U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   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 27, 1998

[ ] 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

                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)
              (Exact name of Small Business Issuer in Its charter)


New Jersey                                  22-3219281
(State or other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

22 Meridian Road, Eatontown New Jersey      07724
 (Address of Principal Executive Offices)   (Zip Code)

Issuer's Telephone Number, Including
Area Code:                                  (732)-380-0991

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

Securities registered under
section 12(g) of the Act:                   Common Stock, $.01 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: $2,230,922

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 November 1, 1999 is $6,292,175.

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 November 1, 1999,  the Issuer had 2,516,870  shares of Common Stock,  $.01
par value, outstanding.




<PAGE>

Item 1.  Business

Overview

The Company  changed its focus in the year ended June 27, 1998 to concentrate on
the  specialty  retail sale of bulk  candy.  Previously,  the  Company  operated
Starlog stores that included  various  science  fiction and other products under
licensed names.  The Company will continue to offer such  merchandise as part of
its candy operation and not as a stand-alone business.

Effective July 9, 1998, the Company  instituted a 1-for-10  reverse stock split,
which  reduced  its  outstanding  shares  of common  stock  from  20,937,640  to
approximately   2,093,764   (including   rounding  up  of  fractional   shares).
Subsequently,  the  Company  issued  approximately  423,000  shares  pursuant to
private  placements.  Share  numbers have been  adjusted to reflect such reverse
stock split, unless stated to the contrary.

Candico

Candico,  Inc. 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  traffic,  prime retail
locations are critical.

The Candico stores sell  approximately 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 the  stores'
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.


                                       -1-
<PAGE>

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.

On November 24, 1998, Candy Candy Acquisition  Corporation  ("CCAC") purchased 8
additional  candy stores which it  contracted  the Company to manage.  CCAC is a
whole owned subsidiary of Hope  Associates,  LLC which owns more than 50% of the
Company's common stock. Hope has granted the Company an option to purchase these
stores at its cost as well as an agreement to management  these stores.  In July
1999 one of these stores was  transferred  back to the seller in settlement of a
dispute. (See Item 12. "Certain Relationships and Related Transactions" below)

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 more than 4,000 existing  customers and $5,000,000 in sales by 1996. The
Company acquired Goal Post at the end of June 1997.

Because the Goal Post Division was operating at a loss,  effective June 27, 1998
the  Company  sold the Goal  Post  business  and  related  assets  back to Kevin
VanderKelen,  who had originally  sold this business to the Company.  Under this
resale agreement, Mr. VanderKelen transferred back to the Company 330,000 of the
430,000 Company's shares originally  received by Mr. VanderKelen and the Company
gave Mr.  VanderKelen  a  promissory  note for  $50,000  (See Item 12.  "Certain
Relationships and Related Transactions" below).

Stores

In October 1997, The Company  entered into an agreement with KCK Corporation and
the U.S.  Bankruptcy  Court to manage and provide  certain funding to acquire 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


                                       -2-
<PAGE>

Connecticut,  New Jersey, Maryland,  Virginia, Georgia and Florida. Prior to the
acquisition  of KCK,  KCK  filed a  petition  for  chapter  11  bankruptcy.  KCK
voluntarily emerged from bankruptcy in late March 1998 at which time the Company
assumed all the assets and  liabilities of the newly emerged and reorganized KCK
Corporation.  Thereafter,  the Company  merged KCK into  Candico  Entertainment,
Inc.,  thus changing its name.  (See Item 2 "Properties"  below for a listing of
these locations and certain lease terms).

In November 1998, a subsidiary of Hope Associates, LLC (which owns more than 50%
of the outstanding shares of the Company) purchased 8 more candy stores which it
granted  the  Company  the right to manage  and the option to  purchase  at Hope
Associates'  cost. In July 1999 one of these stores was transferred  back to the
seller in  settlement of a dispute.  (See Item 12.  "Certain  Relationships  and
Related Transactions" below)

The Company at various times has opened 15 Starlog  Stores and 6  Sumon/Hologram
Stores, all of which have been closed.

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".

Background / History

The founder of the Starlog Group,  the publisher of several  science fiction and
horror  magazines,  started The  Company  with one  Starlog  store in 1992.  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  that were too high to
permit profitable  operation.  Additionally,  the stores were 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  the  Company's  current  Chief  Executive   Officer,   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  store  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 relinquished substantially, all of his stock in the Company.

Following  the  Chapter  11   reorganization,   the  Company  acquired  two  new
businesses,  KCK Corporation (now Candico,  Inc.), effective March 28, 1998 (See
"Business-Candico"  above) and, Goal Post  Distributors,  Inc. in June 1997 (See
"Business-Goal Post" above).


                                       -3-
<PAGE>

Elimination of Unprofitable Starlog and Hologram Stores.

After  reviewing  the  results of the last six Starlog  and  remaining  Hologram
Stores, the Company determined in April 1998 that these stores could not operate
profitably,  even with the more favorably  renegotiated lease terms.  During the
period from October 1997 through  January 1998,  the six Starlog 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 the last six unprofitable Starlog stores
and all of the remaining  Hologram stores.  The last Starlog store was closed in
October 1998.  The leases for four of six Starlog stores and all of the Hologram
stores were  expired and the Company had no on-going  liability  resulting  from
such  closings.  In the case of two  Starlog  stores,  the  Company  was able to
terminate the leases by making payments of $12,000 and $15,000 in October 1998.

Termination of License to Use Starlog Name.

On July 1, 1998,  the Company was able to terminate its License  Agreement  with
Starlog Group, Inc. to use the "Starlog"  trademark in return for making royalty
payments. The Company transferred to Starlog Group, Inc. certain assets worth an
immaterial amount in connection with such termination.

Financial Information about Industry Segments

From  inception  through  the period  ended June 27,  1998,  the Company and its
subsidiaries have operated in the same industry segment.

Employees

As of  November  1, 1999,  the  Company  had 58  employees.  This  includes  the
Company's  President,  General  Merchandising  Manager,  CFO, 1 MIS  Manager,  2
District   Operations   Managers,   1   Warehouse   Manager,   1   Merchandising
Manager/Buyer,  Financial  Manager,  an  Administrative  Assistant and 48 retail
store employees, of which 16 are full time and 32 are part time.

Item 2.  Properties

On September 30, 1996 the Company's  executive  offices and distribution  center
were relocated from  Clearwater,  Florida to a facility at 945 Brighton  Street,
Union, New Jersey.  This facility  consisted of approximately  6,500 square feet
leased at a monthly rental of $3,000.  This lease terminated on January 31, 1999
and was extended month to month until July 1999. In July 1999, the Company moved
its  headquarters  to it current  address of 22  Meridian  Road,  Eatontown  New
Jersey.  This facility  consists of  approximately  9,300 square feet lease at a
monthly rental of $4,600. This lease terminates on October 31, 2004.

Candico Stores

The  following  table sets forth the  locations  of the 13 KCK stores  where the
Company 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                           636                  09/10/00             $3,975(3)
Bridgewater Commons, Bridgewater, NJ                     836                  12/31/03             $6,667(4)
Tampa Bay Center, Tampa, FL                              913                  04/30/01             $1,140 (5)
</TABLE>


                                       -4-
<PAGE>

<TABLE>

<S>                                                      <C>                  <C>                  <C>
Rockaway Town Sq. Rockaway, NJ                           535                  10/31/06             $4,458-$4904(6)
Jacksonville Landing, Jacksonville, FL                   563                  02/28/00             $1,173(7)
Woodbridge Center, Woodbridge, NJ                        889               Month-to-Month          $3,334(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 plus CAM, taxes and extras.

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

(5)  Plus 8% of annual Gross Sale over $25,000.

(6)  Plus 10% of annual  Gross  Revenue,  a $4,253  environment  charge,  a $802
     promotional charge, both 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.

(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  stores,  all
of which have been closed by fiscal year end June 27, 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 eight leases expired
pursuant to their  terms.  The Company  was able to  terminate  the other two by
making payments of $12,000 and $15,000 in October 1998.

In the case of the various  Sumon-Hologram  Stores, all the leases were rejected
pursuant a Chapter 11 bankruptcy petition (See Item 3 "Legal Proceeding").

In addition to the foregoing,  beginning in November 1998 the Company  manages 7
stores owned by CCAC,  a subsidiary  of Hope  Associates,  LLC.  Pursuant to its
agreement  with Hope,  the Company has the right to acquire these stores or CCAC
at Hope's cost.  CCAC is in the process of obtaining  approval of the assignment
of the leases to these stores from the respective  landlords.  No assurances can
be given that such consent will be given.  (See Item 12. "Certain  Relationships
and Related Transactions" below)

Item 3.  Legal Proceedings

On November 13,  1995,  the Company and its  subsidiaries  filed  petitions  for
voluntary  reorganization  under Chapter 11 of the United States Bankruptcy code
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 and on August
28, 1996 the Court confirmed the Plan and the Company  emerged from  bankruptcy.
The major provisions of the Plan were as follows:

Hope Associates, LLC, 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  1,800,000  shares (post  one-for-ten
reverse split) of the Common Stock of the Company. The 167,600 (post one-for-ten
reverse  split)  shares of


                                       -5-
<PAGE>


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, were canceled.

Holders of general  unsecured  claims  received  newly  issued new  warrants  to
purchase  shares  of the  Company's  Common  Stock at the  rate of  $2.50  (post
one-for-ten  reverse split) 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 were 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,  after the Chapter 11, to slightly more than 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.

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,  pursuant to an agreement between Huttoe,  Hope Associates and
its members, Huttoe provided working capital to the Company aggregating $650,000
prior to  completion  of any  written  agreement,  and on  October  l7,  1996 an
associate  of Huttoe  caused a bank  loan to Hope  Associates  in the  amount of
$500,000 to be paid in full in alleged  compliance with the Sales Agreement.  On
November 7, 1996,  the SEC filed a complaint in federal court against Huttoe and
others 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 SEC amended its complaint to include as "relief
defendants"  the  Company,  Hope  Associates  and Hope's  members  and sought to
recover  from the  relief  defendants  the sums  advanced  by Huttoe as  working
capital to the Company ($650,000) and the bank loan to Hope ($500,000).  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.  Subsequently
SUMON, LLC filed for Chapter 11  Reorganization  in the Bankruptcy Court for the
Middle  District of Florida.  The  bankruptcy  was dismissed and the company was
basically liquidated. The only asset remaining was a store in Orlando, FL, which
has been closed.

The Company  acquired KCK Corporation and  subsequently  merged KCK into Candico
Entertainment, Inc. (Candico) thus changing its name. The purchase price was $10
cash,  plus  $200,000 in cash  loaned to KCK,  and  warrants to purchase  50,000
shares (after giving effect to the reverse stock split) at $2.50. As part of the
purchase agreement and Plan of Reorganization, the Company converted $100,000 of
it's loan into equity of the debtor  thereby  owning 1,000 shares of newly owned
stock in KCK (see Item 7. "Financial  Statements" and notes thereto below).  The
warrants expired unexercised after September 30, 1999.


                                       -6-
<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  27,  1998.   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  but  continued  to trade under that
symbol.   Effective  July  9,  1998,   the  Company   amended  its  Articles  of
Incorporation so as to change its name to its current name "Retail Entertainment
Group, Inc." and effected a one-for-ten  reverse stock split. In September 1998,
the Company changed its trading symbol to "RETN".

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.  Prices prior to September 12, 1998 are based on
pre-reverse-split shares.

