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   September 30, 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 September 30, 1998

Common Stock, par value $0.001
 per share                                          5,101,750



<PAGE>





























                                      INDEX



Part I.  Financial information


              Item 1.   Condensed consolidated financial statements:

                        Balance sheet as of September 30, 1998          F-2

                        Statement of operations for the nine and three
                        months ended September 30, 1998 and 1997        F-3

                        Statement of cash flows for the nine months
                        ended September 30, 1998 and 1997               F-4

                        Notes to condensed consolidated financial
                        statements                                   F-5 - F-16

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

              Item 3.   Legal proceedings


Part II.  Other information


Signatures



<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

          CONDENSED CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 1998
                                   (Unaudited)





                                     ASSETS

Current assets:
  Cash                                                           $   152,992
  Accounts receivable, less allowance for doubtful
   accounts of $40,616                                               373,202
  Inventory                                                          262,688
  Prepaid expenses and other current assets                           68,144
                                                                  -----------
    Total current assets                                             857,026
                                                                  ----------

Property and equipment, net of accumulated depreciation            1,214,805
                                                                 -----------

Other assets:
  Covenant not to compete, net of amortization                        43,750
  Goodwill, net of amortization                                      991,090
  Security deposits and other assets                                  69,191
                                                                 -----------
                                                                   1,104,031
                                                                   ---------

                                                                 $ 3,175,862
                                                                 ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
  Current portion of long-term debt                              $    34,320
  Notes payable, bank                                                148,403
  Notes payable, other                                                36,019
  Accounts payable                                                   936,349
  Estimated liability for restructuring                               80,541
  Accrued payroll                                                    423,324
  Payroll taxes payable                                               68,037
  Accrued expenses and other current liabilities                     441,152
                                                                  -----------
    Total current liabilities                                      2,168,145
                                                                  -----------
                                                                           

Long-term debt, net of current portion                                 8,176
                                                                  -----------

Deferred rent                                                        156,722

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 5,101,750 shares                     5,302
  Additional paid in capital                                      11,195,665
  Deficit                                                       ( 10,118,859)
                                                                 -----------
                                                                   1,082,108
  Common stock held in treasury, 169,500 shares                      239,289
                                                                 -----------

                                                                     842,819
                                                                 -----------

                                                                 $ 3,175,862
                                                                 ===========



     See notes to condensed consolidated financial statements.
                                                                         F-2

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

             NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (Unaudited)









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


                                                          Nine Months                          Three Months
                                                        Ended September 30,                   Ended September 30,
                                                1998                 1997             1998                 1997
                                                ----                 ----             ----                 ----


Net sales                                     $3,801,101         $6,361,242         $1,136,350         $1,989,915

Cost of sales                                  2,859,342          4,611,831            844,589          1,416,585
                                              ----------         ----------         ----------         ----------

Gross profit                                     941,759          1,749,411            291,761            573,330

Operating expenses                             1,437,461          3,503,220            346,316          1,008,917
                                              ----------         ----------         ----------         ----------

Loss from operations                        (   495,702)       ( 1,753,809)       (    54,555)       (   435,587)
                                             ----------         ----------         ----------         ----------

Other income (charges):
  Miscellaneous income                            92,598             11,480             58,418
  Loss on sale of
   leasehold improvements                   (   143,177)
  Interest income                                  8,587             13,872              1,626              2,510
  Interest expense                          (    23,489)       (    23,390)       (     4,660)       (       349)
  Gain on sale of
   equipment                                                          5,400                                 5,400
                                              ----------         ----------         ----------         ----------

                                            (    65,481)              7,362             55,384              7,561
                                             ----------          ----------         ----------         ----------

Net income (loss)                           ($  561,183)       ($1,746,447)         $      829        ($  428,026)
                                             ==========         ==========          ==========         ==========

Net loss per common
 share                                     ($      .11)        ($      .44)         $      .00        ($      .10)
                                             ==========         ==========          ==========          ==========

