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 28, 1999

[ ]   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	organization)          Identification 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:

$14,940,901

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: $1,438,964
based on 1,151,171 shares held by nonaffiliates as of March 10, 2000
and the average of the closing bid ($1.1875) and asked ($1.3125) prices
for said shares in the NASDAQ Small-Cap 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:
2,237,557 shares of Common Stock, as of March 10, 2000.


DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy materials to be filed on or before
March 31, 2000 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, Promoters 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
--------------------------------

OVERVIEW

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 trade names.
At November 28, 1999, the Company had 260 units in operation in 28
states, two Canadian provinces and Peru.  The Company additionally
derives income from the sale of its trademark bagels, muffins and
coffee through nontraditional channels of distribution including
under licensing agreements with Host Marriott Services Corporation
(Host Marriott), Mrs. Fields Cookies, Alonti Deli 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 frozen 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 is leveraging 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 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 the units have been 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 and My Favorite Muffin
franchisees as a result of these acquisitions.


RISK FACTORS

Limited Operating History

The Company was formed in November 1992.  As of November 28, 1999, the
Company had 23 Company-owned stores and 237 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 losses from operations of $3,465,000 for the year
ended November 28, 1999 and $3,402,000 for the year ended November 30, 1997
and net income of $647,000 for the year ended November 30, 1998.
However, the Company believes that with a renewed focus on its franchising
and licensing operations and selected investment in its Company-owned stores,
it will generate revenues sufficient to exceed the expenses necessary to
support its operations in the foreseeable future.


Recent Acquisitions

The Company's strategic plan has included growth through business
acquisitions.  Since the beginning of fiscal 1998, the Company has
completed the acquisition of Jacobs Bros.

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.


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 1999, the Company recorded a restructuring charge of
$1,600,000.  Of this amount,$113,000 related to intangible assets.  (See
"Management's Discussion and Analysis" and Note 4 of the audited
consolidated financial statements included herein.)  While management
believes goodwill and other identifiable intangible assets recorded as of
November 28, 1999 to be fairly stated, it is possible that additional
charges to write down assets will be required in the future.  Any such
charges could have a material adverse effect on the Company's financial
results.



Rapid Growth

The Company has grown significantly since inception 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 1999, the Company entered into a new bank credit facility
for $1.5 million.  This new credit facility, which expires April 30,
2000, replaces the previous secured line of credit in the amount of
$1.75 million, which expired on December 31, 1999.  This new credit
line is secured by substantially all of the assets of the Company
excluding those acquired through the Jacobs Bros. acquisition and
is subject to essentially the same loan covenants as the expired
line, including covenants to maintain a minimum net worth of $6
million and maintain a compensating cash balance of $250,000.  At
December 31, 1999 the Company had borrowed the maximum amount
available under the new line of credit.  The Company is negotiating
to replace the current line of credit.  However, there is no assurance
that this can be done on terms favorable to the Company.

In June 1999 the Company obtained an amortizing loan in the amount
of $170,000 from a finance company.  Proceeds were used to purchase
two stores from a franchisee in Wisconsin.

In February 1999 the Company obtained a series of amortizing loans
in the amount of $1,350,000 from a finance company.  Loan proceeds
of $950,000 were used to purchase certain assets of Jacobs Bros.
Bagels.  An additional $280,000 was used to purchase equipment and
fund remodeling required on the units acquired in the purchase.  The
remaining $120,000 was used to purchase assets from a former
franchisee in Colorado.

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.  Current liabilities
exceed current assets.  (See "Management's Discussion and Analysis" and
Note 6 to the audited 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 growing rapidly and 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"), 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 and McDonalds, 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, 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 food marketing 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 3,880,000 shares of preferred
stock.  The Board of Directors, without shareholder approval, may issue such
shares in one or more series and set the terms of each such series.  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 make a change in control of the Company more difficult to accomplish
and could hamper attempts by outside parties.

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 shareholders.  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

In October 1999, the Company issued 818,491 shares of Common Stock in
exchange for 60,000 shares of its Series A Convertible Preferred Stock
plus accrued dividends. 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 tradable, 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 83,333 shares of Common
Stock issued in consideration of the assets acquired and warrants for 26,666
shares of Common Stock to the investment bankers for services rendered in
connection with the acquisition.  The shares issuable upon exercise of all
of these warrants have certain limited rights to registration, to make the
shares fully tradable.  In addition, pursuant to Rule 144 under the Act,
these shares will be publicly tradable in part beginning one year after
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.  During the fourth quarter of 1999, the Company was
notified that its stock would be removed from the Nasdaq SmallCap Market due
to failure to maintain a minimum $1.00 bid price.  In December 1999, the
Company held a special meeting of shareholders to approve a one-for-six
consolidation of its Common Stock, thereby preserving its Nasdaq listing.  It
is possible that the Company will be unable to maintain the required minimum
bid price or otherwise meet all Nasdaq listing standards.  In such event,
trading would cease in the Nasdaq SmallCap Market and 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 12 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 72,101 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 12 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 83,333 shares of Common Stock at an exercise price
of $7.50 per share as to 45,833 shares and $9.00 per share as to
37,500 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 12 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 28, 1999.