<TABLE>
<CAPTION>

                                                                                                     Sales Prices
                                                                                              ---------------------------
                                                                                               High                  Low


Fiscal Year 1997
----------------
<S>                                                                                           <C>                   <C>
Quarter ended September 30, 1996 ........................................                     $ .9375               $ .050
Quarter ended December 31, 1996 .........................................                     $ .5625               $ .125
Quarter ended March 31, 1997 ............................................                     $ .3758               $ .125
Quarter ended June 28, 1997 .............................................                     $ .5800               $ .130

<CAPTION>

Fiscal Year 1998
----------------
<S>                                                                                           <C>                   <C>
Quarter ended September 30, 1997 ........................................                     $   .79               $  .33
Quarter ended December 31, 1997 .........................................                     $   .65               $  .25
Quarter ended March 31, 1998 ............................................                     $   .54               $  .20
Quarter ended June 27, 1998 .............................................                     $   .49               $  .10

<CAPTION>

Fiscal Year 1999
----------------
<S>                                                                                           <C>                   <C>
Quarter ended September 30, 1998                                                              $  4.00               $1.100
Quarter ended December 31, 1998                                                               $  3.50               $1.125
Month ended January 31, 1999                                                                  $ 1.125               $1.125
</TABLE>



On November 1, 1999, the closing price of the Company's  Common Stock was $ 2.50
per share. However, such price does not necessarily reflect the price that would
result upon the sale or purchase of a significant number of shares.

On November 1, 1999, the Company had  approximately 107 holders of record of its
Common Stock. The Company reasonably believes that it has a significantly larger
number of 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.


                                      -7-
<PAGE>

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.

Results of Operations

The  Company  dramatically  changed  its focus in the fiscal year ended June 27,
1998 to concentrate  on the specialty  retail sale of bulk candy and to a lesser
extent on the wholesale  distribution of sports, comics and related collectibles
and toys. Previously,  the Company operated Starlog stores that included various
science  fiction and other  products  under  licensed  names.  These stores were
unprofitable and all but one were closed during Fiscal Year ended June 27, 1998,
resulting  in  materially  improved  results  during the last quarter (13 weeks)
ended June 27, 1998.  The results of operations in the Fiscal Quarter (13 weeks)
ended June 27, 1998  compared to the Fiscal  Quarter  ended June 28, 1997 are as
follows:

The Company's  revenues for the Quarter ended June 27, 1998 ($1,041,703) were up
170% from revenues for the quarter ended June 28, 1997 ($384,981). The Company's
revenues  for the quarter  ended June 27,  1998 were from  retail  sales for its
Candico stores ($677,860),  from Shuttlecart  Enterprises  ($109), from its Goal
Post  subsidiary  ($331,893)  which was sold back to the original owner and from
retail sales from its Starlog and  Hologram  stores which were in the process of
being discontinued ($31,841).  The Company's revenues for the Quarter ended June
28, 1997 were from retail sales for its Starlog stores  ($384,981) and franchise
fees and royalties ($7,300).

The Company had a  consolidated  loss of $786,522 for the Quarter ended June 27,
1998.  However,  only $95,890 of this loss was from continuing  operations.  The
balance  of  $690,632  was  from  discontinued  Starlog,  Sumon  and  Goal  Post
operations.  The Company had a consolidated loss from continuing  operations for
the  Quarter  ended  June 28 1997 of  $811,518.  The  fourth  fiscal  quarter is
historically  the second slowest  quarter for the Company's  retail  operations,
both in its current candy business and it's discontinued businesses.

The Fiscal Year (52 Weeks) ended June 27, 1998 ("1998"),  compared to the Fiscal
Year (52 Weeks)  ended June 28, 1997  ("1997")  and Fiscal Year (52 Weeks) ended
June 29, 1996 ("1996") follow:

The Company's revenues for 1998, 1997 and 1996 were earned from several sources:
Retail sales for its Candy, Goal Post Distribution Company, Starlog and Hologram
Stores,   franchise   fees  and  royalties  and  sales  of  merchandise  to  its
franchisees. During the second quarter of 1998, the Company managed and operated
thirteen  Candy Stores  (after  closing one store and  reopening  another).  The
Company  owned and  operated  six  Starlog  Stores  for the first  three  fiscal
quarters  of 1998 and  closed  all but one of these  stores  down by the  fourth
fiscal quarter of 1998. (The last Starlog store was closed during October 1998).
The Company,  owned and operated  six  Hologram  Stores  during part of 1998 and
closed all of them during the year. The Company acquired Goal Post Distributing,
Inc.  in late June 1997 and sold the  company  at the end of June  1998.  During
fiscal year ended June 28,  1997,  the Company  owned and  operated  six Starlog
Stores  (after  opening three and closing  three).  The Company  operated  eight
Starlog stores during fiscal year ended June 29, 1996.

Total  revenues for 1998  increased by 104% to $4,831,947  from  $2,367,722  for
1997. Total revenues for 1997 increased by 10% to $2,367,722 from $2,144,316 for
1996.  There were sales of  merchandise  to four  franchisees  in 1997 and three
franchisees  in 1996.  There were no franchise  stores during  fiscal 1998.  Net
sales for the  Hologram  stores  totaled  $458,757  since they were  acquired on
December 31,  1996.  All of the  Hologram  stores have been closed.  All Starlog
stores were closed during fiscal year 1998,  except for one store,  which closed
in October 1998.

Franchise fees and royalties  earned from  franchisees  for 1998,  1997 and 1996
were $ 0, $58,945 and $61,859, respectively. Sales of merchandise to franchisees
were $ 0 in 1998, $413,671 in 1997 and $356,789 in 1996.

Consolidated  Cost of sales as a  percentage  of sales  increased to 55% in 1998
compared with 41% in 1997 and 62% for 1996. The decreased gross profit margin in
1998 was due to the  acquisition on a new trading card business


                                      -8-
<PAGE>

(Goal Post) with lower margins and the  liquidation  of the Hologram and Starlog
store  operations at distressed  prices for  merchandise  sold. 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.

Consolidated   selling,   general   and   administrative   expenses   (excluding
depreciation and  amortization)  increased in 1998 to $4,020,646 from $2,470,409
in 1997  and  $2,544,629  for  1996.  The  1998  period  included  approximately
$1,972,943  in S.G. & A.  applicable  to the newly  acquired Goal Post and Candy
store operations.  In 1997, $471,917 of additional S.G. & A. was attributable to
the SUMON/Hologram  stores acquired on December 31, 1996. A decrease  applicable
to the Starlog stores was due to a  conscientious  effort to reduce costs in the
1997 and  1996  periods.  The  Company's  selling,  general  and  administrative
expenses  for  1998,  1997 and  1996  consisted  primarily  of  salaries,  rent,
franchise   related   selling   expenses,   travel,   telephone  and  utilities,
professional  fees,  insurance,  depreciation  and  amortization,  and  selling,
general and administrative  expenses.  Provision for bad debts increased in 1998
to approximately  $100,000 from $5,000 in 1997, of which  approximately  $84,000
was due to Goal Post  operations.  Depreciation  and  amortization  decreased to
$350,238 in 1998 from  $443,093 in 1997 mainly due to  write-offs  of liquidated
Starlog and Hologram operations.

The Company showed a consolidated  loss of $3,605,833,  all but $385,343 related
to discontinued operations.  The total 1998 loss included write-offs of $673,039
applicable to a loss on sale or  abandonment  of assets and $513,261  related to
reorganization value both related to discontinued operations. The Company showed
a consolidated  loss of $1,286,771  for Fiscal year 1997  including  income from
forgiveness  of a debt of $250,000 was  applicable to the period up to emergence
from bankruptcy. The Company incurred a loss of $2,360,493 for fiscal 1996.

The 1998  fiscal  year  reflects  a  provision  for bad  debts of  approximately
$100,000 of which  $84,000 is applicable  to the Goal Post  operation.  The 1997
period reflects  drawdowns in its previously  established  valuation reserves of
$50,000  applicable  to  inventory  and  $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.

Liquidity and Capital Resources

The  Company  had a  working  capital  deficit  at June 27,  1998 of  $2,190,098
compared  to a working  capital  deficit at June 28,  1997,  of  $972,488  and a
working  capital  deficit of $1,132,401 at June 29, 1996.  The current ratio was
 .073 to 1 in 1998, .51 to 1 in 1997 and .40 to 1 in 1996. The Company is seeking
to raise additional capital through private placements. Without such capital the
Company does not believe that it has  sufficient  capital to continue to operate
its  business.  There is no  assurance  that the Company will be  successful  in
raising such capital.

During Fiscal 1998,  the Company had net cash used in operations of  $1,125,579.
This  resulted  primarily  from a net  loss  of  $3,605,833  less  approximately
$1,454,000 in non-cash expenses,  gains and losses,  including  depreciation and
amortization,  recording of  Reorganization  Value in Excess of Assets Allocated
applicable to KCK offset by the write-off of Reorganization  Value applicable to
Starlog,  less  write-downs  of Trade and other Claims from the  emergence  from
bankruptcy.  Decreases in  inventories  and  increases  in accounts  payable and
accruals and reserves for closed stores applicable to Starlog  operations offset
the decrease in cash. The Company's  expenditures for property and equipment for
Fiscal  1998 were  approximately  $98,000  (mainly  new  leasehold  improvements
related to the renovation of one KCK store).

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
$775,000  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


                                      -9-
<PAGE>

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's Starlog subsidiary (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.  Starlog  emerged  from
bankruptcy effective September 7, 1996. 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  were  reflected  in  the
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.  On  February 3, 1997,  the  Company's
SUMON/Hologram  subsidiary  (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.  Subsequently,  the court  disallowed the bankruptcy
and the  SUMON/Hologram  Company  was  basically  liquidated.  In March 1998 the
Company acquired KCK Corporation (which prior to the acquisition,  KCK had filed
a Chapter 11 Bankruptcy  Petition in the United States  Bankruptcy Court for the
Middle District of North Carolina  Winston-Salem  Division).  The Court approved
the Plan of Reorganization  and KCK emerged from bankruptcy  effective March 28,
1998, the effective date of acquisition.

As of the  Confirmation  Date,  KCK 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."

The  Reorganization  Value (the  approximate  fair  value) of the Company KCK 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 Reorganization Value in excess of allocated amounts and is amortized
over a fifteen-year period.

In  April  1998,   the  Company   decided  to  withdraw  from  the  Starlog  and
SUMON/Hologram  retail store  operations and  concentrate on its candy store and
gift, and novelty business.  By April 1998 the Company had closed all but one of
these stores. All remaining  property,  equipment and inventory have been either
sold, written-off or reserved to net realizable value.

The Company acquired Goal Post Distributing,  Inc. on June 28, 1997, a wholesale
distributor  of trading cards and  collectibles  for 430,000  (post  one-for-ten
reverse split) shares of common stock of the Company included in the outstanding
shares at June 28, 1997.  The former owner of Goal Post  Distributing  purchased
200,000 (post  one-for-ten  reverse split) shares of common stock of the Company
for $250,000 in October 1997 in a private placement.

KCK  Corporation is a retailer that owned and operated 14 candy stores under the
trade name Candy Candy, and Candico.  The Company  acquired KCK Corporation,  in
March 1998, in exchange for $10.00 cash, $200,000  super-priority  financing, of
which  $100,000  was  converted  to equity  of KCK for all the  shares of common
stock,  and warrants to purchase 50,000 shares of common stock (40,000 shares at
a strike  price of $2.50 per share if  exercised  by  September  28, 1998 or for
$4.00 per share if exercised  thereafter  and 10,000 shares at a strike price of
$5.00  a  share).  All  warrants  expire  on  October  1,  1999.  Prior  to this
acquisition  by the  Company,  KCK  Corporation  filed a Chapter  11  Bankruptcy
Petition  in the  Federal  Bankruptcy  Court for the  Middle  District  of North
Carolina Winston-Salem Division. KCK emerged from Bankruptcy effective March 28,
1998, the effective date of acquisition.

