FORM 10-KSB

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

(Mark one)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
      SECURITIES EXCHANGE ACT OF 1934

      For the fiscal year ended: November 30, 1997

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

      For the transition period from ______ to ______

      Commission file number: 0-27068


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


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

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


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

     Common Stock, no par value

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

[X] Yes       [ ] No 

Check if there is no disclosure of delinquent filers in response 
to Item 405 of Regulation S-B is not contained in this form, and 
no disclosure will be contained, to the best of registrant's 
knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-KSB or any 
amendment to this Form 10-KSB. [X] 

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

$14,166,443

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: $4,073,994 
based on 5,321,135 shares held by nonaffiliates as of February 
17, 1998, and the average of the closing bid ($0.71875) and asked 
($.8125) 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: 
7,744,302 shares of Common Stock, as of February 17, 1998. 


DOCUMENTS INCORPORATED BY REFERENCE 

The Company's definitive proxy materials to be filed on or before 
March 30, 1998 are incorporated by reference in Part III of Form 
10-KSB. In addition, certain exhibits identified in Part III, 
Item 13 are incorporated by reference to said exhibits as 
previously filed with the Commission. 

Transitional Small Business Disclosure Format (check one):

[ ] Yes       [X] No 

 
                          FORM 10-KSB INDEX
PART I

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

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

PART II

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

PART III

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


                                PART I

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

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 tradenames and at November 30, 1997 had 257 
units in operation in 28 states and two Canadian provinces.  The 
Company additionally derives income from the sale of its 
trademark bagels, muffins and coffees through nontraditional 
channels of distribution including under licensing agreements 
with Host Marriott Services Corporation, Mrs. Fields Cookies, 
Choice Pick Food Courts, and through direct home delivery of 
specialty muffin gift baskets and coffee.   

The Big Apple Bagels brand franchise and Company-owned stores 
feature daily baked "from scratch" bagels, flavored cream 
cheeses, premium coffees, gourmet bagel sandwiches and other 
related products.  Licensed Big Apple Bagels units serve the 
Company's par-baked 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 Shops are currently located in two states--Illinois and 
Ohio.    

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 on continuing 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 and expects to leverage 
on the natural synergy of distributing muffin products in 
existing Big Apple Bagels units and, alternatively, bagel 
products and Brewster's Coffee in existing My Favorite Muffin 
units.  Additionally, the Company expects to realize efficiencies 
in servicing the combined base of Big Apple Bagels, My Favorite 
Muffin and Brewster's Coffee franchisees as a result of this 
acquisition. 


RISK FACTORS 

Limited Operating History 

The Company was formed in November 1992.  As of November 30, 
1997, the Company had 28 Company-owned stores, excluding 6 
Company-owned stores closed during 1998 (see "Management's 
Discussion and Analysis" and Note 11 to the audited financial 
statements included herein), and 229 franchised and licensed 
stores in operation.  The Company has grown from only 2 Company-
owned and 59 franchise units at the time of its initial public 
offering in November 1995 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 an operating loss of $3,406,000 and $621,000 
for the years ended November 30, 1997 and 1996, respectively.  
While the Company believes that the level of its franchising and 
licensing operations and number of Company-owned stores will 
generate revenues sufficient to exceed the expenses necessary to 
support such operations, given its historical losses, there can 
be no assurance that the Company will operate profitably in the 
future. 


Recent Acquisitions 

The Company's strategic plan has included growth through business 
acquisitions.  Since the beginning of fiscal 1996, the Company 
has completed the acquisitions of Brewster's Coffee ("Brewster's"),
Strathmore Bagels Franchise Corp. ("Strathmore"), Bagels Unlimited, Inc.
("BUI"), Danville Bagels, Inc. ("Danville"), Just Bagels, Inc. ("JBI")
and MFM. No assurance can be given that these or other acquisitions will 
be profitable or that the Company will successfully integrate, convert,
or operate any acquired businesses.

As a result of acquisitions, the Company has grown significantly 
in size, has expanded the geographic area in which it operates 
and has added product lines and distribution channels.  Any 
acquisition involves inherent uncertainties, such as the effect 
on the acquired businesses of integration into a larger 
organization and the availability of management resources to 
oversee the operations of the acquired business.  The Company's 
ability to integrate the operations of acquired businesses is 
essential to its future success.  There can be no assurance as to 
the Company's ability to integrate new businesses nor as to its 
success in managing the significantly larger operations resulting 
therefrom.  Additionally, amortization of intangible assets 
recorded as a result of the acquisitions will have a significant 
impact on future operating results.  During 1997 and 1998, the 
Company closed the stores acquired from JBI (see "Management's 
Discussion and Analysis" and Note 11 to the audited financial 
statements included herein.)


Recoverability of Intangible Assets

The Company has recorded significant intangible assets in 
connection with certain acquisitions.  Applicable accounting 
standards require the Company to review long-lived assets (such 
as goodwill and other identifiable intangible assets) to be held 
and used by the Company for impairment whenever events or changes 
in circumstances indicate that the carrying values of those 
assets may not be recoverable.  In the fourth quarter 1997, the 
Company recorded a provision for impairment and store closures 
totaling $1,837,000.  Of this amount, approximately $323,000 
related to goodwill and other intangible assets related to stores 
acquired which have been closed  (see "Management's Discussion 
and Analysis" and Note 11 to the audited financial statements 
included herein.)  While management believes goodwill and other 
identifiable intangible assets recorded as of November 30, 1997 
to be fairly stated, there is no assurance that an additional 
charge to write down assets will not be required in the future.  
Any such charge could have a material effect on the Company's 
financial results.


Rapid Growth 

The Company has grown significantly during the past year, both 
internally and through acquisitions, and expects to continue its 
growth in franchising and licensed product distribution to 
continue in the future.  The opening and success of franchise 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 April 1997, the Company entered into a secured $2 million line 
of credit facility with a bank which expires December 31, 1998.  
The line is secured by substantially all of the assets of the 
Company and requires, among other things, that the Company 
maintain minimum net worth of $8 million and a compensating cash 
balance of $250,000.  In February 1998, the Company fell below 
the compensating cash balance requirement and obtained a waiver 
from the bank to lower the requirement to $150,000 for 60 days 
expiring April 25, 1998.  While the Company has a plan in place 
to achieve and maintain the compensating cash balance 
requirements, there can be no assurance that this will be 
successful nor can there be assurance that, if required, the 
Company will be able to obtain additional waivers from the bank.  
See Management's Discussion and Analysis and Note 5 of the 
audited financial statements included herein. 

Although the Company believes that its cash flows from current 
operations and current financing arrangements will provide 
sufficient working capital to enable the Company to meet 
operating requirements and compensating cash balance requirements 
for the foreseeable future, there can be no assurance that no 
additional financing will be required, that the Company will be 
able to obtain any required additional financing that may be 
required, 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. 


Dependence on Franchisees 

The Company has historically 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.  Should 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"), Chesapeake Bagel Bakery 
("Chesapeake") and Einstein/Noah Bagel Corp. ("Einstein").  In 
addition, other fast-food service providers, such as Dunkin' 
Donuts, have recently added bagels to their product offerings.  
Any increase in the number of food service establishments in 
areas where the Company's or its franchisees' sites are located 
could have a material adverse effect on the Company's sales and 
revenues.  The Company competes for qualified franchisees with a 
wide variety of investment opportunities both in the food service 
business and in other industries.  Investment opportunities in 
the bagel store business include competing franchises offered by 
Bruegger's, Chesapeake and Einstein 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.  In 
November 1997, the Chief Financial Officer resigned from the 
Company.  The Company is in the process of hiring a qualified 
replacement.


Trademarks/Service Marks 

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


Potential Effects of Antitakeover Provisions 

The Company is authorized to issue up to 4,000,000 shares of 
preferred stock, 78,710 shares are issued and outstanding as of 
November 30, 1997.  The remaining authorized preferred stock may 
be issued in one or more series, the terms of which may be 
determined at the time of issuance by the Board of Directors, 
without further action by shareholders.  The issuance of any 
preferred stock could adversely affect the rights of the holders 
of Common Stock, and specific rights granted to holders of 
preferred stock could restrict the Company's ability to merge 
with or sell its assets to a third party, thereby preserving 
control of the Company by its then owners.  

Certain provisions of the Illinois Business Corporation Act (the 
"Illinois Act") restrict a publicly-held corporation from 
engaging in a "business combination" with an "interested 
shareholder" or its affiliates, unless the business combination 
is approved by the Board of Directors or by a supermajority vote 
of the 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

As of February 27, 1998, 1,116,343 shares of Common Stock are 
issuable from time to time pursuant to the terms of the Company's 
outstanding Series A Convertible Preferred Stock and related 
warrants issued to the holders of the Company's Series A 
Convertible Preferred Stock and to the placement agent for such 
stock.  Upon issuance, the shares will be freely tradeable.  In 
addition, the Company intends to file a registration statement 
covering the shares of Common Stock issuable under its Incentive 
Plan and Directors Plan, pursuant to which such shares, when 
issued, will be freely tradeable, except to the extent held by 
officers and directors who are limited to resale by Rule 144.  
The sale, or availability for sale, of substantial amounts of 
Common Stock in the public market subsequent to this offering, 
plus the offerings described above, could materially adversely 
affect the market price of the Common Stock and could impair the 
Company's ability to raise additional capital through the sale of 
its equity securities or debt financing.  