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

UNITED STATES:
Alabama                            1                    1
California (i)          5          1           3        9
Colorado                           3                    3
Connecticut                        1           2        3
Florida                            7           2        9
Georgia                            3           4        7
Illinois (ii)           9         29          12       50
Indiana                           10                   10
Iowa                               9                    9
Kentucky (ii)                      2                    2
Maryland                                       1        1
Michigan                          25           3       28
Minnesota                          7           1        8
Missouri                                       9        9
Nebraska (ii)                      3                    3
Nevada                             2           5        7
New Jersey                        17           3       20
New York                           2           3        5
North Carolina                                 5        5
Ohio                    2         10           2       14
Oregon                             1                    1
Pennsylvania                      10                   10
Rhode Island                       2                    2
Texas                              5                    5
Utah                               2                    2
Virginia                           1			  1
Washington                         2                    2
Wisconsin               7         15           3       25
CANADA:
British Columbia                   1           1        2
Ontario                            2           1        3
Peru					     4	      	  4
                     -----     ------       -----    -----
Total                  23        177          60      260
                     =====     ======       =====    =====
</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
Marriott, 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 Cafe, 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 28, 1999, FMAC has advanced funds totaling
$420,000 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 was wholly owned by Paul C. Stolzer, a principal
stockholder and a former director and president of the Company, who sold
the license to a third party in 1999.  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 28, 1999, the Company employed 366 persons. Of these
individuals, 333 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 Company
had no material problems with the Year 2000 issue subsequent to year end.




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 a lease, expiring in June 2004.  The Company believes
that these facilities will be adequate to meet its needs for the
remainder of the term of the lease.  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 7 to the audited consolidated financial statements included
herein.)


ITEM 3.  LEGAL PROCEEDINGS

None.

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

The following matters were voted upon at the registrant's special meeting
Of shareholders held on December 8, 1999.  Each of the proposals passed.

1. Amendment of the Articles of Incorporation to effect a Common Stock
Combination of both the authorized and outstanding Common Stock in a
ratio not to exceed 6:1 (each six shares will become one share.)

  For 11,520,349	Against  1,403,182  Abstain  14,995  Non-vote  0

2. Amendment of the Articles of Incorporation to increase the authorized
Capital stock to its pre-combination level.

  For 11,310,685	Against  1,588,246  Abstain  18,251  Non-vote  21,344

Broker non votes were not counted as "present and entitled to vote."

The Common Stock combination of 6:1 was effected on December 10, 1999.
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 28,1999. The Company's Common
Stock is traded under the symbol "BAGD."

<TABLE>
<CAPTION>
                                           LOW           HIGH
                                          -----          ----
   <S>                                    <C>            <C>
   YEAR ENDED NOVEMBER 30, 1998
   First quarter....................      $3.75          $8.25
   Second quarter................... 	 3.75           8.63
   Third quarter....................       3.75           8.06
   Fourth quarter...................       6.75           9.00
   YEAR ENDED NOVEMBER 28, 1999
   First quarter....................      $3.56	         $9.75
   Second quarter...................       3.94           7.13
   Third quarter....................       3.00           6.75
   Fourth quarter...................       1.31           3.75

</TABLE>

All share prices reflect the 1:6 reverse split of the Common Stock effected on
December 10, 1999.

As  of March 1, 2000, 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
March 1, 2000 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 9 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.  As of October 1999, all of the
Preferred Stock issued plus accumulated dividends was converted into
Common Stock.

On February 1, 1999 the Company issued warrants for purchase of an
aggregate of 83,333 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 $7.50 per share as to 45,833
shares and $9.00 per share as to 37,500 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 26,666 shares of
Common Stock in connection with services rendered in the Jacobs Bros.
acquisition, including 10,833 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.

On October 21, 1999 the remaining 60,000 shares of the Company's Series
A convertible preferred stock plus accumulated dividends were converted
in accordance with the terms of the preferred stock to an aggregate of
818,491 shares of common stock by the holder of the preferred stock,
Holdings Investments, LLC an Illinois limited liability company
(the "LLC").  (See Schedule 13D filed on behalf of the LLC on October
29, 1999.)  No cash or other consideration was required or paid in
connection with the conversion.  The Common Stock was issued to one
investor (the LLC) in a non-public offering in reliance on Section 4(2)
of the Securities Act of 1933.



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 23
Company-owned stores and 237 franchised and licensed units at the end of
fiscal 1999.  Units in operation at the end of fiscal 1998 included 22
Company owned stores and 271 franchised and licensed units.  System-wide
revenues in fiscal 1999 reached $78 million compared to $79 million in
the year ago period.

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 derives revenue
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.

During the fourth quarter of fiscal 1999, management identified thirteen
under-performing stores which were operating at a loss and which, based
on the estimated future cash flows, were considered to be impaired.
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 $1,600,000.  Approximately $1,236,000 represents a
noncash write-down of property and equipment, $113,000 is related to the
write down of intangible assets and the remainder represents a reserve for
severance and other costs. One store was closed and one store was sold during
fiscal 1999 with the remaining eleven stores expected to be sold during fiscal
year 2000.  In addition the Company wrote down and reserved $1,044,000 of
franchise-related receivables pertaining to closed stores.


Despite the increase in both franchise and licensed operations and the
acquisition of Jacobs Bros., the Company has controlled expenses in payroll,
occupancy and overhead costs in the corporate offices. At November 30,
1999, the Company had 33 employees at the corporate level who oversee
operations of the franchise, licensed and Company-owned store
operations, down from 41 at the end of 1998.  Selling, general and
administrative expenses, net of the provision for doubtful accounts, are
essentially flat compared to fiscal 1998 both as a percentage of revenue and
also in absolute dollars.  Efficiencies have resulted in selling, general and
administrative expenses, net of the provision for doubtful accounts, decreasing
to 39.3% in 1999 compared to 40.2% in 1998 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 non-traditional
sources of revenue 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 2000.
The Company believes it is in a position to continue to leverage selling,
general and administrative expenses against increased revenues anticipated in
fiscal 2000.


FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998

Total revenues increased 3% to $14,941,000 in 1999 from $14,549,000 in
the prior year. Net sales by company-owned stores increased by 15.5% to
$10,311,000 in large part due to the acquisition of Jacobs Bros. which
provided incremental revenue of $3,883,000 offset by the sale of 5
units with approximately $2,000,000 in sales.
Royalty fees from franchise stores decreased slightly to $3,086,000 in
fiscal 1999 from $3,178,000 in fiscal 1998 principally due to a reduction
in the total number of franchised units open.  Franchise and area
development fee revenue was $494,000 versus a year ago performance of
$1,104,000 attributable to the timing of domestic store openings and the
number of international deals signed in 1998 versus 1999.  Finally,
licensing fees and other income was $1,050,000 versus $1,337,000 in 1998
primarily because of the acceleration of licensing deals into 1998.

