SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549




                                   FORM 10-QSB


              (X)       Quarterly  Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

                      For the quarterly period ended   March 31, 1998

                                       or

              ( )     Transition Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1939

                      For the transition period from              to


Commission File Number:  1-13984


                             CREATIVE BAKERIES, INC.
      (Exact name of small business issuer as specified in its charter)



          New York                              13-3832215
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)             Identification Number)


                     20 Passaic Avenue, Fairfield, NJ 07004

                    (Address of principal executive offices)


Issuer's telephone number, including area code:   (973) 808-9292
                                                -----------------

Former name:  William Greenberg Jr. Desserts and Cafes, Inc.

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

                                                  Yes X   No



Indicate the number of Shares  outstanding  of each of the  Issuer's  classes of
common stock, as of the latest practicable date.


            Class                  Outstanding at May 12, 1998

Common Stock, par value $0.001
 per share                                   5,161,750



<PAGE>





























                                      INDEX

<TABLE>
<CAPTION>


Part I.  Financial information

<S>          <C>           <C>                                                                        <C>    

              Item 1.       Condensed consolidated financial statements:

                            Balance sheet as of March 31, 1998                                             F-2

                            Statement of operations for the three months
                            ended March 31, 1998 and 1997                                                  F-3

                            Statement of cash flows for the three months
                            ended March 31, 1998 and 1997                                                  F-4

                            Notes to condensed consolidated financial
                            statements                                                                 F-5 - F-15

              Item 2.       Management's discussion and analysis of
                            financial condition

              Item 3.       Legal proceedings


Part II.  Other information


Signatures

</TABLE>


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              CONDENSED CONSOLIDATED BALANCE SHEET - MARCH 31, 1998
                                   (Unaudited)




<TABLE>
<CAPTION>




                                     ASSETS
<S>                                                                                                 <C>   

Current assets:
  Cash                                                                                                $   317,539
  Accounts receivable, less allowance for doubtful
   accounts of $24,898                                                                                    451,544
  Inventory                                                                                               270,997
  Prepaid expenses and other current assets                                                                67,075
                                                                                                      -----------
    Total current assets                                                                                1,107,155

Property and equipment, net of accumulated depreciation                                                 1,309,253
                                                                                                      -----------

Other assets:
  Covenant not to compete, net of amortization                                                             56,250
  Goodwill, net of amortization                                                                         1,109,591
  Security deposits and other assets                                                                       82,772
                                                                                                      -----------
                                                                                                        1,248,613

                                                                                                      $ 3,665,021
                                                                                                      ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
  Current portion of long-term debt                                                                   $    37,958
  Notes payable, bank                                                                                     149,379
  Notes payable, other                                                                                     38,431
  Accounts payable                                                                                      1,002,844
  Estimated liability for restructuring                                                                    80,541
  Accrued payroll                                                                                         459,946
  Payroll taxes payable                                                                                   176,321
  Accrued expenses and other current liabilities                                                          467,740
                                                                                                      -----------
    Total current liabilities                                                                           2,413,160

Long-term debt, net of current portion                                                                     20,286
                                                                                                      -----------

Deferred rent                                                                                             182,212

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.001 par value, authorized 2,000,000
   shares, none issued
  Common stock, $.001 par value, authorized 10,000,000
   shares, issued and outstanding 5,161,750 shares                                                          5,162
  Additional paid in capital                                                                           11,029,123
  Deficit                                                                                           (  9,984,922)
                                                                                                     -----------
                                                                                                        1,049,363


                                                                                                      $ 3,665,021
                                                                                                      ===========


</TABLE>

     See notes to condensed consolidated financial statements.
                                                                            F-2


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (Unaudited)












<TABLE>
<CAPTION>
<S>                                                                               <C>                <C>   


                                                                                       1998               1997
                                                                                       ----               ----


Net sales                                                                           $1,369,802        $2,119,394

Cost of sales                                                                        1,014,654         1,617,785
                                                                                    ----------        ----------

Gross profit                                                                           355,148           501,609

Operating expenses                                                                     630,381         1,634,751
                                                                                    ----------        ----------

Loss from operations                                                              (   275,233)       ( 1,133,142)
                                                                                   ----------         ----------

Other income (charges):
  Rental and storage
   income                                                                                                 11,480
  Loss on sale of
   leasehold improvements                                                         (   143,173)
  Interest income                                                                       4,138              5,777
  Interest expense                                                                (    12,978)       (     5,828)
                                                                                    ----------        ----------
                                                                                  (   152,013)            11,429
                                                                                   ----------         ----------

Net loss                                                                          ($  427,246)       ($1,121,713)
                                                                                   ==========         ==========

Net loss per common
 share                                                                           ($      .08)       ($      .36)
                                                                                   ==========         ==========

Weighted average number
 of common shares
 outstanding                                                                        5,161,750          3,060,000
                                                                                    ==========         ==========



</TABLE>













     See notes to condensed consolidated financial statements. 
                                                                            F-3

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                   THREE MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (Unaudited)



<TABLE>
<CAPTION>
<S>                                                                                <C>             <C>     


                                                                                       1998                1997
                                                                                       ----                ----