Weighted average number
 of common shares
 outstanding                                   5,086,007          3,972,419          4,972,233          4,264,428
                                              ==========         ==========         ==========         ==========



</TABLE>












     See notes to condensed consolidated financial statements.
                                                                            F-3


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                   (Unaudited)


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

                                                                                       1998                1997
                                                                                       ----                ----

Operating activities:
  Net loss                                                                          ($561,183)       ($1,746,447)
  Adjustments to reconcile net income to
   cash provided from operating activities:
     Depreciation and amortization                                                     228,953            196,891
     Loss on sale of leasehold improvements                                            143,172
     Compensatory element of issuance of warrants                                       57,402            513,446
   Changes in other operating assets and liabilities:
     Accounts receivable                                                               149,725       (     8,654)
     Inventory                                                                          94,859       (    92,680)
     Prepaid expenses and other current assets                                           3,337       (    61,499)
     Security deposits                                                                  41,171       (     9,191)
     Accounts payable                                                               ( 123,003)             24,798
     Accrued expenses and other current liabilities                                 ( 226,568)             78,962
     Deferred rent                                                                  (  36,234)            166,138
                                                                                     --------          ----------

     Net cash used in operating activities                                          ( 228,369)       (   938,236)
                                                                                     --------         ----------

Investing activities:
  Purchase of property and equipment                                                (  10,598)       (   385,200)
  Purchase of subsidiary                                                                             (   900,000)
  Proceeds from sale of leaseholds                                                      12,000                   
                                                                                      --------         ----------

     Net cash provided by (used in) investing
      activities                                                                         1,402       ( 1,285,200)
                                                                                      --------        ----------

Financing activities:
  Proceeds from issuance of common stock and
   warrants                                                                            112,000          1,747,500
  Increase (decrease) in debt                                                       (  58,307)            408,698
  Purchase of treasury stock                                                        ( 229,289)                   
                                                                                     --------          ----------

     Net cash provided by (used in) financing
      activities                                                                    ( 185,596)          2,156,198
                                                                                     --------          ----------

Net decrease in cash                                                                ( 412,563)       (    67,238)

Cash, beginning of period                                                              565,555            288,265
                                                                                      --------         ----------

Cash, end of period                                                                   $152,992         $  221,027
                                                                                      ========         ==========

Supplemental disclosures:
  Cash paid during the year for:
    Interest                                                                          $ 26,494         $   23,907
                                                                                      ========         ==========
    Income taxes                                                                      $      0         $        0
                                                                                      ========         ==========

Supplemental schedule of non-cash investing activities and financing activities:
    Issuance of common stock and warrants
     regarding acquisition of subsidiary                                                               $1,415,000
    Issuance of common stock in consideration
     of legal and consulting fees and accounts
     payable                                                                          $ 57,402                   
                                                                                      --------         ----------
                                                                                      $ 57,402         $1,415,000

                                                                                      ========         ==========
</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  Chatterley  Elegant  Desserts,   Inc.  (Chatterley)  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 Chatterley.  Chatterley 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, Chatterley 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
         June 30, 1997 to include Chatterley 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 consent of 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:

                    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
                                                                    ==========




                                                                          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 in a charge to  operations of $202,393
         in the first quarter of operations in 1997.


5.      Acquisition of Chatterley Elegant Desserts, Inc.:

        On September  1, 1997,  the  Company  acquired  100% of the  outstanding
         common shares of Chatterley  Elegant Desserts,  Inc.  (Chatterley) 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.

        Chatterley,  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 Chatterley 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 Chatterley, are as follows:

              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
                                                                      ========








                                                                           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 September  30,
         1998:
                    Baking equipment                            $1,715,450
                    Furniture and fixtures                         102,111
                    Leasehold improvements                         419,604
                    Automotive equipment                            12,896
                                                                 ----------
                                                                 2,250,061
                    Less:  Accumulated depreciation
                            and amortization                     1,035,256
                                                                 ---------
                                                                $1,214,805
                                                                ==========


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 $60,675 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 Chatterley  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.