Effects of Delisting From Nasdaq SmallCap Market

If the Company fails to maintain the qualification for its Common 
Stock to trade on the Nasdaq SmallCap Market, its Common Stock 
could be delisted from Nasdaq.  In such event, trading, if any, 
in such securities would be 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 
effect 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 affiliate, franchisees of the Company, operating a total of 
four stores in southern California.  The total purchase price 
paid was $770,000, including $120,000 related to a noncompetition 
agreement with the former owners of JBI and was paid in part 
through the forgiveness of notes receivable and other receivables 
from  JBI of approximately $486,000.  The stores acquired were 
closed in 1997 and 1998 (see "Management's Discussion and 
Analysis" and Note 11 to the audited 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 
stock held equally by Owen Stern, Ruth Stern and Ilona Stern (the 
"Sellers"), for 432,608 shares of the Company's common stock, 
restricted as to transfer until January 1, 1999, and $259,000 in 
cash to the Sellers.  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.  Total revenue of MFM was $2.7 million for the year 
ended December 31, 1996.  (See "Management's Discussion and 
Analysis")


LOCATIONS 

The following table sets forth the states and provinces in which 
the Company's units were located as of November 30, 1997 
(exclusive of 6 Company-owned units which were closed during the 
first quarter of 1998):   
		
<TABLE>
<CAPTION>
                     COMPANY
STATE/PROVINCE        OWNED    FRANCHISED  LICENSED  TOTAL
---------------      -------   ----------  --------  -----
<S>                     <C>        <C>         <C>     <C>

UNITED STATES:
California (i)          8          2                   10
Colorado                           8                    8
Connecticut                        5                    5
Florida                            9           6       15
Georgia                            3           2        5
Illinois (ii)           3         44                   47
Indiana                            6                    6
Iowa                               7                    7
Kansas                             1                    1
Kentucky (ii)                      3                    3
Massachusetts                      1                    1
Michigan                          13           5       18
Minnesota                          4           1        5
Nebraska (ii)           1          1                    2
Nevada                             3           5        8
New Jersey              2         15          10       27
New York                           3          12       15
North Carolina                                 3        3
Ohio                    2         12                   14
Oregon                             1                    1
Pennsylvania            5          9           1       15
Rhode Island                       2                    2
South Carolina                     1                    1
Texas                              5                    5
Utah                               2                    2
Washington                         2                    2
West Virginia                      1                    1 
Wisconsin               7         15           1       23
CANADA:
British Columbia                   1           1        2
Ontario                            3                    3
                     -----     ------       -----    -----
Total                  28        182          47      257
                     =====     ======       =====    =====
</TABLE>

 (i) Does not include 3 Company-owned stores which were closed
     during the first quarter of fiscal 1998.   
(ii) Does not include 1 Company-owned store which was closed
     during the first quarter of fiscal 1998.


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 20-25 varieties of muffins daily, from over 400 
recipes, plus a variety of bagels.  They also serve gourmet 
coffees, beverages and, at My Favorite Muffin and Bagel Caf, 
locations, a variety of bagel sandwiches and related products.  
While a number of MFM units are located in shopping mall 
locations with minimal square footage of  400-800 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 franchised and Company-owned 
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 location is 
approximately 1,500 square feet and offers seating for 20-30 
persons and is generally located in high traffic urban or 
suburban locations.


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 
stores. The initial franchise fee for a franchisee's first 
Brewster's store is $17,500, with a fee of $15,000 for the second 
and third stores and $13,500 for the fourth store and any 
additional stores. 

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 BAB 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 is currently in the process of revising 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 to toward the initial franchise fee.  The 
Company anticipates that this preliminary agreement will help to 
increase the number of franchise agreements sold.  See also 
"Government Regulation."

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

In February 1997, the Company entered an agreement with Franchise 
Mortgage Acceptance Company, LLC ("FMAC") of Greenwich, 
Connecticut to provide financing to qualified existing 
franchisees for the purpose of adding second or subsequent units. 
FMAC has reserved a total of $25 million for the program, which 
is expected to assist in increasing the number of units in the 
Company's franchise system.   Pursuant to the agreement, the 
Company guarantees up to 10% of the amount funded by FMAC in each 
12-month period commencing from the date the first financing is 
funded.  As of November 30, 1997, FMAC has advanced funds 
totaling $438,000 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 Bruegger's, Chesapeake, and Einstein's, 
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 fast food 
restaurants, such as Dunkin' Donuts, that offer bagels and 
muffins as part of their breakfast food offerings and supermarket 
bakery sections. In particular, the Company's bagels compete 
against Lenders Bagels and other brands of fresh and frozen 
bagels offered in supermarkets. Certain of these competitors may 
have greater product and name recognition and larger financial, 
marketing and distribution capabilities than the Company. In 
addition, the Company believes that the startup costs associated 
with opening a retail food establishment offering similar 
products on a stand-alone basis are competitive with the startup 
costs associated with opening its concept stores and, 
accordingly, such startup costs are not an impediment to entry 
into the retail bagel, muffin or coffee businesses. 

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

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

The trademarks and service marks "Big Apple Bagels," "Brewster's 
Coffee" and "My Favorite Muffin" are registered under applicable 
federal trademark law. These marks are licensed by the Company to 
its franchisees pursuant to franchise agreements, and the Company 
has licensed the "Big Apple Bagels" mark to Big Apple Bagels, 
Inc., a corporation which is wholly-owned by Paul C. Stolzer, a 
principal shareholder and a former director and president of the 
Company.  Mr. Stolzer currently serves as a consultant to the 
Company. 

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

GOVERNMENT REGULATION 

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

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

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


EMPLOYEES 

As of November 30, 1997, the Company employed 537 persons. Of 
these individuals, 483 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. In November 1997, the Chief Financial Officer 
resigned from the Company.  The Company is in the process of 
hiring a qualified replacement.  None of the Company's employees 
is subject to any collective bargaining agreements and management 
considers its relations with its employees to be good. 


YEAR 2000 ISSUES

The year 2000 issue relates to the fact that computer software 
often was written using two rather than four digits to represent 
an applicable year; accordingly, software might recognize a date 
using "00" as the year 1900 rather than as the year 2000.  This 
could result in a system failure or miscalculations causing 
disruptions of operations.

The Company utilizes hardware and software systems which are 
commercially available products and are year 2000 compliant.  The 
Company anticipates incurring certain costs related to the 
upgrade and replacement of existing systems in the normal course 
of business.  These costs are not anticipated to be significant.


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

The Company's principal executive office, consisting of 
approximately 7,300 square feet, is located in Chicago, Illinois 
and is leased pursuant to two leases, expiring in March 2000 and 
June 1999.  The Company believes that these facilities will be 
adequate to meet its needs for the remainder of the term of the 
two leases.  As a result of the My Favorite Muffin acquisition, 
the Company assumed a lease on approximately 6,600 square feet of 
office space used as the former MFM corporate headquarters, 
expiring in September 2000. In October 1997, the Company entered 
into 2 agreements to sublease the entire facility.  These 
sublease agreements expire in March 2000 and September 2000, 
respectively.    Additionally, the Company leases space for each 
of its Company-owned stores. Lease terms for these stores are 
generally for initial terms of five years and contain options for 
renewal for one or more five-year terms. See Note 6  to the 
Company's Consolidated Financial Statements contained herein for 
further information.


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

On April 16, 1996, the Company filed an arbitration action 
against a franchisee alleging breach of its franchise agreement 
for refusal to submit required sales reports and pay royalty fees 
and contributions to the national marketing fund. The franchisee 
filed suit in the Circuit Court of Cook County, Illinois against 
the Company and its officers and directors on April 19, 1996. The 
franchisee alleged that the Company misrepresented the initial 
investment required to establish a store and made untrue and 
unauthorized earnings claims in violation of the Illinois 
Franchise Disclosure Act. Plaintiffs sought rescission of the 
franchise agreement, damages of $600,000 and punitive damages in 
the amount of $6,000,000. On May 28, 1996, management filed a 
motion to stay litigation in order to compel the plaintiffs to 
have their claims heard in arbitration as required by the 
provisions of the franchise agreement. The hearing was held over 
seven days and resulted in an award in favor of the Company.  In 
January 1998, the Company was awarded all past due royalty fees 
and amounts owed to the national marketing fund plus accrued 
interest thereon and the franchisees counterclaim was rejected.  
The Company is in the process of enforcing the award in court. 


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

During the fourth quarter of the fiscal year ended November 30, 
1997, no matter was submitted to a vote of security holders. 



                             PART II

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

The following table sets forth the quarterly high and low sale 
prices for the Company's Common Stock, as reported in The Nasdaq 
Stock Market's Small-Cap Market for the two years ended November 
30,1997. The Company's Common Stock is traded under the symbol 
"BAGL." Prices reflect a three-for-two stock dividend paid on 
April 26, 1996 to holders of record as of April 12, 1996. 

<TABLE>
<CAPTION>
                                           LOW           HIGH
                                          -----          ----
   <S>                                    <C>            <C>
   YEAR ENDED NOVEMBER 30, 1996
   First quarter....................      $3.17          $4.50
   Second quarter...................       4.00           9.13
   Third quarter....................       6.25          11.75
   Fourth quarter...................       6.75           9.00
   YEAR ENDED NOVEMBER 30, 1997
   First quarter....................      $3.13	         $8.25
   Second quarter...................       2.50           4.50
   Third quarter....................       2.50           3.63
   Fourth quarter...................       1.06           3.63
</TABLE>

As of February 17, 1998, the Company's Common Stock was held of 
record by 171 holders. Registered ownership includes nominees who 
may hold securities on behalf of multiple beneficial owners.  The 
Company estimates that the number of beneficial owners of its 
common stock at February 10, 1998 is 2,400, 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. See Notes 8 to the 
Company's Consolidated Financial Statements included herein and 
Exhibit 4.4 to the report on Form 10-QSB filed for the quarter 
ended February 28, 1997 for further information.

On May 13, 1997, the Company issued a total of 432,608 shares of 
Common Stock to acquire MFM.  See Note 10 of the audited financial 
statements included herein and Form 8-K filed with the 
Commission on May 28, 1997 (as amended on July 23, 1997 and 
December 15, 1997.)


