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   June 30, 1997

                                       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)


                       222 New Road Parsippany, N J 07054

                    (Address of principal executive offices)


Issuer's telephone number, including area code:            (201) 808-8248

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 August 6, 1997

Common Stock, par value $0.001
 per share                                           3,155,500



<PAGE>



Part I.  Financial information


            Item 1.      Condensed consolidated financial statements:

                         Balance sheet as of June 30, 1997                F-2

                         Statement of operations for the six months and
                         three months ended June 30, 1997 and 1996        F-3

                         Statement of cash flows for the six months
                         ended June 30, 1997 and 1996                     F-4

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

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


Part II.  Other information


Signatures



<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              CONDENSED CONSOLIDATED BALANCE SHEET - JUNE 30, 1997
                                   (Unaudited)






                                     ASSETS

Current assets:
  Cash                                                            $   144,447
  Accounts receivable, less allowance for doubtful
   accounts of $26,800                                                384,756
  Notes receivable, related party                                      59,300
  Interest receivable                                                  13,600
  Inventory                                                           318,704
  Prepaid insurance                                                    79,959
  Prepaid expenses and other current assets                            69,364
                                                                   -----------
    Total current assets                                            1,070,130
                                                                    ---------

Property and equipment                                              1,288,481

Other assets:
  Covenant not to compete, net of amortization                         75,000
  Goodwill, net of amortization                                     1,220,705
  Security deposits                                                   152,032
                                                                   -----------
                                                                    1,447,737
                                                                    ---------

                                                                  $ 3,806,348
                                                                  ===========


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


Current liabilities:
  Notes payable, bank                                             $    89,486
  Accounts payable                                                    637,773
  Estimated liability for restructuring                               350,000
  Accrued payroll:
    Stockholders/officers                                             373,861
    Other                                                              33,513
  Accrued expenses nd other current liabilities                       301,126
                                                                      -------
    Total current liabilities                                       1,785,759

Deferred rent                                                          89,785

Commitments and contingencies

Stockholders' equity (deficiency):
  Preferred stock, $.001 par value, authorized 2,000,000
   shares, none outstanding
  Common stock, $.001 par value, authorized 10,000,000
   shares, issued and outstanding 3,155,500 shares in
   1997 and 3,060,000 in 1996                                           3,156
  Additional paid in capital                                       10,230,260
  Deficit                                                        (  8,302,612)
                                                                   -----------
                                                                    1,930,804
                                                                    ---------

                                                                  $ 3,806,348
                                                                  ===========





     See notes to condensed consolidated financial statements.
                                                                            F-2


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                SIX AND THREE MONTHS ENDED JUNE 31, 1997 AND 1996
                                   (Unaudited)













                            Six Months                        Three Months
                          Ended June 30,                     Ended June 30,
                         1997          1996               1997           1996
                         ----          ----               ----           ----


Net sales             $3,337,935     $3,391,630       $1,655,149     $1,758,295

Cost of sales          2,409,771      2,412,178        1,102,159      1,294,886
                      ----------     ----------       ----------     ----------

Gross profit             928,164        979,452          552,990        463,409

Operating expenses     2,278,116      2,067,441          926,493      1,064,226
                      ----------      ----------        ----------   ----------

Loss from operations ( 1,349,952)   ( 1,087,989)     (   373,503)   (   600,817)
                      ----------     ----------        ----------    ----------

Other income (charges):
  Interest income         11,363         40,464            5,585          8,825
  Interest expense   (     9,095)     (   5,671)       (   5,032)       ( 2,695)
                       ----------     ----------       ----------    ----------
                           2,268         34,793              553          6,130
                       ----------     ----------       ----------    ----------

Net loss             ($1,347,684)   ($1,053,196)     ($  372,950)   ($  594,687)
                     ============    ============      ==========    ==========

Net loss per common
 share              ($      .24)   ($      .28)      ($      .06)   ($      .16)
                      ==========    ============      ===========    ==========

Weighted average number
 of common shares
 outstanding          5,628,103       3,802,703        5,908,503      3,802,703
                     ==========      ==========        ==========    ==========




















     See notes to condensed consolidated financial statements.