The Independent  Auditors Report, which accompanies and is part of the Company's
audited consolidated  financial statements as of June 27, 1998 and June 28, 1997
and are included as part of this Annual  Report,  is qualified by the  following
statement:   "The  accompanying  consolidated  financial  statements  have  been
prepared  assuming  that Retail  Entertainment  Group,  Inc.  (formerly  Starlog
Franchise  Corporation)  and Subsidiaries  will continue as a


                                      -10-
<PAGE>

going concern. As discussed in Note 12 to the consolidated financial statements,
the Company has incurred  recurring losses from operations.  The Company has not
yet shown the ability to generate cash from operations, and 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.

                                    Part III

Item 9.  Directors And Officers Of The Registrant

As of June 30, 1998, the Directors and officers of the Company were as follows:


<TABLE>
<CAPTION>

Name                                                        Age                           Position
----------------------------------------------------- ---------------- -----------------------------------------------

<S>                                                         <C>        <C>
Herman Rush                                                 70         Co-Chairman of Board of Directors
Michael Michaelson                                          76         Co-Chairman of Board of Directors
John (Jack) Fitzgerald                                      57         President, CEO and Director
Ray Markman                                                 71         Director
Kevin M. VanderKelen(1)                                     32         Director
Allan R. Lyons                                              58         Director
Mark Savel(1)                                               45         Director
</TABLE>


Mr.  VanderKelen  resigned  as a member  of the  Board in May  1999.  Mr.  Savel
resigned as a member of the Board in September 1998.

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  Columbus  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 include "The Montel Williams 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 of Allied  Devices Inc., a publicly
held precision tool company. 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 1979 Mr.  Michaelson
sold Campus  Subscriptions  to Publishers  Clearing House where he


                                      -11-
<PAGE>

became Senior Vice  President,  Marketing.  He left there in 1980 to found GAMES
MAGAZINE with his partner Chip Block. GAMES was sold to PLAYBOY in 1982. He then
founded RAINWATER ENTERPRISES, a consulting firm that 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.  From 1986 to 1998, Mr. Michaelson is President and owner
of Rainwater  Associates,  Inc., providing  publishing  management and marketing
consultation services.

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  postgraduate  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  videocassettes
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
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 that 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 and markets  franchises for Lee
Myles  Transmissions  in the  Arizona  market.  Mr.  Savel  owns  two Lee  Myles
Franchises in Arizona. Mr. Savel resigned as a director in September 1998.

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.  Mr. VanderKelen resigned from the Company's Board of
Directors in March 1999.

Allan R. Lyons had been a director  of the  Company  from  August 1993 until his
resignation on November 15, 1995. The Board of Directors  reelected Mr. Lyons to
serve as a director  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


                                      -12-
<PAGE>

investor  and has served on a number of Boards.  He is currently a member of the
Board of Directors of Ambanc,  Inc.,  Franklin  Credit  Management  Corporation,
Officeland,  Inc., and Scoreboard,  Inc.  Scoreboard,  Inc. filed for Chapter 11
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 Committee,  consisting of Messrs. Michaelson, Rush
and Lyons.  Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.

Item 10.  Executive Compensation

Summary Compensation Table

The following table sets forth all  compensation  awarded to, earned by, or paid
for all services  rendered to the Company  during  Fiscal 1998,  Fiscal 1997 and
Fiscal 1996 by the Company's Executive Officers but does not include information
regarding  Executive Officers with annual  compensation  under $100,000,  except
current Chief Executive Officer.

Annual Compensation

<TABLE>
<CAPTION>

   Name and Principal                                                                                  Other Annual
     Compensation                            Year               Salary $            Bonus $           Compensation $
-------------------------------------- ------------------ ------------------- -------------------- -------------------
<S>                                    <C>                <C>                 <C>                  <C>
John (Jack) Fitzgerald                       1996                $90,525              -0-
 President CEO, Director                     1997               $110,000              -0-                        (1)
                                             1998               $110,000              -0-
</TABLE>

(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.

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>
   John (Jack) Fitzgerald
       President-CEO                   0(1)                      --%                       --                ---
</TABLE>

(1)   On April 1, 1997, the Company granted Mr. Fitzgerald, President and CEO of
      the Company an option to acquire 300,000 shares (post one-for-ten  reverse
      split) of the Company's  common stock until March 31, 2003.  The option to
      acquire  100,000  (post  one-for-ten  reverse  split)  of such  shares  is
      currently  exercisable.  The option to acquire the second  100,000  shares
      (post  one-for-ten  reverse split) is exercisable  only if the Company has
      $500,000 of annual net profits, before interest,  taxes,  depreciation and
      amortization  ("EBITDA"),  and the


                                      -13-
<PAGE>

      option to acquire the remaining 100,000 shares (post  one-for-ten  reverse
      split) will be  exercisable  only if the Company has  $1,000,000 of annual
      net  profits  EBITDA.  This  option was in  replacement  of other  options
      previously granted to Mr. Fitzgerald.

Mr. Kevin  VanderKelen,  who as the Vice President of the Company and founder of
Goal Post  Distributing,  Inc., in connection  with the original  acquisition of
Goal  Post was  granted  an  option  to  purchase  up to  100,000  shares  (post
one-for-ten  reverse  split) for prices ranging from $5.00 to $9.00 on a sliding
scale  over  the next  five  years  provided  that  certain  annual  gross  sale
projections  from  $5,000,000 to $9,000,000 were met. This option was terminated
when the Company sold Goal Post back to Mr. VanderKelen effective June 27, 1998.

None of the Company's  outstanding options or warrants were exercised during the
Fiscal Year ended June 27, 1998 or since then,  through November 1, 1999, by any
of the  name  Executive  Officers  or any  other  parties.  The  Company  has no
long-term incentive plans.

No fees 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 300,000  shares of the Company's
common stock  (taking into account the reverse  split) at $0.60 per shares for a
period of five years, ending March 31, 2003. Under this option,  100,000 of such
shares are  immediately  exercisable.  The right to  exercise  the  option  with
respect to the second 100,000  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 100,000 shares will be  exercisable  only if and
after the Company achieves annual pre-tax profits of $1,000,000 EBITDA.

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 100,000  shares of the  Company's  Common
stock  (after  taking  into  effect the reverse  stock  split) as  follows.  Mr.
VanderKelen's  options  vest  20,000  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 ranged from $5.00 to $9.00 per share
for the 20,000 share increments that would have vested over that period.

Mr.  VanderKelen's  employment  agreement  and  the  related  stock  option  was
terminated  when the Company  sold Goal Post back to Mr.  VanderKelen  effective
June 27, 1998. (See "Certain Relationships and Related Transactions" below)


                                      -14-
<PAGE>

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 October 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. All shares are expressed post reverse stock split.

<TABLE>
<CAPTION>

      Name and Address of                   Shares of Common                   Percentage of
       Beneficial Owner                           Stock Held                     Shares Held
    -----------------------------------------------------------------------------------------
<S>                                         <C>                                <C>
    Hope Associates, LLC(1)(2)                2,700,000  (2)                          70.74%
    c/o Michael Michaelson
    135 E. 71st St., Apt. 3A
    New York, NY 10021

    Kevin VanderKelen(1)(3)                     572,668 (3)                           22.12%
    Goal Post Distributing, Inc.
    13949-9 W. Hillsborough
    Tampa, FL 33634
</TABLE>

(1)  Shares outstanding are calculated giving effect to a 1-for-10 reverse stock
     split which occurred effective July 9, 1998.

(2)  Hope Associates, LLC is a limited liability company. The percentage of Hope
     Associates  owned  by  Directors  of the  Company  is as  follows:  Michael
     Michaelson and Herman Rush each own approximately  25.83%; Ray Markman owns
     approximately  17.22%;  Kevin VanderKelen owns approximately  14.35%; Allan
     Lyons owns 13.89% and Mark Savel owns  approximately  2.87%.  The 2,700,000
     shares attributed to Hope Associates  includes warrants to purchase 500,000
     and 300,000  shares and an option to purchase  500,000 shares for $1.25 per
     share. (See Item 12 Certain  Relationships and Related  Transactions" for a
     description of the transactions in which the Company granted these warrants
     and option to Hope Associates.)

(3)  Includes 344,448 shares based on Mr.  VanderKelen's  ownership of 14.35% of
     Hope  Associates and a portion of the warrants and the option to purchase a
     total  of   1,300,000   shares   which  were  granted  by  the  Company  in
     consideration  for certain  transactions.  Hope Associates  holds 1,400,000
     shares and Hope and/or its members hold  warrants and an option to purchase
     an additional  1,300,000  shares.  (See Item 12 Certain  Relationships  and
     Related Transactions")

DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>

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

<S>                                                          <C>                               <C>
Jack Fitzgerald(1)(2)
President, CEO, Director                                              100,000                          3.87%

Kevin M. VanderKelen(1)(3)
Director                                                              572,668                         22.12%

Herman Rush(1)(4)
Co-Chairman of the Board                                              740,669                         25.58%
</TABLE>


                                      -15-
<PAGE>

<TABLE>

<S>                                                          <C>                               <C>
Michael Michaelson(1)(5)
Co-Chairman of the Board                                              740,448                         25.58%

Mark  Savel(1)(6)
Director of Franchise Development
and Director                                                           54,530                          2.15%

Ray Markman(1)(7)
Director                                                              493,658                         17.83%

Allan R Lyons(1)(8)
Director                                                              448,149                         16.47%

ALL DIRECTORS AND OFFICERS AS A GROUP
(EIGHT PERSONS) (9)                                                 3,160,181                         80.47%
-------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  All shares  expressed after giving effect to a 1 for 10 Reverse Stock Split
     which  occurred  effective  July  9,  1998.  Based  on a  total  number  of
     outstanding  shares  of  2,516,870.  Based  on a  total  number  of  shares
     outstanding  and options and warrants that were  exercisable on November 1,
     1999. (See Item 12 "Certain Relationships and Related Transactions").

(2)  Includes 100,000 shares pursuant to currently exercisable options.

(3)  Includes 100,000 out of 430,000 shares received by Mr.  VanderKelen in June
     1997 in connection  with the sale to the Company of the assets of Goal Post
     Distributors,  Inc. (330,000 of which were returned to the Company upon the
     resale of Goal Post),  200,000 shares purchased by Mr. VanderKelen from the
     Company for $250,000,  and 344,448 shares based on Mr. VanderKelen's 14.35%
     ownership interest in Hope Associates and a portion of the warrants and the
     option to purchase a total of  1,300,000  shares  which were granted by the
     Company in consideration  for certain  transactions.  Hope Associates holds
     1,400,000 shares and Hope and/or its members hold warrants and an option to
     purchase an additional  1,300,000 shares.  (See "Certain  Relationships and
     Related Transactions" below.)

(4)  Based on Mr. Rush's  approximately 25.83% interest in Hope Associates and a
     portion of the  warrants  and the option to  purchase a total of  1,300,000
     shares  which were  granted by the  Company in  consideration  for  certain
     transactions.  Hope Associates  holds 1,400,000  shares and Hope and/or its
     members  hold  warrants and an option to purchase an  additional  1,300,000
     shares.  (See  "Certain  Relationships  and Related  Transactions"  below.)
     Includes warrants to purchase 181 shares held by Royal Animated Art, Inc of
     which Mr. Rush owns 66 2/3% of the shares.  Royal Animated Art received the
     warrants in October 1997 along with the other  creditors of Company as part
     of the Chapter 11 proceedings.