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 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, which reflect management's analysis only as of the 
date hereof.  Such statements should be read in light of the Risk 
Factors enumerated herein as well as the other information 
contained in this Report and other documents filed by the Company 
with the Commission pursuant to the Securities Act of 1933 and 
the Securities Exchange Act of 1934.  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 28 
Company-owned (excluding 6 units identified by management for 
closing during the first quarter of 1998) and 229 franchised and 
licensed units at the end of fiscal 1997 from 15 Company-owned 
and 134 franchised and licensed units at the end of fiscal 1996.  
System-wide revenues in fiscal 1997 exceeded $57 million compared 
to $31.5 million in the year ago period.  Further, the units 
added in the acquisition of MFM, contributed approximately $12 
million to system-wide sales in the last six months of fiscal 
1997.  This rapid expansion in operations significantly affects 
the comparability of results of operations of the Company in 
several ways, particularly in the significant increase in 
Company-owned store revenues and related expenses. 

The Company's revenues are derived primarily from the operation 
of Company-owned stores, initial franchise fees and ongoing 
royalties paid to the Company by its franchisees. Additionally, 
the Company has significantly increased revenue derived from the 
sale of licensed products as a result of purchasing trademarks 
(My Favorite Muffin and Brewster's) and licensing contracts 
(licenses with Host Marriott), and by directly entering into 
licensing agreements (Choice Picks Food Courts, Oberweis Dairy 
and Mrs. Fields Cookies). Additionally, the Company has generated 
other revenue through the sale of store units to franchisees of 
the Company. The significant increase in overall revenues (up 
124% in fiscal 1997 over fiscal 1996 and up 597% over fiscal 
1995) has reduced the dependence on the initial franchise fee as 
a source of income.

On May 13, 1997, the Company completed the acquisition of MFM.  
This acquisition added to the Company's existing product offering 
a premium muffin product and additional points of distribution 
for its branded bagel and coffee products.  It is expected that 
the introduction of MFM muffin products will enhance the revenue 
potential of existing bagel stores and result in operating 
leverage as corporate overhead is spread over additional units 
(62 franchise and 7 Company-operated units at November 30, 1997.)  
The Company has reduced the number of MFM employees, subleased 
the office space which was formerly the MFM headquarters in New 
Jersey, and has completed the integration of MFM operations into 
its Chicago, Illinois headquarters.  Since the process of 
integration of MFM products into the Company's existing units 
does not entail any significant increase in administrative 
overhead (the Company already has sufficient infrastructure in 
place to oversee franchisee and Company stores operations) it is 
expected that the Company will experience improved profitability 
in fiscal 1998 due to increased retail sales and royalty revenues 
attributable to these products. 

Rapid growth in Company-owned units occurred throughout fiscal 
1996 and 1997 --- 13 units were added in fiscal 1996 and over 15 
units were added in fiscal 1997 by both development and 
acquisition. Management believes the Company did not realize the 
full potential of expected margins from Company-owned store 
operations during this period.  New store operations suffer from 
low revenues in the early start-up stages of operations and 
inefficiencies due to continuing training activities of store-
level personnel. Similarly, as stores that are opened in the 
early stages of entering into a specific geographic market, the 
efficiencies of advertising, promotion and area management are 
not reached and cause an additional drain on store-level 
economics until a critical mass of stores is established in that 
geographic market. Start-up costs related to expenditures 
incurred prior to opening individual units, which are amortized 
over the first year of operation of a store, also reduce 
operating profitability during the early stages of store 
operations. Stores added which were acquired and converted to 
Company-owned units, while not generally affected by low early 
stage revenues, also exhibit inefficiencies in early operations 
due to initial staff and management turnover and related training 
issues resulting in higher than normal costs. 

During the fourth quarter of fiscal 1997, management identified 
certain under-performing stores which were operating at a loss 
and which, based on the estimated future cash flows, were 
considered to be impaired.  Four of the seven stores which were 
considered to be impaired were located in the Southern California 
market.  In accordance with the Financial Accounting Standards 
Board Standard No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" and the 
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition 
of Costs to Exit an Activity", management recorded a provision 
for impairment of assets and store closures which totaled 
approximately $1,837,000.  Approximately $1,333,000 represents a 
non-cash write-down of property, plant and equipment and goodwill 
associated with these units and the remainder represents a 
reserve for store closure costs.  One store was closed during 
fiscal 1997 and the remaining units were closed during the first 
quarter of 1998.  Management anticipates that the store closings 
will not only improve cash flow from remaining Company-store 
operations but will also improve the profitability of operations 
overall.  The 6 stores identified as impaired as of November 30, 
1997, but which were not closed until fiscal 1998, are not included 
as units in operation as the fair value of the assets has been 
reclassified as "Assets Held for Resale" in the November 30, 1997 
audited financial statements incorporated herein.

In September 1996, the Company signed an agreement to purchase 
the operations of Chesapeake, an operator and franchisor of 
approximately nine company-owned and 134 franchise Chesapeake 
Bagel Bakery specialty bagel retail stores. This acquisition was 
not completed due to the Company's inability to secure financing 
on acceptable terms. As a result of the failure to complete this 
acquisition, the Company recorded a write-off of approximately 
$651,000 in the fourth quarter of fiscal 1996, consisting 
primarily of accounting, legal, printing, placement agent 
expenses and filing fees associated with the acquisition and a 
placement of common stock which, if completed, would have 
provided the required financing.  Management believes that while 
the uncompleted acquisition of Chesapeake diverted management and 
operational attention during the second half of 1996, the 
Company's existing operations and strategic acquisitions made in 
1997, including the MFM acquisition noted above, have the 
potential to replace the strategic advantage the Company believed 
would have been obtained with Chesapeake acquisition.

With the increase in both franchise, licensed and Company-owned 
operations and with the acquisition of MFM, the Company has 
experienced increases in payroll, occupancy and overhead costs in 
the corporate offices. At November 30, 1997, the Company had 54 
employees at the corporate level who oversee operations of the 
franchise, licensed and Company-owned store operations, up from 
21 at the end of 1995, and 33 at the end of fiscal 1996. While 
these costs have increased, they have decreased as a percentage 
of total revenues, and management expects that these costs will 
further decline as a percentage of revenue as additional 
franchise and Company-owned units are added.  Additionally, as 
the Company approximately doubled the space at the corporate 
headquarters in late 1996 through subletting an office suite 
adjacent to the Company's existing offices, it is anticipated 
that the Company will not require additional office facilities in 
fiscal 1998. The Company believes it is in a position to leverage 
selling, general and administrative expenses against increased 
revenues anticipated in fiscal 1998. 


RESULTS OF OPERATIONS 

The following table sets forth, for the fiscal years 1997 and 
1996, revenue by type and as a percentage of total revenue during 
the year, along with the change from 1996 (in thousands): 

<TABLE>
<CAPTION>
                                       Year ended November 30,
                              -----------------------------------------
                                   1997           1996       Inc.(Dec.)
                              --------------  -------------  ----------
   <S>                         <C>     <C>    <C>     <C>      <C>
   Selected Revenue Data:
   Company-owned stores.....   $9,846  69.5%  $3,484  55.1%    $6,362
   Royalty fees from 
     franchise stores.......    2,367  16.7%   1,403  22.2%       964
   Franchise and area 
     development fees.......    1,005   7.1%   1,024  16.2%       (19)
   Licensing fees and 
     other income...........      948   6.7%     413   6.5%       535
                              ------- ------  ------ ------    ------
   Total                      $14,166 100.0%  $6,324 100.0%    $7,842
                              ======= ======  ====== ======    ======         
</TABLE>


FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

Total revenues increased 124% to $14,166,000 in 1997 from 
$6,324,000 the prior year. This increase was driven primarily by 
the increase in Company-owned store revenues which accounts for 
69.5% of total revenue in 1997 up from 55.1% in the prior year. 
The Company added 13 Company-owned units during the year bringing 
the total to 28 in operation at November 30, 1997, exclusive of 
those units identified as impaired.  Royalty fees from franchise 
stores increased to $2,367,000 in 1997 from $1,403,000  
principally due to the addition of the 60 MFM franchised units in 
May 1997. Franchise and area development fee revenue remained 
relatively flat from the year-ago period and is attributed to 
legal and geographical restrictions in selling franchise 
agreements during the last half of fiscal 1996 while the Company 
was involved in the acquisition of Chesapeake.  For over six 
months the Company was unable to complete franchise sales in 
certain key markets while updating franchise offering circulars 
and attempting to minimize territorial disputes with existing 
Chesapeake area developers.  Finally, licensing fees and other 
income more than doubled in fiscal 1997 from the previous year as 
the Company continued to develop various nontraditional channels 
of distribution, including commissions received on the sale of 
Brewster's Coffee to its franchisees and licensees, fees paid by 
Host Marriott licensed units based on retail sales, and 
commissions received from a third party commercial baker on sales 
of par-baked Big Apple Bagels to all licensed units.  

Food, beverage and paper costs incurred at the Company-owned 
stores rose by 170.9% from the prior year compared to a 182.6% 
increase in sales principally due to the greater number of units in 
operation during the current fiscal year (34 units, including 
those identified as impaired, at November 30, 1997 versus 15 at 
November 30, 1996.)  However, store payroll and other operating 
expenses increased by over 234.2%.  The Company is aggressively 
working to improve store level profitability and accordingly, in 
the fourth quarter, determined that it was necessary to close 
stores that were generating negative cash flow and which, in 
management's opinion, would not reach acceptable levels of 
profitability within the foreseeable future.  One such store was 
closed in the fourth quarter of 1997 and the remaining six stores 
were closed in fiscal 1998.  Management is currently in the 
process of selling equipment to franchisees and attempting to 
sublease or otherwise eliminate its commitment under these 
facility leases.  Additionally, on November 30, 1997, the Company 
sold two Company-owned units to an existing franchisee in the 
Milwaukee, Wisconsin market. Subsequent to year end, the Company 
sold one unit to a franchisee in the Lincoln, Nebraska market and 
the other Company-owned store in that geographic market was 
closed in 1998.  Strategic decisions to close or sell certain 
units have substantially been completed during the first quarter 
of 1998; accordingly, management anticipates that Company-owned 
store revenues should contribute more significantly to 
profitability throughout fiscal 1998.  Finally, as of February 
28, 1998, over 75% of the remaining Company-owned units have now 
been opened for greater than one year which is expected to lessen 
certain expenses related to employee training and related start-
up inefficiencies.

