement                  15       25
      Area development agreement           19       28
                                         ----     ----
                                           34       53
                                         ----     ----
                                          327      310
                                         ====     ====
</TABLE>
			
Advertising Costs
-----------------

The Company expenses advertising costs as incurred.  Advertising expense 
was $331,004 and $339,496 in 1998 and 1997, respectively.  Included in 
advertising expense was $53,593 and $55,733 in 1998 and 1997, 
respectively, related to the Company's franchise operations.

Income (Loss) Per Share
-----------------------

The Company adopted Statement of Financial Accounting Standards (SFAS) 
No. 128, "Earnings Per Share" during the first quarter of 1998.  This 
standard prescribes the methods of calculating basic and diluted 
earnings per share and requires dual presentation of these amounts on 
the face of the income statement.  Unlike primary earnings per share, 
basic earnings per share excludes any dilutive effects of options, 
warrants, and convertible securities.  Diluted earnings per share is 
very similar to the previously reported fully diluted earnings per 
share of $.53 in 1997.  All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement 128 
requirements.
 
Fair Value of Financial Instruments
-----------------------------------

The Company evaluates its various financial instruments based on current 
market interest, rates relative to stated interest rates, length to 
maturity, and the existence of a readily determinable market price.   
Based on the Company's analysis, the fair value of financial instruments 
recorded on the consolidated balance sheet as of November 30, 1998, 
approximates their carrying value.

New Accounting Standards
------------------------

In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS 
No. 131, "Disclosures about Segments of an Enterprise and Related 
Information" were issued.  SFAS No. 130 establishes standards for the 
reporting of comprehensive income and its components in a financial 
statement presentation. SFAS No. 130 separates comprehensive income into 
net income and other comprehensive income, but does not change the 
measurement and presentation of net income.  Other comprehensive income 
includes certain changes in the equity of the Company which are 
currently recognized and presented separately in the Consolidated 
Statements of Stockholders' Equity, such as the change in the Cumulative 
Translation Adjustment account.  SFAS No. 130 is effective for the 
Company beginning in fiscal 1999.

SFAS No. 131 establishes new standards for the way companies report 
information about operating segments and requires that those enterprises 
report selected information about operating segments in the financial 
reports issued to stockholders.  SFAS No. 131 is effective for the 
Company beginning in fiscal 1999.

Use of Estimates
----------------

The preparation of financial statements in conformity with generally 
accepted accounting principles 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.

Reclassifications
-----------------

Certain 1997 amounts have been reclassified to reflect the 1998 
presentation.


NOTE 3 - RESTRICTED CASH

Systems established the National Marketing Fund (Fund) during 1994.  
Franchisees are required to contribute to the Fund based on their net 
sales and in turn are reimbursed for a portion of media advertising 
placed in their local markets up to a maximum equal to the amount they 
contributed.  As of November 30, 1998 and 1997, the Fund's cash balance 
was $184,804 and $256,678, respectively.

Both franchised and Company-owned MFM stores are required to contribute 
to the MFM National Marketing Fund (MFM Fund) based on their net sales.  
These monies are then used in the production and creation of advertising 
materials and media placement.  As of November 30, 1998 and 1997, the 
MFM Fund's cash balance was $33,842 and $8,764, respectively.

Systems was required by certain states to maintain franchise and area 
development fees in escrow accounts until the related franchise stores 
commence operations.  As of November 30, 1998 and 1997, these accounts 
totaled $ 0 and $20,000, respectively.


NOTE 4 - INCOME TAXES

The reconciliation of the income tax provision (benefit) computed at the
federal statutory rate of 34% and the benefit for income taxes is as follows:
<TABLE>
<CAPTION>
                                            1998         1997
                                         -----------   ---------
<S>                                     <C>          <C>
Income tax provision (benefit)
 computed at federal statutory rate      $  164,153  $(1,156,710)
State income taxes (benefit), net
  of federal tax (benefit)                   23,261     (163,913)
Permanent differences on debt
  financing obtained                         (1,748)      (1,748)
Other adjustments                            18,529       22,584
Valuation allowance without income
  tax benefit                              (368,156)   1,299,787
                                          ----------   ---------
Benefit for Income Taxes                 $ (163,961) $         -
                                          ==========   =========
</TABLE>

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.

Deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                              1998         1997
                                           ----------    --------
<S>                                        <C>          <C>
Franchise fee revenue                      $   20,638  $  216,615 
Franchise costs                                52,745      32,102
National Marketing Fund net contributions      71,737      99,638
Allowance for uncollectible accounts          129,125     108,392
Net operating loss carryforwards            1,647,245   1,617,089
Valuation allowance                        (1,514,771) (1,882,927)
                                            ---------   ---------
     Total Deferred Tax Assets                431,719     190,909
                                            ---------   ---------
Depreciation                                 (249,263)   (171,017)
Start-up costs                                      -     (17,807)
Other                                          (2,456)     (2,085)
                                            ---------   ---------
     Total Deferred Tax Liabilities          (251,719)   (190,909)
                                            ---------   ---------
                                            $ 180,000   $       -
                                            =========   =========
</TABLE>

As of November 30, 1998, the Company has cumulative net operating loss 
carryforwards expiring between 2008 and 2013 for U.S. federal income tax 
purposes of approximately $4,308,000.  The net operating loss 
carryforwards are subject to limitation in any given year as a result of 
the Company's initial public offering and may be further limited if 
certain other events occur.  A valuation allowance has been established 
for $1,514,771 of the deferred tax benefit related to those loss 
carryforwards for which it is considered more likely than not that the 
benefit will not be realized.


NOTE 5 - LONG-TERM OBLIGATIONS

Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                              1998          1997
                                           ---------     ---------
<S>                                       <C>           <C>
Secured line of credit payable to
   bank, due December 31, 1998,
   at an interest rate of prime
   plus 1%                                $1,877,465    $1,657,975
Capital lease obligations,
   various rates                              17,303        31,220
Unsecured note payable, principal
   payments due monthly at an 
   interest rate of 10%                            -        13,843
                                           ---------     ---------
                                           1,894,768     1,703,038
Less: current portion                       134,814        26,143
                                           ---------     ---------
Long-Term Debt, Net of Current Portion    $1,759,954    $1,676,895
                                           =========    ==========
</TABLE>

The Company had a secured $2 million line-of-credit facility (Line) with 
a bank which expired December 31, 1998.   Maximum borrowing under the 
Line was limited to 80% of accounts receivable under 90 days and 40% of 
original cost of equipment, furniture and fixtures.   Interest was 
payable monthly at prime plus 1% (8.75% as of November 30, 1998), with 
principal due upon maturity on December 31, 1998.   As of November 30, 
1998, the Company had borrowed $1,877,465 on the Line.

In December 1998, the Company repaid $127,465 and replaced the Line with 
$1.75 million line-of-credit facility with a bank which expires December 
31, 1999.  Maximum borrowing under the Line is limited to 75% of 
accounts receivable under 90 days and 40% of the original cost of 
equipment, furniture and fixtures.  Interest is payable monthly at prime 
plus 1% (8.75% as of January 1, 1999), with principal due upon maturity 
on December 31, 1999.  The line of credit is secured by substantially 
all of the assets of the Company and requires, among other things, that 
the Company maintain minimum net worth of $8 million and a compensating 
cash balance of $250,000.

As of November 30, 1998, annual maturities on long-term obligations are 
due as follows: $134,814 in 1999 and $1,759,954 in 2000.    Interest 
paid for the years ended November 30, 1998 and 1997 was $202,312 and 
$55,188, respectively.

In February 1997, Systems entered into an agreement with a finance 
company to provide financing to qualifying franchisees for the purpose 
of adding second or subsequent units.   The program is administered by 
the finance company; however, Systems has the final right of approval 
over individual applicants.   Systems has provided a guarantee of 
borrowings up to a maximum of 10% of the total amount financed in each 
12-month period under the program.   As of November 30, 1998, $1,040,458 
has been advanced to franchises under this program.


