FORM 10-KSB

                                   (Mark One)

[X]   Annual Report under Section 13 or 15(d) of the Securities  Exchange Act of
      1934 (Fee required)

            For the fiscal year ended: June 28, 1997

[ ]   Transition Report under Section 13 or 15(d) of the Securities Exchange Act
      of 1934 (No fee required)

For the transition period from ___________ to ___________.

Commission file number: 0-22638

                          STARLOG FRANCHISE CORPORATION
              (Exact name of Small Business Issuer in Its charter)

New Jersey                                            22-32210281
(State or other Jurisdiction of                       (I.R.S. Employer 
Incorporation or Organization)                        Identification No.)

945 Brighton Street, Union, New Jersey                07083
(Address of Principal Executive Offices)              (Zip Code)

Issuer's Telephone Number, Including Area Code:       (908) 964-2813

Securities registered under section 12(b) of the Act: None

Securities registered under section 12(g) of the Act: Common Stock, $.001 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 past 90 days.

YES ___  NO _X_

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B 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. [ ]

State issuer's revenues for its most recent fiscal year: $2,367,722

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the closing sale price of such stock,
as of May 1, 1997 is $359,927.

Check whether issuer has filed all documents and reports required to be filed by
Section 12, 13, 15(d) of the Exchange Act after the  distribution  of securities
under a plan confirmed by the Court. Yes No X .

As of May 15, 1998, the Issuer had 24,237,636 shares of Common Stock,  $.001 par
value, outstanding.

<PAGE>

ITEM 1.  BUSINESS

Overview

The Company is a specialty  retailer of bulk candy,  gifts,  science fiction and
fantasy  memorabilia and  collectibles.  The Company's  recently  acquired candy
stores are also  starting to market  science  fiction,  supernatural  and gaming
cards. The Company's merchandise includes products licensed under the names Star
Trek(R), Star Wars(R), Batman(R),  Marvel(R), and DC Comics(R), X-Files, Babylon
5 and Godzilla among many other highly  recognizable  titles.  In addition,  the
Company's  distribution  division is an international  wholesale  distributor of
sports cards,  comics,  science  fiction,  movie and  television  trading cards,
gaming cards, hobby supplies and collectibles.

Background / History

The Company was started  with one Starlog  store in 1992 by Norman  Jacobs,  the
founder of the Starlog Group,  publisher of several  science  fiction and horror
magazines.  Its original goal was to  capitalize  on the steadily  growing niche
market for  science  fiction and fantasy  literature,  apparel and  collectibles
through a network of stores.  In November  1993 the Company  raised $5.5 million
through its initial public offering.  Following the offering, the Company's then
management rapidly expanded its operations, opening nine stores in 15 months.

Lacking experience in retail chain operations the original management made, what
can now be seen, as several critical errors. First, the Company expanded rapidly
based on  experience  with only one  store  and  without  adequate  research  to
determine proper store size,  inventory  levels,  occupancy factors and start-up
costs. As a result,  stores opened during the first year proved to be too large,
with high  start-up  costs and annual  rent  commitments  which were too high to
permit profitable operation.  Additionally,  these original stores were found to
be too geographically  dispersed for efficient  management control. As a result,
during  their  first  fiscal  year as a public  company,  losses  were  suffered
totaling $3.2 million and were continuing at a rate of approximately  $800,000 a
quarter.

Shortly  after Mr.  John  Fitzgerald  joined  the  Company he  recognized  these
problems and started  taking steps to reorganize  the Company.  In June 1995 Mr.
Fitzgerald  was appointed  President and Chief  Operating  Officer.  In November
1995, the Company filed a voluntary petition for Chapter 11 Bankruptcy. While in
Bankruptcy the Company was able to rid itself of its most expensive  leases.  In
an effort to salvage some of the start-up expenses invested in the stores and to
determine if they could be  profitable  with more  favorable  lease  terms,  the
Company  renegotiated  much more favorable  terms for the leases of eight of the
stores and  attempted to operate  them.  The Company  emerged from Chapter 11 in
August  1996 and secured  working  capital  from Hope  Associates,  LLC.  ("Hope
Associates"),  which in exchange,  owned at that time  approximately  90% of the
Company's outstanding Common Stock.

Subsequently,  in November 1996 the Company's original executive  management and
Board of  Directors  resigned  and were  replaced by a new Board  formed by Hope
Associates'  principals  and Mr.  Fitzgerald.  Additionally,  the founder of the
Company turned in substantially all of his stock in the Company.

After a  successful  Chapter 11  reorganization,  the  Company  has been able to
acquire two promising and profitable  businesses,  KCK  Corporation,  in October
1997 (See "BUSINESS-KCK/Candico" below) and, and Goal Post Distributors, Inc. in
June 1997 (See "BUSINESS-Goal Post" below).

Since  emerging from  bankruptcy,  the Company  closely  monitored the operating
results of the remaining eight Starlog Stores to determine  whether,  with their
re-negotiated leases, they could operate profitably. The Company


                                      -2-
<PAGE>

concluded  that they  could not.  All but one of the  Starlog  stores  have been
closed  and  the  last  store  is  slated  for  closing  June  30,  1998.   (See
"BUSINESS-Elimination of Unprofitable Starlog Stores" below).

Elimination of Unprofitable Starlog Stores.

After  reviewing  the  results  of the  last six  Starlog  Stores,  the  Company
determined in April 1998 that theses stores could not operate  profitably,  even
with the more favorably re-negotiated terms. During the period from October 1997
through January 1998,  these six stores had been suffering  operating  losses of
more than  $25,000 a month,  greatly  offsetting  the  operating  profits of the
Company's other divisions.

As a result,  the Company closed five of six of these  unprofitable  stores. The
last store is scheduled to close on June 30, 1998.  The leases for four of these
six  stores  were  expired  and the  Company  will  have no  on-going  liability
resulting from such closings. In the case of the store in Glendale, Arizona, and
in Sacramento,  California,  the leases do not terminate until December 31, 1998
and  September 1, 2002,  respectively,  and the Company is required to negotiate
settlements  of the  outstanding  balances of  approximately  $43,000 over eight
months in the case of the Arizona store, and  approximately  $240,000 over 4 1/2
years  in the case of the  Sacramento  store.  Although  these  stores  were not
successful for the Company's  purposes,  the malls in which they are located are
relatively  successful and the Company  believes that the liability  under these
two  leases  will  be   substantially   mitigated  or  eliminated  when  current
negotiations with the landlords are concluded.

Headquarters Cost Cutting Measures

During the  beginning  of 1998,  the Company  took  various  steps to reduce its
corporate overhead, including the lay-off of a number of personnel. Much of this
staff reduction  related to personnel  involved in the management of the Starlog
stores which the Company closed.  The Company estimates that these steps reduced
annual corporate overhead by $300,000.

KCK/Candico

      Acquisition

In October 1997, the Company acquired KCK Corporation, which at that time was in
Chapter 11  Reorganization.  The Company took over  operational  control of KCK,
subject to the  Bankruptcy  court's  supervision  in October of 1997 and KCK was
discharged  from  bankruptcy  in March  1998.  KCK was  basically  a  profitable
operation but was in  Reorganization  because of lack of operating  capital.  In
1991, Mr. Fitzgerald had done consulting work with Candy Candy,  Inc., the prior
operator of the KCK stores.  He ultimately  became the company's COO and was the
key  force  in the  development  of Candy  Candy!  concept.  As a result  of Mr.
Fitzgerald's  familiarity  with the KCK stores and the candy  industry,  and the
recruitment of an experienced  candy buyer,  Frank  Crescebene,  the Company was
able to take steps to improve KCK's buying  practices and increase  gross margin
by almost 8%.

      Candico Business

KCK is a retail candy company  currently  operating 13 stores  trading under the
name Candy Candy!  or Candico (the  "Candico  Stores").  Several of these stores
have been successfully operating for more than 10 years.

The typical Candico store is between 600 and 800 square feet and is located in a
high traffic enclosed shopping mall. The Candico stores create visual excitement
with an array of colorful  candy-filled towers. Candy is an impulse purchase and
this  bright  contemporary  look  creates a consumer  magnetism.  The stores are
professionally  designed and utilize  creative  lighting effects and proprietary
acrylic fixtures to create an upbeat buying  atmosphere.  In-store sound systems
with  continuous  programmed  music are also an  integral  part of the  formula.
Because  sales are directly  proportional  to mall foot  traffice,  prime retail
locations are critical.


                                      -3-
<PAGE>

The Candico stores sell 300 bulk candy items, displayed in acrylic bins designed
to ensure freshness and cleanliness.  Bulk candy is sold with a singular pricing
strategy at $7.76 per pound in most  stores.  This pricing  formula  enables the
stores to enjoy a high  gross  margin  targeted  at almost  70%.  The  one-price
concept  also allows the  customer  to randomly  shop the store and fill his bag
with a wide variety of his favorite candies,  promoting higher average sales per
customer.

There is no typical  customer as the appeal of the Candico stores and product is
universal.  Children and teens comprise the largest segment of customer profile;
however,  adults of all ages frequent the stores. A wide selection of sugar-free
candies  promotes   destination  shopping  for  health  conscious  and  diabetic
customers.

In additon to the bulk candy items, the Candico stores stock  approximately  125
"count  goods"  (individual  wrapped  novelties  such  as  Pop  Rocks,  Pez  and
Warheads). The typical layout includes two fixtures selling hand-made, specialty
lollipops  (such as Mickey Mouse pops  selling for several  dollars  each),  two
fixtures  selling gift and seasonal  items,  and a checkout  counter  offering a
large display of non-sports gaming and trading cards.

The Candico  stores  average about 100,000  transactions a year with the average
transaction averaging approximately $3.50. The stores are open 7 days a week (72
hours). A typical store is staffed by a manager, a lead, full time sales person,
working  30 hours a week and  three  part time  workers  who,  among the  three,
average an additional 32 hours a week.  Additional  staffing is required  during
busy times such as Christmas and Easter.  Generally  there are two sales persons
at the store.  The cost of a Candico store can range from $50,000 - $175,000 for
lease improvements and equipment.  Initial  inventories  average between $12,000
and $15,000.

There  are  approximately  15 major  distributors  of bulk  candy  from whom the
Company can obtain product.  The Company  typically  concentrates  its purchases
between two suppliers to ensure good pricing.

      Competition

The candy  industry is a multi  billion  dollar  industry with most retail sales
taking place in the mass markets.  Specialty candy retailing is very fragmented.
It is  basically  divided  into  two  segments:  specialty  chocolates  and bulk
candies.

The  chocolate  retail  segment is very  regional with such names as See's (West
Coast) and Fannie Mae (Chicago, Philadelphia and Baltimore). Godiva Chocolatier,
a division of Campbell Soup, with its upscale  specialty  chocolates and elegant
packaging,  operates  a chain  of  company-owned  stores  located  primarily  in
regional  malls.  Escalating  occupancy  cost and wages have  rendered  the full
service chocolate business marginally profitable except in high traffic and high
volume locations.

The bulk  self-service  candy segment is even more fragmented than the chocolate
segment.   The  dominant   mall   retailer  of  bulk  candy  is  Sweet   Factory
(approximately 240 stores) headquartered in San Diego. Other active companies in
this field are Candy Express and Candy  Headquarters.  Candy  Barrel,  a similar
concept  headquartered in Reno, NV,  merchandises its product in wooden barrels,
rather than acrylic  bins and  consequently  sells only wrapped and  prepackaged
candies.

      Plans for Expansion of Candico

The Company intends to expand its successful bulk candy operation and add to its
profitability   by  adding   selected,   fast-moving   items  from  its  science
fiction/fantasy/ memborabilia product line to the candy stores. The Company also
intends  to  develop  Candy  Carousels  which will  involve,  small,  relatively
inexpensive, easy to assemble and transport, candy kiosks. These 400 square foot
octagonal  "carousels"  will be  located  in  enclosed  shopping  malls  and are
designed to allow the Company to expand its  operations  at a far lower per site
cost than traditional stores.


                                      -4-
<PAGE>

      Shuttlecarts/Leased Departments - More Cost Effective Alternatives

While the high  overhead  expense for the  Starlog  stores  (including  start-up
costs, rent and personnel expenses)  prevented them from being profitable,  they
did  demonstrate  the  existence of a niche  market and consumer  demand for the
Company's products.  The Company intends to apply its merchandising  strategy to
freestanding kiosks called "Shuttlecart(R)," which will be located in the center
court of malls.  The  Company  believes  that this will allow it to combine  its
knowledge  of science  fiction and fantasy  products  for which there is a niche
market demand, with a much lower overhead than possible with stores.

The Company believes that each Shuttlecart  will cost  approximately  $15,000 to
build and  $20,000  for  merchandise.  This  compares  to between  approximately
$223,000 and $450,00 to build a traditional  store. There is a great demand from
malls for viable  center-court  kiosks.  Although  lease terms vary,  typically,
malls  request a fixed  monthly  rent (as low as $1,500 and as high as $4,000 in
the most successful  malls, with $2,500 being common) plus a percentage of sales
over a base amount of sales,  such as  $150,000  per annum.  Although  leases to
place kiosks in a mall may have a lengthy term (5-10 years) they  typically have
a "kick-out"  clause allowing the tenant to leave without further  obligation at
the end of any year where the  kiosk's  sales do not meet  minimum  levels.  The
Company believes that, Shuttlecart kiosks, with their lower rental and personnel
costs will be able to break even with less than $10,000 in monthly  sales.  This
compares  favorably with a traditional  store format,  like the stores which the
Company  recently  closed and which the Company  estimates  would  require  over
$20,000 of sales to break even.

The  Company  has run one three  month  test of its  Shuttle-Cart  concept  in a
shopping mall in  Jacksonville  Florida  during the three month period from July
through  September 1997. During those three months the stores sales were: $9,100
for July, $10,857 for August and $6,732 for September. This test was financed by
a third  party who was  interested  in the  possibility  of running  one or more
Shuttlecarts  for the Company on a franchise  or joint  venture  basis,  but who
chose not to proceed.  During the last month of test period,  the mall moved the
Shuttlecart to a less desirable  location,  and as expected by the Company,  the
sales dropped to unprofitable  levels. The Company considered the sales achieved
during this short test to be satisfactory,  especially bearing in mind that July
through September is not an optimal sales period in Florida.  However, given the
short  duration  of this  initial  test  and the  fact  that it has not yet been
repeated at other locations, this test is of limited value in predicting whether
future Shuttlecarts will produce  satisfactory  results.  The Company intends to
install two more  Shuttlecarts  in June and July of 1998. The first will open in
Monmouth Mall in Eatontown, New Jersey and substantive negotiations are underway
for a second metropolitan New York location.

The  Company  has also  developed a "leased  department"  concept  which it will
market to larger  department stores and specialty retail store. The Company will
build an 800+ square foot  department  in an existing  stores that will be owned
and operated by the Company.  There will be a revenue sharing  arrangement  with
the host store.  Developing leased departments will enable the Company to market
Company merchandise in major department and specialty stores.

Goal Post

Goal  Post  Distributors,  Inc.  ("Goal  Post")  is an  international  wholesale
distributor  of sports,  comics,  science  fiction,  movie & television  trading
cards,  gaming  cards,  hobby  supplies,  collectibles  and other toys.  It also
produces a catalog that is mailed to over 8,500 accounts worldwide.

Goal Post was founded in 1991 to service the growing market of card, comics, and
collectibles  shops  and  small  to  medium  specialty  store  chains.   Rapidly
expanding,  first reaching $1,000,000 in annual sales in 1993, Goal Post grew to
service over 4,000 existing customers and $5,000,000 in sales by 1996. Goal Post
was acquired by the Company at the end of June 1997.


                                      -5-
<PAGE>

Company Stores

In October,  1997,  The Company  acquired 14 KCK Stores  ("Candico")  of which 1
store  (Princeton  Market) was closed in December,  1997.  The  remaining 13 KCK
Stores are located  throughout  the Eastern  U.S.  in  Connecticut,  New Jersey,
Maryland,  Virginia,  Georgia and Florida.  (See Item 2 "Properties" below for a
listing of these locations and certain lease terms).