Food, beverage and paper costs incurred at the Company-owned stores
decreased as a percentage of revenue from 33.6% in 1998 to 30.5% in 1999 an
improvement of just over 3 percentage points.  Store payroll and other costs
increased to 64.0% of sales from 58.4% because of the integration of the Jacobs
Bros. acquisition.

Selling, general & administrative costs fell as a percentage of revenue to 39.3%
from 40.2% prior to the $1,044,000 charge for writing off royalties for closed
stores.  The 1999 results of operations include the decision to re-franchise a
number of company stores to focus on building equity in the 3 brands and to
concentrate on franchising and marketing.  The total non-cash charge taken in
the fourth quarter was $1,600,000 plus the aforementioned $1,044,000 of accounts
receivable write-offs.  The $1,600,000 charge includes a reserve to write down
property and equipment and associated goodwill to fair market value, a reserve
to accrue for future lease obligations, plus the costs associated with closing
the stores.  (See Note 4 to the audited consolidated financial statements
included herein.)  Depreciation and amortization increased by 6% because of
the Jacobs Bros. acquisition.

Loss from operations was $(3,388,000) in fiscal 1999 versus income from
operations of $515,000 in fiscal 1998. Interest income increased to
$154,000 in fiscal 1998 from $119,000 in the prior year due to the
increase in notes receivable during fiscal 1999. Interest expense was
$292,000 during 1999 versus $206,000 in 1998 as a result of the increased
borrowing associated with the Jacobs Bros. acquisition.

Net loss totaled ($3,588,000) during the current fiscal year as
compared to income of $499,000 in the prior year.  Preferred dividends
accumulated during 1999 totaled $124,000 compared to $148,000 in the prior
year.




LIQUIDITY AND CAPITAL RESOURCES

The net cash used in operating activities totaled ($440,000) during
fiscal 1999.  Cash used principally represents net loss, adjusted
for the depreciation and amortization of $1,248,000, the special charge
of $1,600,000 plus the provision for uncollectible accounts of $1,044,000
offset by increases in trade accounts receivable ($569,000) and contributions
receivable by the National Marketing Fund ($125,000).  In 1998, the
net cash provided by operating activities included net income of $645,000
plus depreciation and amortization of $1,180,000, deferred revenue of
$350,000, prepaid expenses and other assets of $386,000, and provision for
uncollectible accounts of $125,000 offset by an increase in trade accounts
receivable of ($332,000), notes receivable of ($491,000)and an income tax
benefit of ($180,000).  In addition, accounts payable decreased by ($589,000)
and the reserve for closed store expenses was reduced by ($468,000).  Finally,
accrued liabilities were reduced by ($140,000) and deferred franchise fee was
reduced by ($282,000).

Cash used for investing activities during 1999 totaled $218,000, and was
used primarily for the purchase of property, equipment and trademarks
offset by loan repayments and sales of property and equipment.  In the prior
year, cash used for investing activities totaled ($146,000) which consisted
primarily of the purchase of property, equipment and trademarks offset by
loan repayments and sales of property and equipment.

Financing activities used ($448,000) during fiscal 1999.  The Company
Paid down its line of credit with its bank by $345,000 and also repaid $111,000
on its amortizing loan.  The Company had also borrowed $125,000 on its line of
credit in 1999.

Financing activities provided a total of $153,000 during fiscal 1998. This
was substantially the net amount of borrowings and repayments on the Line.



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 REPORTS

              YEARS ENDED NOVEMBER 30, 1999 AND 1998

<PAGE>

                         BAB HOLDINGS, INC.

               Years Ended November 30, 1999 and 1998


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

                                       Reference

Independent Auditor's Report

Consolidated Balance Sheets             Exhibit A

Consolidated Statements of Operations   Exhibit B

Consolidated Statements of
   Stockholders' Equity                 Exhibit C

Consolidated Statements of
   Cash Flows                           Exhibit D

Notes to Consolidated Financial
   Statements

<PAGE>

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


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


We have audited the accompanying consolidated balance sheets of BAB HOLDINGS,
INC. as of November 30, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
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 audits.

We conducted our audits 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 audits provide 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, 1999 and 1998, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.


                              /s/ Blackman Kallick Bartelstein, LLP


Chicago, Illinois
February 3, 2000



<PAGE>

<TABLE>
<CAPTION>
                              BAB HOLDINGS, INC.

                          Consolidated Balance Sheets

 			  Years Ended November 30, 1999 and 1998
                                     ASSETS
                                     ------
                                                    1999         1998
                                                -----------   -----------
<S>                                             <C>          <C>
Current Assets:
  Cash and cash equivalents, including
   restricted cash of $21,946 in 1999
   and $218,646 in 1998                          $    30,818  $   700,162
  Receivables
     Trade accounts receivable, net of
      allowance for doubtful accounts of
      $770,764 in 1999 and $341,521 in 1998	   1,106,010    1,181,282
     National Marketing Fund contributions
      receivable                                     415,317      309,633
     Notes receivable, net of allowance for
      doubtful accounts of $482,744 in 1999
      and $20,000 in 1998                            394,836      444,560
  Inventories                                        293,838      298,501
  Deferred franchise costs                                 -       18,227
  Assets held for sale                             1,323,736            -
  Prepaid expenses and other current assets          276,717      206,952
  Deferred income taxes                              530,005      431,719
                                                  ----------   ----------
          Total Current Assets                     4,371,277    3,591,036