(5)  Based on Mr. Michaelson's  approximately 25.83% interest in Hope Associates
     and a  portion  of the  warrants  and the  option  to  purchase  a total of
     1,300,000  shares  which were granted by the Company in  consideration  for
     certain  transactions.  Hope  Associates  holds  1,400,000  shares and Hope
     and/or its members hold  warrants  and an option to purchase an  additional
     1,300,000 shares.  (See "Certain  Relationships  and Related  Transactions"
     below.)

(6)  Based on Mr. Savel's  approximately 2.87% interest in Hope Associates and a
     portion of the  warrants  and the option to  purchase a total of  1,300,000
     shares  which were  granted by the  Company in  consideration  for  certain
     transactions.  Hope Associates  holds 1,400,000  shares and Hope and/or its
     members  hold  warrants and an option to purchase an  additional  1,300,000
     shares. (See "Certain Relationships and Related Transactions" below.)


                                      -16-
<PAGE>

(7)  Based on Mr. Markman's approximately 17.22% interest in Hope Associates and
     a portion of the  warrants  and the option to purchase a total of 1,300,000
     shares  which were  granted by the  Company in  consideration  for  certain
     transactions.  Hope Associates  holds 1,400,000  shares and Hope and/or its
     members  hold  warrants and an option to purchase an  additional  1,300,000
     shares. (See "Certain Relationships and Related Transactions" below.)

(8)  Based on Mr. Lyons'  approximately 13.89% interest in Hope Associates and a
     portion of the  warrants  and the option to  purchase a total of  1,300,000
     shares  which were  granted by the  Company in  consideration  for  certain
     transactions.  Hope Associates  holds 1,400,000  shares and Hope and/or its
     members  hold  warrants and an option to purchase an  additional  1,300,000
     shares.  (See  "Certain  Relationships  and Related  Transactions"  below.)
     Additionally  includes  20,000  shares held by Vestal  Venture  Capital and
     30,000  shares  held  by  Lyonshare   Venture   Capital,   two   investment
     partnerships.  Mr. Lyons is the Managing  Partner of these entities and can
     vote the shares of the Company held by them.  However,  he has no ownership
     interest in such entities or the shares held by them.

(9)  Based on shares held by Mr. VanderKelen, currently exercisable options held
     by Mr. Fitzgerald and another director, the shares held by Hope Associates,
     and  warrants  and an option Held by Hope  Associate  and or its members to
     purchase 1,300,000 shares.

Item 12. Certain Relationships And Related Transactions

In connection with the bankruptcy reorganization of the Company, 1,800,000 (post
one-for-ten reverse split) 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  200,000
(post  one-for-ten  reverse  split) of its shares to the  Company  reducing  its
holdings to 1,600,000 (post one-for-ten  reverse split) shares effective July 9,
1998 (of which 200,000 have since been transferred).

In connection with the acquisition of the assets of Goal Post  Distributing Inc.
in June  1997,  430,000  shares  of Common  Stock  (after  giving  effect to the
1-for-10  reverse  stock  split)  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 100,000 additional shares (also after
giving  effect to the reverse  stock  split),  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 200,000  (post-reverse  split) shares of the Company from the Company
at about the time of the Goal Post acquisition for $250,000.

Effective June 27, 1998, the Company sold the Goal Post business and assets back
to Mr. VanderKelen.  In connection with this resale, Mr. VanderKelen transferred
to the Company 330,000 of the 430,000 (post  one-for-ten  reverse split) Company
shares  which he had  received  when he sold Goal Post to the  Company,  and the
Company gave Mr.  VanderKelen a promissory note for $50,000.  Also in connection
with  this  transaction,  Mr.  VanderKelen  agreed  to the  cancellation  of his
employment agreement and the stock options granted under such agreement.

During fiscal year 1998, the Company  borrowed  $1,250,000  from BSB Bank in the
form of a note payable. The Company also renewed a previous note due to BSB Bank
in the amount of $500,000.  Subsequently, the members of Hope Associates, LLC, a
majority  stockholder,  personally guaranteed the line of credit from BSB Bank &
Trust Co. to the Company in the amount of  $1,750,000  and forgave an additional
$250,000  due to them by the  Company.  Hope  Associates,  LLC assumed the total
obligation  for the BSB  loan,  so that the  Company  will not be a party to the
loan,  nor will it have any guarantee or liability.  The $2,000,000 was recorded
as additional paid-in-capital. In consideration for such assumption, the Company
will pay an investment fee to Hope  Associates in the amount of $20,000 a month.
The Company also  granted the members of Hope  Associates a warrant 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,  several of the  Directors  have made the Company  bridge  loans
totaling  $128,090 as follows:  Mr. Rush $39,974,  Mr. Michaelson  $39,974,  Mr.
Lyons $21,492, and Mr. Markman $26,650. Such loans are


                                      -17-
<PAGE>

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.
Mr.  VanderKelen  also  loaned the  Company  $60,174  pursuant  to a demand note
bearing  interest at 10%,  which amount was forgiven  following  the fiscal year
1998.

Pursuant to an  agreement  dated  November  24,  1998,  Candy Candy  Acquisition
Corporation  ("CCAC")  acquired  eight candy stores (the "Jonford  Stores") from
Jonford Corporation  ("Jonford") for $549,000,  of which $225,000 was payable at
the  time of  sale,  and the  balance  of  $324,000  which  was in the form of a
promissory  note,  payable in 12 quarterly  installments  of $27,000.  CCAC is a
wholly owned  subsidiary of Hope Associates which owns over 50% of the Company's
shares,  and was formed for the  purpose of making this  acquisition.  Hope made
this  acquisition  because  the  Company  did not have the  funds or  access  to
sufficient credit to make the acquisition  itself.  However,  in connection with
this  acquisition,  CCAC entered into a "Management  and Option  Agreement" (M&O
Agreement")  with the  Company.  Pursuant to the M&O  Agreement  the Company was
retained  to manage the eight  Jonford  Stores and the  Company  was  granted an
option to acquire these stores exercisable until November 30, 2001 for the price
invested by Hope  Associates  in CCAC in making this  acquisition  and supplying
necessary working capital to run the Jonford Stores.  The M&O Agreement provides
that in  consideration  for  managing  the stores,  the Company will receive Six
percent (6%) of Gross Sales from the Jonford  Stores and fifty  percent (50%) of
the  "Excess  Margin"  (amount  by which cost of goods sold are less than 38% of
sales price). In consideration  for the foregoing,  the Company granted to those
members of Hope  Associates  who funded such  acquisition  a Warrant to purchase
500,000  shares at $1.25 a share,  exercisable  until  November 30, 2002. At the
time of this acquisition,  certain members of Hope loaned or caused to be loaned
to the Company  $300,000 of working  capital due upon  demand,  and  received an
additional  warrant to  purchase  300,000  shares at $1.25 a share,  exercisable
until November 30, 2002.

In July 1999, in order to settle certain disputes between CCAC and Jonford,  the
parties  entered an  amendment of the Jonford  Agreement  whereby CCAC resold to
Jonford one of the eight Jonford Stores and paid Jonford  approximately  $14,000
and balance due on the Promissory Note was reduced from $298,000 to $108,000.

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 file 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.


                                      -18-
<PAGE>

<TABLE>
<CAPTION>

                                                                                                 Filed Herewith (X)
                                                                                                 or Incorporated By
No.                                               Exhibit                                             Reference
----------------------------------------------------------------------------------------------------------------------
<S>          <C>                                                                                 <C>
3.1          Certificate of Incorporation of the Registrant.                                             (1)
3.2          By-Laws of the Registrant, as amended.                                                      (1)
3.3          Amendment to Certificate of Incorporation of Registrant filed July 9, 1998.                  X
3.4          By-Laws of SF Stores, Inc.                                                                  (1)
10.10        Employment  Agreement  dated as of July 1, 1994 between the  Registrant  and Jack           (3)
             Fitzgerald.
10.33        Notice of Confirmation of Plan of Reorganization dated August 28, 1996.                     (3)
10.34        Notices of  Commencement  of Case Under Chapter 11 of the Bankruptcy  Code dated            (3)
             November 13, 1995.
10.35        Agreement of Asset Acquisition and Corporate  Reorganization dated June 28, 1997            (4)
             between the Registrant and Goal Post Distributing, Inc.
10.36        Employment  Agreement  made as of June 29, 1997 between the Registrant and Kevin            (4)
             M. VanderKelen
10.37        Employment  Agreement made as of August 15, 1998 between the Registrant and John            (4)
             (Jack) J. Fitzgerald.
10.38        Purchase  of  Corporation  through  Stock  Purchase,  dated  September  28, 1997            (4)
             between the registrant and KCK Corporation
10.39        Orders dated November 26, 1997 of United States  District Court for the District            (4)
             of Columbia,  incorporating  agreements  relating to repayment of sums  received
             from Charles O. Huttoe
10.40        Form of Warrant to Purchase  Shares                                                          X
10.41        Agreement  of Asset  Acquisition  dated  November  24, 1998  relating to certain             X
             stores owned by Jonford Corporation
10.42        Management and Option Agreement dated November 24, 1998                                      X
10.43        Sale Agreements relating to resale of Goal Post effective June 27, 1998                      X
10.44        Assumption Agreement, as of April 1, 1998                                                    X
22.1         Subsidiaries of Registrant                                                                   X
</TABLE>


(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.

(4)      Incorporated  by reference  from the  company's  Annual  Report on Form
         10K-SB for the Fiscal year ended June 28, 1997

Reports on Form 8-K.

No reports on Form 8-K were filed by the  Company  during the period  ended June
27, 1998.


                                      -19-
<PAGE>



                                   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: December 7, 1999

RETAIL ENTERTAINMENT GROUP, INC.


BY:        /s/ John Fitzgerald                  December 7, 1999
   ----------------------------------
         John (Jack) Fitzgerald                 Date
         President, CEO & CFO

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.


<TABLE>

<S>                                    <C>                                       <C>
  /s/ John Fitzgerald                  President,  Chief  Executive  Officer     Date: December 7, 1999
---------------------------
John (Jack) Fitzgerald                 and Director

  /s/ Michael Michaelson               Director                                  Date: December 7, 1999
---------------------------
Michael Michaelson

  /s/ Herman Rush                      Director                                  Date: December 7, 1999
---------------------------
Herman Rush

  /s/ Ray Markman                      Director                                  Date: December 7, 1999
---------------------------
Ray Markman

  /s/ Allan R. Lyons                   Director                                  Date: December 7, 1999
---------------------------
Allan R. Lyons
</TABLE>




                                      -20-
<PAGE>



                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                        Consolidated Financial Statements

                         June 27, 1998 and June 28, 1997
                   (With Independent Auditors' Report Thereon)


<PAGE>








                          Independent Auditors' Report


The Board of Directors
Retail Entertainment Group, Inc.
(Formerly Starlog Franchise Corporation):

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Retail
Entertainment   Group,  Inc.   (formerly  Starlog  Franchise   Corporation)  and
Subsidiaries as of June 27, 1998 and June 28, 1997, 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Retail
Entertainment   Group,  Inc.   (formerly  Starlog  Franchise   Corporation)  and
Subsidiaries  at June  27,  1998  and  June 28,  1997,  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 Retail Entertainment  Group, Inc. (formerly Starlog Franchise  Corporation)
and  Subsidiaries  will continue as a going concern.  As discussed in Note 12 to
the consolidated financial statements, the Company has incurred recurring losses
from operations. 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.