NOTE 6 - LEASE COMMITMENTS

The Company rents its office and Company-owned store facilities under 
leases which require it to pay real estate taxes, insurance and general 
repairs and maintenance on these leased facilities. Rent expense for the 
years ended November 30, 1998 and 1997 was $936,895 and $955,693, 
including contingent rental expense of $41,646 and $26,600, less 
sublease income of $106,606 and $46,109, respectively.  As of November 
30, 1998, future minimum annual rental commitments under leases, net of 
sublease income of $253,965 in 1999, $226,968 in 2000, $97,338 in 2001, 
$36,000 in 2002 and $3,000 in 2003, are as follows:
 
           Year Ending November 30:
                              1999     $    665,773
                              2000          505,887
                              2001          477,122
                              2002          246,401
                              2003          241,801
                        Thereafter          535,089
                                       ------------
                                       $  2,672,073
                                       ============

	
NOTE 7 - NONCASH TRANSACTIONS

In January 1997, the Company forgave notes and other receivables 
totaling approximately $486,000 from a franchisee, Just Bagels, Inc. 
(JBI) and acquired three stores for conversion to Company-owned units 
(see Note 11).

In April 1997, the Company issued 25,611 shares of common stock valued 
at approximately $94,000, forgave royalties owed totaling approximately 
$42,000, and assumed liabilities of approximately $36,000 in connection 
with the purchase of one franchised store.   In August 1997, this store 
was sold to a franchisee for approximately $235,000, consisting of two 
notes receivable from the purchaser, approximately $46,000 which was 
paid in October 1997 and approximately $189,000, due in monthly payments 
through August 2004, with interest at 8.5% (see Note 11).

In May 1997, the Company terminated an option to purchase 75,000 shares 
of common stock which had been originally issued in a previous 
acquisition and subsequently, in a separate transaction, assigned to 
Hawaiian Bagel Factory, Inc. (HBF).  HBF entered into an option to 
purchase the master franchise rights of the state of Hawaii from Systems 
in exchange for the assignment of the option to purchase the Company's 
common stock, valued at $125,000, and a note receivable for $75,000, 
which is due and payable in five annual installments of principal and 
interest beginning May 1999 and  bears interest at 9% per annum.

In May 1997, Systems repurchased the franchise rights for the western 
provinces of Canada from the master franchisor in exchange for the 
discharge of a note receivable, plus interest accrued thereon, totaling 
approximately $165,000.

In May 1997, the Company acquired MFM by exchanging 432,608 shares of 
common stock plus cash for 150 shares of MFM common stock (see Note 11).

In January 1998, the Company sold the assets of one Company-owned store 
to a franchisee in exchange for approximately $30,000 in cash and a note 
receivable for $177,000.  The note bears interest at a rate of 8.5% and 
interest payments were made through August 1998.  Thereafter monthly 
payments of principal and interest are due until March 1, 2003 when the 
entire unpaid balance of principal and interest is due in full.

In November 1998, the Company acquired from a franchisee its option to 
purchase the Company's 100,000 shares of common stock which had been 
issued in a previous acquisition.  In exchange, the Company canceled a 
total of $35,000 of royalties and other receivables owed to its 
subsidiaries by the franchisee. 


NOTE 8 - STOCKHOLDERS' EQUITY

In April 1997, the Company completed the sale of 87,710 shares of $25 
Series A Convertible Preferred Stock (the Preferred Stock) in a private 
placement to institutional investors.  The Preferred Stock carries an 8% 
annual dividend payable in cash or, at the option of the Company, in 
shares of common stock, provided that during a Conversion Suspension 
Period (defined below), dividends will accrue at a rate of 15% per 
annum.  Dividends are payable only when shares are converted to shares 
of common stock.  The holders have no voting rights and have a 
liquidation preference of $25, plus accrued dividends, out of assets of 
the Company available for distribution to stockholders.

Commencing August 1, 1997 through July 31, 1999, subject to certain 
extensions, the stockholders may elect to convert each Preferred Stock 
share into common shares as determined by dividing the $25 purchase 
price by the lesser of $5.64 or 85% of the average closing bid price of 
the common stock for the 30 trading days immediately preceding the 
conversion date.   In addition, if the Company engages in an 
underwritten public offering, for any holder who has given notice of 
participation in such offering, the conversion rate shall be 85% of the 
public offering price if less than the amount calculated in the 
immediately preceding sentence.  