The Company at various times has opened 15 Starlog  Stores and 6  Sumon/Halogram
Stores, all of which have been closed,  except for one Starlog store which is to
be closed by June 30, 1998

Franchise Agreements

The Company has entered  into a number of franchise  agreements  with respect to
the  Starlog  Stores,  all of which have been  terminated.  The  Company  has no
present plans to enter any franchise agreements.

The Company is party to an agreement with the Starlog Group, whereby the Company
was licensed to use the "Starlog" name, registered  trademark,  service mark and
logos and in return agrees to pay the Starlog Group 3% of its gross income, less
costs of  goods  and  services.  The  term of the  agreement  is the term of the
trademarks,  which is ten years subject to renewal if in use. To date,  based on
the Company's  interpretation of this Agreement,  no such license fees have been
paid  or  accrued.  However  no  assurance  can  be  given  that  the  Company's
interpretation would prevail if it were litigated.

The ongoing  operations of the Company is contingent on the Company's ability to
continue as a going concern,  which should be appraised in conjunction  with the
Company's  history of operating losses and lack of working  capital.  See Item 6
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS".  The Company filed a voluntary petition for relief under Chapter 11
of the United  States  Bankruptcy  Code on November  13,  1995 and emerged  from
bankruptcy on August 28, 1996. See Item 3 "LEGAL PROCEEDINGS".

Norman Jacobs, the Company's former Chairman of the Board, had been the Chairman
of the Board of Starlog Group, Inc. ("Starlog Group"), since 1976. Starlog Group
publishes and  distributes  more than 20  magazines,  certain of which have been
sold in Starlog Stores,  and also sold elsewhere on terms no more favorable than
available to Starlog  Stores.  The Company has licensed the use of the trademark
"Starlog" from Starlog Group in exchange for an ongoing  license fee, but has no
other agreements with such related party. All Starlog Stores,  either franchised
or Company  Stores  were opened  under the  trademark,  logos and service  marks
licensed  from  Starlog  Group.  All such  stores  have been or are slated to be
closed.  The Company's  board of directors  and the requisite  percentage of the
Company's  shareholders  have  agreed  to amend  the  Company's  Certificate  of
Incorporation  so as,  among  other  things,  to  change  its  name  to  "Retail
Entertainment Group, Inc.".

(b) Financial Information about Industry Segments

From  inception  through  the Period  ended June 28,  1998,  the Company and its
subsidiaries have operated in the same industry segment.

Employees

As of May 1, 1998,  the Company had 74  employees.  This  includes the Company's
President,  an MIS Manager, 1 Operations Manager, 2 warehouse assistants,  1 MIS
assistant, 2 merchandising  managers/buyers,  1 staff accountant,  and 65 retail
store  employees;  of which 27 employees are full time and 47 employees are part
time. In addition the Company has 1 temporary  employee working in the Corporate
Headquarters.


                                      -6-
<PAGE>

ITEM 2.  PROPERTIES

The Company's executive offices and distribution center were relocated in April,
1995,  from 2  separate  facilities  in New  Jersey  to a  single  facility  in,
Clearwater,  Florida.  By mutual agreement the lease for the Clearwater facility
was terminated  September 30, 1996.  Effective  September 30, 1996 the Company's
executive  offices and  distribution  center were  relocated  from  Florida to a
facility at 945 Brighton Street,  Union, New Jersey.  This facility  consists of
approximately 6,500 square feet leased at a monthly rental of $3,000. This lease
will end on January 31, 1999. The Goal Post division's facilities are located in
a 3,000 square foot rented  building at 13949-9 W.  Hillsborough  Ave. in Tampa,
Florida.  This  lease is for a  month-to-month  term and the  monthly  rental is
$2,600.

Candico Stores

The  following  table sets forth the  locations  of the 13 KCK stores  where the
Company or a subsidiary currently holds a leasehold interest.

<TABLE>
<CAPTION>

Location                                      Retail Square      Lease Termination     Minimum Monthly 
                                                 Footage                                    Rent
<S>                                                <C>                <C>               <C>      
Harbor Place, Baltimore, MD                        742                04/30/04          $5,874(1)
Crystal Mall, Waterford, CT                        646                01/31/04          $4,166-4,583(2)
Bayside Marketplace, Miami, FL                     742                09/10/01          $5,874(3)
Bridgewater Commons, Bridgewater, NJ               836                12/31/03          $6,667(4)
Tampa Bay Center, Tampa, FL                        913                04/30/01          $1,140 (5)
Rockaway Town Sq. Rockaway, NJ                     535                10/31/06          $4,458-$4904(6)
Jacksonville Landing, Jacksonville, FL             563                02/28/00          $1,072.92(7)
Woodbridge Center, Woodbridge, NJ                  889                03/31/99          $3,333.75(8)
Macon Mall, Macon, GA                              662                02/14/03          $2,917(9)
Pembroke Lakes Mall, Pembroke, FL                  700                01/31/06          $4,000(10)
Coolsprings Galleria, Franklin, TN                 893                03/15/02          $3,333(11)
Coliseum Mall, Hampton, VA                         630                06/30/00          $1,837(12
The Avenues Mall, Jacksonville, FL                 821                03/09/02          $3,417(13)
</TABLE>
                                                                             
(1)   Plus 10% of annual Gross Sales over  $704,900,  plus an annual  Merchant's
      Association Contribution of $4,080.

(2)   Plus 10% of annual Gross Sales over $500,000 for the period ending 1/31/99
      and $550,000 for the balance of the lease term.

(3)   Plus 8% of annual  Gross Sales over a  "breakpoint"  which is $596,250 for
      the last three years of the lease ending 9/10/99.

(4)   Plus 8% of annual Gross Revenues over $1,000,000.

(5)   Plus 8% of annual Gross Sale over $200,000.

(6)   Plus 10% of annual Gross revenue, a $4,253.25 environment charge,  subject
      to adjustment.

(7)   Plus 8% of annual  Gross Sales in excess of  $175,937,  plus a  Merchants'
      Association Contribution Rate equal to the greater of 1% of Gross Sales or
      $1,689 per annum.

(8)   Plus 10% of annual Gross Sales over $333,375.

(9)   Plus 8% of annual  Gross Sales in excess of  $437,500,  plus  tenant's pro
      rata share of real estate taxes, Common Area Maintenance,  Insurance,  and
      Merchant association advertising.

(10)  Plus 8% of annual Gross Sales over $600,000.

(11)  Plus 8% of annual Gross Sales in excess of $500,000 per annum

(12)  Plus 10% of annual gross receipts,  plus tenants  pro-rata share of Common
      Area Charges and Insurance charges.


                                      -7-
<PAGE>

(13)  Plus 8% of  annual  Gross  Sales in  excess of  $468,750.  Plus  Merchants
      Association  Marketing Fund, Media Fund and General Promotional charges of
      approximately $900 per month, subject to escalation .

At various times, the Company had 15 Starlog Stores and 6 Hologram store, all of
which have been  closed,  except for one Starlog  Store which is being closed at
the end of  June  1998.  Leases  for all  but 8 of the 15  Starlog  Stores  were
rejected  when the Company  was in Chapter 11 (See Item 3 "LEGAL  PROCEEDINGS").
All but two of the remaining 8 leases  expired  pursuant to their terms.  In the
case of the stores in  Glendale  Arizona,  and in  Sacramento,  California,  the
leases  do  not  terminate  until  December  31,  1998  and  September  1,  2002
respectively,  and the Company is  negotiating  settlements  of the  outstanding
balances of  approximately  $43,000 over eight months in the case of the Arizona
store, and approximately $240,000 over 4 1/2 years in the case of the Sacramento
store. Although these stores were not successful for the Company's purposes, the
malls in which  they are  located  are  relatively  successful  and the  Company
believes  that in the  absence of  reaching  a  reasonable  settlement  with the
landlord,  the Company  will be able to sublease  these stores and avoid much of
this expense.

In the case of the various  Sumon-Halogram  Store,  all the leases were rejected
pursuant a Chapter 11 bankruptcy petition (See Item 3 "LEGAL PROCEEDING")

ITEM 3.  LEGAL PROCEEDINGS

On November 13, 1995,  Starlog Franchise  Corporation and its subsidiaries filed
petitions  for  voluntary  reorganization  under Chapter 11 of the United States
Bankruptcy  code.  The petitions  were filed in the  Bankruptcy  Division of the
District Court of the United States for the Middle District of Florida. The Plan
of  Reorganization  was filed on February 29, 1996, and subsequently  amended on
May 28, 1996. In July 1996 the Plan was submitted to creditors and  stockholders
for their vote of  approval.  The  Company  was a party to various  lawsuits  in
connection  with claims in Bankruptcy  court.  All of these  lawsuits and claims
previously outstanding were settled as unsecured claims. Approval was granted by
a sufficient number of creditors and  stockholders.  On August 28, 1996 the Plan
was confirmed by the Court and the Company  emerged from  bankruptcy.  The major
provisions of the Plan are as follows:

      Hope  Associates,  the secured lender,  reduced its secured claims against
      the Company by $200,000  (leaving it a secured  claim of $500,000,  all of
      which was  post-petition  financing) in exchange for 18,000,000  shares of
      the Common Stock of the Company.  The 1,676,000  shares of Common Stock of
      the Company  whose voting  rights had been assigned to the Company in care
      of Jack Fitzgerald by the Company's founder and Chairman of the Board, his
      son and former President of the Company and the former Chairman as Trustee
      for his daughter as inducement for the secured lender, was canceled.

      General  unsecured  claims  received newly issued new warrants to purchase
      shares of the Company's Common Stock at the rate of $0.25 per share, which
      were  distributed at the rate of one warrant for each $0.70 of claim.  The
      remaining  30  percent  of the  claims of  unsecured  creditors  (totaling
      $390,000) is to be paid in equal monthly installments over 60 months. Such
      payments are expected to commence during the third fiscal quarter of 1998.

      Common stock equity owners  retained their stock but it was  significantly
      diluted.  Hope Associates,  the secured lender, owned approximately 90% of
      the Company's  outstanding  stock before exercise of the creditor warrants
      and 86% if such warrants were exercised.  The equity ownership of the "old
      stockholders"  of the Company was diluted  down,  after the Chapter 11, to
      slightly over 9.3%.  Such amount was further  diluted by the shares issued
      to the owner of Goal Post  Distributors in  consideration of the Company's
      acquisition of that business in June 1997.

In July,  1996 the  Company  entered  into a verbal  agreement  with the  Master
Franchisee in England, Famous Franchises,  PLC, whereby the Company will convert
accounts receivable of approximately $150,000, which had 


                                      -8-
<PAGE>

been previously written off, into a 50% equity holding of Famous Franchises. The
original  debt arose  primarily  from  merchandise  sales by the  Company to the
initial franchisee in Surrey, England and the franchisee in Cardiff, Wales, both
of which were affiliates of Famous Franchises.  Subsequently,  Famous Franchises
went into  bankruptcy and the Company  became the owner of the entire  inventory
and fixtures and equipment of the Cardiff store and became the Master Franchisee
for the United Kingdom.  Subsequently,  all United Kingdom stores were closed or
ceased being a Starlog franchise.

During  1996,  the  Company and Hope  Associates  engaged in  negotiations  with
Charles  Huttoe  ("Huttoe") to provide  financing to the Company and acquire the
ownership  of the  shares  of the  Company's  Common  Stock  owned by  Hope.  In
September,  1996,  Huttoe,  Hope  Associates  and its  members  entered  into an
agreement (the "Sales Agreement") pursuant to which, Huttoe was to make payments
to Hope's bank and purchase the  membership  interests in Hope from its members,
thus  indirectly  obtaining  Hope's shares in the Company.  In  September,  1996
Huttoe  provided  working capital to the Company  aggregating  $650,000 prior to
completion of any written agreement, and subsequently an individual who had been
acting as the attorney for Huttoe,  David  Goldstein,  stated that the agreement
had been assigned to him. On October l7, 1996, a bank loan to Hope Associates in
the  amount of  $500,000  was paid in full from an  account  of  Goldstein's  in
alleged  compliance with the Sales Agreement.  In addition,  the sum of $200,000
was deposited from Goldstein's account into escrow with an attorney for Hope for
payment to the members of Hope to acquire their membership  interests.  However,
Hope members did not transfer  their  membership  interests in Hope to Goldstein
pending  receipt of evidence of the  purported  assignment  to  Goldstein of the
Sales Agreement.

On November 7, 1996,  the SEC filed a complaint in the U.S.  District  Court for
the  District of  Columbia  (the  "Court")  against  Huttoe and others,  but not
including Goldstein,  alleging unregistered distribution of the stock of Systems
of Excellence,  Inc. and  manipulation of its stock price. In November 1996, the
Court  issued a temporary  restraining  order  temporarily  freezing  assets and
accounts of Huttoe and various  third party  accounts  into which  payments were
made from allegedly  Huttoe-controlled  accounts. The order specifically covered
the Company's account which received the $650,000 as well as the attorney escrow
account  holding  the  $200,000.  On  December  12,  1996,  the SEC  amended its
complaint to include as "relief  defendants"  the Company,  Hope  Associates and
Hope's  members.  The  amended  complaint  sought  to  recover  from the  relief
defendants  the sums  advanced  by  Huttoe as  working  capital  to the  Company
($650,000),  the bank loan to Hope ($500,000) and the escrowed fund  ($200,000).
The SEC made no allegations of wrongdoing as to the Company,  Hope Associates or
Hope's  owners.  After  negotiations  with the SEC an agreement  was reached and
approved by the Company  whereby  the  Company  agreed to repay  $500,000 of the
$650,000  received from Huttoe (plus interest  computed at the rate of 5.55% per
annum) in four annual installments, the first three of which to be in the amount
of $114,916,  and the fourth to comprise the remaining  balance of principal and
interest.  The  first  such  annual  installment  was paid in April  1998.  Hope
Associate's  members have also agreed to  personally  guarantee  $250,000 of the
$500,000 owed by the Company to the SEC.

The Company  acquired  SUMON,  LLC, doing  business as the Hologram  Company and
Lazer Wizardry, on December 31, 1996 for a combination of cash and assumption of
liabilities  valued at $50,000  and  options  to  purchase  common  stock of the
Company.  The operations acquired consisted of a six store specialty retailer of
holographic artwork and gifts and a wholesale distributor of holographic artwork
and gifts.  On February 3, 1997,  the purchase  price was adjusted  down to zero
because of certain matters that were not disclosed by the seller and SUMON,  LLC
filed for  Chapter  XI  Reorganization  in the  Bankruptcy  Court for the Middle
District of Florida.  Subsequently, the bankruptcy was dismissed and the company
was basically  liquidated.  The only asset remaining was a store in Orlando,  FL
which has been closed.

In October 1997, the Company acquired KCK Corporation.  Prior to the acquisition
KCK Corporation filed a Chapter XI Bankruptcy Petition in the Federal Bankruptcy
Court for the Western  District of North Carolina.  KCK is a retailer which owns
and operated 14 candy  stores under the trade name Candy Candy and Candico.  The
Plan of Reorganization was approved by the Court on March 19, 1998.


                                      -9-
<PAGE>

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

No matters were  submitted to a vote of the  Company's  stockholders  during the
fourth   quarter  of  the  fiscal  year  ended  June  28,  1997.   The  Plan  of
Reorganization  was submitted to the  stockholders in July 1996 and subsequently
approved on August 28, 1996.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 
         STOCKHOLDERS MATTERS

The Common Stock of the Company had  previously  been quoted on the NASDAQ Small
Cap Market  under the symbol  "SIFI." The stock was removed  from their  listing
upon the Company's filing for bankruptcy.

The  following  table  sets  forth the high and low  closing  bid  prices of the
Company's  Common  Stock from for the last two fiscal  periods,  as  reported by
NASDAQ. Bid quotations  represent high and low prices quoted between dealers, do
not reflect  retail  markup,  markdown  or  commission,  and do not  necessarily
represent actual transactions.