As identified above, the decision to close under-performing 
stores resulted in the recognition of a fourth quarter 1997 
charge of approximately $1,837,000, or $0.24 per share for the 
fourth quarter ($0.25 per share for the fiscal year).  
Approximately 73% of this charge to net income, or $1,333,000, 
represents a non-cash write-down of property, plant and equipment 
and associated goodwill to fair market value.  The remainder 
represents a reserve established to accrue for future 
noncancelable lease obligations plus the costs to close the 
stores. See Note 11 to the audited financial statements included 
herein.

Selling, general and administrative expenses increased by 
$3,248,000 to $6,566,000 but continue to decrease as a percentage 
of overall revenues.  The increasing base of Company-owned and 
franchised stores has resulted in a favorable trend with respect 
to overhead costs --- fiscal year 1997 costs represented 46.4% of 
revenues, fiscal year 1996 costs represented 52.5% of revenues 
and fiscal year 1995 costs represented 97.4 of revenues.  
Payroll-related expenses increased by $721,000.  Depreciation and 
amortization increased by 293% due to the significant increase in 
Company-owned store depreciation and amortization  and the 
amortization of intangible assets acquired including goodwill, 
franchise contract and other contract rights, non-competition 
agreements, and trademarks acquired in the Company's various 
acquisitions.  Other selling, general and administrative expenses 
increased 136.7% due to the increase in office space at the 
corporate headquarters as well as insurance and other expenses 
associated with the support of the increased corporate headcount.  
Excluding depreciation and amortization, fiscal 1997 selling, 
general and administrative expenses were less than 35.8% of total 
revenues compared to 46.4% in the year ago period as the Company 
continues to experience operating leverage from its increasing 
revenue base.

Loss from operations was $3,406,000 in fiscal 1997 versus 
$621,000 in fiscal 1996. Interest income decreased to $75,000 in 
fiscal 1997 from $317,000 in the prior year due to the lower 
average cash and cash equivalent balances on hand throughout the 
current year.  In 1996, the Company had just received the 
proceeds from its initial public offering and invested the 
proceeds in interest bearing securities generating significant 
interest income.  Interest expense was $75,000 during 1997 versus 
$4,000 in 1996 as a result of the Company's borrowing on the 
Company's credit facility.

The net loss totaled $3,402,000 in fiscal 1997 versus a net loss 
of $321,000 for fiscal 1996.  During fiscal 1997, the Company 
issued 87,710 shares of convertible preferred stock (the 
Preferred Stock) and recorded preferred dividends associated with 
this security of over $648,000 resulting in a net loss 
attributable to common shareholders of $4,050,000 for the fiscal 
year. Approximately $387,000 of the preferred dividend is 
attributable to the 15% discount available to holders of the 
Preferred Stock in acquiring Common Stock upon ultimate 
conversion.  Such discounts result in dividends under 
generally accepted accounting principles and no additional 
preferred dividends will accumulate related to this conversion 
discount.   The Company was additionally obligated to issue 
warrants to purchase two shares of Common Stock for each share of 
Preferred Stock on August 1, 1997.  The value of these two-year 
warrants was additionally recorded as a preferred stock dividend 
accumulated of $138,000.  As fully recognized in August 1997, no 
additional preferred dividends will accumulate related to either 
the conversion discount or the warrants.  See Note 9 of the 
audited financial statements included herein.

Net loss per share for fiscal 1997 was $0.55 per share ($0.53 
diluted loss per share) versus net loss per share for fiscal 1996 
of $0.04 per share ($0.04 diluted loss per share.) 

On a pro forma basis, had the acquisitions of MFM, JBI, 
Strathmore, BUI and Danville occurred at the beginning of fiscal 
1996, revenues for fiscal 1997 would have been $15,421,000 
representing a 29% increase from $11,985,000 in fiscal 1996, 
attributable primarily to the increase in franchised and Company-
owned units acquired in MFM.  Net loss on a pro forma basis for 
1997 and 1996 would have been $3,500,000 and $616,000, 
respectively.  This increase is related to the write-off of long-
lived assets recorded in fiscal 1997 and other factors noted 
above, as well as inefficiencies in selling, general and 
administrative expenses implicit in comparing on a pro forma 
basis costs incurred by entities acquired prior to the 
acquisitions by the Company.  Pro forma net loss per share would 
have been approximately $0.54 and $0.08 for the fiscal years 
ended November 1997 and 1996, respectively. 


LIQUIDITY AND CAPITAL RESOURCES 

During the year ended November 30, 1997, cash used for operating 
activities was $1,220,000 compared to $69,000 provided from operating
activities in the prior fiscal year.  Cash used in operating
activities in fiscal 1997 is attributable to an overall increase in
accounts receivables, inventories, and prepaids due to the increased
number of Company-owned and franchised stores in operation. 
Additionally, notes receivable obtained in the sale of Company-owned
stores and in exchange for a master franchise agreement contributed
to the overall use of cash in operating activities. 

Cash used for investing activities during 1997 totaled $3,814,000 
which consisted primarily of $3,795,000 used for the purchase of 
property, plant and equipment associated with the acquisition and 
development of 20 Company-owned units.  During fiscal 1996, cash 
used for investing activities of $6,422,000 of which $2,512,000 
was used in the purchase of property, plant and equipment 
primarily for new Company-owned store construction during the 
year. Business acquisitions during the year required $2,474,000 
in cash, including $991,000 related to BUI, $880,000 related to 
Strathmore and $603,000 related to Danville. The purchase of the 
Brewster's trademark and other rights required $171,000 in fiscal 
1996.

Financing activities provided a total of $3,261,000 during fiscal 
1997.  In April 1997, the Company completed the sale of 87,710 
shares of $25.00 Preferred Stock in a private placement to 
qualified investors, netting approximately $2 million after 
placement agent commissions and fees.  Additionally, in April 
1997, the company entered into a $2 million secured line of 
credit agreement (the "Credit Facility") with a bank expiring in 
December 1998.  Maximum borrowing under the credit facility is 
limited to a borrowing base of 80% of accounts receivable under 
90 days and 40% of equipment costs.  Interest is payable monthly 
at prime plus 1% (9.5% at November 30, 1997) with principal due 
upon maturity at December 31, 1998.  In July 1997, the Company 
borrowed $356,000 on its Credit Facility to retire debt and other 
borrowings assumed in connection with the MFM acquisition.  At 
November 30, 1997, the Company had $1,676,000 outstanding against 
the Credit Facility.

The Credit Facility is secured by substantially all of the assets 
of the Company and requires, among other things, that the Company 
maintain minimum net worth of $8 million and a compensating cash 
balance of $250,000.  In February 1998, the Company fell below 
the compensating cash balance requirement and obtained a waiver 
from the bank to lower the requirement to $150,000 for 60 days 
expiring April 25, 1998.  Management has implemented a plan to 
increase the cash balances and to remain within compliance of the 
compensating cash provision of the Credit Facility.  This plan 
includes improvements in cash flow associated with store 
closures, proceeds from the sale of stores or other assets, 
reduction of general and administrative expenses, increased
collection efforts and potential debt or equity investments by
significant shareholders. Management believes these efforts will be 
sufficient to ensure compliance with the compensating cash balance
covenants by April 25, 1998 and for the remainder of the fiscal year.

Financing activities provided a total of $837,000 in 1996, due 
principally to the exercise in January of the underwriter's over-
allotment option from the Company's initial public offering which 
provided the Company $882,000 after expenses. This amount was 
reduced by the repayment of long-term obligations during the year 
of $36,000. 

The Company has implemented a strategy which includes closing 
under-performing Company-owned units, the sale of equipment and 
fixtures located at these units to its franchisees or to third 
parties, and the sale of other Company-owned units located in 
certain geographic markets to franchisees.  This action is 
anticipated to improve profitability and cash flow from the 
remaining Company-owned units and to generate working capital. 
The Company believes that improved cash flow from existing 
operations, the remaining availability on its credit facility, 
increased collection efforts and the sale of certain assets will 
be sufficient to fulfill its working capital requirements for the 
foreseeable future.  


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

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


               Consolidated Financial Statements

                      BAB Holdings, Inc.

            Years ended November 30, 1997 and 1996
             with Report of Independent Auditors


<PAGE>

                     BAB Holdings, Inc.

              Consolidated Financial Statements

            Years ended November 30, 1997 and 1996



                         Contents

   Report of Independent Auditors

   Consolidated Financial Statements
      Consolidated Balance Sheets
      Consolidated Statements of Operations
      Consolidated Statements of Shareholders' Equity
      Consolidated Statements of Cash Flows
      Notes to Consolidated Financial Statements	


<PAGE>


Report of Independent Auditors

The Shareholders and Board of Directors
BAB Holdings, Inc.

We have audited the accompanying consolidated balance sheets of 
BAB Holdings, Inc. as of November 30, 1997 and 1996, and the 
related consolidated statements of operations, shareholders' 
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. at November 30, 1997 and 
1996, and the consolidated results of its operations and its cash 
flows for the years then ended, in conformity with generally 
accepted accounting principles.



                                                                              
/s/ ERNST & YOUNG LLP
    Chicago, Illinois
    February 27, 1998

<PAGE>


<TABLE>
<CAPTION>
                               BAB Holdings, Inc.