Property and Equipment
  Leasehold improvements                           1,143,835    2,618,906
  Furniture and fixtures                             574,020      744,833
  Equipment                                        1,837,710    2,513,715
  Construction in progress                                 -       68,543
                                                  ----------   ----------
                                                   3,555,565    5,945,997
  Less accumulated depreciation                   (1,382,406)  (1,743,800)
                                                  ----------   ----------
          Total Property and Equipment, Net        2,173,159    4,202,197

Notes Receivable                                     517,186    1,086,100
                                                  ----------   ----------
Intangibles
  Patents, trademarks and copyrights (Net of
   accumulated amortization of $155,143 in 1999
   and $90,374 in 1998)                              977,788      568,683
  Goodwill (Net of accumulated amortization
   of $232,885 in 1999 and $164,806 in 1998)       2,510,379    2,591,515
  Franchise contract rights (Net of accumulated
   amortization of $267,670 in 1999 and
   $152,375 in 1998)                               1,816,295    1,919,909
  Other assets (Net of accumulated amortization
   of $303,117 in 1999 and $235,056 in 1998)         488,494      485,551
                                                  ----------   ----------
           Total Intangibles, Net                  5,792,956    5,565,658
                                                  ----------   ----------
                                                 $12,854,578  $14,444,991
                                                  ==========   ==========
</TABLE>

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

<PAGE>

<TABLE>
<CAPTION>
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
                                                    1999           1998
                                               ------------    ------------
<S>                                          <C>             <C>
Current Liabilities
  Accounts payable                             $    939,787    $  1,014,734
  Accrued liabilities                               875,563         714,789
  Reserve for closed store expenses                 168,719          36,388
  Accrued professional and other services           229,154         214,972
  Unexpended National Marketing Fund
   contributions                                    544,625         465,173
  Long-term debt due within one year              1,818,087         134,814
  Deferred franchise fee revenue                    267,500         360,500
                                               ------------    ------------
          Total Current Liabilities               4,843,435       2,941,370
                                               ------------    ------------
Noncurrent Liabilities
  Deferred revenue                                  309,789         263,996
  Deferred income taxes                             350,005         251,719
  Long-term debt (Net of portion included
   in current liabilities)                        1,255,862       1,759,954
                                               ------------    ------------
          Total Noncurrent Liabilities            1,915,656       2,275,669
                                               ------------    ------------
          Total Liabilities                       6,759,091       5,217,039
                                               ------------    ------------
Stockholders' Equity:
  Common stock - No par value; 3,333,333
   shares authorized; 2,287,656 shares and
   1,442,499 shares issued, respectively;
   and 2,237,540 shares and 1,393,616 shares
   outstanding, respectively                     13,507,669      11,430,452
  Preferred stock - $0.01 par value; 3,880,000
   shares authorized; no shares issued
   and outstanding                                        -              -
  Series A Preferred stock - $25 par value;
   120,000 shares authorized; 0 shares and
   60,000 shares issued and outstanding,
   respectively                                           -       1,548,731
  Treasury stock at cost, 50,116 shares and
   48,883 shares, respectively                      (43,963)        (36,067)
  Additional paid-in capital                      1,187,696       1,252,402
  Accumulated deficit                            (8,555,915)     (4,967,566)
                                               ------------    ------------
         Total Stockholders' Equity               6,095,487       9,227,952
                                               ------------    ------------
                                               $ 12,854,578    $ 14,444,991
                                               ============    ============
</TABLE>

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

                      Consolidated Statements of Operations

                     Years Ended November 30, 1999 and 1998

                                                   1999          1998
                                               -----------    -----------
<S>                                         <C>             <C>
Revenues
  Net sales by Company-owned stores            $10,310,869    $ 8,929,664
  Royalty fees from franchised stores            3,085,949      3,178,262
  Franchise and area development fees              493,869      1,104,000
  Licensing fees and other income                1,050,214      1,337,314
                                               -----------    -----------
            Total Revenues                      14,940,901     14,549,240

Operating Costs and Expenses
  Food, beverage, and paper costs                3,148,698      2,998,079
  Store payroll and other operating expenses     6,601,415      5,213,359
  Special charge					       1,600,406      (107,699)
  Selling, general and administrative expenses:
     Payroll-related expenses                    2,484,045      2,262,616
     Occupancy			                     337,063        259,253
     Advertising and promotion                     435,719        532,678
     Professional service fees                     361,655        362,360
     Franchise-related expenses                    152,736        261,287
     Provision for doubtful accounts             1,043,993		124,521
     Depreciation and amortization               1,247,868      1,180,259
     Other                                         915,035        947,372
                                               -----------    -----------
             Total Selling, General and
               Administrative Expenses           6,978,114      5,930,346
                                               -----------    -----------
             Total Operating Costs
               and Expenses                     18,328,633     14,034,085
                                               -----------    -----------
Income (Loss) from Operations                   (3,387,732)       515,155

Interest Income                                    153,758        119,244

Interest Expense                                  (292,457)      (205,618)

Other Income                                        61,862         54,022
                                               -----------    -----------
Income (Loss) Before Taxes                      (3,464,569)       482,803

Provision (Benefit) for Income Taxes
  Current                                                -         16,039
  Deferred                                               -       (180,000)
                                               -----------    -----------
  									   -       (163,961)
                                               -----------    -----------
Net Income (Loss)                               (3,464,569)       646,764

Preferred Stock Dividends Accumulated             (123,780)      (147,864)
                                               -----------    -----------
Net Income (Loss) Attributable to
 Common Stockholders                           $(3,588,349)   $   498,900
                                               ===========    ===========

Income (Loss) per Share - Basic and Diluted    $     (2.32)    $     0.37
                                               ===========    ===========
</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, 1999 and 1998

                                             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, 1997  1,330,272 $10,908,062   78,710  1,862,035(45,000)  (17,500)
Conversion of
  Preferred to
  Common Stock         112,229     522,390  (18,710)  (441,173)   --         --
Preferred Dividends
  Accumulated               --          --       --    147,864    --         --
Preferred Dividends
Paid 				    --          --       --    (19,995)   --         --
Purchase of
Treasury Stock              --          --       --         -- (3,883)  (18,567)