                                                               Sales Prices
                                                          ----------------------
                                                            High           Low
                                                          --------       -------
Fiscal Year 1996
Quarter ended September 30, 1995 ...................      $ 1 3/16       $ 11/16
Quarter ended December 31, 1995 ....................        $11/16          $3/8
Quarter ended March 31, 1996 .......................         $ 3/8          $3/8
Quarter ended June 29, 1996 ........................          $3/8          $3/8

Fiscal Year 1997
Quarter ended September 30, 1996 ...................       $ 15/16     $     .05
Quarter ended December 31, 1996 ....................        $ 9/16         $ 1/8
Quarter ended March 31, 1997 .......................          $3/8          $1/8
Quarter ended June 28, 1997 ........................         $ .58         $ .13

On May 1 1998,  the closing  price of the  Company's  Common  Stock was $.19 per
share.

On May 15,  1998,  the  Company  reasonably  believed it had  approximately  460
beneficial holders of its Common Stock.

The Company has not paid any cash dividends on its Common Stock to date and does
not  anticipate  paying any in the  foreseeable  future.  The Board of Directors
intends  to retain  earnings,  if any,  to support  the growth of the  Company's
business.

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

The following  discussion and analysis  should be read in  conjunction  with the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Report.


                                      -10-
<PAGE>

Results of Operations

The Fiscal Year (52 Weeks) ended June 28,  1997("1997"),  compared to the Fiscal
Year (52 Weeks)  ended June 29,  1996 ("1996") and Fiscal Year (52 Weeks)  ended
July 1, 1995 ("1995") follow:

The Company's  revenues for 1997,  1996 and 1995 were earned from three sources:
retail sales for its Company owned Starlog and Hologram  Stores,  franchise fees
and royalties and sales of  merchandise  to its  franchisees.  During 1997,  the
Company owned and operated six Starlog  Stores (after  opening three and closing
three) and  acquired  six  Hologram  stores in January  1997,  compared to eight
Starlog stores in 1996 and seven Starlog stores in 1995.

Total revenues for 1997 increased by 10% to $2,367,722  from $2,144,316 for 1996
and compared to  $3,511,106 in 1995.  Sales  increased in 1997,  from 1996,  and
decreased in 1996 from 1995 despite the operation of eight Company stores (after
opening and closing 3 Company stores) during the same periods. This is partially
attributable  to operating  smaller but more efficient  stores and the Company's
ability to acquire its core inventory  products in 1997  sufficiently in advance
of the holiday  season and its  inability to do so in 1996 due to negative  cash
flow and lack of working  capital.  Financing  activities  did  provide  working
capital  during  1997 and 1996  periods,  but came too late in 1996 to take full
advantage of the holiday shopping season. The Company store in Atlanta,  Georgia
was closed in late December 1995. The Company store at the corporate  facilities
in Clearwater was in operation for only eighteen weeks in the 1996 period before
it was closed in early  January  1996.  In addition,  the Company owned store in
Ridgewood,  New  Jersey  was  closed in mid  January  1996.  There were five new
Company stores opened,  six Hologram stores acquired while eleven Company stores
closed in 1997. In 1996 four Company  stores opened and four Company stores were
closed. In 1995 five Company stores opened and three Company stores were closed.
There  were  sales  of  merchandise  to  four  franchisees  in  1997  and  three
franchisees in 1996 and 1995. Net sales for the Hologram stores totaled $288,274
since they were acquired on December 31, 1996.  All of the Hologram  stores have
been subsequently closed.

Franchise fees and royalties  earned from  franchisees  for 1997,  1996 and 1995
were $58,945,  $61,859 and $135,199,  respectively.  1997 includes fees received
from franchise  openings in Belfast,  Northern Ireland and Oxford,  England (now
closed).  1996  includes fees  received  from the Master  Franchise  sold to the
initial  franchisee  in England and fees received from the franchise in Cardiff,
Wales and Bromley, England (now closed). 1995 includes $90,000 in franchise fees
for the opening of Starlog franchised stores at the Arden Fair Mall, Sacramento,
California  ("Arden  Fair"),  and the Cary Towne Center,  Cary,  North  Carolina
("Cary") and for the Surrey, England, franchise (now closed).

Consolidated  Cost of sales as a  percentage  of sales  decreased to 41% in 1997
compared with 62% for 1996 and 65% for 1995.  The gross profit  margin  increase
for 1997 is a direct  result of  increased  margins on sales of  merchandise  to
franchisees,  ample  product  for sale during the  holiday  season and  positive
physical  inventory  counts  as  a  direct  result  of  selling  inventory  that
previously had been fully reserved due to  anticipated  obsolescence,  but never
materialized.  The decrease in cost of sales was offset by a $200,000  inventory
reserve recorded in the fourth quarter of Fiscal 1995.

Consolidated selling,  general and administrative  expenses increased in 1997 to
$2,913,502 from  $2,784,256 for 1996 compared to $4,569,091 for 1995.  There was
included  in  1997  $471,917  of  additional  S.G.  &  A.  attributable  to  the
SUMON/Hologram  stores acquired on December 31, 1996. The decrease applicable to
the  Starlog  stores was due to a  conscientious  effort to reduce  costs in the
1997, 1996 and late 1995 periods,  including the relocation of corporate offices
and distribution  center in April, 1995 from Paramus,  New Jersey to Clearwater,
Florida to reduce  occupancy  cost,  the closing of two  Company  stores and the
renegotiation  of leases in all other Company stores.  1995 also included a full
year's operating cost on the four company stores opened in 1994,  operating cost
of two new stores and an increase in the reserve for bad debts of  approximately
$280,000.  Also  contributing  to the 1995 costs was the  operation  of a 23,500
square foot  distribution  facility for three  quarters in 1995.  The  Company's


                                      -11-
<PAGE>

selling,  general and administrative  expenses for 1997, 1996 and 1995 consisted
primarily  of  salaries,  rent,  franchise  related  selling  expenses,  travel,
telephone  and  utilities,   professional  fees,  insurance,   depreciation  and
amortization, and the selling, general and administrative expenses of the retail
Starlog  Stores.  Consistent  with  its  planned  expansion  the  Company  hired
management  personnel in several  significant  functional  areas during 1995 and
1994  including   Operations,   Merchandising,   Accounting/Finance,   Franchise
Development, and Distribution that were then cut-back in 1997 and 1996.

The Company showed a reduced consolidated loss of $1,286,771 (of which $6,865 in
profits  (after  forgiveness of a debt of $250,000) was applicable to the period
up to  emergence  from  bankruptcy)  for the  1997  period  compared  to loss of
$2,360,493 for 1996 and a loss of $3,623,977  for 1995.  The Company  recorded a
loss of $1,293,636 for the period  subsequent to the emergence  from  bankruptcy
from August 28, 1996 to June 28, 1997.

The 1997 period  reflects  draw-downs in it's previously  established  valuation
reserves of $50,000  applicable  to inventory,  $428,886  applicable to usage of
lease  renegotiation  and bankruptcy  contingency  reserves.  This was partially
offset by additions of $62,112 to the  allowance  for bad debts  required by the
bankruptcy  of two  franchisees  in the  United  Kingdom.  The net loss for 1996
includes a loss on disposal of property and equipment of approximately  $133,000
due to the  closing  of two  company  stores and an  increase  of $76,000 in the
provision for inventory shortages. The net loss for 1995 includes an increase in
the  reserve  for bad debts of  $280,000,  an  inventory  valuation  reserve  of
approximately $200,000 and a provision for lease renegotiations of $180,000.

Concurrent  with the move to Florida in the fourth  quarter of 1995,  Management
made a decision  to reduce  expenses  in all areas,  including  a  reduction  of
personnel  in  corporate  headquarters  consisting  of  Management,  Operations,
Merchandising,   Accounting  and  Finance,   MIS,   Franchise   Development  and
distribution. Personnel in these areas decreased to nine employees at the end of
1996 from  seventeen in 1995.  Although  remaining  steady for most of 1997, the
number of  employees  in these  areas have  increased  to  seventeen  during the
holidays and number nine at the end of fiscal year 1997.

Liquidity and Capital Resources

The Company had a working capital deficit at June 28, 1997, of $972,488 compared
to working  capital  deficit of $1,132,401  at June 29, 1996.  The current ratio
increased to .51 to 1 from .40 to 1 at June 29, 1996.

During Fiscal 1997,  the Company had net cash used in operations of  $1,506,541.
This  resulted  primarily  from a net  loss  of  $1,286,771  less  approximately
$550,000  in  non-cash  expenses,   including   depreciation  and  amortization,
recording  of  Reorganization   Value  in  Excess  of  Assets  Allocated,   less
write-downs  of Trade and  other  Claims  from the  emergence  from  bankruptcy.
Increases in inventories and decreases in accounts payable and accruals added to
the decrease in cash. Net cash used in operating  activities for the Fiscal 1996
period was $604,632 resulting  primarily from a net loss of $2,360,493 offset by
positive  operating  activities.  The  Company's  expenditures  for property and
equipment  for Fiscal 1997 were $149,378  (mainly net assets  acquired of SUMON)
compared to $45,694 for Fiscal 1996. On November 13, 1995, the Company  (Debtor)
filed  petitions for relief under Chapter 11 of the federal  bankruptcy  laws in
the United States  Bankruptcy  Court for the Middle  District of Florida.  Under
Chapter 11, certain  claims  against the Debtor in existence  prior to filing of
the petitions for relief under the federal  bankruptcy laws are stayed while the
Debtor continues business operations as  Debtor-in-possession.  These claims are
reflected  in the June  29,  1996  consolidated  balance  sheet as  "liabilities
subject to compromise."  The debtor received  approval from the Bankruptcy Court
to pay certain of its pre-petition obligations, including employee wages.

In November  1995,  prior to filing  petitions  for relief under Chapter 11, the
Company issued a $100,000 Secured Convertible  Debenture with interest at 12% to
Hope  Associates,  LLC (Hope).  This debenture is secured by  substantially  all
assets of the Company and is due on demand.


                                      -12-
<PAGE>

In November  1995,  subsequent  to filing,  the Company was granted the right to
obtain post-petition  financing in the form of a $350,000 Secured Debenture from
Hope.

In June 1996,  the Secured  Debenture  was amended and  increased to $600,000 as
authorized by the Court. The amended Secured Debenture bears interest at 12%, is
secured by  substantially  all assets of the Company and is due on demand  after
January 31, 1997. At June 29, 1996,  $535,000 was outstanding under this amended
Secured Debenture.

The United States  Bankruptcy  Court for the District of Florida,  confirmed the
Company's   Plan  of   Reorganization   (the  Plan)  on  August  28,  1996  (the
"Confirmation Date"),  allowing the Company to emerge from Chapter 11 bankruptcy
effective  September 7, 1996 (the "Effective  Date"). The Company operated under
the protection of Chapter 11 following a voluntary  petition for  reorganization
filed February 28, 1996 and amended May 29, 1996.  Under the Plan,  ownership of
the  Company is  transferred  largely to Hope  Associates,  LLC,  Holders of the
Company's secured  debentures.  The Plan provided for the issuance of 18,000,000
shares  (subsequently  reduced by the return of 2,000,000 shares to the Company)
of  common  stock,  distributions  and  new  warrants  to  major  creditors  and
shareholders as follows:

      Hope  Associates,  LLC reduced its  secured  claim  against the Company by
      $200,000 in exchange for 18,000,000  shares of the Company's common stock,
      effectively 90 percent of the then issued and  outstanding  shares.  After
      the return to the Company of 2,000,000  shares in October,  1997 Hope held
      16,000,000 shares which at that time represented  approximately 90% of the
      outstanding shares.

      Holders of allowed  general  unsecured  claims are to be paid $390,000 (30
      percent of the allowed claims) in 60 equal monthly cash  installments.  To
      date,  the Company has not made cash payments on these  allowed  unsecured
      claims.

      Holders of allowed general  unsecured claims received warrants to purchase
      shares of the Company's common stock at the rate of $0.25 per share. These
      new warrants were distributed at the rate of one warrant for each $0.70 of
      claim amounting to 940,107 shares.  The remaining 30 percent of each claim
      is to be paid in cash as set forth above.

      Holders of the Company's old Common stock  retained their stock but it was
      diluted by the  issuance  of the  Company's  Common  stock to its  secured
      creditor and by the potential future exercise of the new warrants, both as
      set forth above.

The distribution of warrants to purchase 940,107 shares of the common stock took
place in October,  1997.  The cash  distribution  is expected to commence in the
third quarter of Fiscal 1998.

Additionally,  upon the Effective Date of the Plan, the 1,676,000  shares of the
Company's  common stock,  whose voting rights had been assigned to the Company's
current President by it's former Chairman of the Board, were canceled.

The Chapter 11 filing was necessitated by the Company's inability to comply with
payment  obligations  of its stores as they existed before filing the Chapter 11
petition and other obligations.

As of the  Confirmation  Date,  the Company  adopted  Fresh Start  Reporting  in
accordance with the American Institute of Certified Public Accountants Statement
of  Position   90-7  (SOP  90-7)  --   "Financial   Reporting   by  Entities  in
Reorganization  under the Bankruptcy  Code." Fresh Start  Reporting  resulted in
material  changes to the  consolidated  balance sheet,  including  valuations of
assets and liabilities at fair market value and valuation of equity based on the
appraised reorganization value of the ongoing business.


                                      -13-
<PAGE>

The Reorganization Value (the approximate fair value) of the Company is based on
the  consideration  of many  factors and various  valuation  methods,  including
discounted  cash  flows and  price/earnings  and  other  applicable  ratios  and
valuation  techniques  believed by management  and its financial  advisors to be
representative  of the  Company's  business  and  industry.  The  excess  of the
Reorganization  Value  over the fair  value of net  assets  and  liabilities  is
reported as excess  Reorganization  Value and is amortized over a 15 year period
at an approximate rate of $38,000 per year.

The Company  acquired  SUMON,  LLC, doing  business as the Hologram  Company and
Lazer Wizardry, on December 31, 1996 for a combination of cash and assumption of
liabilities  valued at  $50,000  and  options  to  purchase  common  stock.  The
operations  acquired  consisted of a six store specialty retailer of holographic
artwork and gifts and a wholesale  distributor of holographic artwork and gifts.
On February 3, 1997,  the purchase  price was  adjusted  down to zero because of
certain  matters that were not disclosed by the seller and SUMON,  LLC filed for
Chapter XI  Reorganization  in the Bankruptcy  Court for the Middle  District of
Florida.  Subsequently,  the  bankruptcy  was  dismissed  and  the  company  was
basically liquidated.

The Company acquired Goal Post Distributing,  Inc. on June 29, 1997, a wholesale
distributor  of trading cards and  collectibles  for 4,300,000  shares of common
stock of the Company  included in the  outstanding  shares at June 28, 1997. The
former  owner of Goal Post  Distributing  purchased  2,000,000  shares of common
stock of the Company for $250,000 in October, 1997 in a private placement.

KCK  Corporation is a retailer which owns and operated 14 candy stores under the
trade name Candy Candy and Candico.  The Company  acquired KCK  Corporation,  in
October,  1997,  in exchange for warrants to purchase  500,000  shares of common
stock  (400,000  shares  at a strike  price of $.25 per  share if  exercised  by
September  28, 1998 or for $.40 per share if  exercised  thereafter  and 100,000
shares at a strike price of $0.50 a share). All warrants expire after October 1,
1999. Prior to this acquisition by the Company,  KCK Corporation filed a Chapter
XI Bankruptcy  Petition in the Federal Bankruptcy Court for the Western District
of North Carolina. KCK emerged from Bankruptcy in April 1998.

The Independent  Auditors Report, which accompanies and is part of the Company's
audited  financial  statements  as of June 28,  1997 and June 29, 1996 which are
included as part of this Annual Report is qualified by the following  statement:
"The accompanying  consolidated financial statements have been prepared assuming
that Starlog  Franchise  Corporation and  Subsidiaries  will continue as a going
concern. As discussed in Note 11 to the consolidated  financial statements,  the
Company has incurred  recurring losses from  operations.  Although the Company's
Plan of Reorganization was confirmed,  the Company has not yet shown the ability
to generate cash from operations.  As such, this raises  substantial doubt about
the entity's ability to continue as a going concern. The consolidated  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of reported asset amounts or the amounts and  classification  of
liabilities that might result from the outcome of these uncertainties."