November 19, 1999

<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                           Consolidated Balance Sheets

                         June 27, 1998 and June 28, 1997



                                     ASSETS

<TABLE>
<CAPTION>

                                                                                    June 27, 1998       June 28, 1997
                                                                                    -------------       -------------
<S>                                                                                 <C>                 <C>
Current assets:
    Cash                                                                                $  60,132          $  131,720
    Accounts receivable, net of allowance for
      doubtful accounts of $100,000 and $7,000
      for 1998 and 1997, respectively                                                          --              50,461
    Inventories, net of reserves of $12,500 and
      $420,000 for 1998 and 1997, respectively                                            104,013             793,417
    Prepaid expenses and other current assets                                               8,896              17,632
                                                                                        ---------          ----------

                     Total current assets                                                 173,041             993,230

Property and equipment, net                                                               238,000             690,528
Reorganizational value in excess of amounts
  allocated to identifiable assets, net                                                   510,379             543,986
Other assets                                                                                   --              13,875
                                                                                        ---------          ----------






                                                                                        $ 921,420          $2,241,619
                                                                                        =========          ==========
</TABLE>


<PAGE>





                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>

                                                                                    June 27, 1998         June 28, 1997
                                                                                    -------------         -------------
<S>                                                                                 <C>                   <C>
Liabilities:
Current liabilities:
    Accounts payable and accrued expenses                                            $ 1,313,558           $   596,466
    Notes payable - affiliates                                                           398,264               510,000
    Note payable to bank                                                                      --               500,000
    Current portion of long-term debt                                                    346,677               152,820
    Other liabilities, including restructuring reserves                                  304,640               206,432
                                                                                     -----------           -----------

                     Total current liabilities                                         2,363,139             1,965,718

Long-term liabilities:
    Trade and other miscellaneous claims                                                      --               316,507
    Long-term debt                                                                       890,900               653,180
                                                                                     -----------           -----------

                     Total liabilities                                                 3,254,039             2,935,405
                                                                                     -----------           -----------

Stockholders' deficit:
    Common stock, $.01 par value; authorized 6,000,000
      shares, issued and outstanding 2,093,764 and 2,423,764
      shares for 1998 and 1997, respectively                                              20,938                24,238
    Additional paid-in capital                                                         2,545,912               575,612
    Accumulated deficit                                                               (4,899,469)           (1,293,636)
                                                                                     -----------           -----------

                     Net stockholders' deficit                                        (2,332,619)             (693,786)
                                                                                     -----------           -----------



                                                                                     $   921,420           $ 2,241,619
                                                                                     ===========           ===========
</TABLE>











See accompanying notes to consolidated financial statements.


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                      Consolidated Statements of Operations

                   Years Ended June 27, 1998 and June 28, 1997

<TABLE>
<CAPTION>
                                                                                    June 27, 1998             June 28, 1997
                                                                                    -------------             -------------
<S>                                                                                 <C>                       <C>
Net sales                                                                            $ 2,230,922               $         -
                                                                                     -----------               -----------

    Total revenues                                                                     2,230,922                         -

Cost of sales                                                                            839,143                         -
                                                                                     -----------               -----------

                     Gross profit                                                      1,391,779                         -

Selling, general and administrative                                                    1,570,740                         -
                                                                                     -----------               -----------

Loss from operations                                                                    (178,961)

Other income (expense):
    Interest and other income                                                              8,839                    13,691
    Interest expense                                                                    (215,221)                  (70,125)
    Loss on asset disposal                                                                    --                  (114,163)
                                                                                     -----------               -----------

                     Loss before reorganization items
                       and discontinued operations                                      (385,343)                 (170,597)

Reorganization items                                                                          --                   250,000
                                                                                     -----------               -----------

                     Loss before discontinued operations
                       and extraordinary items                                          (385,343)                   79,403

Discontinued operations:
    Loss from operations of discontinued operations                                   (2,034,190)               (1,516,174)
    Loss on disposal of discontinued operations                                       (1,186,300)                       --
                                                                                     -----------               -----------

                     Loss before extraordinary items                                 $(3,605,833)              $(1,436,771)
</TABLE>










                                                                     (continued)


<PAGE>





                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                Consolidated Statements of Operations - Continued

                   Years Ended June 27, 1998 and June 28, 1997

<TABLE>
<CAPTION>

                                                                                    June 27, 1998             June 28, 1997
                                                                                    -------------             -------------
<S>                                                                                 <C>                       <C>
Extraordinary items -
    Gain on extinguishment of debt                                                   $        --               $   150,000
                                                                                     -----------               -----------

                     Net loss                                                        $(3,605,833)               (1,286,771)
                                                                                     ===========               ===========

Portion of income applicable to period up to
  emergence from bankruptcy                                                          $        --                     6,865

Portion of loss applicable to period subsequent
  to emergence from bankruptcy                                                        (3,605,833)               (1,293,636)

Basic and diluted net income (loss) per share of common stock:

  Before reorganization and discontinued operations                                         (.16)                     (.07)
                                                                                     -----------               -----------

    Discontinued operations                                                                (1.33)                     (.62)
                                                                                     -----------               -----------

    Reorganization items                                                                      --                       .10

    Extraordinary items                                                                       --                       .06
                                                                                     -----------               -----------

    Net income (loss)                                                                      (1.49)                     (.53)
                                                                                     ===========               ===========

Weighted number of common shares outstanding                                         $ 2,422,859               $ 2,423,764
                                                                                     ===========               ===========
</TABLE>

















See accompanying notes to consolidated financial statements.


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                Consolidated Statements of Stockholders' Deficit

                   Years Ended June 27, 1998 and June 28, 1997

<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 June 29, 1996 (Debtor-
  in-Possession)                           361,364        $    3,614      $ 7,636,711       $(9,220,874)     $(1,580,549)

Cancellation of founders' stock           (167,600)           (1,676)          (4,606)               --           (6,282)

Conversion of debt into stock            1,800,000            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                              430,000             4,300          371,390                --          375,690
Net loss subsequent to emergence
  from bankruptcy                               --                --               --        (1,293,636)      (1,293,636)
                                        ----------        ----------      -----------        -----------      ----------

Balances at June 28, 1997                2,423,764            24,238          575,612        (1,293,636)        (693,786)

Conversion of debt into additional
 paid-in capital                                --                --        2,000,000                --        2,000,000

Consideration received and retirement
 of treasury shares                       (330,000)           (3,300)         (29,700)               --          (33,000)

Net loss                                        --                --               --        (3,605,833)      (3,605,833)
                                        ----------        ----------      -----------        ----------       ----------

Balances at June 27, 1998                2,093,764        $   20,938      $ 2,545,912       $(4,899,469)     $(2,332,619)
                                        ==========        ==========      ===========        ==========       ==========
</TABLE>














See accompanying notes to consolidated financial statements.


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                      Consolidated Statements of Cash Flows

                   Years Ended June 27, 1998 and June 28, 1997

<TABLE>
<CAPTION>

                                                                                    June 27, 1998             June 28, 1997
                                                                                    --------------             -------------
<S>                                                                                 <C>                        <C>
Cash flows from operating activities:
    Net loss                                                                        $ (3,605,833)              $(1,286,771)
    Adjustments to reconcile net loss to net cash from
      operating activities:
    Net effects from purchase of Candico Entertainment, Inc.
      and sale of Goal Post Distributors, Inc.:
        Depreciation and amortization                                                    237,103                   443,093
        Accretion of interest                                                             30,800                        --
        (Gain) loss on disposal of property and equipment and
          other assets                                                                   921,345                  (114,163)
        Loss on sale of Goal Post Distributors, Inc.                                     264,955                        --
        Changes in operating assets and liabilities:
             Increase in accounts receivable                                             (18,295)                  (50,440)
             (Increase) decrease in inventories                                          652,538                  (373,981)
             Decrease in prepaid expenses and other current assets                        13,224                     3,997
             (Decrease) increase in accounts payable and accrued expenses                596,883                  (149,303)
             (Decrease) increase other liabilities                                        98,208                  (295,480)
             Increase (decrease) in trade and other miscellaneous
               claims                                                                   (316,507)                  316,507
                                                                                    ------------               -----------

                           Net cash used in operating activities                      (1,125,579)               (1,506,541)
                                                                                    ------------               -----------

Cash flows from investing activities:
    Business acquisitions, net of acquired cash                                          (46,817)                       --
    Purchases of property and equipment                                                  (98,101)                 (149,378)
    (Increase) decrease in other assets                                                   13,875                    (2,888)
                                                                                    ------------               -----------

                           Net cash used in investing activities                        (131,043)                 (152,266)
                                                                                    ------------               -----------

Cash flows from financing activities:
    Proceeds from issuance of notes payable - Post-petition                                   --                    75,000
    Proceeds from Huttoe financing                                                            --                   650,000
    Proceeds from long-term borrowings - bank                                          1,250,000                   500,000
    Proceeds from notes payable - affiliates                                             188,264                   260,000
    Payments to unsecured creditors                                                      (70,000)                       --
    Net payments on long-term debt                                                      (110,802)                       --
    Payments to affiliates                                                              (100,000)                       --
    Proceeds from long-term debt                                                          27,572                        --
                                                                                    ------------               -----------

                           Net cash provided by financing activities                $  1,185,034               $ 1,485,000
                                                                                    ------------               -----------
</TABLE>

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                Consolidated Statements of Cash Flows - Continued

                   Years Ended June 27, 1998 and June 28, 1997

<TABLE>
<CAPTION>

                                                                                  June 27, 1998             June 28, 1997
                                                                                  -------------             -------------

<S>                                                                               <C>                       <C>
Decrease in cash                                                                   $   (71,588)                 (173,807)

Cash at beginning of year                                                              131,720                   305,527
                                                                                   -----------                 ---------

Cash at end of year                                                                $    60,132                   131,720
                                                                                   ===========                 =========
</TABLE>


Supplemental schedule of non-cash financing activities:

On June 27, 1998, the Company received 330,000 shares of its own common stock at
$.10 per  share  and  issued a $50,000  note  payable  for the sale of Goal Post
Distributing, Inc.

Interest  paid was  approximately  $188,100 and $73,000 for the years ended June
27, 1998 and June 28, 1997, respectively.

















See accompanying notes to consolidated financial statements.


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

                         June 27, 1998 and June 28, 1997

(1)    Summary of Significant Accounting Policies

       (a)  Principal Business Activity

            The principal business activity of Retail  Entertainment Group, Inc.
            (Company)  (formerly  Starlog  Franchise  Corporation) is the retail
            distribution  of bulk  candy  under  the name of "Candy  Candy!"  or
            Candico (the "Candico  Stores").  Previously,  the Company  operated
            Starlog  stores  that  included  various  science  fiction and other
            products. During fiscal year 1998, the Company changed its name from
            Starlog Franchise Corporation to Retail Entertainment Group, Inc.

       (b)  Consolidation

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

       (c)  Sale of Operations of Goal Post Distributors, Inc.

            In April 1998, the Company's Board of Directors approved the sale of
            substantially all of the net assets of Goal Post Distributing,  Inc.
            (Goal Post), a wholly-owned subsidiary,  back to its original owner,
            effective June 27, 1998.  Under this resale  agreement,  the Company
            received  330,000  shares of its own  common  stock  (post  1-for-10
            reverse  split) in  exchange  for the net  assets of Goal Post and a
            $50,000  promissory note payable to the previous  owner.  The common
            stock  received was accounted  for as treasury  stock using the cost
            method.  Subsequently,  the Company retired all of the common shares
            held in treasury.  The cost of the  re-acquired  shares in excess of
            par value has been  charged  to  additional  paid-in  capital.  As a
            result  of the  sale of  Goal  Post,  certain  warrants  granted  to
            management of Goal Post have been canceled.

            The Company  incurred a loss as a result of the sale of Goal Post of
            approximately $265,000,  which has been reported in the accompanying
            consolidated statements of operations as part of loss on disposal of
            discontinued operations (see Note 3).