Operating activities:
  Net loss                                                                          ($427,246)       ($1,121,713)
  Adjustments to reconcile net income to
   cash provided from operating activities:
     Depreciation and amortization                                                     67,597             62,398
     Loss on sale of leasehold improvements                                           143,173
     Compensatory element of issuance of warrants                                                        421,730
   Changes in other operating assets and liabilities:
     Accounts receivable                                                               56,634            183,349
     Inventory                                                                         86,550        (    36,337)
     Prepaid expenses and other current assets                                      (  73,645)            13,739
     Accounts payable                                                               (  30,552)       (    71,291)
     Accrued expenses and other current liabilities                                 (  55,074)           205,589
     Deferred rent                                                                  (  10,744)            14,604
                                                                                     --------          ----------

     Net cash used in operating activities                                          ( 243,307)       (   327,932)
                                                                                     --------         ----------

Investing activities:
  Purchase of property and equipment                                                (   5,128)
  Purchase of subsidiary                                                                             (   900,000)
  Proceeds from sale of leaseholds                                                      12,000
  Decrease in security deposits                                                         27,590       (       825)
                                                                                      --------        ----------

     Net cash provided by (used in) investing
      activities                                                                        34,462       (   900,825)
                                                                                      --------        ----------

Financing activities:
  Proceeds from issuance of common stock and
   warrants                                                                                             1,747,500
  Increase in loans payable, other                                                       8,431
  Decrease in notes payable, shareholders                                           (  26,519)
  Decrease in debt                                                                  (  21,083)       (    16,572)
                                                                                     --------         ----------

     Net cash provided by (used in) financing
      activities                                                                    (  39,171)          1,730,928
                                                                                     --------          ----------

Net increase (decrease) in cash                                                     ( 248,016)            502,171

Cash, beginning of period                                                              565,555            254,768
                                                                                      --------         ----------

Cash, end of period                                                                   $317,539         $  756,939
                                                                                      ========         ==========

Supplemental disclosures:
  Cash paid during the year for:
    Interest                                                                          $ 12,978         $    5,763
                                                                                      ========         ==========
    Income taxes                                                                      $      0         $        0
                                                                                      ========         ==========

Supplemental schedule of non-cash investing activities and financing activities:
    Issuance of common stock and warrants
     regarding acquisition of subsidiary                                              $      0         $1,260,000
                                                                                      ========         ==========

</TABLE>


     See notes to condensed consolidated financial statements.
                                                                            F-4
<PAGE>






                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.      The accompanying unaudited financial statements have been prepared in
        accordance with generally accepted accounting principles for interim
        financial information and with the instructions to Form 10-QSB.
        Accordingly, they do not include all of the information and footnotes
        required by generally accepted accounting principles for complete
        financial statements.  In the opinion of management, all adjustments
        considered necessary for a fair presentation have been included.  The
        results of operations for the three months ended is not necessarily
        indicative of the results to be expected for the full year. For further
        information, refer to the consolidated financial statements and
        footnotes thereto included in the Company's annual report for the year
        ended December 31, 1997 included in its Annual Report filed on Form 10-
        KSB.


2. Organization of the Company:

        William  Greenberg  Jr.  Desserts and Cafes,  Inc. (the  "Company") was
        incorporated  in the State of New York on November 12, 1993.  Since its
        inception  through July 10, 1995,  the Company was a development  stage
        enterprise  and did not  generate any revenues and did not carry on any
        significant  operations.  Management's efforts were directed toward the
        development  and  implementation  of  a  plan  to  generate  sufficient
        revenues in the bakery  industry to cover all of its present and future
        costs and  expenses.  On July 10,  1995,  the Company  acquired the net
        operating assets of Greenberg Desserts  Associates Limited  Partnership
        ("Greenberg's - L.P.") at which time the Company  commenced  operations
        and  ceased  being  a  development   stage   enterprise.   The  deficit
        accumulated during the development stage aggregated $100,112.

        On January 17, 1997, the Company  purchased all of  outstanding capital
        stock  of  J.M.  Specialties,  Inc.  ("JMS")  in an  acquisition  to be
        accounted for as a purchase  (the  "Acquisition").  The total  purchase
        price aggregated  $2,160,000 of which $900,000 was paid in cash and the
        remaining  $2,160,000  through the  issuance  of 500,000  shares of the
        Company's  common  stock at fair  market  value of $1.75  per share and
        purchase  warrants  valued at fair market value of $1.10 per warrant to
        acquire  350,000  shares of the  Company's  common stock at an exercise
        price of $2.50  per  share.  JMS  offers a line of  batter  and  frozen
        finished cakes, brownies and muffins.

        In connection  with the above  described  subsequent  transactions,  the
        Company  transferred  all of its  business  assets  to a  newly  formed
        wholly-owned subsidiary,  WGJ Desserts and Cafes, Inc., in exchange for
        all of the issued and outstanding shares of common stock of such entity
        (the  "Subsidiary").  As a result,  the  Company  will act as a holding
        company with two  wholly-owned  subsidiaries.  JMS and WGJ Desserts and
        Cafes, Inc. Upon obtaining consent of the Company's  stockholders,  the
        Company changed its name to Creative Bakeries, Inc.