ITEM 7.  FINANCIAL STATEMENTS

This  information  appears in a separate  section of this Report  following Part
III.

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

None.


                                      -14-
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS AND OFFICERS OF THE REGISTRANT

The Directors and officers of the Company are as follows:

Name                              Age                Position
--------------------------------------------------------------------------------
Herman Rush                        68        Co-Chairman of Board of Directors
Michael Michaelson                 74        Co-Chairman of Board of Directors
John (Jack) Fitzgerald             56        President, CEO and Director
John Savel                         44        Director
Ray Markman                        69        Director
Kevin M. VanderKelen               30        Director
Allan R. Lyons                     57        Director

Herman Rush was appointed  Chairman of the Board in November of 1995.  Mr. Rush,
former  Chairman and Chief  Executive  Officer of Coca-Cola  Telecommunications,
Inc.,  Senior  Vice  President  of  the  Entertainment  Business  Sector  of the
Coca-Cola  Company and a member of the Board of Directors  of Columbia  Pictures
Industries,   Inc.  and  past  Chief  Operating  Officer  of  Columbia  Pictures
Television Group, has more than thirty years experience in executive, production
and marketing positions. In 1992, Mr. Rush formed Katz- Rush Entertainment whose
credits  includes "The Montel  William's  Show" and "The Susan Powter Show." Mr.
Rush began his  television  career in 1951.  Mr.  Rush was  instrumental  in the
television  packaging  and network  placement of such programs as "Voyage to the
Bottom of the Sea", "Lost in Space", "Time Tunnel" and "Land of the Giants".

Michael  Michaelson was appointed to the Board of Directors in November of 1995.
Earning a BS degree at New York University in 1948, Mr.  Michaelson's career has
been spent in magazine publishing and direct marketing. Mr. Michaelson currently
serves as a member of the Board of  Directors  for  Metrol  Tel  Corporation,  a
publicly held company in the  telecommunications  field,  Allied Devices Inc., a
privately held precision tool company and Theater Craft  Associates,  a magazine
publisher.  Mr.  Michaelson began his career with Look Magazine.  He then joined
Ziff-Davis where he was Vice President, Circulation Director and a member of the
Board. In 1961 he became President of Franklin Square Subscription Agency, where
he created the first college student multi-magazine  subscription card, becoming
the official agency of the National Association of College Stores under the name
of Campus  Subscriptions.  In 1970 Mr.  Michaelson sold Campus  Subscriptions to
Publishers Clearing House where he became Senior Vice President,  Marketing.  He
left there in 1980 to found GAMES MAGAZINES RAINWATER ENTERPRISES,  a consulting
firm which has served such clients as Rodale Press, Hearst Magazines,  Fairchild
Publications,  Meredith  Publishing and the  Smithsonian.  From 1986 to 1989 Mr.
Michaelson was Chairman of the Council on Economic Priorities.  He served in the
U.S.  Army,  35th  Infantry,  25th  Division  in the South  Pacific as a Company
Commander  from 1942 to 1946,  receiving  a Bronze  Star and Purple  Heart.  Mr.
Michaelson earned a Bachelor of Science degree from New York University in 1948.
From  1986  to  1989,  Mr.  Michaelson  is  President  and  owner  of  Rainwater
Enterprises,  LTD., providing publishing  management and marketing  consultation
services.  Clients  have  included  many  major  publishers  and  communications
companies,  some of whom are: Rodale Press,  Warner Publisher  Services,  Hearst
Magazine,  Esquire,  Reed  Schuster,  Fairchild  Publications,  Meredith and the
Smithsonian.

John (Jack)  Fitzgerald was appointed  President and Chief Operating  Officer of
the Company  effective June 1, 1995.  Previously,  Mr. Fitzgerald served as Vice
President  and General  Manager of the Company since July 1994.  Prior  thereto,
from 1990, he owned a consulting  firm which  developed and  implemented  retail
concepts  such as Candy  Candy  Inc.,  The Candy  Store in Baton  Rouge,  LA and
Shop-N-Stop (Sweet 99), the bulk candy concept for K-Mart Stores. Prior thereto,
from 1989, he was Chief  Operating  Officer and President of Candico  Stores,  a
bulk candy specialty concept.  From 1984 to 1989 he was Executive Vice President
and Chief Operating Officer for J & D Brauner Butcher Block Stores. From 1974 to
1984 he was Vice President of Store Operations for Lechters.

Ray Markman was  appointed  to the Board of Directors of the Company in November
1995. Mr. Markman is a multi-faceted  entrepreneur  with a degree in journalism,
advertising  and economics at the University of Missouri with post graduate work
at the University of Chicago.  Mr. Markman has lectured at the N.Y.U.  School of
Management and the Kellogg  Executive MBA Program at Northwestern  University on
Strategic Planning. He was Executive Vice President at Encyclopaedia  Britannica
and a senior  executive  at the Leo Burnett  and  McCann-Erickson  (Division  of
Interpublic Group of Companies)  advertising agencies. Mr. Markman was a founder
of  two  companies  that  pioneered  the  distribution  of  pre-recorded   video
cassettes.  to mass market outlets for such  companies as Disney,  Hanna/Barbera
and the original  Jane Fonda aerobic  tapes.  He is a member and lecturer at the
Direct Marketing Association and Chairman of the Echo Awards Committee (creative
marketing awards) and a contributing author for a book on direct marketing.  Mr.
Markman founded FIND  (Foundation for Inventions and New  Developments), founded
FACT, an organization devoted to public economic education. He was a Director of


                                      -15-
<PAGE>

Chicago  City Bank,  founder and Director of Mayflower  Life  Insurance  Co. and
Seago Real Estate Co., which companies he helped to take public. He is currently
President and founder of Life Planning Company which provides financial planning
services for high net worth individuals, corporations and pension plans.

Mark Savel was  appointed  to the Board of  Directors  in November of 1995.  Mr.
Savel has been Director of Franchise  Development since July 1994. Mr. Savel was
responsible  for sales  training  and the  marketing  and  sales of  franchises,
nationally and internationally,  for Starlog Franchise Corporation.  Since 1978,
Mr. Savel,  through his development  company,  Majic Development  Corp.,  (later
Majic  Franchise  Development,  LLC) was and is an area  developer and franchise
sales consultant for a major automotive after market  franchiser.  Mr. Savel has
held  the  positions  of  operations  manager,  sales  trainer,  franchise  area
development  agent and  franchise  sales  consultant.  Mr.  Savel is currently a
consultant to Lee Myles Associates Corporation, markets franchises for Lee Myles
Transmissions in the Arizona market.  Mr. Savel owns (2) Lee Myles Franchises in
Arizona.

Kevin M. VanderKelen  earned a BA degree in marketing and finance in 2 1/2 years
from the  University  of  Wisconsin.  He started  his  career  founding a screen
printing  business Body Wraps,  Inc. and selling it to employees.  He worked for
Metropolitan Life, MetLife Securities,  Inc. and VanderKelen Investment Company.
He started a position as a corresponding pricing analyst for several collectible
price  guide  magazines  and  includes  several  nationally  published  magazine
articles to his credit.  He founded Goal Post Distributing in 1991 and developed
a wholesale  distribution  concept to service  retail trading card,  comic,  and
collectible stores. Goal Post publishes a monthly wholesale catalog and services
an  international  base in  excess of 8,000  customers  that  achieved  sales of
approximately $5,000,000.

Allan R. Lyons had been a director  of the  Company  from  August 1993 until his
resignation on November 15, 1995. Mr. Lyons was reelected to serve as a director
by the Board of  Directors  effective  May 15, 1998.  Allan R. Lyons,  CPA, is a
senior member of the firm Piaker & Lyons in Vestal New York,  which he joined in
1964. Mr. Lyons is an active  investor and has served on a number of Boards.  He
is currently a member of the Board of Directors  of Franklin  Credit  Management
Corporation,  Organic  Food  Products,  Inc.,  M.D.  Labs and  Scoreboard,  Inc.
Scoreboard,  Inc.  filed for Chapter XI bankruptcy in March 1998. Mr. Lyons is a
member of the American  Institute of CPAs,  the New York State  Society of CPA's
and the  International  Association  for Financial  Planning.  Mr. Lyons was the
Comptroller and Finance  Director of the Town of Vestal from 1970 to 1997 and is
on the Board of Advisor-School of Management -Binghamton  University,  Treasurer
and Trustee of United Health Services and a member of the Endowment Committee of
the United Jewish Appeal of Broome County, New York.

All directors hold office until the next annual meeting of shareholders  and the
election  and  qualification  of their  successors.  No fees  have  been paid or
accrued to directors as  compensation  for their  acting in such  capacity.  The
Company has established an Audit Committee consisting of Allan Lyons and Michael
Michaelson  and a  Compensation  Committees,  consisting of  Michaelson,  Rush &
Lyons.  Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.

Norman Jacobs served as Chairman of the Board of the Company since its inception
in January 1993 until November 15, 1995 at which time he resigned. Steven Jacobs
had  served as  President  and  Chief  Operating  Officer  from May 1, 1992 (the
inception  of the Company)  until March 6, 1995,  at which point he resigned his
position  at the  request of the Board of  Directors.  Mr.  Jacobs  subsequently
resigned as a director of the Company on October 26, 1995. Daniel J. Simon was a
director of the Company since  September 1993 until his  resignation on November
15, 1995.

ITEM 10.  EXECUTIVE COMPENSATION

Summary Compensation Table


                                      -16-
<PAGE>

The following table sets forth all  compensation  awarded to, earned by, or paid
for all services  rendered to the Company  during  Fiscal 1997,  Fiscal 1996 and
Fiscal 1995 by the Company's  Executive Officer but does not include information
regarding  Executive Officers with annual  compensation  under $100,000,  except
current Chief Executive Officer.

Annual Compensation

  Name and Principal                                               Other Annual
    Compensation                  Year     Salary $     Bonus $          Comp.$
--------------------------------------------------------------------------------
                                                                  
John (Jack) Fitzgerald            1995      $82,496         -0-          (1)   
 President CEO, Director          1996      $90,525         -0-          (1)
                                  1997     $100,000         -0-          (1)
                                                            
(1) Does not include the cost to the Company of the use of automobiles leased by
the Company, or the cost to the Company of benefits, including premiums for life
and health insurance and any other personal  benefits provided by the Company to
such persons in connection with the Company's  business since such amounts total
less  than  (i)  $50,000  or  (ii)  10% of  the  Executive  Officer's  disclosed
compensation.

Mr.  Steven Jacobs  served as President  and Chief  Operating  Officer until his
resignation  on March 6,  1995.  Mr.  Norman  Jacobs  served as Chief  Executive
Officer until his  resignation  during 1995. On March 10, 1995, Mr.  Fitzgerald,
Vice President and General Manager,  was appointed Chief Operating  Officer.  On
June 1, 1995, Mr. Fitzgerald was appointed President of the Company.

Contingent Stock Options Granted in Last Fiscal Year:

      Option/SAR Grants in Last Fiscal Year-Individual Grant

<TABLE>
<CAPTION>
            (a)                       (b)                    (c)                      (d)               (e)
                                                      % of Total Options 
                             Number of Securities      /SARs Granted to 
                              Underlying Options      Employees in Fiscal        Exercise or Base    Expiration
           Name                /SARs Granted (#)             Year                  Price ($/Sh)         Date
----------------------------------------------------------------------------------------------------------------
<S>                              <C>                          <C>                     <C>              <C>   <C>
  John (Jack) Fitzgerald
       President-CEO             3,000,000(1)                 75%                     $0.06            03/31/03
</TABLE>

(1)   On April 1, 1997, the Company granted Mr. Fitzgerald, President and CEO of
      the Company an option to acquire  3,000,000 shares of the Company's common
      stock until March 31, 2003. The option to acquire 1,000,000 of such shares
      is  currently  exercisable.  The  option to acquire  the second  1,000,000
      shares is exercisable only if and after the Company has $500,000 of annual
      net  profits,  before  interest,   taxes,  depreciation  and  amortization
      ("EBITDA") and the option to acquire the remaining  1,000,000  shares will
      be exercisable  only if and after the Company has $1,000,000 of annual net
      profits  EBITDA.  (Such number of shares and the exercise price are before
      adjustment  in  connection  with a proposed 1 for 10 reverse  stock split)
      This option was in replacement of other options  previously granted to Mr.
      Fitzgerald.

      Mr. Kevin  VanderKelen,  Vice President of the Company and founder of Goal
Post Distributing,  Inc., acquired by the Company, has been granted an option to
purchase  up to  1,000,000  shares  for  prices  ranging  from $.50 to $.90 on a
sliding scale over the next five years  provided that certain  annual gross sale
projections  from  $5,000,000 to $9,000,000  are met. (Such number of shares and
the exercise price are before  adjustment in connection with a proposed 1 for 10
reverse stock split)


                                      -17-
<PAGE>

None of the Company's  outstanding options or warrants were exercised during the
Fiscal Year ended June 29, 1997 or since then,  through May 15, 1998,  by any of
the name Executive  Officers or any other parties.  The Company has no long-term
incentive plans.

No fees no have been paid or accrued to any directors in consideration  for them
acting as such.

Employment Agreements

The Company originally entered into an employment agreement with Jack Fitzgerald
commencing July 11, 1994. This agreement was  subsequently  amended as of August
15, 1996. As amended the agreement  provides for a five year term,  and a salary
of $100,000 per year,  increasing  by $10,000 a year up to $140,000,  plus other
benefits and a monthly car  allowance of $500.  In addition  Mr.  Fitzgerald  is
eligible for a  discretionary  bonus of up to 50% of his base salary.  Under the
1996 Agreement,  Mr.  Fitzgerald was to receive an option to purchase,  for $.06
per share,  such  number of shares as equals 5% of the  issued  and  outstanding
shares, each year for three years, subject to certain limitations.  At the April
1, 1997  Board  meeting,  it was  agreed to amend  Mr.  Fitzgerald's  employment
agreement  as follows.  Mr.  Fitzgerald's  base salary  will be  increased  from
$100,000 to $150,000  when the  Company  raises  $500,000 or more in a currently
proposed private placement.  Mr. Fitzgerald's previously granted stock option is
replaced with an option to purchase a total of 3,000,000 shares of the Company's
common  stock at $0.06 per shares for a period of five years,  ending  March 31,
2003. Under this option,  1,000,000 of such shares are immediately  exercisable.
The right to exercise  the option with  respect to the second  1,000,000  shares
will be  exercisable  only if and  after the  Company  achieves  annual  pre-tax
profits of $500,000  before  interest,  depreciation,  taxes,  and  amortization
("EBITDA")  and the  right to  exercise  the  option  with  respect  to the last
1,000,000  shares will be  exercisable  only if and after the  Company  achieves
annual  pre-tax  profits of $1,000,000  EBITDA.  The foregoing  share number and
exercise  prices are without  giving effect to a proposed 1 for 10 reverse stock
split.

In connection  with the  acquisition of Goal Post,  the Company  entered into an
employment agreement with its President,  Mr. Kevin VanderKelen,  dated June 29,
1997.  This  agreement  had a term of five years and  provides  for annual  base
salary of $100,000 for the first two years,  $115,000  for year 3,  $120,000 for
year 4 and $125,000 for year 5. This agreement also granted Mr. VanderKelen with
an option to purchase a total of up to 1,000,000  shares of the Company's Common
stock as  follows.  Mr.  VanderKelen's  options  vest  200,000  shares per year,
subject to the Goal Post division reaching gross sales of $5,000,000 for the 1st
measurement  year ending June 29, 1998,  $6,000,000 for the 2nd measurement year
ending June 29, 1999,  $7,000,000  for the 3rd  measurement  year ending June 29
2000,  $8,000,000  for the  4th  measurement  year  ending  June  29,  2001  and
$9,000,000 for the 5th  measurement  year ending June 29, 2002. The option price
is $.50 per share for the  200,000  shares  which  will vest if Mr.  VanderKelen
meets the criteria for the 1st  measurement  year;  $0.60 for the 200,000 shares
which will vest if Mr.  VanderKelen  meets the criteria for the 2nd  measurement
year; $0.70 for the 200,000 shares which will vest if Mr.  VanderKelen meets the
criteria for the 3rd measurement  year;  $0.80 for the 200,000 shares which will
vest if Mr.  VanderKelen  meets the criteria for the 4th  measurement  year; and
$0.90  for the  200,000  shares  which  will vest if Mr.  VanderKelen  meets the
criteria  for the 5th  measurement  year.  All such share  amounts and  exercise
prices are before adjustment for a proposed 1 for 10 reverse stock split.