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (d)  Discontinued Operations Reporting

            1.  Starlog Franchise Corporation, Sumon, LLC and Goal Post
                Distributors, Inc.

                On April 25, 1998, the Company's Board of Directors approved the
                closing of the  remaining  Starlog and Hologram  stores  (Sumon,
                LLC) and Goal Post  Distributors,  Inc. As a result, the Company
                closed five of the remaining six Starlog stores by June 27, 1998
                with the  last  store  closing  October  1998.  The  results  of
                operations  of each  company are  reported  in the  accompanying
                reclassified   consolidated   statements   of   operations   and
                accumulated deficit under discontinued operations. During fiscal
                year 1998,  the Company wrote down certain  assets of the retail
                operations  to  their  net  realizable  values  and the  cost of
                disposing these operations are also reported in the accompanying
                reclassified   consolidated   statements   of   operations   and
                accumulated deficit under discontinued operations.  In addition,
                the leases of four of the six Starlog stores expired leaving the
                Company with no ongoing  liability  resulting from such closings
                and the  remaining two leases were  renegotiated  resulting in a
                liability of approximately $27,000 (see Note 3).

       (e)  Inventories

            Inventories,  consisting of finished goods,  are stated at their net
            realizable  value using the lower of cost or market,  and determined
            by the first-in, first-out method (FIFO).

       (f)  Depreciation and Amortization

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

       (g)  Revenue Recognition

            The Company recognizes revenue when goods or services are provided.

       (h)  Estimates

            The  preparation  of  the  consolidated   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)  Seasonality

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

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (j)  Franchise Laws and Regulations

            In the prior fiscal year,  the Company had  franchise  operations of
            which were subject to various  franchise laws and  regulations.  The
            Company did not operate any such franchises in fiscal year 1998.

       (k)  Reclassifications

            Certain amounts in the 1997 consolidated  financial  statements have
            been  reclassified  to  conform  with  the 1998  presentation.  Such
            reclassifications had no effect on reported total net loss.

       (l)  Cash and Cash Equivalents

            The Company considers all highly liquid  investments  purchased with
            an original maturity of three months or less to be cash equivalents.

       (m)  Earnings Per Share

            In the fourth  quarter  of fiscal  year 1997,  the  Company  adopted
            Statement of Financial  Accounting  Standards No. 128,  Earnings Per
            Share,  (SFAS 128). In February  1998,  the  Securities and Exchange
            Commission  issued Staff Accounting  Bulletin No. 98 related to SFAS
            128. SFAS 128 replaced the calculation for primary and fully diluted
            earnings per share with basic and diluted earnings per share. Unlike
            primary  earnings per share,  basic  earnings per share  exclude any
            dilutive  effects of options,  warrants and convertible  securities.
            Diluted  earnings  per share is similar to the  previously  reported
            fully  diluted  earnings per share.  The Company has no common stock
            equivalents at June 27, 1998 and June 28, 1997, resulting in diluted
            earnings per share.  The  Company's  options and  warrants  were not
            included in computing  dilutive  net loss per common  share  because
            their effects were anti-dilutive.

       (n)  Income Taxes

            The Company has adopted Statement of Financial  Accounting Standards
            (SFAS  109),  Accounting  for  Income  Taxes.  Under  the  asset and
            liability method of SFAS 109 deferred tax assets and liabilities are
            recognized  for  the  future  tax   consequences   attributable   to
            differences  between the  financial  statement  carrying  amounts of
            existing  assets and  liabilities  and their  respective  tax bases.
            Deferred tax assets and  liabilities  are measured using enacted tax
            rates  expected  to apply to  taxable  income  in the years in which
            those temporary differences are expected to be recovered or settled.
            Valuation  allowances  are  established  when  necessary  to  reduce
            deferred tax assets to amounts expected to be realized.

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (o)  Risks and Uncertainties

            (1)  Concentration of Credit Risk

                 Financial instruments, which potentially subject the Company to
                 significant  concentrations of credit risk, consist principally
                 of cash and cash equivalents.  The carrying amounts reported in
                 the  consolidated  balance sheets for cash and cash equivalents
                 approximate  their fair values.  The  balances,  at times,  may
                 exceed federally insured limits.

            (2)  Concentrations of Financial Risk

                 The Company is dependent upon funding of Hope  Associates,  LLC
                 (Hope  Associates) which owns greater than 50% of the Company's
                 outstanding common stock.

       (p)  Recent Accounting Pronouncements

            (1)  Comprehensive Income

                 The  Company  adopted  SFAS No.  130,  Reporting  Comprehensive
                 Income  (SFAS 130).  Under SFAS 130 changes in net assets of an
                 entity  resulting  from   transactions  and  other  events  and
                 circumstances  from  non-owner  sources  are  reported  in  the
                 financial   statements   for  the  period  in  which  they  are
                 recognized.  Because  there were no such  changes,  adoption of
                 SFAS 130 did not impact the consolidated  financial  statements
                 of the Company.

            (2)  Segment Reporting

                 The Company adopted SFAS No. 131, Disclosures About Segments of
                 an Enterprise and Related  Information.  The Company  currently
                 operates  as a  single  segment  and will  evaluate  additional
                 segment disclosure requirements as it expands its operations.

            (3)  Derivative Instruments and Hedging Activities

                 In  June  1998,   SFAS  No.  133,   Accounting  for  Derivative
                 Instruments and Hedging Activities, was released. The statement
                 requires the recognition of all derivatives as either assets or
                 liabilities  in the balance sheet and the  measurement of those
                 instruments  at fair value.  The  accounting for changes in the
                 fair value of a  derivative  depends on the  planned use of the
                 derivative  and  the  resulting  designation.  The  Company  is
                 required to implement  the  statement  in the first  quarter of
                 fiscal 2000.  The Company has not used  derivative  instruments
                 and believes the impact of adoption of this  statement will not
                 have  a  significant  effect  on  the  consolidated   financial
                 statements.

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (p)  Recent Accounting Pronouncements - Continued

            (4)  Long-Lived Assets

                 The  Company  has  adopted  SFAS No.  121,  Accounting  for the
                 Impairment of Long-Lived Assets and for Long-Lived Assets to be
                 Disposed of,  (SFAS 121).  SFAS 121  requires  that  long-lived
                 assets and certain identifiable intangibles held and used by an
                 entity be reviewed for impairment whenever events or changes in
                 circumstances indicate that the carrying amount of an asset may
                 not be  recoverable.  If the sum of the  expected  future  cash
                 flows  (undiscounted  and  without  interest)  is less than the
                 carrying amount of the asset, an impairment loss is recognized.
                 Measurement  of that loss  would be based on the fair  value of
                 the asset. SFAS 121 also generally  requires  long-lived assets
                 and certain  identifiable  intangibles  to be disposed of to be
                 reported at the lower of the carrying  amount or the fair value
                 less cost to sell.

            (5)  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 costs have 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 and 1998  consistent  with
                 the  provisions  of SFAS 123, the impact on net loss would have
                 been immaterial.

(2)    Management Agreement and Acquisition of Entity in Chapter 11

       (a)  Management Agreement and Funding

            In October  1997,  the Company  entered into an  agreement  with KCK
            Corporation  (Debtor)  and the U.S.  Bankruptcy  Court to manage and
            provide  certain  funding  while the  debtor  reorganized  under the
            federal  bankruptcy  laws.  The  Company was the  debtor's  approved
            post-petition   lender   of  an   allowed   secured   super-priority
            administrative  claim of $200,000.  KCK Corporation  filed voluntary
            petitions for relief under Chapter 11 of the Federal Bankruptcy Laws
            in July 1997.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (b)  Emergence and Acquisition

            The United States  Bankruptcy Court for the Middle District of North
            Carolina,  confirmed the Debtor's Plan of Reorganization  (the Plan)
            on March 26, 1998 (the  Confirmation  Date),  allowing the debtor to
            emerge  from  Chapter 11  Bankruptcy  effective  March 28, 1998 (the
            Effective  Date). On March 28, 1998, the Company acquired all of the
            assets and liabilities of KCK Corporation and effectively owned KCK.
            The debtor  operated  under the protection of Chapter 11 following a
            voluntary  petition  for  reorganization  filed  July  22,  1997 and
            amended on March 19,  1998.  The Company was the  Debtor's  approved
            post-petition   lender  of  an   allowed   secured,   super-priority
            administrative  claim in the amount of $200,000  plus  accrued,  but
            unpaid,  interest.  Pursuant  to the  Plan,  the  Company  converted
            $100,000  of its loan into equity of the Debtor and  received  1,000
            shares of newly issued stock in the Debtor which constituted 100% of
            the Debtor's issued and outstanding  stock.  The remaining  $100,000
            obligation  would be paid over a period  not to exceed  five  years.
            Arrangements  satisfactory  to the Debtor and the Company  have been
            made for the Debtor's  substantial  compliance of its obligations to
            the Company under the Plan.  The following are the major  provisions
            under the Plan:

            1.  Thomas W. Gray and Sidney A. Crawley reorganized note of $65,000
                is a secured claim allowed by the court with interest of 10% per
                year,  payable  in  60  equal  monthly   installments   totaling
                $2,655.89 per month. Payments will begin on the first day of the
                month following the Effective Date, none of which has been paid.

            2.  All allowed  administrative  expenses  shall be paid in full, in
                cash, on the Effective  Date. All  administrative  expenses were
                paid except for approximately $36,000.

            3.  Allowed tax claims shall be paid over a period not exceeding six
                years after the date of assessment  of such claim,  in quarterly
                payments with interest at 7% per year amortized over that period
                beginning on the effective  date and ending on the date which is
                six years  after  the date of  assessment.  The  amount of these
                claims was $10,000 and was paid prior to June 27, 1998.

            4.  NationsBank  allowed secured claim of  $147,542.46.  NationsBank
                shall receive a note in the amount of its allowed  secured claim
                payable in equal monthly  installments  amortized based over six
                years with  interest  at 9%,  due in three  years.  The  monthly
                payments are due on the first day of each month  beginning  with
                the first month following the Effective date.  Subsequent to the
                approval  of the plan,  KCK's  former  owners  paid the claim to
                NationsBank, and, the Company agreed to pay the entire amount to
                the original owners under the same terms. The amount is shown as
                note   payable  to  NB  Services,   Inc.  in  the   accompanying
                consolidated balance sheets.

            5.  Johnson  County  Bank  allowed  secured  claim in the  amount of
                $211,464.67.  Johnson  County  Bank shall  receive a note in the
                amount of its  allowed  secured  claim which shall be payable in
                equal monthly installments over six years at 9% interest, due in
                three years.  The monthly payments shall be due on the first day
                of each  month  beginning  with the first  month  following  the
                Effective  Date.  This  claim has been fully  guaranteed  by KCK
                Corporation's former owners.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (b)  Emergence and Acquisition - Continued

            6.  Holders of general unsecured claims will receive $70,000 for pro
                rata payment.  The payment was made to an escrow agent. The same
                unsecured  creditors also received a reorganization  note in the
                total   amount  of  $60,000,   none  of  which  has  been  paid.
                Subsequently,  the Court  also  approved  a motion  filed by the
                debtor for a dividend  distribution to unsecured  creditors.  No
                dividend distributions have been made as of June 27, 1998.

            7.  The Company issued to Nick Tricarico,  Thomas W. Gray and Sidney
                A.  Crawley,  a total of  50,000  common  stock  warrants.  Each
                individual was offered 5,000 warrants (15,000) at a strike price
                of $5.00 per share to be exercised  prior to September  30, 1999
                and the remaining  warrants (35,000) issued at a strike price of
                $2.50 per share if exercised  prior to September  30, 1998 or at
                $4.00 per share if exercised prior to September 30, 1999.