			  ----------  ----------  ------   --------- -------  -------
Balance as of
  November 30, 1998  1,442,499  11,430,452  60,000   1,548,731(48,883)  (36,067)
Conversion of
  Preferred to
  Common Stock         818,491   1,937,217 (60,000) (1,672,511)    --        --
Preferred Dividends
  Accumulated               --          --      --     123,780     --        --
Purchase of
Treasury Stock              --          --      --          -- (1,233)   (7,896)
Issuance of Stock		26,666     140,000
                    ---------- -----------  ------ ----------- -------  -------
-
Balance as of
  November 30, 1999  2,287,656 $13,507,669      --          --(50,116)  (43,963)
                    ========== ===========  ======  ========== ======== =======
</TABLE>
                       (WIDE TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>

                                   ADDITIONAL
                                    PAID-IN      ACCUMULATED
                                    CAPITAL        DEFICIT         TOTAL
                                  -----------    -----------    -----------
<S>                                <C>           <C>            <C>
Balance as of November 30, 1997    $1,368,619   (5,466,466)      8,654,750
Termination of Options Issued
  in Connection with Acquisitions     (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
Issuance of Common Stock
   in Acquisitions                         --           --         140,000
Purchase of Treasury Stock 		       --           --		  (7,896)
Issuance of Warrants                  200,000           --         200,000
Preferred Dividends Accumulated            --     (123,780) 	      --
Conversion of Preferred to
   Common Stock                      (264,706)           --              --
Net Loss                                   --    (3,464,569)     (3,464,569)
                                  -----------    -----------    -----------
Balance as of November 30, 1999     1,187,696    (8,555,915)      6,095,487
                                  ===========    ==========     ===========
</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, 1999 and 1998

                                                         1999         1998
                                                     -----------   ----------
<S>                                                   <C>          <C>
Cash Flows from Operating Activities
  Net income (loss)                                  $(3,464,569)  $  646,764
                                                     -----------    ---------
-
  Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities
     Depreciation and amortization                     1,247,868   1,180,259
     Provision for store conversions                   1,600,406           -
     Provision for uncollectible accounts              1,043,993	   124,521
     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                      (569,380)   (331,811)
         National Marketing Fund contributions
          receivable                                    (124,558)     72,799
         Inventories                                       4,663      45,923
         Deferred franchise costs                         18,227      58,578
         Notes receivable                                 23,044    (491,003)
         Prepaid expenses and other assets               (93,465)    386,461
       Increase (decrease) in
         Accounts payable                                (94,499)   (588,927)
         Accrued professional and other services         (18,238)   ( 12,923)
         Reserve for closed store expenses               (36,344)   (467,815)
         Accrued liabilities                              36,476 	  (140,192)
         Unexpended National Marketing Fund
          franchisee contributions                        85,758 	   (57,549)
         Jacobs Bros. non-compete agreement              (90,000)          -
         Deferred franchise fee revenue                  (99,207)   (281,500)
                                                       ----------   ---------
         Total Adjustments                             2,934,744    (343,572)
                                                       ----------   ---------
         Net Cash Provided by (Used in)
          Operating Activities                          (529,825)    303,192
                                                       ---------    ---------
</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, 1999 and 1998

                                                        1999           1998
                                                    ------------   ----------
<S>                                                 <C>           <C>
Cash Flows from Investing Activities
  Purchases of property and equipment               $   (148,498) $  (198,295)
  Sale of property and equipment                         101,140       33,484
  Purchase of trademarks                                 (21,892)     (75,892)
  Loan disbursements)     						   -	    (13,263)
  Loan repayments                                        247,059      138,900
  Other                                                   40,445      (31,029)
                                                     -----------   ----------
         Net Cash Used in Investing Activities           218,254     (146,095)
                                                     -----------   -----------
Cash Flows from Financing Activities
  (Repayments)Borrowing on line of credit               (219,972)     337,500
  Debt repayments                                       (110,777)    (145,769)
  Other                                                  (27,024)     (38,562)
                                                     -----------   ----------
          Net Cash Provided by Financing Activities     (357,773)     153,169
                                                     -----------   ----------
Net Increase (Decrease) in Cash and Cash Equivalents    (669,344)     310,266

Cash and Cash Equivalents, Beginning of Year             700,162      389,896
                                                     -----------    ---------
Cash and Cash Equivalents, End of Year               $    30,818   $  700,162
                                                     ===========   ==========
</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, 1999 and 1998

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

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, Investments 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.  The assets of
Jacobs Bros. Bagels (Jacobs Bros.) were acquired on February 1, 1999.  See
Note 12. The company continues to operate four stores with the Jacob Bros.
name.


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.

Change in Fiscal Year End
-------------------------

Effective with the 1999 fiscal year-end, the Company adopted a 52-53 week
period ending on the Sunday closest to November 30.  The 52-week fiscal year
ended on November 28 for 1999.  The impact of the change from fiscal year-end
to a 52-53 week period upon 1998 financial statements is not material and
therefore no adjustment has been made.  For convenience throughout the
consolidated financial statements, the Company's fiscal year-end is referred
to as November 30.

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 are
amortized over varying periods from 8.5 to 20 years.  Goodwill recorded as a
result of acquisitions is being amortized over 40 years.  Other intangibles
including noncompete agreements are being amortized over the terms of the
agreements which is 5-6 years.  Amortization expense recorded in the
accompanying consolidated statements of operations for the years ended
November 30, 1999 and 1998 was $344,306 and $326,089, 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.