        On September  1, 1997,  the  Company  purchased  all of the  outstanding
        shares  of  Chatterly   Elegant  Desserts,   Inc.   (Chatterly)  in  an
        acquisition  to be accounted for as a pooling of interest.  The Company
        issued  1,300,000  of its $.001 par value  common stock in exchange for
        all of the outstanding shares of Chatterly.  Chatterly offers a line of
        tortes, cakes and mousses.




                                                                          F-5


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








2.  Organization of the Company (continued):

    Effective December, 1997, Chatterly Elegant Desserts, Inc. was formally
    merged with J.M. Specialties, Inc. under New Jersey law.



3. Principles of consolidation:

        The consolidated financial statements of Creative Bakeries, Inc. and
        subsidiaries include the accounts of all significant wholly owned
        subsidiaries, after elimination of all significant intercompany
        transactions and accounts.  The accounts of J.M. Specialties, Inc. and
        WGJ Desserts and Cafes, Inc. are included as the subsidiaries of
        Creative Bakeries, Inc.  Financial statements have been restated as of
        March 31, 1997 to include Chatterly Elegant Desserts, Inc.



4.      Acquisition of J.M. Specialties, Inc.:

        On January 23,  1997,  the  Company  purchased  100% of the  outstanding
        common stock of J.M.  Specialties,  Inc. ("JMS") in a transaction to be
        accounted for as a purchase (the "Acquisition").  The purchase price of
        $2,160,000  consisted of (i) $900,000 in cash,  (ii) 500,000  shares of
        the  Company's  common  stock  valued at fair market value of $1.75 per
        share  (aggregating  $875,000),  and (iii)  350,000  purchase  warrants
        valued at fair value of $1.10 per  warrant  (aggregating  $385,000)  to
        acquire  350,000  shares  of the  Company's  common  stock at $2.50 per
        share. The warrants are in the same form as those described below.

        JMS, which was founded in 1984,  offers a line of both batter and frozen
        finished  cakes,  brownies  and  muffins  - with  muffins  constituting
        approximately  90% of sales.  These  products  are  produced in batches
        using partially automated equipment at its facility in Parsippany,  New
        Jersey.  The  product  is  sold  to  wholesale  customers  as  well  as
        supermarket distribution centers and is marketed primarily through food
        distribution  companies in New Jersey and New York. In turn,  according
        to JMS's management,  the distributor sells approximately forty percent
        of the  product  to  supermarkets  and sixty  percent  to food  service
         customers,  such as  hospitals,  colleges,  restaurants  and  corporate
         dining rooms.

        In  connection  with  the  Acquisition,  the  Company  entered  into  an
        employment  agreement with the selling shareholder pursuant to which he
        will serve as a director and chief executive  officer of the Company at
        an annual  salary  level of $250,000 for 1997 and a minimum of $150,000
        thereafter.  In addition, the Company agreed to provide $600,000 to JMS
        for working capital.








                                                                          F-6


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






4.      Acquisition of J.M. Specialties, Inc. (continued):

        In connection with the acquisition,  the Company  transferred all of its
        then owned business assets to a newly formed wholly-owned subsidiary in
        exchange for all of the issued and  outstanding  shares if common stock
        of WGJ Desserts and Cafes, Inc. As a result, the Company currently acts
        as a holding company with two wholly-owned  subsidiaries,  JMS and WGJ.
        Upon obtaining the Company's stockholders, the Company changed its name
        to Creative Bakeries, Inc.

        In order to  finance  the  Acquisition,  the  Company  sold in a private
        placement  1,875,500  common stock purchase  warrants  ("the  Placement
        Warrants") at a net price to the Company  (after  expenses of $315,000)
        of $1,747,500.  Each Placement  Warrant  entitles the holder thereof to
        purchase  one common  share,  par value $.001 per share,  of the common
        stock of the Company at an exercise price per share of $2.50 for a term
        which will expire on December 31, 2000.

        The  Company  has  the  right  to  redeem  the  Placement  Warrants,  in
        installments,  at a redemption price of $.10 per warrant commencing six
        months  after the date of issuance if the stock  trades at a designated
        level for a least five  trading days prior to the month  preceding  the
        date on which the redemption right may be exercised.

        The holders of the  Placement  Warrants  have a put option  pursuant  to
        which for a 60 day period prior to their  expiration  date,  the holder
        has the right to  require  the  Company  to  repurchase  the  Placement
        Warrants for a consideration consisting of $.10 per warrant plus 40% of
        a share of common  stock.  In addition,  the  Placement  Warrants  have
        standard anti-dilution protection.