A Conversion Suspension Period takes effect if the closing bid price of 
the common stock is less than $2.325 for 30 consecutive trading days.   
The Conversion Suspension Period continues until the first trading day 
thereafter that the closing bid price for the common stock has exceeded 
$2.325 for 30 consecutive trading days provided, however, that a 
Conversion Suspension Period shall not continue for more than 60 days in 
any period of 365 days.  The Company is not required to recognize or 
accept any  conversion of Preferred Stock during a Conversion Suspension 
Period.   During any Conversion Suspension in Period, the Company, at 
its option, may redeem any or all of the Preferred Stock by payment to 
the holders of $28.75 per share, plus all accrued and unpaid dividends.   
The Company entered a Conversion Suspension Period during November 1997 
through January 1998.  During January 1999, the Company entered into a 
Conversion Suspension Period.

Preferred dividends in the amount of $648,197 accumulated during fiscal 
1997, which includes $386,956 attributable to the 15% discount available 
to holders of the Preferred Stock in acquiring common stock upon 
ultimate conversion and $137,529 attributable to the value of two-year 
warrants issued to each preferred stockholder to purchase two shares of 
common stock for each share of Preferred Stock.  Preferred dividends of 
$147,864 accumulated during fiscal 1998.

During fiscal 1997, holders elected to convert 9,000 shares of Preferred 
Stock plus dividends accrued thereon into 110,342 shares of common 
stock.  During fiscal 1998, holders elected to convert 18,710 shares of 
Preferred Stock plus dividends accrued thereon into 673,376 shares of 
common stock.   The common shares issued upon conversion include shares 
issued in payment of preferred dividends on 10,306 shares of Preferred 
Stock.  The Company elected to pay accrued dividends in cash of 
approximately $20,000 upon conversion of the remaining 8,404 shares of 
Preferred Stock. 


NOTE 9 - EARNINGS PER SHARE

The computation of basic and diluted earnings (loss) per share is as 
follows:
<TABLE>
<CAPTION>
                                             1998          1997
                                          -----------   -----------
<S>                                       <C>           <C>
Numerator:
  Net income (loss)                       $   646,764   $(3,402,089)
  Preferred stock dividend accumulated       (147,864)     (648,197)
                                          -----------   -----------
  Numerator for basic earnings (loss)
   per share - income (loss) 
   attributable to common stockholders        498,900    (4,050,286)
  
  Effect of dilutive securities:
  Preferred stock dividend accumulated        147,864             -
                                          -----------   -----------
  Numerator for diluted earnings (loss)
   per share - income (loss)
   attributable to common stockholders    $   646,764   $(4,050,286)
                                          ===========   ===========

Denominator:
  Denominator for basic earnings (loss)
   per share - weighted average shares      8,101,080     7,420,811

  Effect of dilutive securities:
  Convertible preferred stock               2,407,159             -
                                           ----------    ----------
  Denominator for diluted earnings (loss)
   per share - weighted average shares     10,508,239     7,420,811
                                           ==========    ==========

Basic and diluted earnings (loss)
 per share                                 $     0.06    $    (0.55)
                                           ==========    ==========
</TABLE>
 
The exercise of options and warrants outstanding during the years ended 
November 30, 1998 and 1997 and the conversion of convertible securities 
outstanding during the year ended November 30, 1997 is not assumed as 
the result is antidilutive to the reported loss per share.


NOTE 10 - STOCK OPTIONS PLANS

On September 20, 1995, the Company adopted and received stockholder 
approval of the 1995 Long-Term Incentive and Stock Option Plan (the 
Incentive Plan), which permits the issuance of options, stock 
appreciation rights, and restricted stock awards to employees and 
nonemployee officers, directors, and agents of the Company.   The 
Incentive Plan reserves 570,000 shares of Common Stock for grant and 
provides that the term of each award be determined by the Board or a 
committee of the Board.  Under the terms of the Incentive Plan, options 
granted may be either nonqualified or incentive stock options.  
Incentive stock options must be exercisable at not less than the fair 
market value of a share on the date of grant (110% of fair market value 
if the options are owned by a 10% or greater stockholder) and may be 
granted only to employees.  The Incentive Plan will terminate on 
September 19, 2005, unless terminated sooner by action of the Board.

Options are exercisable for a period of up to ten years from the 
respective exercise date.  Options issued terminate immediately 
following an optionee's termination of employment or, in some 
circumstances, one to three months after termination or up to 12 months 
in the case of the death of the employee.