                           Consolidated Balance Sheets


                                                        NOVEMBER 30
                                                      1997          1996
                                                -----------   -----------
<S>                                             <C>          <C>        
ASSETS
Current assets:
Cash and cash equivalents, 
  including restricted cash of
  $276,678 and $149,232, respectively           $   389,896   $ 2,163,293  
Trade accounts receivable, net of allowance
  for doubtful accounts of $217,000 
  and $30,000, respectively                         988,992       471,303
National Marketing Fund contributions 
  receivable                                        382,432        96,121
Inventories                                         344,424       103,314
Notes receivable                                    203,230       556,143
Amounts due from affiliate                               -         36,347
Deferred franchise costs                             76,805        43,576
Assets held for sale                                170,500             -
Prepaid expenses and other current assets           422,913       216,176
                                                -----------   -----------
Total current assets                              2,979,192     3,686,273

Property, plant, and equipment:
Leasehold improvements                            2,690,940     1,064,648
Furniture and fixtures                              686,542       435,277
Equipment                                         2,513,289     1,335,719
Construction in progress                             80,830       997,383
                                                -----------   -----------
                                                  5,971,601     3,833,027
Less:  Accumulated depreciation                     882,693       299,315
                                                -----------   -----------
                                                  5,088,908     3,533,712

Notes receivable                                    785,065       288,184
Patents, trademarks, and copyrights, 
  net of accumulated amortization 
  of $56,025 and $21,752, respectively              527,140       545,177
Goodwill, net of accumulated amortization 
  of $101,629 and $27,924, respectively           2,599,393     2,511,295
Franchise contract rights, net of
  accumulated amortization of $60,442             2,011,842            -
Other assets, net of accumulated amortization 
  of $424,855 and $147,090, respectively            635,706       583,346
                                                -----------   -----------
                                                $14,627,246   $11,147,987
                                                ===========   ===========

</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>


<TABLE>
<CAPTION>

                                                     NOVEMBER 30
                                                 1997           1996
                                             ------------    ------------
<S>                                          <C>             <C>         
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current liabilities:
Accounts payable                             $  1,603,661    $  1,056,548
Accrued liabilities                               768,977         228,947
Reserve for closed store expenses                 504,203              -
Accrued professional and other services           227,895         289,567
Unexpended National Marketing Fund 
  contributions                                   522,722         145,383
Current portion of long-term debt                  26,143           6,375
Deferred franchise fee revenue                    642,000         624,400
                                             ------------    ------------
Total current liabilities                       4,295,601       2,351,220

Long-term debt, less current portion            1,676,895           1,758

Shareholders' equity:
Common stock, no par value; 20,000,000 
  shares authorized,7,981,630 shares and
  7,413,069 shares issued, respectively,
  and 7,711,630 and 7,143,069 
  outstanding, respectively                    10,908,062      9,218,522
Preferred stock, $0.01 par value; 3,880,000
  shares and 4,000,000 shares authorized,
  respectively, and no shares issued 
  and outstanding                                      -              -
Series A Preferred stock, $25.00 par value,
  120,000 shares authorized, 78,710 shares
  issued and outstanding                        1,862,035             -
Treasury stock at cost, 270,000 shares            (17,500)       (17,500)
Additional paid-in capital                      1,368,619      1,010,167
Accumulated deficit                            (5,466,466)    (1,416,180)
                                             ------------    ------------
Total shareholders' equity                      8,654,750       8,795,009
                                             ------------    ------------
                                             $ 14,627,246    $ 11,147,987
                                             ============    ============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>



                               BAB Holdings, Inc.

                      Consolidated Statements of Operations


<TABLE>
<CAPTION>
                                              YEAR ENDED NOVEMBER 30
                                                1997           1996
                                            -----------    -----------
<S>                                         <C>             <C>
REVENUES
Net sales by Company-owned stores            $ 9,846,020    $ 3,484,319
Royalty fees from franchised stores            2,367,220      1,402,839 
Franchise and area development fees            1,005,545      1,023,331
Licensing fees and other income                  947,658        413,109
                                             -----------    -----------
                                              14,166,443      6,323,598

OPERATING COSTS AND EXPENSES
Food, beverage, and paper costs                3,309,504      1,221,826
Store payroll and other operating expenses     5,859,322      1,753,397
Provision for impairments and store closures   1,836,981             -
Costs of uncompleted business acquisition             -         650,922
Selling, general, and administrative expenses:
   Payroll-related expenses                    2,058,644      1,337,587
   Advertising and promotion                     603,373        365,387
   Professional service fees                     514,319        373,614
   Franchise-related expenses                    232,964        157,990
   Depreciation and amortization               1,490,329        379,266 
   Other                                       1,666,659        704,228  
                                             -----------    -----------
                                               6,566,288      3,318,072
                                             -----------    -----------
                                              17,572,095      6,944,217 
                                             -----------    -----------
Loss from operations                          (3,405,652)      (620,619)
Interest income                                   74,513        316,855  
Interest expense                                 (74,651)        (4,530)
Other income (expense)                             3,701        (12,550)
                                             -----------    -----------
Net loss                                      (3,402,089)      (320,844)
Preferred stock dividends accumulated           (648,197)            -
                                             -----------    -----------
Net loss attributable to common 
  shareholders                               $(4,050,286)    $ (320,844)
                                             ===========    ===========

Loss per share                               $     (0.55)   $     (0.04)
                                             ===========    ===========
Fully diluted loss per share                 $     (0.53)   $     (0.04)
                                             ===========    ===========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



<TABLE>
<CAPTION>
                            BAB Holdings, Inc.

              Consolidated Statements of Shareholders' Equity


                                             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, 1995  6,772,038  $7,903,183    --   $    --  (270,000) $(17,500)
Bond payable
  conversion            75,060     190,989    --        --        --        -- 
Issuance of common
  stock                382,500     882,350    --        --        --        -- 
Cashless exercise of 
  investor warrant     133,471          --    --        --        --        -- 
Issuance of common
  stock in
  acquisitions          50,000     242,000    --        --        --        -- 
Issuance of
  stock options 
  in acquisitions           --          --    --        --        --        -- 
Net loss                    --          --    --        --        --        --
                   -----------  ----------  ----  ---------  --------  -------
Balance as of 
  November 30, 1996  7,413,069   9,218,522     --       --   (270,000)  (17,500)
Issuance of common
  stock in 
  acquisitions         458,219   1,441,355      --       --       --        --
Termination of options
  issued in connection
  with acquisition          --          --      --       --       --        --
Issuance of
  preferred stock           --          --  87,710 1,558,519      --        --
Issuance of warrants        --          --      --        --      --        --
Preferred dividend
  accumulated               --          --      --   510,668      --        --
Conversion of 
  preferred to
  common stock         110,342     248,185  (9,000) (207,152)     --        --
Net loss                    --         --       --        --      --        --
                    ----------  ----------  ------ ----------  ------   ------
Balance as of
  November 30, 1997  7,981,630 $10,908,062  78,710 $1,862,035 (270,000)$(17,500)
                    ========== ===========  ====== ========== ========  =======
</TABLE>
                       (WIDE TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>

                                   ADDITIONAL                                  
                                    PAID-IN      ACCUMULATED                    
                                    CAPITAL        DEFICIT         TOTAL       
                                  -----------    -----------    -----------
<S>                                <C>           <C>            <C>
Balance as of November 30, 1995    $       --    $(1,095,336)    $6,790,347
Bond payable conversion                    --             --        190,989
Issuance of common stock                   --             --        882,350
Cashless exercise of investor
   warrant                                 --             --             --
Issuance of common stock in
   acquisitions                            --             --        242,000
Issuance of stock options in
   acquisitions                     1,010,167             --      1,010,167
Net loss                                   --       (320,844)      (320,844)
                                  -----------    -----------    -----------
Balance as of November 30, 1996     1,010,167     (1,416,180)     8,795,009
Issuance of common stock
   in acquisitions                         --             --      1,441,355
Termination of options issued
   in connection with
   acquisition                       (125,000)            --       (125,000)
Issuance of preferred stock           386,956             --      1,945,475
Issuance of warrants                  137,529       (137,529)            --
Preferred dividends accumulated            --       (510,668)            --
Conversion of preferred to
   common stock                       (41,033)            --             --
Net loss                                   --     (3,402,089)    (3,402,089)
                                  -----------    -----------    -----------
Balance as of November 30, 1997    $1,368,619   $(5,466,466)   $ 8,654,750
                                  ===========    ===========    ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


<PAGE>

<TABLE>
<CAPTION>
                               BAB Holdings, Inc.

                      Consolidated Statements of Cash Flows


                                                       YEAR ENDED NOVEMBER 30
                                                          1997         1996
                                                      -----------   ---------
<S>                                                   <C>           <C>
OPERATING ACTIVITIES
Net loss                                              $(3,402,089)  $(320,844)
Adjustments to reconcile net loss to net cash
 (used for) provided by operating activities:
     Depreciation and amortization                      1,490,329     379,266   
     Provision for impairment and closure               1,836,981           -
     Deferred preopening store cost                      (240,927)   (142,867)
     Other                                                      -      11,045 
     Changes in operating assets and liabilities:
         Trade accounts receivable                       (432,604)   (447,293)
         National Marketing Fund contributions
            receivable                                   (245,779)    (69,326) 
         Inventories                                     (211,614)     (7,926) 
         Deferred franchise costs                         (21,319)    (18,338)
         Notes receivable                                (138,632)     (3,682)  
         Prepaid expenses and other assets               (215,653)   (180,623)
         Amounts due from affiliate                       (88,653)    (18,321)
         Accounts payable                                 176,318     672,083
         Accrued professional and other services         (178,331)    184,567 
         Accrued liabilities                               75,157     121,411
         Unexpended National Marketing Fund
           franchisee contributions                       358,840      87,820
         Deferred franchise fee revenue                    17,600    (178,100)
                                                       ----------    ---------
Net cash (used for) provided by
   operating activities                                (1,220,376)     68,872

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

<TABLE>
<CAPTION>
                               BAB Holdings, Inc.