        The assets acquired and the liabilities assumed at December 31, 1996, in
         connection with the Acquisition, are as follows:
<TABLE>
<CAPTION>
<S>                <C>                                                               <C>             <C>    

                    Assets:
                      Cash                                                            $ 84,129
                      Accounts receivable                                              224,378
                      Notes receivable                                                  60,000
                      Inventories                                                      274,803
                      Prepaid expenses                                                  14,063
                      Property and equipment                                           483,608
                      Other assets                                                      27,999
                                                                                      --------
                                                                                                       $1,168,980
                    Liabilities:
                      Long-term debt                                                    23,607
                      Notes payable - bank                                              75,000
                      Accounts payable and accrued expenses                            123,938
                                                                                      --------
                                                                                                          222,545
                                                                                                          -------

                    Excess of net assets acquired over
                     liabilities assumed                                                                  946,435

                    Goodwill                                                                            1,213,565
                                                                                                        ---------

                                                                                                       $2,160,000
                                                                                                       ==========
</TABLE>




                                                                            F-7


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









4.      Acquisition of J.M. Specialties, Inc. (continued):

        Under the terms of its  agreement  with  InterEquity  Capital  Partners,
        L.P.,  the  Company  reserved  185,682  shares of its common  stock for
        issuance under the warrant.  Management  ascribed a fair value of $1.10
        per common share which  resulted a charge to  operations of $202,393 in
        the first quarter of operations in 1997.


5.      Acquisition of Chatterly Elegant Desserts, Inc.:

        On September  1, 1997,  the  Company  acquired  100% of the  outstanding
        common shares of Chatterly  Elegant  Desserts,  Inc.  (Chatterly)  in a
        transaction  to be accounted for as a pooling of interest.  The Company
        issued 1,300,000 of its common shares pursuant to the  acquisition,  of
        which  200,000  shares  were  returned to the Company on March 10, 1998
        when the seller's sales agreement was amended.

        Chatterly,  which was founded in 1985,  produces a line of cakes, tortes
        and other  dessert  items which are made in its facility in  Fairfield,
        New Jersey.  The products  are sold to  wholesale  customers as well as
        supermarkets and other food distributors in New Jersey and New York.

        In connection with the acquisition of Chatterly Elegant Desserts,  Inc.,
        the Company entered into an agreement with the selling  shareholder for
        a two year period commencing September 1, 1997. The agreement calls for
        an annual salary of $100,000 to be paid to such shareholder.

        The assets acquired and the liabilities assumed at December 31, 1996, in
        connection with the acquisition of Chatterly, are as follows:
<TABLE>
<CAPTION>
<S>          <C>                                                                 <C>              <C>    

              Assets:
                 Accounts receivable                                              $124,950
                 Inventories                                                       128,576
                 Prepaid expenses                                                    4,713
                 Property and equipment                                            422,493
                 Other assets                                                       56,700
                                                                                  --------
                                                                                                   $737,432
              Liabilities:
                 Long-term debt                                                    111,034
                 Notes payable, others                                              47,320
                 Accounts payable and accrued expenses                             421,960
                 Deferred rent                                                     136,958
                                                                                  --------
                                                                                                    717,272
                                                                                                    -------

              Excess of net assets acquired over
                 liabilities assumed                                                               $ 20,160
                                                                                                   ========




</TABLE>





                                                                           F-8


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







6. Property and equipment:

        The following is a summary of property and equipment at March 31, 1998:

                    Baking equipment                               $1,711,451
                    Furniture and fixtures                            100,640
                    Leasehold improvements                            419,604
                    Automotive equipment                               12,896
                                                                    ----------
                                                                    2,244,591
                    Less:  Accumulated depreciation
                            and amortization                          935,338
                                                                      -------
                                                                   $1,309,253
                                                                   ==========



7. Intangible assets:

       The excess cost over the fair value of the net assets acquired from
       J.M. Specialties, Inc. aggregated $1,213,545.  This goodwill has been
       amortized over its estimated useful life of fifteen years.  Amortization
       charged to operations amounted to $20,225 in 1998 and 1997.



8. Deferred rent:

      The  accompanying   financial  statements  reflect  rent  expense  on  a
      straight-line basis over the life of the lease. Rent expense charged to
      operations  differs with the cash payments  required under the terms of
      the real property  operating  leases  because of scheduled rent payment
      increases  throughout  the  term  of  the  leases.  The  deferred  rent
      liability is the result of  recognizing  rental  expense as required by
      generally accepted accounting principles.



9. Capital stock:

        (a)  Common stock:

        On January 17, 1997, the Company issued 500,000 shares of its common
        shares pursuant to a stock purchase agreement of J.M. Specialties, Inc.
        (see Notes 2 and 4).

        On September 1, 1997, the Company issued  1,300,000 shares of its common
        shares  pursuant to a stock  purchase  agreement of  Chatterly  Elegant
        Desserts, Inc. (see Notes 2 and 5).

     In  October, 1997, the Company issued 706,250 shares of its common stock at
         $1.25 for the total proceeds of $882,812.