Stock Warrants
--------------

Stock warrants 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 stock warrants 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 1999
and 1998, 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, 1999 or 1998, or area development fees
collected are as:

<TABLE>
<CAPTION>
                                         1999     1998
                                         ----     ----
   <S>                                   <C>      <C>
   Stores opened:
      Company-owned                        23       22
      Franchisee-owned                    177      194
      Licensed                             60       77
                                         ----     ----
                                          260      293
   Unopened stores:
      Franchise agreement                  10       15
      Area development agreement            8       19
                                         ----     ----
                                           18       34
                                         ----     ----
                                          278      327
                                         ====     ====
</TABLE>

Advertising Costs
-----------------

The Company expenses advertising costs as incurred.  Advertising expense was
$193,364 and $331,004 in 1999 and 1998, respectively.  Included in
advertising expense was $55,019 and $53,593 in 1999 and 1998, respectively,
related to the Company's franchise operations.

Comprehensive Income (Loss)
---------------------------

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," which established standards for the
reporting and display of comprehensive income (loss) and its components in
the financial statements.  Components of comprehensive income (loss) include
amounts that, under SFAS No. 130, are included in the comprehensive income
(loss) but are excluded from net income (loss).   There were no differences
between the Company's net (loss) income and comprehensive (loss) income.

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, 1999 and 1998, approximates
their carrying value.


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

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133
is effective for the fiscal years beginning after June 15, 2000.  SFAS No.
133 requires that all derivative instruments be recorded on the balance sheet
at their fair market value.   Changes in the fair value of derivatives are
recorded each period in the current earnings or other comprehensive income
(loss) depending on whether a derivative is designed as part of a hedge
transaction and, if so, the type of hedge transaction involved.   The Company
does not expect that adoption of SFAS No. 133 will have a material impact on
its consolidated financial position or results of operations, as the Company
does not currently hold any derivative financial instruments.


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 1998 amounts have been reclassified to reflect the 1999 presentation.


NOTE 3 - RESTRICTED CASH

Systems and MFM have established the National Marketing Fund (Fund).  Certain
franchisees and Company-owned stores 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, 1999 and 1998, the Fund's cash balance
was $21,946 and $218,646, respectively.


NOTE 4 - SPECIAL CHARGE

During the fourth quarter of 1999, the Company made the decision to refranchise
certain Company-owned stores, in order to concentrate on franchising and
marketing and building equity in the branding of its trademarked names and
products.  The Company-owned stores, which were to be converted to franchised
units were written down to fair value based upon actual selling prices or, if
not sold prior to year-end, upon management's judgment based upon the
previous sale 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 the
remaining assets to be sold totaled $1,323,736 was recorded as a current
asset as of November 30, 1999.

The actual and planned conversions resulted in a pre-tax loss of $1,600,406
during the fourth quarter of 1999.  As of November 30, 1999, $168,719 of the
charge, primarily for severance and lease termination costs, remains as a
liability for store conversions.  A summary of the special charge is
presented below:

<TABLE>
<CAPTION>

<S>                                       		  <C>
 Loss associated with actual and
 expected conversion
 of stores to franchisee                                 $1,236,568
 Severance, lease termination and other costs               250,713
 Write-off of Canadian franchise rights                     113,125
                                                          ---------
                                                         $1,600,406
                                                          =========
</TABLE>



In addition, the Company reserved or wrote off approximately $1,044,000 of
accounts and notes receivable during 1999.  This additional reserve primarily
resulted from store closings of franchisees.

The negative special charge in 1998 of $107,699 resulted from the overaccrual
in 1997 for store closing costs.

NOTE 5 - INCOME TAXES

The reconciliation of the income tax (benefit) provision  computed at the
federal statutory rate of 34% and the benefit for income taxes is as follows:
<TABLE>
<CAPTION>
                                            1999         1998
                                         -----------   ---------
<S>                                     <C>          <C>
Income tax provision (benefit)
 computed at federal statutory rate      $ (918,743)  $  164,153
State income taxes (benefit), net
  of federal tax benefit                   (127,753)      23,261
Other adjustments                             3,100       16,781
Change in valuation allowance             1,043,396     (368,156)
                                          ---------   ---------
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>
                                              1999         1998
                                           ----------    --------
<S>                                        <C>          <C>
Franchise fee revenue                      $  100,926  $   20,638
Franchise costs                                61,620      52,745
National Marketing Fund net contributions       7,960      71,737
Allowance for uncollectible accounts          460,485     129,125
Notes receivable					    (72,325)	    -
Net operating loss carryforwards            2,529,506   1,672,245
Valuation allowance                        (2,558,167) (1,514,771)
                                            ---------   ---------
     Total Deferred Tax Assets                530,005     431,719
                                            ---------   ---------
Depreciation                                 (350,005)   (249,263)
Other								    -      (2,456)
                                            ---------   ---------
     Total Deferred Tax Liabilities          (350,005)   (251,719)
                                            ---------   ---------
                                            $ 180,000   $ 180,000
                                            =========   =========
</TABLE>

As of November 30, 1999, the Company has cumulative net operating loss
carryforwards expiring between 2008 and 2014 for U.S. federal income tax
purposes of $6,516,323.  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 $2,558,167 of the deferred tax
benefit related to those loss carryforwards and other deferred tax assets for
which it is considered more likely than not that the benefit will not be
realized.


NOTE 6 - LONG-TERM OBLIGATIONS

Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                              1999          1998
                                           ---------     ---------
<S>                                       <C>           <C>
Secured line of credit payable to
   bank, due December 31, 1999,
   at an interest rate of prime
   plus 1%                                $1,657,493    $1,877,465
Capital lease obligations,
   various rates                               7,232        17,303
Secured note payable, principal
   payments due monthly at an
   interest rate of 11.3%                  1,239,224             -
Other							   170,000		     -
                                           ---------     ---------

                                           3,073,949     1,894,768
Less current portion                      (1,818,087)   (  134,814)
                                           ---------     ---------
Long-Term Debt, Net of Current Portion    $1,255,862    $1,759,954
                                           =========    ==========
</TABLE>

The Company had a secured $1.75 million line-of-credit facility (Line) with a
bank which expired December 31, 1999.  Maximum borrowing under the Line was
limited to 80% of accounts receivable under 90 days and 40% or original cost
of equipment, furniture and fixtures.  Interest was payable monthly at prime
plus 1% (9.25% as of November 30, 1999), with principal due upon maturity on
December 31, 1999.  As of November 30, 1999, the Company had borrowed
$1,657,493 on the Line.