                                                                           F-3


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                     SIX MONTHS ENDED JUNE 30, 1997 AND 1996
                                   (Unaudited)






                                                         1997          1996
                                                         ----          ----

Cash flows from operating activities:
  Net loss                                          ($1,347,684)   ($1,053,196)
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation                                        73,779         45,016
     Amortization                                        12,500         82,702
     Compensatory element of issuance of warrants       421,730
   Changes in other operating assets and liabilities:
     Accounts receivable                                114,682         59,873
     Inventory                                           31,099    (    25,312)
     Interest receivable                                  1,190    (     2,652)
     Prepaid expenses and other current assets      (    20,487)   (   122,423)
     Accounts payable                               (   409,677)   (   190,812)
     Accrued expenses and other current liabilities     166,897          2,955
     Deferred rent                                       21,183         16,555
                                                      ----------     ----------

     Net cash used in operating activities          (   934,788)   ( 1,187,294)
                                                      ----------    ----------

Investing activities:
  Purchase of subsidiary                            (   900,000)
  Purchase of property and equipment                (    40,173)   (   335,085)
  Decrease in note receivable, related party                700         75,000
  Increase in rent security deposits                (     7,936)   (    36,100)
                                                      ----------    ----------

     Net cash used in investing activities          (   947,409)   (   296,185)
                                                      ----------    ----------

Financing activities:
  Proceeds from issuance of common stock and
   warrants                                           1,747,500
  Payment of debt                                   (     9,121)   (   114,638)
                                                     ----------     ----------

     Net cash provided by (used in) financing
      activities                                      1,738,379    (   114,638)
                                                     ----------     ----------

Net increase (decrease) in cash                     (   143,818)   ( 1,598,117)

Cash, beginning of period                               288,265      3,097,161
                                                      ----------     ----------

Cash, end of period                                  $  144,447     $1,499,044
                                                      ==========     ==========

Supplemental disclosures:
  Cash paid during the year for:
    Interest                                         $    9,095     $    5,671
                                                      ==========     ==========
    Income taxes                                     $        0     $        0
                                                      ==========     ==========

Supplemental schedule of non-cash investing activities and financing activities:
    Issuance of common stock and warrants
     regarding acquisition of subsidiary             $1,315,000




     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, 1996 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.

       The Company,  on January 17, 1997  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  $2,215,000  of  which  $900,000  was  paid  in  cash  and the
       remaining  $1,315,000  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 400,000 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.








                                                                            F-5


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






3. Principles of consolidation:

      The consolidated financial statements of William Greenberg Jr. Desserts
      and Cafes, 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 William Greenberg Jr. Desserts and Cafes, Inc.


4. Acquisition of Greenberg Dessert Associates Limited Partnership:

      On June 2, 1995,  the Company  entered  into an  agreement to purchase the
      operating assets (net of $155,700 in assumed liabilities),  properties and
      rights of Greenberg Dessert Associates Limited Partnership  (Greenberg's -
      L.P.) for $2,000,000, consisting of $1,967,300 in cash
       and a promissory note in the amount of $32,700.  This Acquisition,  which
       was  consummated on July 10, 1995,  was accounted for as a purchase.  The
       excess of the  purchase  price over the value of the net assets  acquired
       was recorded as goodwill. In addition, the Company incurred legal fees of
       $26,000, which related to the Greenberg's - L.P. acquisition.

      The net assets purchased and the liabilities assumed of Greenberg's -
       L.P. are summarized below:



        Assets purchased:
           Furniture, fixtures and leasehold improvements           $1,130,000
           Inventories                                                  40,000
           Covenant not to compete                                     125,000
                                                                     ----------
                                                                     1,295,000
        Liabilities assumed:
           Note payable - bank                                     (   123,000)
           Rent payable                                            (    32,700)
                                                                    ----------
        Net assets acquired                                          1,139,300
        Purchase price, including $73,500 of acquisition costs       2,073,500
                                                                    ----------

        Excess of purchase price over net assets acquired         ($  934,200)
                                                                    ==========




      The business acquired from Greenberg's - L.P. was founded in 1946 and is a
      recognized  provider  of premium  quality  baked goods and  desserts.  The
      Company  currently  owns and operates six (6) retail bakery stores located
      in Manhattan,  N.Y. All baking is done at its main commercial bakery which
      is located on West 47th Street, N.Y., N.Y. From this location, it services
      commercial and catering  customers as well as supplying all baked goods to
      its six retail stores.

      The Company entered in consulting  and/or  employment  agreements with a
      partner and three (3) key members of Greenberg's - L.P. management (see
       Note 11).