                                                                          F-9


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








9.      Capital stock (continued):

        (b)  Warrants:

               (i)  Warrants issued to InterEquity Capital:

             In order to obtain  financing for the  acquisition  of Greenberg's
             -L.P.  (see Note 2), the Company sold to the lender for $1,000,
             a Convertible  Note which in  accordance  with the terms of the
             conversion  agreement,  was  converted  by  the  lender  into a
             warrant to acquire  shares of stock of the  Company in a number
             sufficient  to  equal  6% of  the  Company's  then  outstanding
             preferred and common stock  (163,404  shares of common  stock).
             The warrant  expires on July 31,  2001.  The  warrant  contains
             anti-dilutive provisions throughout its six (6) year life which
             entitles  the  holder  to  its  applicable  percentages  of the
             Company's  capital  stock on the date the warrant is exercised.
             Based upon the issuance of 1,834,000 shares of common stock and
             2,485,000  warrants  during 1997,  the lender is entitled to an
             additional  320,202  shares of common stock.  Accordingly,  the
             financial statements include a charge to operations of $315,120
             which  represents the market value of the stock at the time the
             320,202 warrants were issued by the Company.

        Compensatory  charges recorded on the income statement for 1997 amounted
        to $287,837 which represents the value of the warrants of $315,126 less
        $27,289 accrued and charged to 1996.

               (ii) Warrants issued in 1997:

             As part of the  Acquisition,  the  Company  issued on January  17,
             1997,  300,000  warrants  to  JMS's  former  owner  and  50,000
             warrants to certain of its employees.

             Concurrent with the  Acquisition on January 17, 1997, the Company
             issued  50,000  warrants  to  each  of  the  three  (3)  of the
             Company's directors.  Two (2) of which are also officers of the
             Company.

             In order  to  finance  the   Acquisition,   the  Company  sold  to
             accredited investors 1,875,000 Placement Warrants at a purchase
             price to the Company of  $1,747,500  (after  offering  costs of
             $315,000).

             All of the  warrants  issued  in 1997,  including  the  Placement
             Warrants,  aggregating 2,425,000 entitles the holder thereof to
             purchase one common  share,  par value $.001 per share,  of the
             common  stock of the Company at an exercise  price per share of
             $2.50 for a term which will expire on December 31, 2000.

             The  Company   has  the  right  to  redeem   the   warrants,   in
             installments,  at  a  redemption  price  of  $.10  per  warrant
             commencing  six months  after the date of issuance if the stock
             trades at a  designated  level for at least five  trading  days
             prior to the month  preceding the date on which the  redemption
             right may be exercised.





                                                                          F-10


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









9.      Capital stock (continued):

        (b)  Warrants (continued):

               (ii)  Warrants issued in 1997 (continued):

               The holders of the warrants  have a put option  pursuant to which
               for a 60 day period prior to their  expiration date, the holder
               has the right to require the Company to repurchase the warrants
               for a consideration  consisting of $.10 per warrant plus 40% of
               a share  of  common  stock.  In  addition,  the  warrants  have
               standard anti-dilution protection.

               (iii) Warrants issued in 1998:

              On March 24,  1998,  the  Company  approved  issuance  of  120,000
              warrants  to two members of the board of  directors  in lieu of
              cash in payment  of  services  rendered.  The  warrants,  which
              became   effective  April  1,  1998,  will  expire  and  become
              valueless  at the end of  three  years.  The  warrants  have an
              exercise price of $1.375.

        (c) Stock options:

        On August  9,  1995,  the  Company's  Board  of  Directors  adopted  the
        Company's 1995 stock option plan (the "Option Plan")  pursuant to which
        options to acquire an aggregate  of 100,000  shares of common stock may
        be granted to  employees,  officers,  directors or  consultants  to the
        Company. The Option Plan provides for the grant of both incentive stock
        options,  intended  to qualify for  preferential  tax  treatment  under
        Section  422 of the  Internal  Revenue  Code,  and  nonstatutory  stock
        options that do not qualify for such tax  treatment.  No options can be
        granted  under the  Option  Plan at less  than 100% of the fair  market
        value of the  Company's  common stock in the date of grant.  No options
        have been granted under the Option Plan.



10. Commitments and contingencies:

      Employment Agreements:

        On March 20,  1997,  the Company  entered in to an  employment  contract
        with the  former  owners  of a  company  that  produced  low-fat  and
        fat-free  cookies.   Pursuant  to  the  contracts,  both  individuals
        received a signing bonus aggregating  $68,000 and will each receive a
        salary of $25,000 per annum with an opportunity to earn an additional
        $50,000  each  based  on  sales   performance.   In  addition,   both
        individuals  will be entitled to warrants to acquire an  aggregate of
        50,000 shares of the  Company's  common stock in the event that sales
        volume exceeds $750,000 per annum.






                                                                           F-11


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








10.  Commitments and contingencies (continued):

       Employment Agreements (continued):

      In May and June of 1997, the employment contracts of Stephen Fass, a
      Director and President of the subsidiary, Maria Marfuggi, a Director and
      President of J.M. Specialties, Inc. and Seth Greenberg, President of the
      subsidiaries baking division, were officially terminated and settled, as
      well as the employment agreements of William and Carol Greenberg.  These
      agreements are summarized below:

<TABLE>
<CAPTION>
<S>           <C>                                        <C>                   <C>               <C>    
                                                                                Value of
                                                             Cash               Warrants
                                                          Settlement             Issued              Total
                                                          For Wages             at $1.10           Settlement


               Stephen Fass                                 $ 44,100            $ 55,000             $ 99,100

               Maria Marfuggi                                 36,000              55,000               91,000

               Seth Greenberg, William
                Greenberg and Carol
                Greenberg                                     72,003              39,732              111,735
                                                            --------            --------             --------

                                                            $152,103            $149,732             $301,835
                                                            ========            ========             ========

</TABLE>

       The  settlement  of these three  employment  agreements  resulted in the
       Company incurring an additional $89,681 in officers compensation in the
       quarter ended June 30, 1997.