At the April 1, 1998 board meeting,  at which Mr. VanderKelen  attended,  it was
agreed to modify Mr.  VanderKelen's  agreement  as  follows.  Mr.  VanderKelen's
annual  salary would be reduced to $60,000 in light of the Goal Post  division's
achieving lower than anticipated  profitability  over the last year.  Should the
division  achieve a target  of  annual  profit of  $200,000  before  taxes,  Mr.
VanderKelen's  salary will be restored to  $100,000  and Mr.  VanderKelen  would
receive a bonus of 20% of any profit above $200,000 per annum of pre-tax profit.
Additionally,  Mr.  VanderKelen  agreed that should the  division not attain the
$200,000 of profit by December 31, 1998, at the Company's request,  he would buy
the division back for the 4,300,00 shares of the Company's stock


                                      -18-
<PAGE>

issued by the  Company  in such  acquisition,  provided  that the  Company  also
repurchase the additional  2,000,000  shares that he bought from the Company for
the $250,000 that he paid for such shares.

The Company entered into an employment  agreement with Steven Jacobs  commencing
as of July 1, 1993 and ending on December 31, 1996.  Steven  Jacobs was employed
as President and Chief Operating Officer and devoted all of his business time to
the Company's  affairs.  Mr. Jacobs  resigned his position on March 6, 1995. Mr.
Jacobs  began  receiving  a  salary  of  $80,000  per year  commencing  upon the
completion  of the Company's  July 1993 Private  Placement,  which  increased to
$120,000 per annum in November  1993,  following the completion of the Company's
public  offering.  The Company entered into an employment  agreement with Norman
Jacobs,  Steven  Jacobs'  father,  commencing  as of July 1, 1993 and  ending on
December 31, 1996. Norman Jacobs was employed as Chairman of the Board and Chief
Executive  Officer under an employment  agreement  which  provides that he would
devote at least 20% of his business time to the Company's  affairs,  although he
devoted  significantly  more time to the Company.  Mr. Jacobs began  receiving a
salary of $40,000 per year  commencing upon the completion of the Company's July
1993 Private  Placement,  which increased to $60,000 per annum in November 1993,
following the completion of the Company's public offering.  Due to the Company's
financial problems, Mr. Jacobs waived payment of his salary from February,  1995
and resigned November 15, 1995.

Stock Option Plan

In July 1993, the Board of Directors and stockholders of the Company adopted the
1993 Employee Stock Option Plan (the "Option  Plan")  providing for the grant of
stock   options  to  employees   (including   officers)  of  the  Company,   its
subsidiaries,  independent  contractors,  consultants and other individuals,  to
purchase an aggregate of 200,000  Common Shares.  In October,  1993 the Board of
Directors and stockholders of the Company adopted the Directors Option Plan (the
"Directors  Plan")  providing for the grant of stock options to Directors of the
Company to purchase an aggregate of 60,000 Common  Shares.  The Company  granted
options to  purchase a total of 140,000  shares  under the Option Plan at prices
ranging  from $4.00 to $5.50,  and options to purchase  22,500  shares under the
Directors plan for $5.50 a share.

Pursuant to the Plan of Reorganization the 1993 Stock Option Plan, the Directors
Stock Option Plan and options outstanding  thereunder were canceled. The options
granted to Mr. Fitzgerald and Mr.  VanderKelen since the  reorganization are not
pursuant to any plan.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  tables sets forth certain  information  regarding the  beneficial
ownership  of the  Company's  common  stock as of May 1, 1998 by (i) each person
known  by the  Company  to own  beneficially  5% or  more  of any  class  of the
Company's voting stock, (ii) each director and executive officer of the Company,
and (iii) all directors and  executive  officers of the Company as a group.  All
percentages  in  this  section  were  calculated  on the  basis  of  outstanding
securities plus securities  deemed  outstanding under Rule 13d-3 of the Exchange
Act.

       Name and Address of              Shares of Common          Percentage of
        Beneficial Owner                   Stock Held              Shares Held
      --------------------------------------------------------------------------

      Hope Associates, LLC(1)(2)          16,000,000(2)                66.01%
      c/o Michael Michaelson
      135 E. 71st St., Apt. 3A
      New York, NY 10021

      Kevin VanderKelen(1)(3)                 6,558,000                27.06%
      Goal Post Distributing, Inc.
      13949-9 W. Hillsborough
      Tampa, FL 33634


                                      -19-
<PAGE>

(1)   Shares  outstanding  are calculated  without giving effect to a proposed 1
      for 10 reverse stock split.

(2)  Hope Associates LLC is a limited  liability company owned and controlled by
     the following Directors of the Company:  Michael Michaelson and Herman Rush
     each own  approximately  25.833% of Hope  Associates;  Ray Markman and Mark
     Savel each own  approximately  17.222% of Hope Associates;  and Allen Lyons
     owns the  remaining  13.89% of Hope.  This does not include a Warrant to be
     granted to Hope Associates,  in consideration for Hope Associates  assuming
     $2,000,000 of the Company's debt,  which Warrant will allow Hope Associates
     to purchase  500,000  shares  (after the reverse stock split) for $1.25 per
     share.  (See Item 12 CERTAIN  RELATIONSHIPS  AND RELATED  TRANSACTIONS") If
     such Warrant were included, Hope Associates' percentage would be 71.82%.

 (3) Includes 153,000 shares owned by Mr.  VanderKelen's  wife. Does not include
     1,000,000  shares  reserved  for  issuance  upon the exercise of options to
     purchase  Common Stock at a price of  $0.50-$0.90  per share granted to Mr.
     VanderKelen  pursuant to his employment  agreement with the Company. All of
     such  options are  subject to the Goal Post  division  achieving  levels of
     revenues substantially above current levels.

DIRECTORS AND EXECUTIVE OFFICERS

                                              Shares of Common     Percentage of
Name of Director or Executive Officer            Stock Held         Shares Held
--------------------------------------------------------------------------------

Jack Fitzgerald(1)(2)
President, CEO, Director                          1,000,000              3.96%

Kevin M. VanderKelen(1)(3)
President Goal Post, Director                     6,558,000             27.06%

Mark  Savel(1)(4)(9)
Director of Franchise Development
and Director                                      2,755,557             11.37%

Herman Rush(1)(5) (9)
Co-Chairman of the Board                          4,133,334             17.05%

Michael Michaelson(1)(6) (9)
Co-Chairman of the Board                          4,133,334             17.05%

Ray Markman(1)(7) (9)
Director                                          2,755,557             11.37%

Allan R Lyons
Director                                          2,222,218              9.17%

ALL DIRECTORS AND OFFICERS AS A GROUP
(SIX PERSONS) (9)                                23,558,000             92.04%
--------------------------------------------------------------------------------

(1)   All shares expressed  without giving effect to a proposed 1 for 10 Reverse
      Stock Split.  Based on a total number of outstanding shares of 24,237,636,
      prior to reverse stock split and 1,000,000 shares subject to options which


                                      -20-
<PAGE>

      were exercisable on May 1, 1998. Does not include a Warrant issued to Hope
      Associates,  in  consideration  of Hope's  assumption of $2,000,000 of the
      Company's  liability , to purchase  500,000 shares (after giving effect to
      the  proposed  reverse  stock  split)  at  $1.25.  (See  Item 12  "CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS").

(2)   Includes 1,000,000 shares pursuant to currently exercisable options.

(3)   Includes  4,300,000  shares  received in June 1997 in connection  with the
      sale to the  Company  of the  assets  of  Goal  Post  Distributors,  Inc.,
      2,000,000  shares  purchased  by Mr.  VanderKelen  from  the  Company  for
      $250,000,  105,000 shares  purchased by Mr. VanderKelen and 153,000 shares
      purchased by Mr.  VanderKelen's wife in the open market,  Does not include
      1,000,000  shares  reserved for  issuance  upon the exercise of options to
      purchase  Common Stock at a price of $0.50-$0.90  per share granted to Mr.
      VanderKelen  pursuant to his employment agreement with the Company. All of
      such  options are subject to the Goal Post  division  achieving  levels of
      revenues substantially above current levels.

(4)   Based on Mr. Savel's  approximately  17.222%  interest in Hope  Associates
      which owns 16,000,000 shares

(5)   Based on Mr.  Rush's  approximately  25.833%  interest in Hope  Associates
      which owns 16,000,000 shares

(6)   Based  on  Mr.  Michaelson's   approximately   25.833%  interest  in  Hope
      Associates which owns 16,000,000 shares.

(7)   Based on Mr. Markmam's  approximately  25.833% interest in Hope Associates
      which owns 16,000,000 shares.

(8)   Based on shares held by Mr.  VanderKelen,  a currently  exercisable option
      held by Mr.  Fitzgerald  and the shares  held by Hope  Associates.  If the
      warrant to purchase  500,000  shares  (after the  proposed  reverse  stock
      split) were included the percentage  held by all Officers and Directors as
      a group, as of May 1, 1998 would be 96.45%.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  Company's  founder  and former  Chairman  of the Board,  his son and former
President of the Company and the former  Chairman,  as Trustee for his daughter,
assigned the voting rights for 1,676,000 shares of the Company's Common Stock to
the Company in care of Jack  Fitzgerald,  the current  President of the Company.
These  shares  were  subsequently  canceled  as of  the  Effective  Date  of the
Reorganization Plan.

In connection  with the  bankruptcy  reorganization  of the Company,  18,000,000
shares  of  Common  Stock  were  issued  to Hope,  resulting  in the  beneficial
ownership  of a  majority  of the  Company's  Common  Stock by  certain  present
officers and directors. Hope subsequently surrendered 2,000,000 of its shares to
the Company reducing its holdings to 16,000,000 shares.

In connection with the acquisition of the assets of Goal Post  Distributing Inc.
in June 1997, 4,300,000 shares of Common Stock were issued to Kevin VanderKelen,
and in connection with an employment  agreement with Mr. VanderKelen the Company
granted Mr. VanderKelen an option to acquire up to 1,000,000  additional shares,
subject to the Goal Post Division  reaching  certain  revenue goals (See Item 11
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"). Additionally,
Mr.  VanderKelen  acquired an additional  2,000,000 of the Company's shares from
the  Company at about the time of the Goal Post  acquisition  for  $250,000.  At
about the same  time,  Mr.  Vanderkelen  acquired  105,00  shares,  and his wife
acquired 153,000 shares of the Company's stock in the open market.


                                      -21-
<PAGE>

The members of Hope  Associates had personally  guaranteed a line of credit from
BSB Bank & Trust Co. to the Company in the amount of $2,000,000. Hope Associates
LLC has agreed to and is in the  process of  causing  its  members to assume the
total  obligation for the $2,000,000 BSB loan, thus removing it from the balance
sheet of the Company. After this assumption,  the Company will not be a party to
the loan nor will it have any guarantee or liability.  In consideration for such
assumption,  the Company will pay a monthly fee to Hope Associates in the amount
of the monthly interest  (approximately  $20,000 a month) that is payable to the
bank on the loan and grant the members of Hope Associates  Warrants to purchase,
until May 3, 2003,  500,000  shares of the Company's  common stock (after giving
effect to a proposed reverse stock split) for $1.25 per share.

In April  1998,  various of the  Directors  have made the Company  bridge  loans
totaling  $146,266 as follows:  Mr. Rush $39,974,  Mr. Michaelson  $39,974,  Mr.
Lyons $21,492,  Mr. Markman $26,650,  Mr. VanderKelen,  $18,000.  Such loans are
evidenced by demand notes and bear 10% interest.  It is intended that such loans
be repaid from the proceeds of a proposed  private  placement  of the  Company's
Common Stock.  Additionally,  Mr. Rush loaned the Company $100,000 in March 1997
which is still outstanding.  Rainwater  Enterprises Ltd., a company owned by Mr.
Michaelson, loaned the Company $100,000 in February 1997, which has been repaid.

From time to time the Members of Hope Associates,  LLC have made direct loans to
the  Company or have  personally  guaranteed  working  capital  loans by outside
banking facilities to the Company on terms no less favorable to the Company than
could have been obtained from unrelated third parties,  if such funds would have
been available at all considering the Company's financial circumstances.

Compliance with 16(a) of the Exchange Act

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
Officers,  Directors  and persons who own more than ten percent of a  registered
class of the  Company's  equity  securities,  to filed  reports of ownership and
changes in ownership  with the  Securities  and Exchange  Commission.  Officers,
Directors and ten percent shareholders are required by regulation to furnish the
Company with copies of all Section  16(a) forms that they file.  Based solely on
the  Company's  copies of such forms  received or written  representations  from
certain reporting persons that no Form 5's were required for those persons,  the
Company  believes  that,  during the time period  November  10, 1993 to June 28,
1997, all filing requirements applicable to its Officers,  Directors and greater
than ten percent beneficial owners were complied with.

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

(a) Exhibits

The following is a complete list of exhibits  which are  incorporated  herein or
filed herewith as part of this Report.

                                                              Filed Herewith (X)
                                                              or Incorporated By
No.                                         Exhibit                Reference
--------------------------------------------------------------------------------

3.1    Certificate of Incorporation of the Registrant.                 (1)

3.2    By-Laws of the Registrant, as amended.                          (1)

3.3    Certificate of Incorporation of SF Stores, Inc.                 (1)

3.4    By-Laws of SF Stores, Inc.                                      (1)

4.1    Form of Representative's Warrants.                              (1)

4.2    Form of Representative's Consulting Agreement.                  (1)

4.3    Form of 10%  Convertible  Subordinated  Promissory Note         (1)
       due July 2000 to private investors.


                             -22-
<PAGE>


4.4    Form  of  lock-up   agreement   between  the  Company's         (1)
       shareholders and the Underwriter.

10.1   Registrant's   1993  Employee  Stock  Option  Plan,  as         (1)
       amended.

10.2   Employment Agreement dated as of June 22, 1993, between         (1)
       the Registrant and Steven Jacobs, as amended.

10.3   Employment Agreement dated as of June 22, 1993, between         (1)
       the Registrant and Norman Jacobs, as amended.

10.4   Lease  Agreement  between  the  Registrant  and Paramus         (2)
       Investment  Venture  for  the  Registrant's   executive
       offices in Paramus, New Jersey.

10.5   Master Franchise  Agreement  between the Registrant and         (3)
       Famous Franchises, PLC dated as of August 23, 1995.

10.6   Lease  Agreement  between  SF  Stores,  Inc.  and  Jane         (1)
       Milanos  for  the  Company  Store  at 181 E.  Ridgewood
       Avenue, Ridgewood, New Jersey.

10.7   Form of Franchise Agreement of Registrant.                      (1)

10.8   Lease  Agreement  between the  Registrant  and James T.         (3)
       Paul for  office,  distribution,  and  retail  space at
       10855 US Highway 19 North, Clearwater, Florida 34624.

10.9   Agreement to Modify Lease  between SF Stores,  Inc. and         (3)
       Jane Milanos for the Company Store at 181 E.  Ridgewood
       Avenue, Ridgewood, New Jersey.

10.10  Employment  Agreement  dated as of July 1, 1994 between         (3)
       the Registrant and Jack Fitzgerald.

10.11  Trademark  License Agreement dated July 1, 1992 between         (1)
       Starlog Group International, Inc. and SF Stores, Inc.

10.12  Trademark  License Agreement dated as of August 1, 1993         (1)
       as amended,  between Starlog Group International,  Inc.
       and Starlog Franchise Corp.