In December 1999, the Company entered into a new bank credit facility for $1.5
million. This new credit line is secured by substantially all of the assets of
the Company excluding those acquired through the Jacobs Bros. acquisition and
requires, among other things, that the Company maintain minimum net worth of
$6 million and maintain a compensating cash balance of $250,000.  Maximum
borrowing terms under the Line are identical to the previously expired
agreement.  The interest rate on this new line of credit is prime plus 4%.
The new line expires on April 30, 2000, however, it is management's expectation
that this agreement will be renewed by the bank or that a similar arrangement
with another lender will be concluded.

As of November 30, 1999, annual maturities on long-term obligations are due as
follows:

<TABLE>
<CAPTION>

<S>                                       		  <C>
                Year Ending November 30:
 						FY 2000		    1,818,087
 						FY 2001    			180,363
						FY 2002      		199,427
 						FY 2003   	      	222,763
 						FY 2004  	      	247,052
						Thereafter			406,257
			   						    ---------
								          3,073,949
 			   						    =========
</TABLE>

In June 1999, the Company obtained an amortizing loan in the amount of
$170,000 from a finance company.  Proceeds were used to purchase two stores
from a franchisee in Wisconsin.

In February 1999, the Company obtained a series of amortizing loans in the
amount of $1,350,000 from a finance company.  Loan proceeds of $950,000 were
used to purchase certain assets of Jacobs Bros. Bagels.  Approximately
$280,000 was used to purchase equipment and fund remodeling required on the
units acquired in the purchase.  The remaining $120,000 was used to purchase
assets from a former franchisee.

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, 1999, $420,000 has been advanced to franchises under this program.

Interest paid for the years ended November 30, 1999 and 1998 was $292,457 and
$202,312, respectively.


NOTE 7 - 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, 1999 and 1998 was $1,277,463 and $936,895, including contingent
rental expense of  $0 and $41,646, less sublease income of $259,577 and
$106,606, respectively.  As of November 30, 1999, future minimum annual
rental commitments under leases, net of sublease income of $170,073 in 2000,
$80,790 in 2001, $83,542 in 2002, $86,384 in 2003, and $148,584 in 2004 are
as follows:

 <TABLE>
<CAPTION>

<S>                                       		  <C>
                Year Ending November 30:
 						FY 2000		  $ 1,011,776
 						FY 2001    			978,325
						FY 2002      		808,090
 						FY 2003   	      	814,345
 						FY 2004  	      	559,559
						Thereafter			402,642
			   						    ---------
								       $  4,574,737
 			   						    =========
</TABLE>


NOTE 8 - NONCASH TRANSACTIONS

In February 1999, the Company acquired certain assets of Jacobs Bros. Bagels
(Jacob Bros.)  See Note 12.   The company financed this acquisition with a
lender in the amount of $950,000.   Also the company issued common stock in
the amount of $140,000 and warrants valued at $200,000 in connection with
this acquisition.  The company also accrued $210,000 for the noncompete
agreement.

The company acquired two stores from a franchisee for forgiveness of
outstanding royalty fees and national marketing fund receivables in the
amount of $171,371.  The company also assumed liabilities in the amount of
$170,000.

The company acquired assets and assumed liabilities from a franchisee in the
amount of $119,500.

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 16,667 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 9 - STOCKHOLDERS' EQUITY

During fiscal 1999, holders elected to convert 60,000 shares of Preferred
Stock plus dividends accrued thereon into 818,491 shares of common stock.
During fiscal 1998, holders elected to convert 18,710 shares of Preferred
Stock plus dividends accrued thereon into 112,229 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.


Preferred dividends of $123,780 and $147,864 accumulated during fiscal years
1999 and 1998, respectively.

On December 10, 1999, subsequent to a favorable vote by stockholders, the
Company effected a 1:6 reverse split of the outstanding shares of common
stock.  Accordingly, all data shown in the accompanying consolidated
financial statements and notes has been retroactively adjusted to reflect the
reverse split.


NOTE 10 - EARNINGS PER SHARE

The computation of basic and diluted earnings (loss) per share is as
follows:
<TABLE>
<CAPTION>
                                             1999          1998
                                          -----------   -----------
<S>                                       <C>           <C>
Numerator:
  Net income (loss)                       $(3,464,569)      646,764
  Preferred stock dividend accumulated       (123,780)     (147,864)
                                          -----------   -----------
  Numerator for basic earnings (loss)
   per share - income (loss)
   attributable to common stockholders     (3,588,349)     (498,900)

  Effect of dilutive securities:
  Preferred stock dividend accumulated        123,780       147,864
                                          -----------   -----------
  Numerator for diluted earnings (loss)
   per share - income (loss)
   attributable to common stockholders    $(3,464,569)  $   646,764
                                          ===========   ===========

Denominator:
  Denominator for basic earnings (loss)
   per share - weighted average shares      1,496,323     1,350,180

  Effect of dilutive securities:
  Convertible preferred stock                       -       401,193
                                           ----------    ----------
  Denominator for diluted earnings (loss)
   per share - weighted average shares      1,496,323     1,751,373
                                           ==========    ==========

Basic and diluted earnings (loss)
 per share                                 $    (2.32)   $     0.37
                                           ==========    ==========
</TABLE>

The exercise of options and warrants outstanding during the years ended
November 30, 1999 and 1998 and the conversion of convertible securities
outstanding during the year ended November 30, 1998 is not assumed as
the result is antidilutive to the reported loss per share.