                Consolidated Statements of Cash Flows (continued)


                                                      YEAR ENDED NOVEMBER 30
                                                       1997           1996
                                                   ------------   ------------
<S>                                                <C>           <C>        
INVESTING ACTIVITIES
Purchases of property, plant and equipment          $(3,679,705) $(2,512,472)
Sale of property, plant and equipment                    57,400            -
Purchase of Bagels Unlimited                                  -     (990,874)
Purchase of Strathmore                                        -     (879,566) 
Purchase of Danville                                          -     (602,988)
Purchase of MFM                                        (115,551)           -
Purchase of trademarks                                  (16,236)    (171,396)
Purchases of other assets                              (120,000)    (143,765) 
Loan disbursements                                      (74,201)  (1,254,196)
Loan repayments                                          77,748      183,578
Other                                                    56,440      (50,171)
                                                    -----------  -----------
Net cash used for investing activities               (3,814,105)  (6,421,850)

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock             2,192,750            -
Payment of preferred stock issuance costs              (247,275)           -
Proceeds from issuance of common stock                        -    1,020,000
Payment of common stock issuance costs                        -     (137,650)
Borrowing on line of credit                           1,675,975            -
Debt repayments                                        (364,037)     (35,928)
Other                                                     3,671       (9,160) 
                                                    -----------  -----------
Net cash provided by financing activities             3,261,084      837,262   
                                                    -----------  -----------
Net decrease in cash and cash equivalents            (1,773,397)  (5,515,716)
Cash and cash equivalents at beginning of year        2,163,293    7,679,009
                                                    -----------  -----------
Cash and cash equivalents  at end of year            $  389,896  $ 2,163,293 
                                                    ===========  ===========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>


                           BAB Holdings, Inc.

               Notes to Consolidated Financial Statements


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.  Operations was formed on August 30, 1995, 
primarily to operate Company-owned stores, currently, "Big Apple 
Bagel" 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.


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.  The joint venture was accounted for using the 
equity method.  

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.

Leasehold Improvements and Equipment

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.

Intangible Assets

The Company's intangible assets consist primarily of patents, 
trademarks, and copyrights, organization costs, contract rights, 
noncompetition agreements, and goodwill.  Organization costs are 
primarily incorporation fees and legal fees associated with 
initial Uniform Franchise Offering Circulars related to 
operations and are being amortized over five years.  Patents, 
trademarks, and copyrights are being amortized over 17 years.  
Franchise contract rights acquired in the MFM acquisition are 
amortized over 20 years.  Contract rights allocated to license 
agreements assumed by the Company in the acquisition of 
Strathmore Bagels Franchise Corporation are being amortized over 
8.5 years, the remaining life of the contract.  Noncompetition 
agreements are amortized over the term of the agreements, which 
is six years.  Goodwill recorded as a result of acquisitions 
described in Note 10 is being amortized over 40 years.  
Amortization expense recorded in the accompanying consolidated 
statements of operations for the years ended November 30, 1997 
and 1996 was $549,640 and $164,956, 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 during 1996 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.

Deferred Franchise Fee Revenues and Costs

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 these units located 
primarily in airport and travel plazas.  In fiscal 1997, the 
Company opened additional units pursuant to other licensing 
arrangements.  The Company derives a licensing fee from certain 
sales at these units as well as a sales commission from the sale 
of par-baked bagels to these units by a third-party commercial 
bakery.

Stores which have been opened and unopened stores for which an 
agreement has been executed and franchise at November 30, 1997 or 
area development fees collected are as follows (excludes 6 
Company-owned stores at November 30, 1997 which were closed 
subsequent to year end (see Note 11)):

<TABLE>
<CAPTION>
                                          November 30
                                         1997     1996
                                         ----     ----
   <S>                                   <C>      <C>
   Stores opened:
      Company-owned                        28       15
      Franchisee-owned                    182       99
      Licensed                             47       35
                                         ----     ----
                                          257      149
   Unopened stores:
      Franchise agreement                  25       26
      Area development agreement           28       39
                                         ----     ----
                                           53       65
                                         ----     ----
                                          310      214
                                         ====     ====
</TABLE>

Advertising Costs

The Company expenses advertising costs as incurred.  Advertising 
expense was $339,496 and $179,659 in 1997 and 1996, respectively.  
Included in advertising expense was $55,733 and $41,928 in 1997 
and 1996, respectively, related to the Company's franchise 
operations.

Net Loss Attributable to Common Share

All share information presented has been adjusted for the three-
for-two stock split effected in the form of a 50% dividend which 
occurred in April 1996.  The primary calculation of net loss 
attributable to common share is based on the net loss 
attributable to common shareholders and the weighted-average 
number of common shares outstanding during the period.  The 
primary calculation of net loss attributable to common share does 
not include the convertible preferred stock, because they are not 
common stock equivalents.  The fully diluted calculation of net 
loss attributable to common share assumes conversion at the 
beginning of the period of any convertible security converted 
during the period.  Accordingly, the net loss attributable to 
common shareholders was adjusted for preferred dividends 
accumulated on securities converted during the period.  

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.

Reclassification

Certain 1996 amounts have been reclassified to reflect 1997 
presentation.

New Accounting Pronouncement

The Financial Accounting Standards Board has issued Statement of 
Financial Accounting Standard No. 128 "Earnings Per Share" (the 
Standard), which is required to be adopted in both interim and 
annual financial statements for periods ending December 15, 1997.  
At that time, the Company will be required to change the method 
presently used to compute earnings per share and to restate all 
prior period amounts.  The Standard replaced primary and fully 
diluted earnings per share with basic and diluted earnings per 
share.  The impact of the Standard is not expected to be 
material.


3.  Restricted Cash

Systems is required by certain states to maintain franchise and 
area development fees in escrow accounts until the related 
franchise stores commence operations.  At November 30, 1997 and 
November 30, 1996, these accounts totaled $20,000 and $63,500, 
respectively.

Systems established the National Marketing Fund (Fund) during 
1994.  Both franchised and Company-owned Big Apple Bagels 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.  At November 30, 1997 and 1996, the Fund's cash 
balance was $256,678 and $85,732, respectively.  

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


4.  Income Taxes

There were no provisions for income taxes during the years ended 
November 30, 1997 and 1996, due to net operating losses incurred 
during those periods.  The reconciliation of the income tax 
benefit computed at the federal statutory rate of 34% and the 
provision for income taxes is as follows:

<TABLE>
<CAPTION>
                                         Year ended November 30
                                            1997         1996
                                        -----------   ---------
<S>                                     <C>          <C>
Income tax benefit computed at
  federal statutory rate                $(1,156,710) $ (109,087)
State income tax benefit, net
  of federal tax benefit                   (163,913)    (15,458)
Permanent differences on debt
  financing obtained                         (1,748)     (1,748)
Other permanent differences                  22,584       1,046
Valuation allowance against 
  net deferred tax asset                  1,299,787     125,247
                                         ----------   ---------
Provision for income taxes               $        -  $        -
                                         ==========   =========
</TABLE>

There was no current income tax expense for the years ended 
November 30, 1997 and 1996, due to the Company incurring net 
operating losses for tax purposes during each of those two years.  
No deferred taxes have been reflected in the consolidated 
statements of operations because the Company has fully reserved 
the tax benefit of net deductible temporary differences and 
operating loss carryforwards due to the fact that the likelihood 
of realization of the tax benefits cannot be established.  The 
Company did not pay any income taxes during the years ended 
November 30, 1997 and 1996.

Deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                November 30
                                              1997        1996
                                           ----------  --------
<S>                                        <C>         <C>
Franchise fee revenue                      $  216,615  $ 249,760 
Net operating loss carryforwards            1,617,089    350,464
Franchise costs                                32,102     74,979
National Marketing Fund net contributions      99,638     19,664
Allowance for uncollectible accounts          108,392      4,000
Depreciation                                 (171,017)   (94,741)
Start-up costs                                (17,807)   (21,092)
Other                                          (2,085)       106
                                            ---------   --------
                                            1,882,927    583,140
Valuation allowance                        (1,882,927)  (583,140)
                                            ---------    -------
                                            $       -    $     -
                                            =========    =======
</TABLE>

At November 30, 1997, the Company has cumulative net operating 
loss carryforwards expiring between 2008 and 2012 for U.S. 
federal income tax purposes of approximately $4,166,000.  The net 
operating loss carryforwards are subject to limitation in any 
given year as a result of the Company's initial public offering 
(see Note 8) and may be further limited if certain other events 
occur.

5.  Long-Term Obligations

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                 November 30
                                              1997         1996
                                            --------     --------
<S>                                       <C>           <C>
Secured line of credit payable to
   bank, due December 31, 1998,
   at an interest rate of prime
   plus 1%                                $1,657,975    $       -
Capital lease obligations,
   various rates                              31,220            -
Unsecured note payable, principal
   payments due monthly at an 
   interest rate of 10%                       13,843            -
Other                                              -        8,133
                                           ---------    ---------
                                           1,703,038        8,133
Less:  Current portion                        26,143        6,375
                                           ---------    ---------
Long-term debt, net of current portion    $1,676,895    $   1,758
                                           =========    =========
</TABLE>

The Company has a secured $2 million line of credit facility with 
a bank which expires December 31, 1998.  Maximum borrowing under the line
is limited to 80% of accounts receivable under 90 days and 40% of 
equipment and furniture and fixtures.  Interest is payable monthly at
prime plus 1% (9.5% at November 30, 1997), with principal due upon 
maturity at December 31, 1998.  In July 1997, the Company borrowed 
approximately $330,000 on the line of credit to repay debt plus accrued 
interest acquired in the MFM acquisition (see Note 10).  At November 30, 
1997, the Company had borrowed $1,657,975 on the line of credit.