Additionally, on September 20, 1995, the Company adopted and received 
stockholder approval of the 1995 Outside Directors Stock Option Plan 
(the Directors Plan), which permits the issuance of nonqualified options 
to nonemployee members of the Board.

The Directors Plan reserves 30,000 shares of common stock for grant.   
The Directors Plan provides for a grant of options to purchase 2,000 
shares upon initial election to the Board and for annual grants 
thereafter, upon reelection, of options to purchase 1,000 shares.

Options granted are immediately exercisable for a period of ten years 
from the date of grant at an exercise price per share equal to the fair 
market value of a share on the date of grant.   Upon termination of the 
directorship, the options remain exercisable for periods of varying 
lengths based on the nature of the option and the reason for 
termination.   The Directors Plan will terminate on September 19, 2005, 
unless terminated sooner by action of the Board.

Activity under the Incentive Plan and Directors Plan during the two 
years ended November 30, 1998, is as follows:

<TABLE>
<CAPTION>
	                                  						             Weighted-
                                    Number of      Average Option
                                      Shares       Price Per Share
                                    ----------    ---------------
<S>                                 <C>           <C>  
Outstanding as of November 30, 1996   297,000           $6.27
Granted                                 4,000           $2.53
Exercised                                   -             -
Canceled                               (3,000)          $2.67
                                      -------
Outstanding as of November 30, 1997   298,000           $6.25
Granted                               151,545           $1.32
Exercised                                   -             -
Canceled                              (25,980)          $2.12
                                      -------
Outstanding as of November 30, 1998   432,565           $4.74

</TABLE>

The Company has adopted the disclosure-only provisions of Financial 
Accounting Standards Board Statement No. 123, "Accounting and Disclosure 
of Stock-Based Compensation" (SFAS No.123).  Accordingly, no employee 
compensation expense has been recognized for the Incentive Plan or for 
the Director Plan.   Had employee compensation expense for the Company's 
plan been determined based on the fair value at the grant date for 
awards in fiscal years 1998 and 1997 consistent with provisions of SFAS 
No. 123, the Company's net income (loss) and net income (loss) per share 
would have been as follows:
<TABLE>
<CAPTION>
                                            1998          1997
                                         -----------  ----------
<S>                                      <C>          <C>
Net income (loss) attributable to 
   common shareholders:
      As reported                        $   498,900  $(4,050,286)
      Pro forma                          $    89,973  $(4,388,032)
Basic income (loss) per share:
      As reported                        $      0.06  $     (0.55)
      Pro forma                          $      0.01  $     (0.59) 
Diluted income (loss) per share:		
      As reported                        $      0.06  $     (0.55)
      Pro forma                          $      0.01  $     (0.58)
</TABLE>

The fair value of each option grant is estimated using the Black-Scholes 
Option-Pricing Model with the following weighted-average assumptions for 
1998 and 1997, respectively: risk-free interest rates of 5.0% and 6.17%; 
dividend yield of 0.0%; expected volatility of .89 and .69; and a 
weighted-average expected life of the option of 5.20 years and 8.07 
years.

Information on options outstanding under the Incentive Plan and the 
Directors Plan as of November 30, 1998, is as follows:
<TABLE>
<CAPTION>
                                                       Weighted-
                                   Weighted-Average     Average
        Range of      Number of       Remaining        Exercise
    Exercise Price     Options     Contractual Life     Price
    --------------     -------     -----------------  --------
    <C>               <C>          <C>                <C>
    $0.70 - $1.00       79,000            4.54         $0.72
    $2.00 - $2.75       68,565            5.53         $2.15
    $4.17 - $4.83       13,500            7.28         $4.39
    $6.37 - $7.01      262,500            5.21         $6.65
</TABLE>

NOTE 11 - BUSINESS COMBINATIONS

During 1997, the Company completed several acquisitions which were 
accounted for using the purchase method of accounting.

During 1997, the Company acquired and sold several stores.  Stores 
purchased are operated as Company-owned units for a period of time prior 
to the ultimate resale as a franchised unit.