        In June,  1998, the Company issued 100,000 shares of its common stock at
         $1.12 for total proceeds of $112,000.

        In July,  1998,  the Company issued 30,000 shares of its common stock in
         lieu of payment of accrued salaries and wages.  These salaries amounted
         to $73,125.

        The Company also issued  10,000 shares in July in full payment of a note
         payable.



                                                                           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:

               Inorder 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  included  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 in 1997
                 and 8,936 warrants in 1998.

        Compensatory  charges recorded on the income statement for 1998 and 1997
         amounted to $5,004 and $287,837, respectively.

               (ii) Warrants issued in 1997:

               Aspart 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.

               Inorder  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:

               OnMarch 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:

         OnMarch 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.  As of September 30, 1998,  these
           employment agreements have been terminated.







                                                                          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:

                                                     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
                                      ========      ========       ========


        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
         September 30, 1998.

        In conjunction with the purchase of Chatterley  Elegant Desserts,  Inc.,
         The Company entered into an employment agreement with a former employee
         of Chatterley. The agreement covers a three year period commencing upon
         the transfer of the  Company's  shares to the seller of  Chatterley  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 September 30, 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 had  terminated  this  agreement and vacated 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. In November 1998, after
         getting a release, the Company sold its final retail facility.









                                                                         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 baking facility are as follows:



                        June 30, 1999                         $109,961
                        June 30, 2000                          113,260
                        June 30, 2001                          116,658
                        June 30, 2002                          120,158
                        June 30, 2003                          123,764
                        Thereafter                             356,472
                                                              --------
                                                              $940,273
                                                              ========


        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.


                                                             Facility

                        September 30, 1999                $  189,937
                        September 30, 2000                   198,318
                        September 30, 2001                   200,000
                        September 30, 2002                   200,000
                        September 30, 2003                   200,000
                        Thereafter                           295,361
                                                           ----------
                                                          $1,283,616
                                                          ==========


        Rent expense for all operating  leases  amounted to $360,658 in 1998 and
         $445,795  in 1997  and  includes  straight-lining  of rent  adjustments
         discussed in Note 8.



11. 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.












                                                                           F-14


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







11.  Long-term debt (continued):

        The  total  future  annual  payments  as of  September  30,  1998 are as
follows:


                  September 30, 1999                            $34,320
                  September 30, 2000                              8,176
                                                                -------

                                                                $42,496
                                                                =======


12. Deferred income taxes:

        Deferred income taxes  (benefits) are the result of a deferred tax asset
         carried on the books of Chatterley 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.



13. 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 2,586,369 in 1997.

        Reconciliation of shares used in computation of earnings per share:

<TABLE>
<CAPTION>
<S>                                                                      <C>                            <C>        
                                                                         1998                           1997       
                                                                 --------------------            ------------------

                                                           Nine           Three            Nine           Three
                                                          Months          Months          Months          Months
        Weighted average of shares
         actually outstanding                           5,086,007       4,972,233       3,972,419       4,264,428

        Common stock purchase
         warrants                                                                                                

        Primary and fully diluted
         weighted average common
         shares outstanding                             5,086,007       4,972,233       3,972,419       4,264,428
                                                        =========       =========       =========       =========




</TABLE>



                                                                         F-15


<PAGE>


                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










14. Subsequent events:

        On November 2, 1998,  the Company sold its  facility on Madison  Avenue,
         including  all  furniture  and  fixtures.  The Company  received a full
         release on the lease.  The Company  maintains a royalty  agreement with
         the buyer.

















































                                                                           16


<PAGE>



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


     General:

     In  order  to  concentrate  on the  wholesale  end,  the  company  has been
downsisizing its retail  operations since 1997. Four stores were shut down as of
December  1997.  In March '98 the Company  closed its  operations  at the Macy's
location.  In June '98 the Company  closed its  commissary  at 47th street after
entering into a co-packing arrangement with JMJ Baking Corp.