The line of credit is secured by substantially all of the assets of
the Company and requires, among other things, that the Company maintain
minimum net worth of $8 million and a compensating cash balance of 
$250,000.  In February 1998, the Company fell below the compensating cash
balance requirement and obtained a waiver from the bank to lower the 
requirement to $150,000 for 60 days expiring April 25, 1998.  Management
has implemented a plan to increase the cash balances and to remain within
compliance of the compensating cash provision of the line of credit.  
This plan includes improvements in cash flow associated with the store
closures (see Note 11), proceeds from the sale of stores or other assets,
reduce general and administrative expenses, increase collection efforts
and potential debt or equity investments by significant shareholders.  
Management believes that these efforts will be sufficient to ensure
compliance with the compensating cash balance covenant by April 25, 1998
and for the remainder of the fiscal year.

In fiscal 1996, the Company had outstanding 8% unsecured 
convertible bonds due July 1, 2002.  The bonds were convertible 
into shares of common stock at the conversion ratio of one share 
for every $2.67 of principal outstanding.  Among other terms of 
the issue, the Company had the option of calling outstanding 
bonds at any time during the term, subject to certain redemption 
notice requirements.  On December 29, 1995, the Company notified 
the remaining bondholders of its intent to redeem the outstanding 
principal balance of the issue.  Bondholders representing $200,160
of principal elected to convert their interests to common stock 
pursuant to the terms of bonds, resulting in the issuance of 75,060 
shares of common stock.  The remaining outstanding principal was
retired by the payment by the Company of approximately $31,000 to 
bondholders in February 1996.

As of November 30, 1997, annual maturities on long-term 
obligations are due as follows:  $26,143 in 1998, $1,666,941 in 
1999 and $9,954 in 2000.  Interest paid for the years ended 
November 30, 1997 and 1996, was $55,188 and $4,530, respectively.

In February 1997, Systems entered into an agreement with a finance 
company to provide financing to qualifying franchisees for the purpose
of adding second or subsequent units.  The program is administered by
the finance company; however, Systems has the final right of approval
over individual applicants.  Systems has provided a guarantee of 
borrowings up to a maximum of 10% of the total amount financed in each
12-month period under the program.  As of November 30, 1997, $438,000
has been advanced to franchisees under this program.


6.  Lease Commitments

The Company rents its office and Company-owned store facilities 
under leases which require it to pay real estate taxes, 
insurance, and general repairs and maintenance on these leased 
facilities.  Rent expense for the years ended November 30, 1997 
and 1996, was $955,693 including contingent rental expense of 
$26,600 less sublease income of $46,109 and $230,480, 
respectively.  At November 30, 1997, future minimum annual rental 
commitments under leases, net of sublease income of $126,554 in 
1998, $138,059 in 1999, $119,817 in 2000 and $61,338 in 2001 are 
as follows:

<TABLE>
                  <S>              <C>
                  1998            $  962,254
                  1999               977,248
                  2000               825,526
                  2001               676,609
                  2002               405,431
                  Thereafter         907,833
                                   ---------
                                  $4,754,901
                                   =========       

7.  Noncash Transactions

During 1996, the Company converted $190,989 of bonds, net of bond 
issue costs, to shares of common stock (see Note 5).

On May 1, 1996, the Company issued 50,000 shares of common stock 
and an option to purchase 100,000 additional shares of common 
stock valued, in total, at approximately $392,000 and canceled 
notes and other receivables totaling approximately $145,000 as a 
portion of consideration of the purchase of several bagel stores 
owned and operated by a franchisee (see Notes 8 and 10).

On May 22, 1996, the Company issued an option to purchase 625,000 
shares of common stock valued at $860,000 in connection with the 
purchase of various contract rights related to licensed units 
owned and operated by Host Marriott (see Notes 8 and 10).

On October 18, 1996, the Company canceled notes and other 
receivables totaling approximately $165,000 in connection with 
the purchase of all contract rights and other assets of BrewCorp 
(formerly known as Brewster's Coffee Company, Inc.) in 
foreclosure proceedings.

In January 1997, the Company forgave notes and other receivables 
totaling approximately $486,000 from a franchisee, Just Bagels, 
Inc. ("JBI") and acquired three stores for conversion to Company-
owed units (see Note 10).

In April 1997, the Company issued 25,611 shares of Common Stock 
valued at approximately $94,000, forgave royalties owed totaling 
approximately $42,000, and assumed liabilities of approximately 
$36,000 in connection with the purchase of one franchised store. 
In August 1997, this store was sold to a franchisee for 
approximately $235,000, consisting of two notes receivable from 
the purchaser, approximately $46,000 which was paid in October 
1997 and approximately $189,000, due in monthly payments through 
August 2004, with interest at 8.5%  (see Note 10).

In May 1997, the Company terminated an option to purchase 75,000 
shares of Common Stock which had been originally issued in 
connection with the Strathmore acquisition (Note 10).  The former 
owners of Strathmore had, in a separate transaction, assigned the 
rights to acquire 75,000 shares of the 625,000 total shares of 
Common Stock to Hawaiian Bagel Factory, Inc. ("HBF").  HBF 
entered into an option to purchase the master franchise rights of 
the State of Hawaii from Systems in exchange for the assignment 
of the option to purchase the Company's Common Stock, valued at 
$125,000, and a note receivable for $75,000 which is due and 
payable in 5 annual installments of principal and interest 
beginning May 1998 and which bears interest at 9% per annum.

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

In May 1997, the Company acquired MFM by exchanging 432,608 
shares of Common Stock plus cash for 150 shares of MFM common 
stock (see Note 10).


8.  Shareholders' Equity

On March 28, 1996, the Board of Directors declared a three-for-
two stock split effected in the form of a 50% dividend payable to 
shareholders of record on April 12, 1996 and distributed on 
April 26, 1996.  The terms of all outstanding options and 
warrants to purchase shares of common stock were adjusted 
accordingly.  All share information has been adjusted to reflect 
the stock split.

On January 2, 1996, in connection with the Company's initial 
public offering of 2,500,000 shares of common stock which was 
completed on November 30, 1995, the Company sold an additional 
382,500 shares of Common Stock at the public offering price of 
approximately $2.67 per share upon exercise in full of the 
underwriter's over-allotment option, for an aggregate of 
$1,020,000.  Costs associated with the exercise of the over-
allotment option totaled approximately $138,000 which included an 
underwriting discount of 9% of the offering amount, plus a 
nonaccountable expense allowance of 3%, and other expenses.  The 
net proceeds to the Company were approximately $882,000.  
Pursuant to the underwriting, the Company also sold to the 
underwriter, for nominal consideration, warrants to purchase 
255,000 shares of the Company's common stock.  The warrants are 
exerciseable between the first and fifth anniversary of the 
effective date of the initial public offering at $3.20 per share.

On May 1, 1996, in connection with the acquisition of Bagels 
Unlimited, Inc., the Company issued 50,000 shares of common stock 
and an option to purchase an additional 100,000 shares of common 
stock.  The option is exercisable for 5 years commencing on 
May 1, 1996, at a $4.00 per share price.  The stock and option 
were valued at approximately $242,000 and $150,000, respectively.

On May 22, 1996, in connection with the acquisition of Strathmore 
Bagels Franchise Corp., the Company issued an option to purchase 
625,000 shares of Holdings' common stock, no par value, at an 
exercise price of $6.17 per share.  The option is exercisable for 
312,500 shares commencing on May 21, 1997, and for the remaining 
312,500 shares commencing on May 21, 1998.  The exercise period 
for the option ends on May 21, 1999.  The option was valued at 
approximately $860,000.  In fiscal 1997, the Company issued an option
to purchase 6,000 shares of Common Stock as additional consideration 
at terms similar to the previously issued option.

On June 25, 1996, 133,471 shares of common stock were issued 
pursuant to a cashless exercise of a warrant.  The warrant was 
originally issued on November 30, 1995 to an investor to purchase 
up to 144,041 shares of common stock exerciseable through 
September 1, 1996, at a price of $.67 per share.  In connection 
with this exercise, the investor forfeited the option to purchase 
the remaining 10,570 shares covered by the warrant.

In April 1997, the Company completed the sale of 87,710 shares of 
$25.00 Series A Convertible Preferred Stock (the "Preferred 
Stock") in a private placement to institutional investors. The 
Preferred Stock carries an 8% annual dividend payable in cash or, 
at the option of the Company, in shares of common stock; provided 
that during a Conversion Suspension Period (defined below), 
dividends will accrue at a rate of 15% per annum. Dividends are 
payable only when shares are converted to shares of common stock.  
The holders have no voting rights and have a liquidation 
preference of $25.00, plus accrued dividends, out of assets of 
the Company available for distribution to shareholders.

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

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

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

During fiscal 1997, holders elected to convert 9,000 shares of 
Preferred Stock plus dividends accrued thereon were converted 
into 110,342 shares of common stock.  In January 1998, 1,000 
shares of Preferred Stock plus dividends accrued thereon were 
converted into 32,672 shares of common stock.

9. Stock Options Plans

On September 20, 1995, the Company adopted and received 
shareholder approval of the 1995 Long-Term Incentive and Stock 
Option Plan (the Incentive Plan), which permits the issuance of 
options, stock appreciation rights, and restricted stock awards 
to employees and nonemployee officers, directors, and agents of 
the Company.  The Incentive Plan reserves 570,000 shares of 
common stock for grant and provides that the term of each award 
be determined by the Board or a committee of the Board.  Under 
the terms of the Incentive Plan, options granted may be either 
non-qualified 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 is a 10% or greater shareholder) 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 ten years from the 
respective exercise date.  Options issued terminate immediately 
following an optionee's termination of employment or, in some 
circumstances, one to three months after termination or up to 12 
months in the case of the death of the employee.  

Additionally, on September 20, 1995, the Company adopted and 
received shareholder approval of the 1995 Outside Directors Stock 
Option Plan (the Directors Plan), which permits the issuance of 
non-qualified options to non-employee members of the Board.  The 
Directors Plan reserves 30,000 shares of common stock for grant.  
The Directors Plan provides for a grant of options to purchase 
2,000 shares upon initial election to the Board and for annual 
grants thereafter, upon reelection, of options to purchase 1,000 
shares.