In January 1997, the Company completed the acquisition of JBI and its 
affiliate, franchisees of the Company, operating a total of four stores 
in Southern California.  The total purchase price paid was $770,000, 
including $120,000 related to a noncompetition agreement with the former 
JBI owner. In October 1997, management closed one of the stores, and it 
closed the remaining three stores in January 1998.  All of the long-
lived assets associated with this purchase were considered impaired as 
of November 30, 1997 (see Notes 7 and 12).

In May 1997, the Company acquired MFM.  At the time of acquisition, 
MFM had five Company-owned and 60 franchised units in operation, and its 
1996 revenues exceeded $2.7 million.   The Company acquired MFM by 
exchanging 432,608 shares of the Company's common stock, restricted as 
to transfer until January 1, 1999, and $259,000 in cash in exchange for 
150 shares of MFM stock.   The Company assumed all assets, including 
approximately $143,000 in cash, and liabilities of MFM.   The Company 
borrowed approximately $356,000 on its credit facility to repay MFM bank 
debt and other borrowings assumed in the acquisition.

On a pro forma basis, had the above acquisitions occurred at December 1, 
1996, revenue for the fiscal year ended November 30, 1997, would have 
been $15,421,000.   Net loss for fiscal 1997 would have been $3,500,000 
or a net loss per share of $0.54.

NOTE 12 - IMPAIRMENT OF LONG-LIVED ASSETS AND STORE CLOSURES

The provision recorded as of November 30, 1997 consisted of the 
following:

   Impairment of long-lived assets                $1,009,867
   Closed-store operating leases and 
      other store closing costs                      504,203
   Impairment of goodwill and other 
      intangible assets associated 
      with impaired long-lived assets                322,911
                                                   ---------
                                                  $1,836,981
                                                   =========

For purposes of determining impairment, management, in certain 
circumstances, groups long-lived assets on a geographic market or store 
level as appropriate.   Such review included, among other criteria, 
management's estimate of future cash flows for the geographic market or 
store.    If the estimated future cash flow (undiscounted and without 
interest charges) were not sufficient to recover the carrying value of 
the long-lived assets, including associated goodwill, of the market or 
store, such assets were determined to be impaired and were written down 
to fair value.   Fair value was determined based on current market 
selling prices of such assets.   Management's judgment is inherent in 
the estimated fair value determinations and, accordingly, actual results 
could vary significantly from such estimates.   The estimated fair value 
of impaired long-lived assets which totaled approximately $171,000 was 
recorded as other current assets as of November 30, 1997.  During fiscal 
1998, the assets were sold to third parties and no significant gains or 
losses were incurred.

The seven stores identified as impaired incurred operating losses during 
the fiscal year ended November 30, 1997, of approximately $555,000.   
One store was closed by November 30, 1997, and the remaining six stores 
were closed during the first quarter of fiscal 1998.  The six stores 
closed during fiscal 1998 incurred operating losses of approximately 
$90,000 which are included in the results of Company-owned store 
operations.

The reserve for closed-store expense, established on November 30, 1997, 
includes an amount for the noncancelable operating lease payments after 
the expected closure date, net of estimated sublease income.  At 
November 30, 1998, the Company has entered into agreements terminating 
the contractual lease obligations associated with the stores closed.  
The final payments to be made pursuant to these agreements will be 
completed in February 1999.  At November 30, 1998, the reserve for 
closed store leases is approximately $36,000.

NOTE 13-SUBSEQUENT EVENTS

On February 1, 1999, the Company purchased certain assets of a related 
group of entities doing business as Jacobs Bros. Bagels (Jacobs Bros.), 
a chain operating retail bagel stores the Chicago, Illinois area.  The 
assets acquired include eight retail locations and a central commissary 
facility in exchange for $950,000 in cash and warrants to acquire 
500,000 shares of the Company's common stock.  The warrants provide for 
the purchase of 275,000 shares and 225,000 shares of common stock at an 
exercise price of $1.25 and $1.50 per share, respectively.  The warrants 
are first exerciseable on February 1, 2000 and expire on January 31, 
2006.    Further, the Company entered into non-competition agreements 
with two principals of Jacobs Bros. totaling $210,000 to be paid over 
varying periods.  Finally, the Company issued 160,000 shares of the 
Company's common stock to the investment bankers.