       The Company also reached  agreement with four other  employees with whom
       the  Company  had  employment  agreements.  The  net  effect  of  these
       settlements  decreased officers  compensation,  which had been accrued,
       $72,914 in the quarter ended June 30, 1997. The amount was unpaid as of
       March 31, 1998.

       In conjunction with the purchase of Chatterly  Elegant  Desserts,  Inc.,
       The Company entered into an employment agreement with a former employee
       of Chatterly.  The agreement covers a three year period commencing upon
       the  transfer of the  Company's  shares to the seller of  Chatterly  on
       September 1, 1997. In the first year of the contract the employee is to
       receive  warrants to purchase  20,000  shares of the  Company's  common
       stock at $2.50 per share. In the second two years of the agreement, the
       employee  is to  receive an annual  salary of  $150,000  per year.  The
       Company has not recognized  compensation on the granting of warrants to
       this  employee  since the fair value of the  warrants  is less than the
       exercise  price.  As of February 1998,  this employee  resigned and the
       employment agreement, according to management, has been terminated. The
       employee has made  written  demands for payment but no  settlement  has
       been  reached.  A  provision  for  $100,000  had been  made for 1997 to
       reflect these demands and as of March 31, 1998 is unpaid.




                                                                           F-12


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










10.  Commitments and contingencies (continued):

       The Company and its subsidiary,  WGJ Desserts,  Inc., have been named as
       defendants in an action entitled Bacal v Creative Bakeries,  Inc. which
       was filed in the Supreme  Court of the State of New York for the County
       of New York. The complaint in the action alleges that defendants Edmund
       Abramson,  currently a director of the Company and Willa Abramson,  who
       resigned  as a  director  in 1996,  allegedly  acting  on behalf of the
       Company and Greenberg, entered into an agreement with plaintiff, Murray
       Bacal,  whereby Mr. Bacal would  purchase  warrants for common stock of
       the Company and that the  Abramson's  agreed to repurchase the warrants
       for the same price at which they were  originally sold to him, plus out
       of pocket expenses.  As a consequence,  the complaint seeks $131,500 in
       compensatory  damages and $1,000,000 in punitive  damages.  The time to
       answer the complaint has not expired. The Company vigorously intends to
       defend the action.

        License Agreement:

        On May 18, 1995, the Company entered into an agreement with Macy's East,
         Inc.  (the  "licensor"),  pursuant  to which it granted  the  Company a
         license  consisting of the right to operate a cafe in its store located
         on 34th  Street,  New York,  NY. The cafe  offers for sale fresh  baked
         pastries and desserts as well as soups,  salads,  sandwiches,  coffees,
         teas and other non-alcoholic beverages to the general public. Under the
         license agreement, the Company must pay the Licensor a fee equal to ten
         percent  (10%) of net sales  relating  to the cafe.  Such  license  fee
         charged to  operations  amounted to $5,069 in 1995.  In  addition,  the
         Company must spend for  advertising  an amount  equal to three  percent
         (3%) of its net sales. The license  commenced in November 1995 and ends
         on the Saturday nearest to July 31, 1996. The agreement, which has been
         renewed  for the one year,  is  automatically  renewed  for  successive
         periods of one year unless  either  party gives  notice to the other at
         least ninety (90) days prior to the  expiration  of the initial term or
         any renewal term that the agreement  shall not be renewed.  As of March
         31, 1998, the Company has terminated this agreement and will vacate the
         premises on such date.

        Leases:

        WGJ Desserts and Cafes, Inc., the Company's division located in New York
         City,  was party to a number of lease  agreements for its retail stores
         and baking facility.  Due to its efforts to become more cost efficient,
         the  Company  vacated  five of its six retail  locations  in 1997.  The
         Company has received releases on all locations.










                                                                          F-13


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







10.  Commitments and contingencies (continued):

        The minimum future rentals on the remaining  retail store and the baking
         facility are as follows:


                        March 31, 1999                          $  238,847
                        March 31, 2000                             111,599
                        March 31, 2001                             114,947
                        March 31, 2002                             118,394
                        March 31, 2003                             121,943
                        Thereafter                                 410,241
                                                                 ----------
                                                                $1,115,971
                                                                ==========

        The  Company  is  obligated  under a triple  net lease for use of 29,362
        square  feet of office  and plant  space in New  Jersey  with the lease
        commencing January 31, 1994 and expiring December 31, 2004. The Company
        is also obligated under noncancellable  operating leases for automotive
        equipment  that  expire  over the next  three  years.  The lease  terms
        include minimum annual rent for the term of the lease as follows:

                                                       Facility         Auto

                        March 31, 1999               $  183,312        $11,031
                        March 31, 2000                  194,938          2,664
                        March 31, 2001                  200,000            239
                        March 31, 2002                  200,000
                        March 31, 2003                  200,000
                        Thereafter                      385,000
                                                     ----------      ----------
                                                     $1,363,250        $13,934
                                                     ==========        =======


      Rent expense for all operating  leases  amounted to $139,519 in 1998 and
      $234,448  in 1997  and  includes  straight-lining  of rent  adjustments
      discussed in Note 8.