10.13  Contribution  Agreement  dated  as of  August  1,  1993         (1)
       between the  Shareholders  of SF Stores,  Inc.  and the
       Registrant.

10.14  Promissory  Note  of the  Registrant  in the  principal         (1)
       amount of $150,000 payable to Norman Jacobs.

10.15  Debtors' First Amended Disclosure Statement Pursuant to         (3)
       Section 1125 of the  Bankruptcy  Code date May 29, 1996
       by Registrant.

10.16  Letter Agreement dated January 31, 1996 between Starlog         (3)
       Of Arlington, Inc. and Parks At Arlington, L.P. for The
       Parks at Arlington.

10.17  Lease dated October 14, 1993 for Garden State Plaza.            (1)

10.18  Directors Stock Option Plan.                                    (1)

10.19  Lease dated  March 1994  between  Hollywood  Associates         (2)
       L.P. and the  Registrant  for  warehouse  facilities at
       Hollywood Park, Fairfield, New Jersey.

10.20  Lease between Starlog of Minneapolis,  Inc. and Mall of         (2)
       America Company for the Mall of America.

10.21  Lease between Starlog of UAtlanta, Inc. and Underground         (2)
       Festival, Inc. for Underground Atlanta.

10.22  Lease between  Starlog of Arrowhead  Phoenix,  Inc. and         (2)
       New River Associates for Arrowhead Town Center.

10.23  Lease between Starlog of Fox Valley,  Chicago, Inc. and         (2)
       LaSalle National Trust, N.A. for Fox Valley Center.

10.24  Lease between  Starlog of Arlington,  Inc. and Parks at         (2)
       Arlington, L.P. for The Parks at Arlington.

10.25  Lease Amendment dated February, 1996 between Starlog Of         (3)
       Fox Valley,  Inc. and LaSalle National Trust,  N.A. for
       Fox Valley Center.

10.26  Lease  Amendment  dated May 7, 1996 between  Starlog of         (3)
       Minneapolis,  Inc. and Mall of America  Company for the
       Mall of America.


                             -23-
<PAGE>

10.27  Lease  dated  June 4, 1996  between  Starlog  Franchise         (3)
       Corporation,  Inc.  and Sheila  Robbins,  Trustee,  for
       office and warehouse facilities in Union, New Jersey.

10.28  Second  Amendment  to Lease dated July 19, 1996 between         (3)
       Starlog  of  Arrowhead  Phoenix,  Inc.  and  New  River
       Associates for Arrowhead Town Center.

10.29  Lease  Agreement  dated March 1, 1996  Between  Starlog         (3)
       Franchise Corporation,  Inc. and Arden Fair Associates,
       L.P. for Arden Fair.

10.30  Agreement  dated March 31, 1996 between the  Registrant         (3)
       and Famous Franchises

10.31  Agreement  dated July 15, 1996  between the  Registrant         (3)
       and Famous Franchises, PLC

10.32  Secured  Debenture dated November 27, 1996 for $350,000         (3)
       between the Registrant. and The Hope Group.

10.33  Notice of Confirmation of Plan of Reorganization  dated         (3)
       August 28, 1996.

10.34  Notices of Commencement of Case Under Chapter 11 of the         (3)
       Bankruptcy Code dated November 13, 1995.

10.35  Agreement   of   Asset    Acquisition   and   Corporate          X
       Reorganization   dated  June  28,   1997   between  the
       Registrant and Goal Post Distributing, Inc.

10.36  Employment  Agreement  made as of June 29, 1997 between          X
       the Registrant and Kevin M. VanderKelen

10.37  Employment Agreement made as of August 15, 1998 between          X
       the Registrant and John (Jack) J. Fitzgerald.

10.38  Purchase  of  Corporation  Through Stock Purchase dated          X
        September  28, 1997  between  the  registrant and  KCK 
        Corporation

10.39  Orders  dated   November  26,  1997  of  United  States          X
       District   Court   for  the   District   of   Columbia,
       incorporating  agreements relating to repayment of sums
       received from Charles O. Huttoe

22.1   Subsidiaries of Registrant                                       X

(1)   Incorporated  by reference  from the Company's  Registration  Statement on
      Form SB-2 for November 10, 1993 (No. 33-68692-NY).

(2)   Incorporated by reference from the Company's Annual Report on Form 10K- SB
      for the Fiscal year ended June 30, 1994.

(3)   Incorporated by reference from the company's  Annual Report on Form 10K-SB
      for the Fiscal year ended June 29, 1996.

Reports on Form 8-K.

No reports on Form 8-K were filed by the  Company  during the period  ended June
28, 1997.

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:  May 29, 1998

STARLOG FRANCHISE CORPORATION

BY:  /s/John Fitzgerald                       May 29, 1997
   -------------------------------            ---------------------------
         John (Jack) Fitzgerald               Date
         President, CEO & CFO


                                      -24-
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following  persons on behalf of the Registrant and in the
capacities and on the dates indicated.

/s/John Fitzgerald             President,  Chief Executive    Date: May 29, 1998
--------------------------     Officer and Director
John (Jack) Fitzgerald         
                               
/s/ Michael Michaelson         Director                       Date: May 29, 1998
--------------------------     
Michael Michaelson             
                               
/s/ Herman Rush                Director                       Date: May 29, 1998
--------------------------     
Herman Rush                    
                               
/s/ Ray Markman                Director                       Date: May 29, 1998
--------------------------     
Ray Markman                    
                               
/s/ Mark Savel                 Director                       Date: May 29, 1998
--------------------------     
Mark Savel                     
                               
/s/ Kevin VanderKelen          Director                       Date: May 29, 1998
--------------------------     
Kevin VanderKelen              
                               
/s/ Allan R. Lyons             Director                       Date: May 29, 1998
--------------------------  
Allan R. Lyons

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                         June 28, 1997 and June 29, 1996
                   (With Independent Auditors' Report Thereon)

<PAGE>

                          Independent Auditors' Report

The Board of Directors
Starlog Franchise Corporation:

We have audited the accompanying consolidated balance sheet of Starlog Franchise
Corporation  and  Subsidiaries  as of June 28, 1997 and June 29,  1996,  and the
related consolidated  statements of operations,  stockholders' deficit, and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  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.

As  discussed  in Note 2,  Starlog  Franchise  Corporation's  (Company)  Plan of
Reorganization  was  confirmed  on August  28,  1996,  and became  effective  on
September 7, 1996. The Company implemented the guidance as to the accounting for
entities  emerging  from Chapter 11 as set forth in Statement of Position  90-7,
"Financial  Reporting by Entities in  Reorganization  under the Bankruptcy Code"
("Fresh  Start  Reporting")  as of September  7, 1996.  The impact of this Fresh
Start  Reporting  is  presented  in Note 2. The  implementation  of Fresh  Start
Reporting as a result of the  Company's  emergence  from  Chapter 11  materially
changes the amounts  reported in the  consolidated  financial  statements of the
Company as of and for the period  ending  subsequent  to August 28,  1996.  As a
result of the  reorganization  and the  implementation of Fresh Start Reporting,
assets and liabilities were recorded at fair values and outstanding  obligations
relating to the claims of creditors  were  discharged  primarily in exchange for
cash and equity. The accompanying  consolidated  financial statements as of June
29,  1996 and for the year then  ended does not give  effect to the  adjustments
that  were  made as a result  of the  Company's  subsequent  reorganization  and
emergence from Chapter 11.

<PAGE>

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Starlog
Franchise  Corporation and  Subsidiaries at June 28, 1997 and June 29, 1996, and
the  results  of its  operations  and cash  flows  for the years  then  ended in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that Starlog  Franchise  Corporation and  Subsidiaries  will continue as a going
concern. As discussed in Note 11 to the consolidated  financial statements,  the
Company has incurred  recurring losses from  operations.  Although the Company's
Plan of Reorganization was confirmed,  the Company has not yet shown the ability
to generate cash from operations.  As such, this raises  substantial doubt about
the entity's ability to continue as a going concern. The consolidated  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of reported asset amounts or the amounts and  classification  of
liabilities that might result from the outcome of these uncertainties.

May 5, 1998

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                         June 28, 1997 and June 29, 1996

                                     ASSETS

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)
Current assets:
  Cash                                                  $131,720         305,527
  Accounts receivable, net of                                          
    allowance for doubtful accounts                                    
    of $7,000 and $2,000 for 1997                                      
    and 1996, respectively                                50,461              21
  Inventories, net of reserves of                                      
    $420,000 and $203,000 for 1997                                     
    and 1996, respectively                               793,417         419,436
  Prepaid expenses and other                                           
    current assets                                        17,632          21,629
                                                     -----------       ---------
                                                                       
                   Total current assets                  993,230         746,613
                                                                       
Property and equipment, net                              690,528         833,808
Organization costs, less accumulated                                   
  amortization of $45,000 for 1996                          --            22,740
Reorganizational value in excess of                                    
  amounts allocated to identifiable                                    
  assets, net                                            543,986            --
Other assets                                              13,875          10,987
                                                     -----------       ---------

                                                     $ 2,241,619       1,614,148
                                                     ===========       =========

<PAGE>

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

Liabilities not subject to compromise:
Current liabilities:
  Note payable to bank                               $   500,000           --
  Notes payable - affiliates                             510,000        625,000
  Current portion of long-term debt                      152,820           --
  Accounts payable and accrued expenses                  596,466        752,102
  Other liabilities, including
    restructuring reserves                               206,432        501,912
                                                     -----------     ----------

                   Total current liabilities           1,965,718      1,879,014

Long-term liabilities:
  Long-term debt                                         653,180           --
  Other                                                     --           15,683

Liabilities subject to compromise:
  Unsecured notes payable to stockholder                    --          153,000
  Trade and other miscellaneous claims                   316,507      1,147,000
                                                     -----------     ----------

                   Total liabilities                   2,935,405      3,194,697
                                                     -----------     ----------

Stockholders' deficit:
  Common stock, $.001 par value; authorized
    40,000,000 shares, issued and outstanding
    24,237,636 and 3,613,636 shares for 1997
    and 1996, respectively                                24,238          3,614
  Additional paid-in capital                             575,612      7,636,711
  Accumulated deficit                                 (1,293,636)    (9,220,874)
                                                     -----------     ----------

                   Net stockholders' deficit            (693,786)    (1,580,549)
                                                     -----------     ----------

                                                     $ 2,241,619      1,614,148
                                                     ===========     ==========

See accompanying notes to consolidated financial statements.

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations

                   Years Ended June 28, 1997 and June 29, 1996

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

Net sales                                           $  1,895,106      1,725,668
Franchise fees and royalty revenue                        58,945         61,859
Sales to franchisees                                     413,671        356,789
                                                    ------------     ----------
                                                  
    Total revenues                                     2,367,722      2,144,316
                                                  
Cost of sales                                            970,394      1,324,195
Selling, general and administrative                    2,913,502      2,784,256
                                                    ------------     ----------
                                                  
Loss from operations                                  (1,516,174)    (1,964,135)
                                                  
Other income (expense):                           
    Interest and other income                             13,691          1,841
    Interest expense                                     (70,125)       (40,329)
    Loss on asset disposal                              (114,163)          --
    Provision for lease renegotiations                      --          (74,954)
                                                    ------------     ----------
                                                  
              Loss before reorganization          
                items and extraordinary           
                item                                  (1,686,771)    (2,077,577)
                                                  
Reorganization items                                     250,000       (282,916)
                                                    ------------     ----------
                                                  
              Loss before extraordinary            
                item                                  (1,436,771)    (2,360,493)
                                                  
Gain on extinguishment of debt                           150,000           --
                                                    ------------     ----------
                                                  
              Net loss                              $ (1,286,771)    (2,360,493)
                                                    ============     ==========
                                                  
Portion of income applicable to                   
  period up to emergence from                     
  bankruptcy                                        $      6,865           --
                                                  
Portion of loss applicable to                     
  period subsequent to emergence                  
  from bankruptcy                                   $ (1,293,636)          --
                                                  
Basic net loss per common share                     $       (.05)          (.65)
                                                    ============     ==========
Basic weighted number of common                   
  shares outstanding                                  24,237,636      3,613,636
                                                    ============     ==========
Diluted net loss per common share                   $       (.05)          (.65)
                                                    ============     ==========
Diluted weighted number of common                 
  shares outstanding                                  24,237,636      3,613,636
                                                    ============     ==========
                                                 
See accompanying notes to consolidated financial statements.

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Deficit

                   Years Ended June 28, 1997 and June 29, 1996

<TABLE>
<CAPTION>

                                                   Common Stock
                                                   ------------
                                                              Par        Additional                      Net
                                               Number of     Value        Paid-In     Accumulated   Stockholders'
                                                Shares       Amount       Capital       Deficit       Deficit
                                               ---------    --------     ----------   -----------   ------------

<S>                                            <C>          <C>          <C>          <C>              <C>     
Balances at July 1, 1995                       3,613,636    $  3,614     7,636,711    (6,860,381)      779,944 
                                             
Net loss                                            --          --            --      (2,360,493)   (2,360,493)
                                             -----------    --------    ----------    ----------    ----------
                                             
Balances at June 29, 1996                    
  (Debtor-in-Possession)                       3,613,636       3,614     7,636,711    (9,220,874)   (1,580,549)
                                             
Cancellation of founders' stock               (1,676,000)     (1,676)       (4,606)         --          (6,282)
                                             
Conversion of debt into stock                 18,000,000      18,000       182,000          --         200,000
                                             
Net income prior to emergence                
  from bankruptcy                                   --          --            --           6,865         6,865
                                             
Recapitalization at date of                  
  emergence from bankruptcy                         --          --      (7,609,883)    9,214,009     1,604,126
                                             
Issuance of common stock at                  
  $.09/share for Goal Post                   
  Distributing, Inc.                         
  acquisition                                  4,300,000       4,300       371,390          --         375,690
                                             
Net loss subsequent to emergence             
  from bankruptcy                                   --          --            --      (1,293,636)   (1,293,636)
                                             -----------    --------    ----------    ----------    ----------
                                             
Balances at June 28, 1997                     24,237,636    $ 24,238       575,612    (1,293,636)     (693,786)
                                             ===========    ========    ==========    ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                   Years Ended June 28, 1997 and June 29, 1996

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)
Cash flows from operating activities:
    Net loss                                         $(1,286,771)    (2,360,493)
    Adjustments to reconcile net                     
      loss to net cash from                          
      operating activities:                          
        Depreciation and amortization                    443,093        239,627
        Increase in provision for losses             
          on accounts receivable                           5,000       (387,941)
        Increase in provision for                    
          inventory shortages                            216,541         76,361
        (Gain) loss on disposal of                   
          property and equipment                        (114,163)       132,944
        Changes in operating assets                  
          and liabilities:                           
          (Increase) decrease in                     
             accounts receivable                         (55,440)       411,760
          (Increase) decrease in                     
             inventories                                (590,522)       569,610
          Decrease (increase) in                     
             prepaid expenses                        
             and other current assets                      3,997        (11,050)
          (Decrease) increase in accounts            
             payable and accrued expenses               (149,303)       489,623
          Decrease in deferred rent                         --          (86,985)
          (Decrease) increase in other               
             liabilities                                (295,480)       321,912
          Increase in trade and other                
             miscellaneous claims                        316,507           --
                                                     -----------     ----------
                                                     
                   Net cash used in                  
                     operating activities             (1,506,541)      (604,632)
                                                     -----------     ----------
                                                     
Cash flows from investing activities:                
    Purchases of property and equipment                 (149,378)       (45,694)
    Decrease in restricted cash                             --           10,000
    (Increase) decrease in other assets                   (2,888)         6,728
                                                     -----------     ----------
                                                     
                   Net cash used in                  
                     investing activities               (152,266)       (28,966)
                                                     -----------     ----------
                                                     
Cash flows from financing activities:                
    Proceeds from issuance of notes                  
      payable - Pre-petition                                --          100,000
    Proceeds from issuance of                        
      notes payable - Post-petition                       75,000        525,000
    Proceeds from Huttoe financing                       650,000           --
    Proceeds from note payable - bank                    500,000
    Proceeds from notes payable -                    
      affiliates                                         260,000           --
                                                     -----------     ----------
                                                     
                   Net cash provided by              
                     financing activities            $ 1,485,000        625,000
                                                     -----------     ----------
                                                    
                                                                     (continued)

See accompanying notes to consolidated financial statements.