In January 1999, the Company received a commitment from a finance 
company for various secured loans totaling $1,350,000 to be used for the 
purpose of acquiring the assets identified above and for the 
refurbishment and conversion of the units acquired to Big Apple Bagels 
concept stores.  Principal and interest are payable monthly over a 
period of seven years and  are secured by the assets acquired from 
Jacobs Bros. and all improvements made thereon.  In February 1999, the 
Company borrowed $1,100,000 pursuant to this commitment.


ITEM 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE 
-----------------------------------------------------------------------

See Part III, Item 13 "REPORTS ON FORM 8-K."


                                PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
---------------------------------------------------------------------

Incorporated by reference to the Company's definitive proxy materials to 
be filed with the Commission on or before March 30, 1999. 


ITEM 10.  EXECUTIVE COMPENSATION 
--------------------------------

Incorporated by reference to the Company's definitive proxy materials to 
be filed with the Commission on or before March 30, 1999. 


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

Incorporated by reference to the Company's definitive proxy materials to 
be filed with the Commission on or before March 30, 1999. 


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

Incorporated by reference to the Company's definitive proxy materials to 
be filed with the Commission on or before March 30, 1999. 


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K 
------------------------------------------

REPORTS ON FORM 8-K 

The following reports on Form 8-K were filed by the Company during the 
last quarter of the fiscal year ended November 30, 1998: 

Change in independent auditors.  Filed with the Commission on December 
4, 1998.

EXHIBITS 

The following exhibits are filed herewith. 


	Exhibit           
   No.        Description of Exhibit
--------      ------------------------------------------------------

[i]  2.1      Asset Purchase Agreement dated February 2, 1996 
              between the Company, Brewster's Coffee Company, Inc. 
              and Peter D. Grumhaus

[ii] 2.2a     Asset Purchase Agreement by and among BAB Systems, 
              Inc., Bagels Unlimited, Inc.(''BUI''), and Donald Nelson 
              and Mary Ann Varichak dated May 1, 1996

[ii] 2.2b     Non-Competition Agreement by and among the Company and
              Donald Nelson and Mary Ann Varichak dated May 1, 1996

[ii] 2.2c     Stock Option Agreement between the Company and BUI 
              dated May 1, 1996

[ii] 2.2d     Registration Rights Agreement between the Company 
              and BUI dated May 1, 1996

[iii] 2.3a    Asset Purchase Agreement by and between the Company 
              and Strathmore Bagels Franchise
              Corp. (''Strathmore'') dated May 21, 1996

[iii] 2.3b    Stock Option Agreement dated May 21, 1996 between 
              the Company and Strathmore

[iii] 2.3c    Registration Rights Agreement dated May 21, 1996 
              between the Company and Strathmore

[iii] 2.3d    Non-Competition Agreement dated May 21, 1996 among 
              the Company, Strathmore, Jack Freedman and Glen Steuerman
   
[iii] 2.3e    Memorandum of Understanding Regarding Form of 
              License Agreement effective November 30, 1995, 
              between Strathmore and Host International, Inc.

[iii] 2.3f   Consent to Assignment between Strathmore and Host 
             International, Inc., dated March 13, 1996, 
             as amended May 21, 1996

[iv] 2.4a    Acquisition Agreement dated May 1, 1997 by and among 
             BAB Holdings, Inc., BAB Acquisition Corp., My 
             Favorite Muffin, Too, Inc., Muffin Holdings of 
             Pennsylvania, a limited partnership, Ruth Stern, 
             Owen Stern, and Ilona Stern 

[iv] 2.4b    Registration Rights Agreement dated as of May 1, 
             1997 between BAB Holdings, Inc., and
             Owen Stern, Ruth Stern, Ilona Stern and Pierce W. 
             Hance.

[v] 3.1a     Amended Articles of Incorporation of the Company

[vii] 3.1b   Amended and Restated Statement of Designation, 
             Number, Voting Powers, Preferences and Rights of 
             Series A Convertible Preferred Stock as filed with 
             the Secretary of State of Illinois on March 26, 1997

[v] 3.2      Bylaws of the Company, as amended

[v] 4.1      Form of Stock Certificate evidencing Common Stock, 
             no par value

[v] 4.2      Subscription Agreement with the Aladdin 
             International, Inc. dated August 31, 1995

[v] 4.3      Amended Form of Warrant Issued to Aladdin 
             International, Inc.