11. Related party transactions:

      The Company shared warehouse facilities with J. P. Veggies, Inc.  Mr.
      Grabow and his family, own 96 percent of J. P. Veggies, Inc.  The
      Company charged J. P. Veggies, Inc. for the manufacturing and packing of
      product and for certain sales and administrative support provided by
      J. M. Specialties, Inc.  These billings were included in the Company's
      net sales and amounted to $35,540 in 1997.  This relationship was
      terminated when J.M. Specialties moved its facility in 1997.











                                                                          F-14


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








12. Long-term debt:

      Equipment  with a cost of $297,000 has been pledged as  collateral  on a
      note payable in monthly installments of $4,005, including interest. The
      notes  carry  interest  varying  rates of 10.30% to 17.87%  and  mature
      between 1998 and 2000.

      The total future annual payments as of March 31, 1998 are as follows:


                       March 31, 1999                               $37,958
                       March 31, 2000                                20,286
                                                                    -------

                                                                    $58,244
                                                                    =======


13. Deferred income taxes:

       Deferred income taxes  (benefits) are the result of a deferred tax asset
       carried on the books of Chatterly Elegant Desserts,  Inc. at the end of
       1996. A full valuation  reserve of this asset, as well as any effect of
       the Company's large net operating loss carry-forwards, has been made by
       management  as they feel it is not likely to utilize  this asset in the
      future.



14. Earnings per share:

       Primary  earnings per share is computed  based in the  weighted  average
       number of shares actually  outstanding  plus the shares that would have
       been  outstanding  assuming  conversion  of the common  stock  purchase
       warrants which are considered to be common stock equivalents.  However,
       according to FASB 128,  effective for financial  statements  issued and
       annual  periods  issued after  December 15, 1997,  entities with a loss
       from  continuing  operations,  the  exercise  of any  potential  shares
       increases the number of shares  outstanding and results in a lower loss
       per share. Thus,  potential issuances are excluded from the calculation
       of earnings per share. These common stock purchase warrants amounted to
       2,605,000 in 1998 and 2,375,000 in 1997.

        Reconciliation of shares used in computation of earnings per share:

<TABLE>
<CAPTION>
<S>                                                                                     <C>                <C> 
                                                                                        1998               1997
                                                                                        ----               ----
               Weighted average of shares actually
                 outstanding                                                         5,161,750          3,060,000

               Common stock purchase warrants

               Primary and fully diluted weighted
                 average common shares outstanding                                   5,161,750          3,060,000
                                                                                     =========          =========





</TABLE>

                                                                          F-15


<PAGE>









Item 2.  Management's Discussion and Analysis of Financial Condition and Plan
               of Operation


a.  General:

The Company has completed its first full quarter  after  retrenching  its retail
operations at the WGJ subsidiary  from five stores to two at the end of December
1997.  From April 1, 1998,  the  Macy's  store was taken over by Ferrara  Bakery
leaving only the flagship store on Madison and 82nd in operation.

At March 31, 1998 to the extent the Company  may have  taxable  income in future
periods, there is available a net operating loss for federal income tax purposes
of approximately  $4,500,000 which can be used to reduce the tax on income up to
that amount through the year 2011.

b.  Results of Operations:

The Company's consolidated revenues aggregated $1,369,802 and $2,119,394 for the
three months ended March 31, 1998 and 1997, respectively. The cost of goods sold
was $1,014,654 in 1998 and $1,617,785 in 1997.  Operating expenses were $630,381
in 1998 and $1,634,751 in 1997. As a result,  the loss from operations for first
quarter 1998 and 1997 was $275,233 and $1,133,142 respectively. The reduction in
sales was mainly due to the  retrenchment in the retail  division.  The related,
much steeper reduction in operating expenses was mainly due to the restructuring
at the WGJ subsidiary with the resultant cost savings.

During the first quarter of 1998, the Company wrote off the unamortized  balance
of the leasehold improvements at the Macy's store in the amount of $143,173. The
net interest expense for the quarter was $8,840.

The  resulting  net loss  aggregated  $427,246  for 1998  ($.08)  per  share and
$1,121,713 for 1997 ($.36) per share.

The retail division and wholesale divisions of WGJ Desserts and Cafes, Inc. sell
similar products which are baked at the Company's  centralized  baking facility.
Costs are allocated to each division  based upon the standard costs of the items
sold. Such costs consists of ingredients, direct labor and overhead.