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows - Continued

                   Years Ended June 28, 1997 and June 29, 1996

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

Decrease in cash                                       $(173,807)        (8,598)
                                                       
Cash at beginning of year                                305,527        314,125
                                                       ---------       --------
                                                       
Cash at end of year                                    $ 131,720        305,527
                                                       =========       ========

Supplemental schedule of non-cash financing activities:

During 1997,  $200,000 of debt was converted  into  18,000,000  shares of common
stock.

During 1997,  1,676,000  shares of the  Company's  common stock  assigned to the
Company's current President from its former Chairman of the Board was canceled.

The Company's  recapitalization  upon emergence from bankruptcy  resulted in the
write-off of certain assets and liabilities, the establishment of certain assets
and liabilities and the reduction of additional  paid-in capital and accumulated
deficit under "Fresh Start Reporting" (Note 2).

On June 28,  1997,  the  Company  issued  4,300,000  shares of  common  stock at
$.09/share for the acquisition of Goal Post Distributing, Inc.

Interest paid was approximately $73,000 and $22,400 for the years ended June 28,
1997 and June 29, 1996, respectively.

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                         June 28, 1997 and June 29, 1996

(1)   Principal Business Activity and Summary of Significant Accounting Policies

      (a)   Principal Business Activity

            The principal business  activities of Starlog Franchise  Corporation
            and its wholly-owned  subsidiaries (Company) are the franchising and
            owning of retail stores under the Starlog/Hologram banner, wholesale
            and retail  distribution  of novelty gift items,  trading  cards and
            collectibles.  The retail  Starlog/Hologram stores sell a variety of
            holographic artwork, science fiction and related merchandise.

      (b)   Consolidation

            The  accompanying  consolidated  financial  statements  include  the
            accounts of the Company and its  wholly-owned  subsidiaries,  Sumon,
            LLC  (Sumon)  and Goal Post  Distributing,  Inc.  (Goal  Post).  All
            significant   intercompany   transactions  and  balances  have  been
            eliminated in consolidation.

      (c)   Acquisitions

            The Company  acquired  Sumon on December 31, 1996, for an immaterial
            amount of cash,  assumption of  liabilities  and options to purchase
            common stock of the Company.  The operations acquired consisted of a
            six store specialty retailer of holographic  artwork and gifts and a
            wholesale  distributor of holographic artwork and gifts. On February
            3, 1997,  the purchase  price was  adjusted  downward due to certain
            matters that were not disclosed by the seller which  resulted in the
            filing of  Reorganization  under  Chapter  11 of the  United  States
            Bankruptcy Code (Note 2).

            On June 28,  1997,  the Company  acquired  substantially  all of the
            assets and certain  assumed  liabilities  of Goal Post for 4,300,000
            shares of common stock valued at approximately  $.09 per share (fair
            market value at the date of acquisition).

            Both  acquisitions  were accounted for under the purchase method and
            the  results  of  operations  of Sumon  have  been  included  in the
            Consolidated Statements of Operations since the date of acquisition.

      (d)   Inventories

            Inventories,  consisting of finished goods,  are stated at the lower
            of cost, determined by the first-in, first-out method, or market.

                                                                     (continued)
<PAGE>

                         STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      (e)   Depreciation and Amortization

            Depreciation  and amortization of property and equipment is provided
            for by the  straight-line  method over the estimated useful lives of
            the related assets or life of the lease, whichever is shorter.

      (f)   Organization Costs

            Organization  costs are  amortized  over a period of 60 months using
            the  straight-line  method.  The balance of organization  costs were
            written  off during the year  ended June 28,  1997 when the  Company
            emerged from bankruptcy.

      (g)   Revenue Recognition

            Franchise  fee  revenue  is  recognized  by  the  Company  upon  the
            commencement  of operations by the  franchisees.  Royalty revenue is
            based  upon  a  percentage  of  sales  of  franchisees.  Revenue  is
            generally  recognized  by the  Company  when  sales  are made by the
            franchisees.  Revenue from the sale of products is recognized on the
            date the merchandise is purchased by the customer.  The Company does
            not anticipate any franchise revenue in the future.

      (h)   Estimates

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and   assumptions   that  affect   certain   reported   amounts  and
            disclosures.  Accordingly,  actual  results  may  differ  from those
            estimates.

      (i)   Fair Value of Financial Instruments

            At June  28,  1997  and June 29,  1996,  the  carrying  value of all
            financial instruments approximated their fair values.

      (j)   Seasonality

            The Company's  sales are seasonal in nature based,  in part, on gift
            buying during holiday periods such as Halloween and Christmas.

      (k)   Franchise Laws and Regulations

            The Company's franchise  operations are subject to various franchise
            laws and  regulations,  violations  of which  could  have an adverse
            effect on the  Company,  and are  subject to risks  associated  with
            individual  franchisees,  including  but not  limited  to  potential
            significant  indirect  liability.  The Company does not plan to have
            any more franchise operations in the future.

                                                                     (continued)
<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      (l)   Reclassifications

            Certain amounts in the 1996 consolidated  financial  statements have
            been  reclassified  to  conform  with  the 1997  presentation.  Such
            reclassifications had no effect on reported net income.

      (m)   Earnings Per Share

            In the fourth quarter of fiscal 1997, the Company adopted  Statement
            of Financial  Accounting Standards No. 128, Earnings per Share (SFAS
            128).  Under SFAS 128,  basic net loss per share of common  stock is
            computed by dividing income available to common  stockholders by the
            weighted average number of common shares actually outstanding during
            the  period.  Diluted  net loss per share of common  stock  presents
            income  attributable  to common  shares  actually  outstanding  plus
            dilutive  potential common shares outstanding during the period. The
            Company's  options  and  warrants  were not  included  in  computing
            dilutive  net loss per  common  stock  because  their  effects  were
            anti-dilutive.

(2)   Petition for Relief Under Chapter 11 and Emergence

      (a)   Petition for Relief

            On November 13,  1995,  the Company  (Debtor)  filed  petitions  for
            relief under Chapter 11 of the federal bankruptcy laws in the United
            States Bankruptcy Court  (Bankruptcy  Court) for the Middle District
            of Florida.  Under Chapter 11,  certain claims against the Debtor in
            existence  prior to the filing of the petitions for relief under the
            federal  bankruptcy  laws are  stayed  while  the  Debtor  continues
            business  operations  as  Debtor-in-possession.   These  claims  are
            reflected  in the  June  29,  1996  consolidated  balance  sheet  as
            "liabilities subject to compromise."  Additional claims (liabilities
            subject to  compromise)  may arise  subsequent  to the  filing  date
            resulting from rejection of executory  contracts,  including  leases
            and from the  determination by the Court (or agreed to by parties in
            interest) of allowed  claims for  contingencies  and other  disputed
            amounts. Claims secured against the Debtor's assets (secured claims)
            also are stayed  although  the holders of such claims have the right
            to move the  court for  relief  from the stay.  Secured  claims  are
            secured  by  liens  on the  Debtor's  tangible  assets.  The  debtor
            received  approval from the  Bankruptcy  Court to pay certain of its
            pre-petition obligations, including employee wages.

            On February 3, 1997,  Sumon filed petitions for relief under Chapter
            11 of the federal  bankruptcy  laws in the United States  Bankruptcy
            Court for the Middle District of Florida.  Under Chapter 11, certain
            claims  against the Debtor in  existence  prior to the filing of the
            petitions  for relief under the federal  bankruptcy  laws are stayed
            while    the    Debtor    continues    business     operations    as
            Debtor-in-possession.  These  claims are  reflected  in the June 28,
            1997   consolidated   balance  sheet  as  "liabilities   subject  to
            compromise."

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      (b)   Emergence

            The United  States  Bankruptcy  Court for the  District  of Florida,
            confirmed the Company's Plan of Reorganization  (the Plan) on August
            28, 1996 (the  Confirmation  Date),  allowing  the Company to emerge
            from  Chapter  11  Bankruptcy   effective  September  7,  1996  (the
            Effective  Date).  The  Company  operated  under the  protection  of
            Chapter 11 following a voluntary petition for  reorganization  filed
            February  28,  1996 and  amended  on May 29,  1996.  Under the Plan,
            ownership of the Company was transferred largely to Hope Associates,
            LLC, (Hope) holders of the Company's  secured  debentures.  The Plan
            provided  for the  issuance of  18,000,000  shares of common  stock,
            distributions  and new warrants to major creditors and  stockholders
            as follows:

            1.    Hope reduced its secured claim against the Company by $200,000
                  in exchange  for  18,000,000  shares of the  Company's  common
                  stock,  effectively  90  percent  of  issued  and  outstanding
                  shares.

            2.    Holders of allowed general  unsecured  claims will be paid the
                  lesser of $390,000  or 30 percent of the allowed  claims in 60
                  equal monthly cash installments.

            3.    Holders of allowed  general  unsecured  claims  received newly
                  issued new warrants to purchase shares of the Company's common
                  stock at the rate of $0.25 per share.  Such new warrants  were
                  distributed  at the  rate of one  warrant  for  each  $0.70 of
                  claim.  The remaining 30 percent of each dollar claim is to be
                  paid in cash as set forth in 2.

            4.    Holders of the Company's old Common stock retained their stock
                  but were diluted by the issuance of the Company's Common stock
                  to its  secured  creditor  as set forth in 1. above and by the
                  exercise of the new warrants in 3.

            Additionally, on the effective date of the Plan, 1,676,000 shares of
            the  Company's  common  stock  assigned  to  the  Company's  current
            President from its former Chairman of the Board was canceled.

            The Chapter 11 filing was necessitated by the Company's inability to
            comply with payment  obligations  as they existed  before filing the
            Chapter 11 petition.  During the prior year,  the Company  sought to
            renegotiate  all of its store leases and attract  additional  equity
            investment or debt financing which might have allowed the Company to
            pay its  unsecured  creditors in full and provide value for existing
            equity holders. However, the Company was unable prior to its Chapter
            11 filing to renegotiate a sufficient  number of its store leases or
            obtain any new equity  investment.  The inability to meet respective
            payment  obligations  resulted  in a need to  restructure  debt  and
            thereby created the proximate cause of the Chapter 11 filing.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

            Fresh Start Reporting

            As of  the  Confirmation  Date,  the  Company  adopted  Fresh  Start
            Reporting in  accordance  with the  American  Institute of Certified
            Public  Accountants   Statement  of  Position  90-7  (SOP  90-7)  --
            "Financial   Reporting  by  Entities  in  Reorganization  under  the
            Bankruptcy Code." Fresh Start Reporting resulted in material changes
            to the consolidated balance sheet, including valuation of assets and
            liabilities  at fair market  value and  valuation of equity based on
            the appraised reorganization value of the ongoing business.

            The Reorganization Value (the approximate fair value) of the Company
            was based on the consideration of many factors and various valuation
            methods,  including  discounted  cash flows and  price/earnings  and
            other  applicable  ratios  and  valuation   techniques  believed  by
            management and its financial  advisors to be  representative  of the
            Company's  business and industry.  The excess of the  Reorganization
            Value over the fair value of net assets and liabilities are reported
            as excess  Reorganization Value and will be amortized over a fifteen
            year period.  The approximate  balance of such assets at the date of
            emergence from bankruptcy was $578,000.

                                                                 June 28, 1997
                                                                 -------------
            New unsecured notes                                   $   306,000 
            Accumulated deficit up to September 7, 1996             9,214,000
                                                                  -----------
                                                                    9,520,000
                                                                 
            Less:                                                
              Trade and miscellaneous claims canceled               1,147,000
              Unsecured notes payable to stockholder                  153,000
              Reduction in additional paid-in-capital               7,610,000
              Other miscellaneous items                                32,000
                                                                  -----------
                                                                 
            Total reorganization value in excess of              
               amounts allocated to identifiable assets               578,000
            Less accumulated amortization                             (34,000)
                                                                  -----------
            Balance at June 28, 1997                              $   544,000
                                                                  ===========

            The following  balance sheet as of September 7, 1996 (effective date
            of emergence) includes approximate restructuring adjustments as well
            as fresh start adjustments made by the Company.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                        Adjustments to Record
                                                                                         Confirmation of Plan
                                                                                      --------------------------         Reorganized
                                                                        Pre-          Restructuring        Fresh           Balance
                                                                    Confirmation       Adjustments         Start            Sheet
                                                                    ------------      -------------        -----         -----------
<S>                                                                 <C>                      <C>               <C>            <C>
Assets:
  Current assets:
     Cash                                                           $    17,516              --                --             17,516
     Accounts receivable, net                                            42,094              --                --             42,094
     Due from affiliates                                                 75,920              --                --             75,920
     Inventories, net                                                   284,396              --                --            284,396
     Prepaid expenses and other current assets                           11,885              --                --             11,885
                                                                    -----------        ----------        ----------        ---------

                Total current assets                                    431,811              --                --            431,811

  Property and equipment, net                                           799,806              --                --            799,806
  Organization costs, less accumulated
    amortization                                                         20,482              --             (20,482)            --
  Reorganizational value in excess of amounts
    allocated to identifiable assets                                       --                --             578,000          578,000
 Other assets                                                            54,865              --                --             54,865
                                                                    -----------        ----------        ----------        ---------

                                                                    $ 1,306,964              --             557,518        1,864,482
                                                                    ===========        ==========        ==========        =========

Liabilities and Stockholders' Deficit:
  Liabilities not subject to compromise:
  Current liabilities:
     Current maturities of unsecured notes
       payable                                                      $      --              49,000              --             49,000
     Accounts payable and accrued expenses                              463,043              --             (10,145)         452,898
     Other liabilities, including restructuring
       reserves                                                         331,424              --                --            331,424
     Notes payable - secured                                            450,000          (200,000)             --            250,000
                                                                    -----------        ----------        ----------        ---------

         Total current liabilities                                    1,244,467          (151,000)          (10,145)       1,083,322

  Long-term liabilities:
     Unsecured notes payable                                            300,000           257,000              --            557,000
  Liabilities subject to compromise:
     Unsecured notes payable to stockholder                             153,000          (153,000)             --               --
     Trade and other miscellaneous claims                             1,183,181        (1,183,181)             --               --
                                                                    -----------        ----------        ----------        ---------

         Total liabilities                                            2,880,648        (1,230,181)          (10,145)       1,640,322
                                                                    -----------        ----------        ----------        ---------

Stockholders' deficit:
     Common stock                                                         3,614            16,324              --             19,938
     Additional paid-in-capital                                       7,636,711           199,616        (7,632,105)         204,222
     Accumulated deficit                                             (9,214,009)             --           9,214,009             --
                                                                    -----------        ----------        ----------        ---------

         Total stockholders' deficit                                 (1,573,684)          215,940         1,581,904          224,160
                                                                    -----------        ----------        ----------        ---------

                                                                    $ 1,306,964        (1,014,241)        1,571,759        1,864,482
                                                                    ===========        ==========        ==========        =========
</TABLE>

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

          Restructuring Adjustments

            Reflects  settlement  of  liabilities  subject  to  compromise,   as
            provided by the Plan:

            -     Establish  new unsecured  notes  payable at estimated  present
                  value and classify between currently payable and long-term, as
                  appropriate

            -     Record  new  common  stock  (18,000,000  shares at $.001)  and
                  additional paid-in capital.

            -     Retire 1,676,000 outstanding shares of existing common stock.

            Fresh Start Adjustments

            -     Reduce existing organization costs and record reorganizational
                  value in excess of amounts  allocable to  identifiable  assets
                  and liabilities.

            -     Eliminate  accumulated  deficit balance and additional paid-in
                  capital.