[v] 10.1     Form of Franchise Agreement

[v] 10.2     Form of Franchise Agreement-Satellite

[v] 10.3     Form of Franchise Agreement-Wholesale

[v] 10.4     Form of Area Development Agreement

[v] 10.5     Confidentiality and Non-Competition Agreement with 
             Franchisees

[v] 10.6     Form of Confidentiality Agreement with Employees

[v] 10.7     Licensing Agreement dated November 20, 1992 between 
             the Company and Big Apple Bagels, Inc.

[v] 10.8     Assignment of Royalty Mark & Trademark to the 
             Company by Big Apple Bagels, Inc. dated November 20, 1992

[v] 10.9     Agreement dated September 14, 1995 among the 
             Company, Big Apple Bagels, Inc. and Paul C. Stolzer

[i] 10.10    Consulting agreement dated February 16, 1996 between 
             Paul C. Stolzer and BAB Holdings, Inc.

[v] 10.11    Leases dated November 2, 1994 and February 14, 1995 
             for principal executive office

[v] 10.12    1995 Long-Term Incentive and Stock Option Plan

[v] 10.13    1995 Outside Directors Stock Option Plan

[v] 10.14    Settlement Agreement with Timothy Williams d/b/a Big 
             Apple Deli and Stipulated Dismissal with Prejudice

[i] 10.15    Program Agreement dated February 10, 1997 between 
             BAB Systems, Inc. a wholly owned subsidiary of
             the Company, and Franchise Mortgage Acceptance 
             Company LLC

[iv] 10.16   Employment agreement between the Company and Owen 
             Stern dated May 8, 1997
             
21.1         List of Subsidiaries of the Company

23.1         Consent of Blackman Kallick Bartelstein, LLP, independent 
             auditors

23.2         Consent of Ernst & Young LLP, independent auditors

___________________________________________

[i]	Incorporated by reference to the Company's Report on Form 
10-KSB for the fiscal year ended November 30, 1995 

[ii]	Incorporated by reference to the Company's Report on Form 8-K
dated May 1, 1996 

[iii]	Incorporated by reference to the Company's Report on 
Form 8-K dated May 21, 1996 

[iv]	Incorporated by reference to the Company's Report on Form 8-K
dated May 13, 1997

[v]	Incorporated by reference to the Company's Registration 
Statement on Form SB-2, effective November 27, 1995 
(Commission File No. 33-98060C) 

[vi]	Incorporated by reference to the Company's Report on Form 
10-KSB for the fiscal year ended November 30, 1996

[vii]	Incorporated by reference to the Company's Report on 
Form 10-QSB for the quarter ended February 28, 1997



                           INDEX TO EXHIBITS

INDEX
NUMBER		     DESCRIPTION                                

21.1	        List of Subsidiaries of the Company		

23.1	        Consent of Blackman Kallick Bartelstein, LLP,  independent
             auditors

23.2         Consent of  Ernst & Young LLP, independent auditors		
		

					
                               SIGNATURES

In accordance with Section 13 of the Exchange Act, the Registrant has 
duly caused this report on Form 10-KSB to be signed on its behalf by the 
undersigned, thereunto duly authorized. 

BAB HOLDINGS, INC.

Dated:	February 26, 1999	By /s/ Michael W. Evans
Michael W. Evans, Chief Executive 
Officer and President (Principal Executive
Officer)

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



/s/ Michael W. Evans                         February 26, 1999
Michael W. Evans, Chief Executive Officer,   Date         
President and Director (Principal Executive
Officer)


/s/ Michael K. Murtaugh                      February 26, 1999  
Michael K. Murtaugh, Director and Vice	      Date	
President/General Counsel and Secretary


/s/ Joseph M. Merkin                        	February 26, 1999
Joseph M. Merkin, Chief                      Date
Financial Officer and           
Treasurer (Principal Financial and Accounting 
Officer)	


/s/ David L. Epstein                           February 26, 1999            
David L. Epstein, Director 	 	                 Date	


/s/ Cynthia A. Vahlkamp                        February 26, 1999
Cynthia A. Vahlkamp, Director     			 		       Date


/s/ Robert B. Nagel                            February 26, 1999
Robert B. Nagel, Director					                 Date