NOTE 11 - STOCK OPTIONS PLANS

On April 27, 1999, the Company adopted and received stockholder approval to
amend 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 165,833 shares of common
stock (as adjusted for a 1:6 reverse split in 1999) 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 April 27, 1999, the Company adopted and received stockholder
approval to amend 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 17,500 shares of common stock for grant.   The
Directors Plan provides for a grant of options to purchase 333 shares upon
initial election to the Board and for annual grants thereafter, upon
reelection, of options to purchase 833 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, 1999, is as follows:

<TABLE>
<CAPTION>

                                                     Weighted-
                                    Number of      Average Option
                                      Shares       Price Per Share
                                    ----------    ---------------
<S>                                 <C>           <C>
Outstanding as of November 30, 1998    70,576        $ 28.46
Granted                                18,914        $  5.80
Exercised                                   -              -
Canceled                              ( 8,424)       $ 24.26
                                      -------
Outstanding as of November 30, 1999    81,066        $ 23.61
                                      =======
</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
Directors 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 1999 and 1998 consistent with provisions of SFAS No. 123, the
Company's net (loss) income and net (loss) income per share would have been
as follows:

<TABLE>
<CAPTION>
                                            1999          1998
                                         -----------  ----------
<S>                                      <C>          <C>
Net income (loss) attributable to
   common stockholders:
      As reported                        $(3,588,349) $    498,900
      Pro forma                          $(3,811,986) $     89,973
Basic income (loss) per share:
      As reported                        $     (2.32)  $      0.37
      Pro forma                          $     (2.54)  $      0.06
Diluted income (loss) per share:
      As reported                        $     (2.32)  $      0.37
      Pro forma                          $     (2.54)  $      0.06
</TABLE>


Information on options outstanding under the Incentive Plan and the
Directors Plan as of November 30, 1999, 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>
    $ 4.02 - $ 6.00       30,910            4.43         $ 5.03
    $12.00 - $16.50        8,325            4.67         $13.09
    $25.00 - $29.00        2,250            6.28         $26.33
    $38.00 - $42.50       39,581            3.98         $40.08
</TABLE>

NOTE 12 - BUSINESS COMBINATIONS

During 1999, 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.

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 in 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 83,333 shares of the
Company's common stock.  The warrants provide for the purchase of 45,833
shares and 37,500 shares of common stock at an exercise price of $7.50 and
$9.00 per share, respectively.  The warrants are first exercisable on
February 1, 2000 and expire on January 31, 2006.  None of the warrants were
exercised as of February 3, 2000.  Further, the Company entered into
noncompetition agreements with two principals of Jacobs Bros. totaling
$210,000 to be paid over varying periods.  Finally, the Company issued 26,666
shares of the Company's common stock to the investment banker for services in
connection with the acquisition, valued at $140,000.

NOTE 13 - SEGMENT INFORMATION

In the fourth quarter of 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information."  This statement supercedes Statement of Financial
Accounting Standards No. 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach.  The management approach designates the internal organization that
is used by management for making operating decisions and assessing performance
as the source of the Company's reportable segments.   This statement requires
disclosure of certain information by reportable segment, geographic area and
major customer.  As a result, the Company will separately report information
on the following two operating segments:  company store operations and
franchise operations.  In determining the operating income of each segment,
certain general and corporate expenses are not allocated to operating segments.

<PAGE>
<TABLE>
<CAPTION>
					Year Ended November 30
                                   NET REVENUES              (LOSS) INCOME
                                    1999        1998	      1999	      1998
                        	-----------  ----------   ---------   ---------
<S>                  	     <C>           <C>        <C>     	  <C>
 Company store operations      $11,361,084 $10,266,978 $(1,395,447) $( 712,708)
 Franchise operations            3,579,817   4,282,262     244,522   1,834,652
                               -----------  ----------   ---------   ---------
Total ongoing business          14,940,901  14,549,240  (1,150,925)  1,121,944
Less: Special charges                                    1,600,406
Corporate expenses                                         574,538     522,767
Interest expense, net of
Income                                                    (138,700)    (86,374)
                                                         ---------   ---------
(Loss) Income before taxes                              (3,464,569)    482,803
Benefit for Income taxes  	                                   -    (163,961)
		                                             ---------   ---------
Net (Loss) Income		                                (3,464,569)    646,764
                                                        ===========  =========
</TABLE>

OPERATING SEGMENT DATA

<TABLE>
<CAPTION>
                                 IDENTIFIABLE    CAPITAL         DEPRECIATION
                                    ASSETS      EXPENDITURES   AND AMORTIZATION
                                  -----------   ------------   ----------------
<S>                               <C>           <C>            <C>

Year ended November 30, 1999

Company store operations          $ 8,564,951      122,148         982,742
Franchise operations                3,452,087       26,350         265,126
                                   ----------     --------       ---------
                                   12,017,038      148,498       1,247,868
                                   ==========     ========	      =========

Year ended November 30,1998

Company store operations          $ 8,886,927      135,315         906,087
Franchise operations                4,219,231       62,980         274,172
                                   ----------     --------       ---------
                                   13,106,158      198,295       1,180,259
                                   ==========     ========	      =========

Reconciliation to Total Assets
As Reported
                                   November 30, November 30,
                                          1999         1998
                                   -----------  ------------
Assets
Total reportable segments
Identifiable assets               $ 12,017,038 $13,106,158

Unallocated amounts
Cash	                                  30,818     700,162
Prepaid expenses and other current	   276,717     206,952
Other	                                 530,005     431,719
                                  ------------ -----------
Total Consolidated Assets           12,854,578  14,444,991
                                  ============ ===========

</TABLE>
Prior period amounts have been restated in accordance with SFAS No. 131.
There were no sales to any individual customer during any of the years in the
two year period ended November 30, 1999 that represented 10% or more of net
sales.