(3)   Property and Equipment

      Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                     Estimated
                                              June 28, 1997   June 29, 1996        Useful Life
                                              -------------   -------------        -----------
                                                                (Debtor-in-
                                                                Possession)

<S>                                              <C>                 <C>               <C>    
Trade show exhibition displays                    $  45,207          45,051            3 years
Computer equipment and software                     245,126         188,416          3-5 years
Furniture, fixtures and equipment                   943,991         534,490          3-7 years
Leasehold improvements                              328,251         531,100      Life of lease
                                                  ---------       ---------        or 10 years
                                                  1,562,575       1,299,057
Less accumulated depreciation

  and amortization                                  872,047         465,249
                                                  ---------       ---------

                                                  $ 690,528         833,808
                                                  =========       =========
</TABLE>

      Depreciation and amortization totaled approximately  $443,000 and $240,000
      for the years ended June 28, 1997 and June 29, 1996, respectively.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(4)   Accounts Payable and Accrued Expenses

      Accounts payable and accrued expenses consist of the following:

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

           Accounts payable                            $ 494,919         539,612
           Accrued professional fees                      44,000          77,219
           Accrued payroll                                43,798          27,002
           Accrued taxes                                   8,685          36,406
           Deferred revenue                                 --            30,000
           Other                                           5,064          41,863
                                                       ---------         -------
                                                                        
                                                       $ 596,466         752,102
                                                       =========         =======

(5)   Notes Payable - Affiliates

      In November  1995,  prior to filing of petitions  for relief under Chapter
      11, the  Company  issued a $100,000  secured  convertible  debenture  with
      interest to Hope  Associates,  LLC (Hope).  This  debenture was secured by
      substantially all assets of the Company and was due on demand.

      In November 1995,  subsequent to filing, the Company was granted the right
      to  obtain  post-petition  financing  in the  form of a  $350,000  secured
      debenture from Hope.  During June 1996, the secured  debenture was amended
      and increased to $600,000, as authorized by the Court. The amended secured
      debenture bears interest at 12%,  secured by  substantially  all assets of
      the Company and was due on demand  after  January 31,  1997.  During 1997,
      $100,000 of the secured debenture was converted into a secured convertible
      debenture.  During the year ended June 28,  1997,  the $200,000 of secured
      convertible  debentures  were converted into  18,000,000  shares of common
      stock in accordance with the approved plan of reorganization (Note 2).

      At June 28, 1997, $310,000 was outstanding to Hope under notes payable.

      During 1997,  certain  members of Hope provided  $200,000  working capital
      financing  to the  Company.  All  amounts  funded  during 1997 were repaid
      subsequent to June 28, 1997.

(6)   Note Payable to Bank

      In December  1996,  the Company  obtained a $500,000  note  payable from a
      bank. The note bears interest at 10.5% and was due December 1997. The note
      was  subsequently   renewed  for  six  months.  The  note  is  secured  by
      substantially  all assets of the Company and is guaranteed by Hope and its
      members.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(7)   Long-Term Debt

      Amounts  due to  unrelated  entities  at June 28,  1997 and June 29,  1996
consists of the following:

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

       Note  payable  to  Securities            
       Exchange Commission due in annual
       installments through January 2002,
       with interest payable annually at 5.5%           $500,000         --
                                                                         
       Notes payable to unsecured creditors                              
       due in monthly installments through                               
       June 2002 with interest payable                                   
       monthly at 12% (net of imputed interest                           
       of $84,000)                                       306,000         --
                                                        --------       ----
                                                                         
            Total                                        806,000         --
                                                                         
       Less current installments of                                      
       long-term debt                                    152,820         --
                                                        --------       ----
                                                                         
       Long-term debt, excluding current                                 
       installments                                     $653,180         --
                                                        ========       ====
                                                                        
       The  annual  schedule  of  future  maturities  of  long-term  debt are as
follows:

           Fiscal Year Ending June:
           ------------------------
                    1999                               $ 152,820
                    2000                                 145,905
                    2001                                 157,954
                    2002                                 171,164
                    2003                                 178,157
                    Thereafter                              --
                                                       ---------
                                                       $ 806,000
                                                       =========

(8)   Income Taxes

      The Plan of Reorganization, approved by the United States Bankruptcy Court
      (Note 2),  provided  for the  issuance of new common  stock to satisfy the
      Company's indebtedness and resulted in an "ownership change" under Section
      382 of the  United  States  Tax  Code.  As a  result,  total  usage of the
      Company's  net  operating  loss  carryforwards  (which  occurred  prior to
      emergence from bankruptcy),  noted below, will be limited to approximately
      $20,000 annually or $300,000 over the next 15 years. In addition, deferred
      deductions,  described  below,  that become  deductible  for tax  purposes
      during the five year period following the effective date of the bankruptcy
      are also subject to the annual  limitation.  Net  operating  carryforwards
      (NOL) and future  deductions  exceeding the annual  limitation will expire
      unutilized.  NOL's which resulted  subsequent to emergence from bankruptcy
      will not be fully available for future utilization.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION

                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      The  Company  accounts  for income  taxes  pursuant  to the  Statement  of
      Financial  Accounting  Standards  No.  109.  The  approximate  amounts  of
      deferred  assets  at June  28,  1997  and  June  29,  1996,  respectively,
      resulting from temporary differences and carryforwards were as follows:

                                                   June 28, 1997   June 29, 1996
                                                   -------------   -------------
                                                                     (Debtor-in-
                                                                     Possession)

      Net operating loss carryforwards              $ 7,900,000       6,600,000
      Expenses recognized for financial
        reporting purposes not yet 
        deductible:
           Provision for inventory 
             shortage                                   400,000         200,000
           Other                                        200,000         300,000
                                                    -----------      ----------
                                                      8,550,000       7,100,000
           Effective federal and state 
             tax rate                                        40%             40%
                                                    -----------      ----------
      Total deferred tax asset                        3,400,000       2,840,000
      Valuation allowance for deferred 
        tax asset                                    (3,400,000)     (2,840,000)
                                                    -----------      ----------

      Net deferred tax asset                        $      --              --
                                                    ===========      ==========

(9)   Commitments and Contingencies

      The Company has entered into various  non-cancelable  operating leases for
      office, warehouse and retail store space and equipment expiring at various
      dates  through  2003.  Certain of the leases  provide for  minimum  annual
      rentals plus additional rental payments based upon sales volume.

      At June 28, 1997,  aggregate  approximate  future minimum rental  payments
      required under operating leases are as follows:

           Fiscal Year Ending June:
           ------------------------

                  1998                            $ 420,000
                  1999                               54,000
                  2000                               58,000
                  2001                               60,000
                  2002                               70,000
                  Thereafter                         18,000
                                                  ---------
                                                  $ 680,000
                                                  =========

      Rent expense  charged to operations  for the years ended June 28, 1997 and
      June  29,  1996   amounts  to   approximately   $721,000   and   $900,000,
      respectively.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      The Company has entered into a trademark  license  agreement  with Starlog
      Communications  International,  Inc.  (SCI),  an entity  related by common
      ownership for the exclusive  right to use the name,  registered  trademark
      and logos "Starlog" and "Starlog: The Cosmic and Science Fiction Universe"
      in  connection  with the Company's  worldwide  franchising  business.  The
      agreement  is for the term of the  trademark,  which is 10  years,  and is
      renewable  upon  application  provided the  trademark  is being used.  The
      agreement  calls  for the  Company  to pay SCI 3% of the  Company's  gross
      income,  as defined in the agreement.  As of June 28, 1997, no amounts are
      due under the terms of this agreement.

      An employment agreement between the Company's  President,  the Company and
      Hope was entered  into during  1997.  The terms of the  agreement is for a
      period of five years,  commencing on April 1, 1996,  but can be terminated
      at any time by either party.  The agreement  provides the President annual
      compensation of $80,000 with a $10,000  increase upon  confirmation of the
      Company's Plan of Reorganization and $10,000 increases annually commencing
      on January 1, 1997, not to exceed $140,000 in total base compensation. The
      agreement  also  provides for an annual  bonus based upon certain  Company
      financial performance as well as certain other benefits. Additionally, the
      agreement  provides annual options to purchase 5% of the Company's  common
      stock, subject to certain provisions.

      The Vice  President  of the  Company  and  founder  of Goal  Post may earn
      options to purchase up to 1,000,000  shares at prices ranging from $.50 to
      $.90 on a sliding  scale over the next five years  provided  that  certain
      gross sales amounts are met.

(10)  Stockholders' Equity

      Prior to the issuance of the secured convertible debenture (Note 5) and as
      an inducement to Hope,  the Company's  founder and former  Chairman of the
      Board,  his  son and  former  President  of the  Company  and  the  former
      Chairman, as Trustee for his daughter, assigned 1,676,000 shares and their
      voting rights  (surrendered  shares) of the Company's  common stock to the
      Company in care of its current President. Upon confirmation of the Plan of
      Reorganization,  the  surrendered  shares were retired and options  issued
      pursuant  to the  1993  Employee  and  Director  Stock  Option  Plan  were
      canceled.  No options  to the  purchase  the  Company's  common  were ever
      issued.

      Pursuant to the Company's  acquisition  of Goal Post,  the Company  issued
      4,300,000 shares of its common stock valued at approximately $.09/share.

      Accounting for Stock-Based Compensation

      The Company has adopted the  disclosure-only  provisions  of  Statement of
      Financial  Accounting  Standards  No.  123,  "Accounting  for Stock  Based
      Compensation"  (SFAS  123).  Accordingly,  no  compensation  cost has been
      recognized  for the Company's  granted  stock  options and  warrants.  Had
      compensation  and other cost for the  Company's  granted stock options and
      warrants  been  determined  based on the fair  value at the grant  date or
      issuance for awards in 1997  consistent  with the  provisions of SFAS 123,
      the impact on net loss would have been immaterial.

                                                                     (continued)

<PAGE>

                         STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Aggregate Stock Option Activity

      The following  table  summarizes  information  about the  aggregate  stock
      option and warrant activity for the year ended June 28, 1997:

                                                                    Weighted-
                                                                    average
                                                       Number       exercise
                                                     of shares       price

      Outstanding, beginning of year                      --         $  --
         Granted                                     1,940,107          .15
         Exercised                                        --            --
         Forfeited                                        --            --
                                                     ---------       ------

      Outstanding, end of year                       1,940,107       $  .15
                                                     =========       ======

      Options and warrants vested, end of year       1,940,107       $  .15
                                                     =========       ======

      The  following  table  summarizes  information  about  stock  options  and
warrants at June 28, 1997:

<TABLE>
<CAPTION>
                    Options and Warrants Outstanding    Options and Warrants Exercisable
                    --------------------------------    --------------------------------
                                            Weighted-
                               Weighted-     average                        Weighted-
                               average      remaining                        average
                    Number     exercise    contractual        Number        exercise
Exercise Price   outstanding    price      life (years)     exercisable       price
--------------   -----------   ---------   ------------     -----------     ---------
                                                                        
<S>               <C>           <C>             <C>          <C>              <C>  
    $.06          1,000,000     $ .06           6            1,000,000        $ .06
     .25            940,107       .25           4              940,107          .25
                  ---------     -----         ---            ---------        -----

                  1,940,107     $ .15           5            1,940,107        $ .15
                  =========     =====         ===            =========        =====
</TABLE>

      These tables do not include  options and warrants in which certain  events
      or contingencies must be met prior to grant.

      The effect of options and warrants  outstanding  has not been  included in
      weighted average common and common  equivalent  shares  outstanding in the
      accompanying  statements of operations and accumulated  deficit,  as these
      options would have an antidilutive effect on net loss per weighted average
      common and common equivalent share.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(11)  Going Concern

      As  shown  in the  accompanying  consolidated  financial  statements,  the
      Company has incurred  recurring losses from operations.  These losses have
      contributed to the Company's working capital deficiency and resulting cash
      flow  problems.  Although  the  Company's  cash flows  during the  holiday
      season,  it has not been profitable on a year round basis. The Company has
      raised cash through various debt financing from affiliates,  however,  its
      ability to continue as a going  concern  will  require the  attainment  of
      profitable  operations  for  extended  periods,  conversion  of debt  into
      permanent equity or obtaining  additional permanent equity. The Company is
      currently pursuing various debt and equity opportunities.

(12)  Huttoe Financing

      During  the  confirmation   process,  the  Company  and  Hope  engaged  in
      discussions  with Charles  Huttoe  (Huttoe) to provide  post  confirmation
      financing to the Company and to acquire the  ownership  of the  18,000,000
      shares of the Company's  common stock owned by Hope.  In September,  1996,
      Huttoe,  Hope  and  its  members,  but not the  Company,  entered  into an
      agreement (Sales Agreement)  pursuant to which, Huttoe was to make certain
      payments  to Hope's bank and to Hope's  members  and was to  purchase  the
      membership  interests in Hope from its members,  thus indirectly obtaining
      Hope's  18,000,000  shares into the Company.  The position of the Company,
      Hope and the members of Hope is that the  purchase of the Hope  membership
      interests has not been consummated.

      In  September,  1996,  Huttoe  provided  working  capital  to the  Company
      aggregating  $650,000.  There was no written agreement between the Company
      and Huttoe regarding these funds. Subsequent to the above, David Goldstein
      (Goldstein),  who had been acting as the  attorney for Huttoe with respect
      to these  matters,  announced that the Sale Agreement had been assigned to
      him.  However,  it is the  position of Starlog,  Hope and its members that
      this purported assignment is legally ineffective.  In October 1996, a bank
      loan to Hope was paid in full from an  account of  Goldstein's  in alleged
      compliance with the Sale Agreement.  In addition,  the sum of $200,000 has
      been deposited from  Goldstein's  account into escrow with an attorney for
      Hope for  payment  to the  members  of Hope to  acquire  their  membership
      interests in alleged compliance with the Sale Agreement.

      In November 1996, the  Securities  and Exchange  Commission  (SEC) filed a
      complaint in the U.S.  District Court for the District of Columbia (Court)
      against Huttoe and others, but not including Goldstein,  alleging "massive
      unregistered  distribution"  of the "stock of Systems of Excellence,  Inc.
      (SOE) and  manipulation  of the SOE stock  price." In November  1996,  the
      Court issued a temporary restraining order temporarily freezing assets and
      accounts of Huttoe and various third party  accounts  into which  payments
      were  made  from  allegedly  "Huttoe  controlled"   accounts.   The  order
      specifically  covered the Company's account which received the $650,000 as
      well as the attorney escrow account holding the  aforementioned  $200,000.
      The  $200,000 has not been paid to the members of Hope and the transfer of
      membership interest from Hope has not occurred.

                                                                     (continued)

<PAGE>

                          STARLOG FRANCHISE CORPORATION
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Subsequent to June 28, 1997, the Company and the SEC reached agreement for
      the repayment of $500,000 of the $650,000 of funds provided by Huttoe. The
      Company will repay this amount over five years with interest (Note 7). The
      $150,000  difference between the amount funded by Huttoe and the amount to
      be  repaid  to the SEC is  reflected  in the  Consolidated  Statements  of
      Operations as gain on extinguishment of debt.

(13)  Subsequent Events

      In October 1997, the Company  acquired KCK  Corporation  (KCK) for certain
      assumed  liabilities and warrants to purchase the Company's  common stock.
      The Company  issued 500,000  warrants to purchase  common stock at between
      $.25 - $.50 per share.  (100,000 warrants at $.50 per share expire October
      1, 1999;  400,000  warrants at $.25 per share if  exercised  by October 1,
      1998 and $.40 per share through  expiration on October 1, 1999).  Prior to
      the  acquisition,  KCK had filed a Chapter 11  Bankruptcy  Petition in the
      United States Bankruptcy Court for the Western District of North Carolina.
      KCK is a retailer  which owns and operates 14 candy stores under the trade
      name Candy Candy and Candico.  The plan of reorganization  was approved by
      the Court on March 19, 1998.

      In November 1997,  the SEC settled their claim with the Company  regarding
      the proceeds of the Huttoe  financing as follows:  $500,000 payable over a
      five year period with interest at 5.55%.

      In May 1998,  the Company  entered  into an  agreement  with the intent to
      acquire certain assets of a company who sells and distributes  candy. This
      potential acquisition is subject to various items, including financing.

      In May 1998,  the  Company's  Board of  Directors  approved the closing of
      substantially all of their "Starlog" retail stores.