Batter  Bake-Chatterly,  Inc. (the BBC  subsidiary)  offers a line of batter and
frozen finished cakes, muffins, tart shells and other desserts.  BBC's financial
records  and  affairs  are kept  separate  from the parent but  included  in the
consolidated financial statements at March 31, 1998 and 1997.

c.  Plan of Operation:

Reorganization of Retail Operations:

After analyzing the Company's retail operations,  management concluded that only
its flagship store on Madison Avenue was profitable. The rest of the stores were
not only  unprofitable  but were  diverting  management's  attention  away  from
pursuing profitable opportunities in the Company's other division. Therefore, by
December  31,  1997,  the Company  closed  down four of its six stores.  A fifth
store,  in Macy's Cellar was taken over by Ferrara Bakery from April 1, 1998 and
the Company continues to run the Madison Avenue store.



<PAGE>








In connection with the restructuring plan,  management has written down property
and  equipment as of December 31, 1996,  by  approximately  $789,000.  A further
$143,000 in leasehold improvements was written off in the first quarter of 1998.
Finally,  the  Company had charged  1996 with a $450,000  provision  for actions
aimed at restructuring  the Company,  of which $370,000 was actually incurred as
of March  31,  1998.  This  charge  mainly  comprises  write  down of  leasehold
improvements  on  stores  that  have  been  closed  down,  provisions  for lease
obligations on certain retail stores and charges for consultants involved in the
restructuring.  By taking the above actions, future periods will not be burdened
with the amortization, depreciation or expense of these costs.

We took a step back at the retail end in order to move forward.  We are now at a
point where we have  minimized  the losses and are now pursuing  ways of growing
the business profitably.

Wholesale Operations:

The next phase in the Company's  plan of action is to build up the wholesale end
of its  business  with fewer but  profitable  products.  This  process  includes
calling on supermarket headquarters and chain restaurant accounts.  Brokers have
been appointed and sales calls and visits are being made.

d.  Liquidity of Capital Resources:

Since its inception the  Company's  only source of working  capital has been the
$8,233,000 received from the issuance of its securities.

In June 1995,  the Company  issued  180,000  shares of common stock to unrelated
parties for $600,000 and in August 1995, the Company issued 60,000 shares of its
common  stock  to  unrelated  parties  for  $200,000.  In  connection  with  the
acquisition of Greenberg's  L.P., the Company received  $2,000,000 from the sale
of two notes to  InterEquity  Capital  Partners,  L.P.  ("InterEquity").  During
October 1995, the Company  received net proceeds of $4,900,000  from the sale of
1,150,000  shares of its common  stock in an  initial  public  offering.  During
January 1997, the Company  received net proceeds of $1,650,000  from the private
placement of  1,875,500  common  stock  purchase  warrants at $1.10 per warrant.
During  October  1997,  the Company  received net proceeds of $883,000  from the
exercise of a portion of these common stock warrants. Of the $5,700,000 proceeds
from the  aforementioned  stock  sale  (i)  $2,125,000  was  used to  repay  the
InterEquity debt including interest (ii) $2,615,000 was used in operations (iii)
$765,000  was used to purchase  property,  equipment  and  leaseholds;  and (iv)
$195,000 was used for general corporate purposes. The net $1,747,500 of proceeds
from the private  placement  warrants  was used to acquire  JMS. Of the $883,000
proceeds from the exercise of warrants  $325,000 was used for  consolidation and
merger of JMS and  Chatterly,  $341,000 was used for corporate  purposes and the
balance will be used for on going corporate expenses and to fund new business.

As  of  March  31,  1998,  the  Company  has  a  negative   working  capital  of
approximately  $1,306,005 as compared to a negative  working capital of $523,198
at March 31, 1997.  During 1997,  management took actions aimed at restructuring
the Company in order to reduce  operating  costs and enhance the Company's focus
and  efficiency.  Pursuant to the  restructuring,  a new management team was put
into  place,  executive  contracts  and leases  were  renegotiated  and  certain
positions  were  eliminated  and certain stores were closed down. The Company is
continuing its cost cutting efforts during 1998.



<PAGE>




Item 3.  Legal Proceedings:

The Company is currently subject to the following legal proceedings:

The Company and the WGJ  subsidiary  have been named as  defendants in an action
entitled Bacal v. Creative Bakeries,  Inc., et al, Index # 600819/98,  which was
filed in the Supreme  Court of the State of New York for the County of New York.
The complaint in the action alleges that  defendants  Edmund  Abramson and Willa
Abramson,  allegedly  acting  on behalf of the  Company  and the WGJ  subsidiary
entered into an agreement with plaintiff,  Murray Bacal, whereby Mr. Bacal would
purchase warrants for common stock of Greenberg and that the Abramsons agreed to
repurchase the warrants for the same price at which they were originally sold to
him, plus our of pocket expenses. As a consequence, the complaint seeks $131,550
in compensatory  damages and $1,000,000 in punitive  damages,  together with the
costs and disbursements of the action.
The Company intends to vigorously defend the action.

The Company is party to a dispute  regarding,  among other things,  compensation
claimed to be owed to David Abrahami, a former employee of the Company.  Counsel
for Mr.  Abrahami  has made a written  demand to the Company  for  approximately
$300,000  in  unpaid  compensation  by  letter,  dated  February  12,  1998.  No
settlement  has been reached with Mr.  Abrahami  regarding  his claim for unpaid
compensation.

The Company is also subject to various  litigation  incidental  to its business,
none of which are deemed material by management.