       (c)  Fresh Start Reporting

            As  of  the  Confirmation  Date,  the  Debtor  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."

            The Reorganization  Value (the approximate fair value) of the Debtor
            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
            Debtor's  business and  industry.  The excess of the  Reorganization
            Value over the fair value of net assets and liabilities are reported
            as  Reorganization  Value in excess of allocated amounts and will be
            amortized over a fifteen-year  period. The balance of such assets at
            the date of emergence from bankruptcy was approximately $519,000.

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

       (c)  Fresh Start Reporting - Continued

            The  restructured  and acquired  balance  sheet as of March 28, 1998
            (effective date of emergence) is as follows:

<TABLE>
<CAPTION>

                                                                        Restructured and acquired
                ASSETS                                                        Balance Sheet
                ------                                                  -------------------------
                Current assets:
<S>                                                                     <C>
                  Cash                                                          $ 166,167
                  Due from affiliates                                               7,797
                  Inventories, net of reserves                                    205,715
                  Prepaid expenses and other assets                                 4,623
                                                                                ---------

                           Total current assets                                   384,302

                Property and equipment, net                                        90,661
                Reorganization value in excess of amounts allocable               519,030
                                                                                ---------

                                                                                $ 993,993

                LIABILITIES AND STOCKHOLDERS' DEFICIT:
                Post Petition Liabilities:
                Current liabilities:
                  Accounts payable and accrued expenses                           201,120
                  Other liabilities, including reserves                            14,761
                  Notes payable - unsecured creditors                             130,000
                                                                                ---------

                           Total current liabilities                              345,881

                Long-term liabilities:
                  Secured notes payable - Johnson County Bank                     211,465
                  Secured notes payable - Gray & Crawley                           65,000
                  Super priority note payable to SFC                              100,000
                  Secured notes payable - NB Services, Inc.                       147,542
                                                                                ---------

                           Total liabilities                                      869,888

                Stockholders' deficit:
                   Common stock                                                        10
                   Additional paid-in capital                                     124,095
                                                                                ---------

                           Net stockholders' equity                               124,105
                                                                                ---------

                                                                                $ 993,993
                                                                                =========

</TABLE>


                                                                     (continued)


<PAGE>




                                          RETAIL ENTERTAINMENT GROUP, INC.
                                      (Formerly Starlog Franchise Corporation)

                                     Notes to Consolidated Financial Statements

       (c)  Fresh Start Reporting - Continued

            During the current year,  while under the Company's  management  and
            prior to emergence from bankruptcy, KCK operations were as follows:

<TABLE>
<CAPTION>

                                                                           KCK Operations for the
                                                                           period October 1, 1997
                                                                           through March 28, 1998
                                                                           ----------------------

<S>                                                                        <C>
                Revenue                                                             $ 1,551,879

                Cost of sales                                                           493,029
                                                                                    -----------

                           Gross profit                                               1,058,850

                General and administrative expenses:
                  Rent                                                                  360,598
                  Depreciation and amortization                                         150,841
                  Office and salary expense                                             519,142
                                                                                    -----------

                           Total general and administrative expenses                  1,030,581
                                                                                    -----------

                           Operating income                                              28,269

                  Other income (expense):
                     Other income                                                         5,316
                     Interest expense                                                    (9,480)
                                                                                    -----------

                           Net other income (expense)                                    (4,164)
                                                                                    -----------

                           Net income                                               $    24,105
                                                                                    ===========
</TABLE>


            These amounts are included in the Company's  consolidated  financial
            statements for the year ended June 27, 1998.

       (d)  Merger

            Effective June 17, 1998, KCK  Corporation  (KCK) merged with Candico
            Entertainment,  Inc.  and  subsequently  changed its name to Candico
            Entertainment,  Inc. (Candico). Each of the 1,000 shares outstanding
            of KCK was converted into one share of Candico.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(3)    Discontinued Operations

       The Company  recorded a net loss of  $2,034,190  as part of  discontinued
       operations  in the  accompanying  consolidated  statement of  operations,
       respectively.  For financial reporting purposes, the assets, liabilities,
       results of operations  and cash flows of Starlog  Franchise  Corporation,
       Sumon, LLC and Goal Post Distributors, Inc. are included in the Company's
       consolidated  financial  statements.   A  summary  of  these  assets  and
       liabilities as of June 27, 1998 and June 28, 1997 are as follows:

<TABLE>
<CAPTION>

                                                                        June 27, 1998           June 28, 1997
                                                                        -------------           -------------
<S>                                                                     <C>                     <C>
         Assets:
           Cash and cash equivalents                                      $        85              $       --
           Accounts receivable, net                                                --                  50,477
           Inventory                                                               --                 793,416
           Other current assets                                                    29                  14,475
           Property, plant and equipment                                           --                 561,236
                                                                          -----------              ----------

                Total assets - discontinued operations                    $       114               1,419,604
                                                                          ===========              ==========

         Liabilities:
           Accounts payable and accrued liabilities                           393,206                 318,512
           Other current liabilities                                          421,462                 146,530
           Long-term liabilities                                                   --                 200,000
                                                                          -----------              ----------

                Total liabilities - discontinued operations                   814,668                 665,042
                                                                          -----------              ----------

                Net assets (liabilities) of discontinued
                  operations                                              $  (814,554)             $  754,562
                                                                          ===========              ==========
</TABLE>

       Certain amounts in 1997 have been reclassified for comparative purposes.

       The remaining  liabilities of discontinued  operations are expected to be
       renegotiated  or paid in  fiscal  period  ended  January  31,  1999.  The
       repayment  will  come  from  cash  from  continuing  operations  or other
       financing sources.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(4)    Property and Equipment

       Property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                                                       Estimated
                                                            June 27, 1998         June 28, 1997      Useful Life
                                                            -------------         -------------      -----------

<S>                                                         <C>                   <C>                <C>
           Trade show exhibition displays                      $  44,048             $   45,207          3 years
           Computer equipment and software                       119,207                245,126        3-5 years
           Furniture, fixtures and equipment                     281,994                943,991        3-7 years
           Leasehold improvements                                 91,463                328,251    Life of lease
                                                               ---------             ----------    or 10 years
                                                                 536,712              1,562,575
           Less accumulated depreciation
             and amortization                                   (298,712)              (872,047)
                                                               ---------             ----------

                                                               $ 238,000             $  690,528
                                                               =========             ==========
</TABLE>


       Depreciation and amortization  related to property and equipment  totaled
       approximately $237,000 and $443,000 for the years ended June 27, 1998 and
       June 28 1997, respectively.

       Approximately  $561,000 of net property and  equipment  reported in prior
       year was disposed of in current year as part of  discontinued  operations
       (see Note 3).

(5)    Accounts Payable and Accrued Expenses

       Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>

                                                              June 27, 1998                June 28, 1997
                                                              -------------                -------------
<S>                                                           <C>                          <C>
           Accounts payable                                     $ 1,001,631                    $ 494,919
           Accrued professional fees                                 95,000                       44,000
           Accrued payroll                                           39,788                       43,798
           Accrued taxes                                             59,367                        8,685
           Accrued interest                                          16,000                           --
           Accrued rents                                             83,727                           --
           Other                                                     18,045                        5,064
                                                                -----------                    ---------

                                                                $ 1,313,558                    $ 596,466
                                                                ===========                    =========
</TABLE>


       Approximately  $465,000 of accounts payable and accrued expenses reported
       in the prior year related to discontinued operations (see Note 3).

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(6)    Notes Payable - Affiliates

       During  1997,  two  members of Hope  provided  $200,000  working  capital
       financing to the Company.  One of the members was repaid  $100,000 during
       fiscal year 1998.

       On March 5,  1998,  Hope  Associates,  LLC  provided  $60,000  of working
       capital to the Company for operating needs.  Interest accrues at the rate
       of 10% per year payable with principal 90 days after  issuance.  Interest
       after  default  shall be at the rate of 18% per year.  At June 27,  1998,
       none of the note has been repaid.

       In April 1998,  certain members of Hope provided funds totaling  $188,264
       which  remained  outstanding  at June 27, 1998.  All of the notes are due
       upon demand and bear interest at 10% per year.

       On June 27, 1998,  the Company sold the remaining net assets of Goal Post
       Distributing,  Inc.  (Goal Post) to its  original  owner (see Note 1). As
       part of the terms of the sale,  the Company  agreed to pay $50,000 to the
       former  owner of Goal  Post.  The  $50,000 is  recorded  as part of notes
       payable - affiliates and is due upon demand.

(7)    Long-Term Debt

       Amounts  due to  unrelated  entities  at June 27,  1998 and June 28, 1997
       consists of the following:

<TABLE>
<CAPTION>

                                                                             June 27, 1998        June 28, 1997
                                                                             -------------        -------------
<S>                                                                          <C>                  <C>
           Note payable to Securities  Exchange Commission
           due  in  annual  installments  through  January
           2002, with interest payable annually at 5.5%.                         $ 396,180            $ 500,000

           Notes  payable to  unsecured  creditors  due in
           monthly  installments  through  June  2002 with
           interest payable monthly at 12% (net
           of unamortized portion imputed interest of $53,200).                    336,800              306,000

           Note  payable  to  Johnson  County  Bank due in
           monthly  installments  through  May  2001  with
           interest at 9%.  This note is fully  guaranteed
           by Gray and Crawley.                                                    218,765                   --

           Note payable to NB Services, Inc. due in monthly
           installments through May 2001 with interest
           at 9%.                                                                $ 160,832            $      --

</TABLE>


                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(7)    Long-Term Debt - Continued

<TABLE>
<CAPTION>

                                                                             June 27, 1998        June 28, 1997
                                                                             -------------        -------------
<S>                                                                          <C>                  <C>
           Note payable to Gray and Crawley due in monthly
           installments through April 2003 with interest at 10%.             $      65,000          $        --

           Notes payable to unsecured creditors due in monthly
           installments through May 2003 with interest at 10%.               $      60,000          $        --
                                                                             -------------          -----------
           Total                                                                 1,237,577              806,000

           Less current installments of long-term debt                             346,677              152,820
                                                                             -------------          -----------

           Long-term debt, excluding current installments                    $     890,900          $   653,180
                                                                             =============          ===========
</TABLE>


       The aggregate of future  maturities of long-term  indebtedness are as
follows:

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

                  1999                             $   346,677
                  2000                                 257,428
                  2001                                 475,066
                  2002                                 130,597
                  2003                                  27,809
                                                   -----------
                                                   $ 1,237,577
                                                   ===========

       During fiscal year 1998, the Company borrowed $1,250,000 from BSB Bank in
       the form of a note payable.  The Company also renewed a previous note due
       to BSB Bank in the amount of $500,000.  Subsequently,  in September 1998,
       Hope Associates,  LLC, the majority  stockholder,  assumed the $1,750,000
       notes payable to BSB Bank and forgave an additional  $250,000 due to them
       by the Company,  all of which was recorded as a contribution  to capital.
       In consideration for such assumption and  contribution,  the Company will
       pay a monthly fee to Hope Associates of approximately  $20,000 per month.
       Subsequently,  Hope Associates agreed to waive certain monthly management
       fees until the Company is able to operate  profitably  and obtain  excess
       cash flows.  The Company  also  granted the members of Hope  Associates a
       warrant to purchase  500,000  shares of the Company's  common stock at an
       exercise price of $1.25 per share.  The warrant  expires May 3, 2003. The
       warrants  estimated  at fair  market  value at date of  issuance  was not
       material to the Company's financial statements.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(8)    Income Taxes

       The Plan of  Reorganization  of the  Company  was  approved by the United
       States Bankruptcy Court on August 28, 1996,  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 of
       $7,900,000 that 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.