Options granted are immediately exercisable for a period of 10 
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, 1997 is as follows:   


</TABLE>
<TABLE>
<CAPTION>
	                                  								         
                                                      Weighted
                                    Number of      Average Option
                                      Shares       Price Per Share
                                    ----------    ---------------
<S>                                 <C>           <C>  
Outstanding as of December 1, 1995     30,000           $2.67
Granted                               276,000           $6.54
Exercised                                   -             -
Canceled                               (9,000)          $2.67
Outstanding as of November 30, 1996   297,000           $6.27
Granted                                 4,000           $2.53
Exercised                                   -             -
Canceled                               (3,000)          $2.67
Outstanding as of November 30, 1997   298,000           $6.25

</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 1996 and 1997 consist with provisions of 
SFAS No. 123, the Company's net loss and net loss per share would 
have been as follows:

<TABLE>
<CAPTION>
                                   	     Years ended November 30
                                            1997          1996
                                         -----------  ----------
<S>                                      <C>          <C>
Net loss attributable to 
   common shareholders:
      As reported                        $(4,050,286) $(320,844)
      Pro forma                          $(4,388,032) $(596,836)
Loss per share:
      As reported                             $(0.55)    $(0.04)
      Pro forma                               $(0.59)    $(0.08)
Diluted loss per share:		
      As reported                             $(0.53)    $(0.04)
      Pro forma                               $(0.58)    $(0.08)
</TABLE>

The fair value of each option grant is estimated using the Black-
Scholes option-pricing model with the following weighted average 
assumptions for 1997 and 1996: risk-free interest rates of 6.17%, 
dividend yield of 0.0%, expected volatility of .69 and a weighted 
average expected life of the option of 8.07 years.
	
Information on options outstanding under the Incentive Plan and 
the Directors Plan at November 30, 1997 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>
    $2.31 - $2.75       22,000            8.13         $2.64
    $4.17 - $4.83       13,500            8.28         $4.39
    $6.37 - $7.01      262,500            6.21         $6.65
</TABLE>


10.  Business Combinations

During 1997 and 1996, the Company completed several acquisitions 
which were all accounted for using the purchase method of 
accounting.  On May 1, 1996, the Company acquired certain assets 
of Bagels Unlimited, Inc. (BUI), a franchisee of the Company 
which operated five Big Apple Bagels stores in southeastern 
Wisconsin, for a purchase price, including acquisition costs, of 
approximately $1,428,000.  Additionally, the Company paid 
$100,000 to the former owners of BUI in exchange for 
noncompetition agreements.  The acquired stores are currently 
operated as Company-owned Big Apple Bagels units.

On May 21, 1996, the Company acquired certain assets and contract 
rights of Strathmore Bagels Franchise Corporation (Strathmore) 
for a purchase price including acquisition costs of approximately 
$1,740,000, plus additional consideration based on future 
openings of units operated by Host Marriott Services Corporation 
(Host Marriott).  In this acquisition, the Company acquired 
rights to a license agreement with Host Marriott which operated 
34 units, contracts for each facility, and certain machinery and 
equipment.  Additionally, as part of the acquisition, the Company 
entered into noncompetition agreements with the two former 
principals of Strathmore.

On October 7, 1996, the Company acquired certain assets of 
Danville Bagels, Inc. (Danville), a franchisee of the Company 
operating two Big Apple Bagels stores in northern California, for 
a purchase price of approximately $603,000.  Additionally, as 
part of the acquisition, the Company entered into noncompetition 
agreements with the two former principals of Danville.  The 
acquired stores are currently operated as Company-owned Big Apple 
Bagels units.

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

In January 1997, the Company completed the acquisition of JBI and 
its affiliate, franchisees of the Company, operating a total of 
four stores in southern California.  The total purchase price 
paid was $770,000, including $120,000 related to a noncompetition 
agreement with the former JBI owner.  In October 1997, management 
closed one of the stores and closed the remaining three stores 
in January 1998.  All of the long-lived assets associated with 
this purchase were considered impaired as of November 30, 1997.  
See Notes 7 and 11.

In May 1997, the Company acquired MFM.  At the time of 
acquisition, MFM had 5 company-owned and 60 franchised units in 
operation and its 1996 revenues exceeded $2.7 million. The 
Company acquired  MFM by exchanging 432,608 shares of the 
Company's Common Stock, restricted as to transfer until January 
1, 1999, and $259,000 in cash in exchange for 150 shares of MFM 
stock.  The Company assumed all assets, including approximately 
$143,000 in cash, and liabilities of MFM.  The Company borrowed 
approximately $356,000 on its credit facility to repay MFM bank 
debt and other borrowings assumed in the acquisition.  

On a pro forma basis, had the above acquisitions occurred at 
December 1, 1995, revenues for the fiscal years ended November 
30, 1997 and 1996 would have been $15,421,000 and $11,985,000, 
respectively.  Net loss for fiscal 1997 and 1996 would have been 
$3,500,000 and $616,000, respectively, or a net loss per share of 
$0.54 and $0.08, respectively.


11.  Impairment of Long-Lived Assets and Store Closures

The provision recorded of $1,836,981 consists of the following:

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

For purposes of determining impairment, management, in certain 
circumstances, groups long-lived assets on a geographic market or 
store level as appropriate.  Such review included, among other 
criteria, management's estimate of future cash flows for the 
geographic market or store.  If the estimated future cash flow 
(undiscounted and without interest charges) were not sufficient 
to recover the carrying value of the long-lived assets, including 
associated goodwill, of the market or store, such assets were 
determined to be impaired and were written down to fair value.  
Fair value was determined based on current market selling prices 
of such assets.  Management judgment is inherent in the estimated 
fair value determinations and, accordingly, actual results could 
vary significantly from such estimates.  The estimated fair value 
of impaired long-lived assets which total approximately $171,000 
have been recorded as other current assets as of November 30, 
1997.

The seven stores identified as impaired incurred operating losses 
of approximately $555,000 during the fiscal year ended November 
30, 1997.  One store was closed by year end and the 
remaining six stores were closed subsequent to year end. 

The reserve for closed store expense includes an amount for the 
noncancelable operating lease payments after the expected closure 
date, net of estimated sublease income. 


12.  Costs of Uncompleted Acquisition

On September 4, 1996, the Company signed an agreement to acquire 
certain assets and assume certain liabilities of the two 
companies which represent the operations of The Chesapeake Bagel 
Bakery (Chesapeake), a franchisor and operator of Chesapeake 
Bagel Bakery concept specialty bagel stores.  The agreement was 
subject to certain closing conditions including the Company 
obtaining funding for the acquisition by December 31, 1996.  At 
that date, the Company was unable to complete a public offering 
of its common stock necessary to close the transaction on terms 
agreeable to management.  The Company's costs incurred in 
acquisition-related and equity offering-related activities have 
been expensed during fiscal 1996 in the accompanying consolidated 
statement of operations under the caption "costs of uncompleted 
business acquisition."


13.  Disclosures About 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 
at November 30, 1997, approximate their carrying value.



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

         None. 


                             PART III


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

Incorporated by reference to the Company's definitive proxy materials
to be filed with the Commission on or before March 30, 1998. 


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

Incorporated by reference to the Company's definitive proxy materials
to be filed with the Commission on or before March 30, 1998. 


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

Incorporated by reference to the Company's definitive proxy materials
to be filed with the Commission on or before March 30, 1998. 


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

Incorporated by reference to the Company's definitive proxy materials
to be filed with the Commission on or before March 30, 1998. 


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

REPORTS ON FORM 8-K 

The following reports on Form 8-K were filed by the Company 
during the last quarter of the fiscal year ended November 30, 
1997: 

     None


EXHIBITS 

The following exhibits are filed herewith. 


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[v] 3.2      Bylaws of the Company, as amended

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

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

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

[v] 10.1     Form of Franchise Agreement

[v] 10.2     Form of Franchise Agreement-Satellite

[v] 10.3     Form of Franchise Agreement-Wholesale

[v] 10.4     Form of Area Development Agreement

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

[v] 10.6     Form of Confidentiality Agreement with Employees

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

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

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

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

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

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

[v] 10.13    1995 Outside Directors Stock Option Plan

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

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

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

11.1         Calculation of Earnings Per Share

21.1         List of Subsidiaries of the Company

23.1         Consent of Ernst & Young LLP, independent auditors

___________________________________________

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

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

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

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

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

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

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



                          INDEX TO EXHIBITS

INDEX
NUMBER		 DESCRIPTION	PAGE #

11.1	    Calculation of Earnings Per Share						

21.1     List of Subsidiaries of the Company		

23.1     Consent of Ernst & Young LLP, independent auditors		
		

                        					SIGNATURES

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

BAB HOLDINGS, INC.

Dated:	March 2, 1998	           By /s/ MICHAEL W. EVANS
                                   --------------------------
                                   Michael W. Evans, Chief Executive 
                                   Officer and President (Principal
                                   Executive Officer)


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


/s/ MICHAEL W. EVANS                                March 2, 1998
-------------------------------------------
Michael W. Evans, Chief Executive Officer,
President and Director (Principal Executive
Officer)



/s/ MICHAEL K. MURTAUGH                             March 2, 1998
------------------------------------------
Michael K. Murtaugh, Director and Vice
President/General Counsel


/s/ TOM J. FLETCHER                                 March 2, 1998
------------------------------------------
Tom J. Fletcher, Chief Operating Officer
(Principal Operating Officer and Principal
Financial and Accounting Officer)


/s/ DAVID L. EPSTEIN                                March 2, 1998
------------------------------------------
David L. Epstein, Director



------------------------------------------
Cynthia A. Vahlkamp, Director


/s/ ROBERT B. NAGEL                                 March 2, 1998
------------------------------------------
Robert B. Nagel, Director