     In early November 1998 the Company  licensed its William  Greenberg trade
name and  operations of its only  remaining  retail store on Madison Ave.,  thus
completing its exit from direct involvement in retailing.

     In consideration of the payment of $110,000 in cash, a four-year promissory
note in the  principal  amount of  $295,000  and the  obligation  to pay certain
royalties  to the Company on mail order  sales,  the licensee has taken over the
operation of the Madison Avenue store.


     The  licensee  also has the right to open  additional  Greenberg  stores in
certain areas of Manhattan in consideration  of certain  royalties to be paid to
the Company based on retail sales of such additional stores. The Company and the
licensee have also agreed to share equally profits derived from the wholesale of
Greenberg products.

     At September 30, 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  $7,000,000  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  $1,136,350 and $1,989,915
for the three  months ended Sep.  30, 1998 and 1997,  respectively.  The cost of
goods sold was $844,589 in 1998 and $1,416,585 in 1997.  Operating expenses were
$346,316 in 1998 and $1,008,917 in 1997. As a result, the loss from  operations
for third  quarter  1998 and 1997 was $54,555  and  $435,587  respectively. The
reduction in sales was mainly due to the  retrenchment  in the retail  division.
The  related  much  steeper  reduction  in  operating  expenses  was  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 $4,660.


<PAGE>

     The resulting net income (loss) aggregated $829 for 1998 $.00 per
share and ($428,06) for 1997 ($.10) per share. 

 
     The retail  division  and  wholesale  divisions  of WGJ Desserts and Cafes,
Inc., (the WGJ subsidiary)  sell similar  products.  Costs are allocated to each
division based upon the standard costs of the items sold.  Such costs consist of
ingredients, direct labor and overhead.

     Batter  Bake-Chatterley  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 Sep. 30, 1998 and 1997.

Plan of Operation:

Exit from Retail Operations:

     After analyzing the Company's retail operations,  management concluded that
the unprofitable retail division was 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. The commissary was closed down on June 30, 1998 and the Greenberg
tradename operations of the last remaining store on Madison Avenue were licensed
to a third party in early November, 1998.


     The Company  retained a 50% interest in the  wholesale  Greenberg  business
which it intends to aggressively develop jointly with the licensee.


     Since there was no  justification  to maintain the commissary,  the Company
entered  into a  co-packing  arrangement  with JMJ  Baking  Corp.  to supply the
product at the same high quality standard.  In order to assure the quality,  JMJ
has employed Greenberg's bakers and has agreed to use only Greenberg's recipes.

     In connection  with the  restructuring  plan,  management had written down
property &  equipment  as of  December  31, 1997 by  approximately  $798,000.  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  $369,459 was actually
incurred  as of Sep  30,  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.

<PAGE>


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 higher margin products. This process includes
calling on supermarket headquarters and chain restaurant accounts.  Brokers have
been appointed and sales calls are being scheduled.

Liquidity and Capital Resources:


     Since its inception the Company's  only source of working  capital has been
the $8,345,000 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 sales:  (i)  $2,125,000  was issued to repay the
InterEquity  debt including  interest;  (ii)  $2,615,000 was used in operations;
(iii) $765,00 was used to purchase property,  equipment and leaseholds; and (iv)
$195,000 was used for general corporate  purposes.  The $1,650,000 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  Chatterley,  $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 Sep.  30,  1998,  the  Company  has a  negative  working  capital  of
approximately $953,340 as compared to a negative working capital of $1,129,729
at Sep. 30, 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 an exit strategy out of retailing was completed. The Company
is continuing to seek new and profitable avenues of growth during 1998.



<PAGE>



                                     SIGNATURES



Pursuant to the requirements 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 November 12, 1998


                                           CREATIVE BAKERIES, INC.



                                           By:_/s/ Phillip Grabow___________
                                           Phillip Grabow
                                           Chief Executive Officer