       The  Company  accounts  for income  taxes  pursuant to the  Statement  of
       Financial  Accounting  Standards  No.  109.  The  approximate  amounts of
       deferred  assets  at June  27,  1998 and  June  28,  1997,  respectively,
       resulting from temporary differences and carryforwards were as follows:

<TABLE>
<CAPTION>

                                                                         June 27, 1998             June 28, 1997
                                                                         -------------             -------------

<S>                                                                      <C>                       <C>
           Net operating loss carryforwards                                $ 9,300,000               $ 7,900,000
           Expenses recognized for financial
             reporting purposes not yet deductible:
                Provision for inventory shortage                                    --                   400,000
                Other                                                          100,000                   200,000
                                                                           -----------               -----------
                                                                             9,400,000                 8,500,000
                Effective federal and state tax rate                               40%                       40%
                                                                           -----------               -----------

           Total deferred tax asset                                          3,760,000                 3,400,000

           Valuation allowance for deferred tax asset                       (3,760,000)               (3,400,000)
                                                                           -----------               -----------

           Net deferred tax asset                                          $        --               $        --
                                                                           ===========               ===========
</TABLE>


(9)    Commitments and Contingencies

       The Company has entered into various non-cancelable  operating leases for
       office,  warehouse  and retail  store  space  expiring  at various  dates
       through 2006.  Certain of the leases  provide for minimum  annual rentals
       plus additional rental payments based upon sales volume.

                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(9)    Commitments and Contingencies - Continued

       At June 27, 1998,  aggregate  approximate  future minimum rental payments
       required under operating leases are as follows:

           Fiscal Year Ending June:
           ------------------------
                  1999                            $   637,301
                  2000                                577,156
                  2001                                437,078
                  2002                                405,415
                  2003                                307,165
                  Thereafter                          411,350
                                                  -----------

                                                  $ 2,775,465
                                                  ===========

       Rent expense  charged to operations for the years ended June 27, 1998 and
       June 28, 1997 was approximately $1,116,000 and $721,000, respectively.

       The Company  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."  For the  years  ended  June 27,  1998 and June 28,  1997,  no
       amounts were due under the terms of this agreement.  On July 1, 1998, the
       Company  terminated its license agreement with SCI and transferred assets
       worth an immaterial amount in connection with such termination.

       The Company  entered into an employment  agreement with the President and
       CEO commencing July 11, 1994 and subsequently amended August 15, 1996. As
       amended,  the  agreement  provided  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  including a discretionary  bonus of up to 50% of his base
       salary.  In April 1998,  the Board of  Directors  amended the  employment
       agreement  to provide a base salary of $150,000  when the Company  raises
       $150,000  or more in a currently  proposed  private  placement  of common
       stock. The employment  agreement also granted certain other stock options
       (see Note 11).

       The Company is party to various  claims and legal actions  arising in the
       ordinary course of business. Management does not believe that the outcome
       of such claims and legal actions will have a material effect on financial
       position or results of operations of the Company.

(10)   Stockholders' Equity

       On May 10,  1998,  the  Company's  Board of  Directors  and  shareholders
       approved a one-for-ten  reverse stock split of the outstanding  shares of
       Retail Entertainment Group, Inc. (formerly Starlog Franchise Corporation)
       to  shareholders  of record on July 9, 1998.  In  addition to the reverse
       split,  the  Company  reduced  the  number  of  shares  of  common  stock
       authorized from  40,000,000,  with a .001 par value, to 6,000,000  shares
       with a .01 par  value.  Shareholders'  equity has been  restated  to give
       retroactive  recognition to the reverse stock split in prior periods. The
       total  number of  shares  outstanding  following  the  reverse  split was
       2,093,764 (see Note 15).


                                                                     (continued)


<PAGE>




                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(10)   Stockholders' Equity - Continued

       In September 1998, Hope Associates, LLC (Hope Associates),  the Company's
       majority  shareholder,  assumed $1,750,000 of debt owed by the Company to
       BSB Bank and forgave  $250,000 of debt owed to them by the  Company.  The
       transaction  resulted  in a  contribution  of  $2,000,000  to  additional
       paid-in-capital (see Note 7). Hope Associates  personally  guaranteed the
       amounts owed to BSB Bank.

       Effective  June 27, 1998,  the Company  entered into an agreement for the
       sale of Goal Post Distributors,  Inc., a wholly owned subsidiary, back to
       its  original  owner.  The  sale  of  Goal  Post  resulted  in a loss  of
       approximately  $265,000.  In  addition,  in exchange  for Goal Post,  the
       Company  received as  consideration  330,000  shares of the Company's own
       common stock valued at $.10 per share.  The shares were  accounted for as
       treasury  shares and resulted in a charge to common stock and  additional
       paid-in-capital  of approximately  $33,000.  The shares were subsequently
       retired and accounted for using the cost method (see Note 1).

       None of the Company's outstanding options or warrants have been exercised
       during the fiscal year ended June 27, 1998.

(11)   Stock Options and Warrants

       On April 1, 1997,  and  subsequently  revised in April 1998,  the Company
       granted  the  President  and  CEO an  option  to  acquire  300,000  (post
       one-for-ten  reverse  split) shares of the  Company's  common stock until
       March 31, 2003. The option to acquire 100,000 (post  one-for-ten  reverse
       split) of such shares is currently exercisable. The option to acquire the
       second  100,000 (post  one-for-ten  reverse  split) 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  100,000  shares will be  exercisable  only if and
       after the  Company has  $1,000,000  of annual net  profits  EBITDA.  This
       option is in replacement of other options previously granted. None of the
       options have been exercised. The Company has no other long-term incentive
       plans.

       Aggregate Stock Option Activity

       The following  tables  summarize  information  about the aggregate  stock
       option and warrant activity (post one-for-ten reverse split) for the year
       ended June 27, 1998:

<TABLE>
<CAPTION>

                                                                                        Weighted-
                                                                                         average
                                                                     Number             exercise
                                                                   of shares              price
                                                                   ---------            ---------

<S>                                                                <C>                  <C>
           Outstanding, beginning of year                           194,000              $  1.52
             Granted                                                550,000                 1.53
           Exercised                                                     --                   --
             Forfeited                                                   --                   --
                                                                    -------              -------
           Outstanding, end of year                                 744,000                 1.53
                                                                    -------              -------
           Options and warrants vested, end of year                 744,000              $  1.53
                                                                    =======              =======
</TABLE>

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(11)   Stock Options and Warrants - Continued


<TABLE>
<CAPTION>

                           Options and Warrants Outstanding                  Options and Warrants Exercisable
                         -----------------------------------                ----------------------------------

                                                                      Weighted-
                                                   Weighted-           average                               Weighted-
                                                    average           remaining                               average
            Average                 Number          exercise         contractual        Number               exercise
         Exercise Price          outstanding         price           life (years)     exercisable              price
         --------------          -----------      -----------        ------------    ------------          -------------

<S>       <C>                    <C>              <C>                <C>             <C>                   <C>
          $.60 - 2.50               194,000          $ 1.52                 5         194,000               $ 1.52
          1.25 - 5.00               550,000            1.53                 3         550,000                 1.53
                                    -------            ----                --         -------               ------

                                    744,000           $1.53                 8         744,000               $ 1.53
                                    =======            ====                ==         =======               ======
</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  consolidated  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.

        Accounting for Stock-Based Compensation

        The  Company  accounts  for its  stock  option  plans  under  Accounting
        Principles  Board Opinion No. 25 (APB 25),  under which no  compensation
        expense has been  recognized.  In October 1995, the FASB issued SFAS No.
        123, "Accounting for Stock-Based  Compensation"  (SFAS 123),  which was
        effective for fiscal years  beginning  after December 15, 1995. SFAS 123
        allows  companies to continue  following the accounting  guidance of APB
        25, but  requires  pro forma  disclosure  of net income and earnings per
        share  for the  effects  on  compensation  expense  had  the  accounting
        guidance  of SFAS  123  been  adopted.  The pro  forma  disclosures  are
        required  only for  options  granted  in fiscal  years  beginning  after
        December 15, 1994.

        The Company adopted the  disclosure-only  provisions of SFAS 123 for the
        years  ended  June  27,  1998  and  June  28,  1997.   Accordingly,   no
        compensation  cost has been  recognized for the Company's  granted stock
        options and warrants. Had compensation and other costs 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 1998  and  1997,
        consistent with the provisions of SFAS 123, the impact on net loss would
        have been immaterial.

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(12)    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.

(13)    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>



                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(13)    Huttoe Financing - Continued

        During fiscal year 1998,  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  (see
        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 for the year
        ended June 28, 1997.

(14)    Year 2000 Issue (Unaudited)

        The  Company  does not expect the Year 2000 issue to have a  significant
        effect on  operations.  Management  of the Company does not expect major
        vendors or  customers to be unable to sell to,  provide  services to, or
        purchase from the Company because of the Year 2000 issue.

(15)    Subsequent Events

        (a)   Reverse Stock Split

              On July 9, 1998, the Company effected a one-for-ten  reverse stock
              split of the  outstanding  shares of Retail  Entertainment  Group,
              Inc.  (formerly Starlog Franchise  Corporation) to shareholders of
              record on that date. In addition to the reverse  stock split,  the
              Company reduced the number of shares authorized from 40,000,000 to
              6,000,000  shares and increased the par value per share from $.001
              to $.01.  The  reverse  stock  split  reduced the number of shares
              outstanding from 20,937,640 to 2,093,764 shares. All share and per
              share data appearing in the consolidated  financial statements and
              notes  thereto  have been  retroactively  adjusted for the reverse
              split.

        (b)   Stock Offering

              In November 1998, the Company issued approximately  336,000 shares
              of common stock at $1.25 per share pursuant to private  placements
              under  Regulation  D of U.S.  Securities  laws.  The  proceeds  of
              approximately $420,000 will be used to provide for working capital
              and repay certain debts to affiliates.

        (c)   Management and Option Agreement

              On November 24, 1998,  the Company  entered into a management  and
              option  agreement with Hope Associates,  LLC, (Hope  Associates) a
              related  party,  whereby the Company  will manage  certain  retail
              candy stores (Candy Candy  Acquisition  Corporation)  belonging to
              Hope Associates,  and in exchange grant to Hope Associates 500,000
              common  stock  warrants  at $1.25 per share  expiring  in November
              2002. The Company will receive quarterly compensation,  based upon
              a specified  formula as noted in the  agreement,  for its services
              with respect to the  agreement.  In addition,  the Company has the
              right and option to purchase,  effective the date of the agreement
              until  November 30, 2001, all of the  outstanding  common stock of
              Candy Candy  Acquisition  Corporation.  The exercise price for the
              option is equal to the  outstanding  balance of any Hope loans and
              any  additional  capital  contributions  or loans  made by Hope to
              Candy Candy Acquisition Corporation.

                                                                     (continued)


<PAGE>


                        RETAIL ENTERTAINMENT GROUP, INC.
                    (Formerly Starlog Franchise Corporation)

                   Notes to Consolidated Financial Statements

(15)    Subsequent Events - Continued

        (d)   Related Party Note Payable

              In November 1998, Hope Associates,  LLC (Hope  Associates)  loaned
              the  Company  $300,000  in working  capital to be used to purchase
              inventories  and pay  current  overhead  expenses.  The note  will
              accrue  interest at 10% with interest  payable  monthly,  and, the
              note is due upon demand.  In  conjunction  with the money received
              from Hope  Associates,  the Company granted to the members of Hope
              Associates  300,000  common stock warrants at an exercise price of
              $1.25 expiring November 30, 2002.