                                                                           F-6


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










4.    Acquisition of Greenberg Dessert Associates Limited Partnership
       (continued):

       In order to  finance  this  acquisition,  on July  10,  1995 the  Company
       obtained   $2,000,000   from   InterEquity   Capital   Partners,    L.P.,
       ("InterEquity")  in the form of (i) an  amortizing  note in the aggregate
       amount of $1,999,000 (the "Amortizing Note") and (ii) a $1,000 note which
       was  convertible  into shares of common stock of the Company or a warrant
       to acquire  shares of the  Company's  stock (the  "Convertible  Note" and
       together with the Amortizing Note, the "Notes"). Interest on the Note was
       14.5% per annum.  The Company also paid  InterEquity a commitment  fee of
       $50,000.  The Notes were  collateralized  by a security  interest  in the
       Company's  assets  as  well  as a  collateral  assignment  of  all of the
       Company's  leases and a pledge of an  aggregate  of  1,025,000  shares of
       common stock owned by the two  founding  stockholders  and the  Company's
       President.  The Amortizing Note was payable on or prior to July 31, 2000,
       with  interest  only  for  the  first  12  months  and 48  equal  monthly
       installments  of principal and interest  commencing July 31, 1996 through
       June 30, 2000. The Convertible  Note was payable in full on July 31, 2000
       with  interest  only  payable  monthly  commencing  July 31,  1995.  This
       financing  agreement allowed  InterEquity to convert the Convertible Note
       into shares of the Company's capital stock or a warrant to acquire shares
       of stock of the Company in a number  sufficient  to equal up to 6% of the
       Company's then outstanding preferred and/or common shares of stock.

       The Notes were  repaid in full in October  1995 from the  proceeds of the
       sale to the public of the Company's common stock which was consummated in
       October  1995.  InterEquity  exercised  its option under the terms of the
       Convertible Note to purchase a warrant for $1,000 to acquire shares equal
       to 6% of the  Company's  outstanding  preferred  and common  shares.  The
       warrant expires in October,  2001 and contains  anti-dilutive  provisions
       which entitle  InterEquity  to 6% of the  Company's  capital stock on the
       date the warrant is converted into capital stock. The loan agreement also
       requires the Company to keep in reserve shares  sufficient to satisfy the
       required amount to be issued to InterEquity upon  conversion.  The holder
       of any shares  issued  pursuant  to such  conversion  may  demand,  under
       certain conditions,  that the Company purchase such capital shares for an
       amount  equal to a multiple  of  earnings as defined or the fair value of
       the  shares as  determined  by  independent  appraisal.  Such put is only
       available to the holder(s) of such shares from July 10, 2000 through July
       31, 2005 and then only if the Company's  classes of capital stock subject
       to the put are not listed for trading on a national  securities  exchange
       and/or are not quoted on an automated quotation system.










                                                                          F-7


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










4.    Acquisition of Greenberg Dessert Associates Limited Partnership
      (continued):

      The $856,871  difference  between the fair value of the 163,404  shares of
      the Company's common stock reserved for issuance under the warrant and the
      $1,000  proceeds  from the  warrant  was  charged to  operations  in 1995.
      Management  ascribed  a  fair  value  of  $5.25  per  common  share  which
      approximated  the market value of the  Company's  common stock at the date
      InterEquity  purchased the warrant.  As a result of the Company's issuance
      of 61,500  common  shares  during 1996,  InterEquity  is entitled to 3,925
      additional   shares  of  the   Company's   common  stock  based  upon  the
      anti-dilutive provision of its warrant.  Accordingly,  $11,775 was charged
      to operations in 1996 which  represented  the market value of the warrants
      on the date the warrants were issued.


5. 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 $2,215,000
       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) 400,000  purchase  warrants valued at fair value of
       $1.10 per warrant (aggregating $440,000) to acquire 400,000 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 the first  year and a minimum  of
       $150,000 thereafter.  In addition, the Company agreed to provide $600,000
       to JMS for working capital.









                                                                          F-8


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






5.    Acquisition of JMS Specialties, Inc.:

       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:

                    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                                         1,268,565
                                                                     ---------

                                                                    $2,215,000
                                                                    ==========




                                                                           F-9


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









6. Property and equipment:

      The  Company's  baking  equipment,  furniture  and fixtures and  leasehold
      improvements  were deemed to be impaired and written  down to  managements
      estimate  of their  fair value at  December  31,  1996.  Fair  value,  was
      determined by management's estimation of the net sales value if the
       property  assets were offered for sale. An impairment  loss in the amount
       of $797,559 was charged to operations during the fourth quarter of 1996.

        The following is a summary of property and equipment at June 30, 1997:

                    Baking equipment                                $1,196,269
                    Furniture and fixtures                             103,314
                    Leasehold improvements                             586,564
                                                                     ----------
                                                                     1,886,147
                    Less:  Accumulated depreciation
                            and amortization                           597,666
                                                                       -------
                                                                    $1,288,481
                                                                    ==========



7. Intangible assets:

      The acquisition  agreement of Greenberg's - L.P. contained a provision for
      a covenant not to compete of $125,000 which  management is amortizing over
      its five year term. Amortization of the covenant charged to operations was
      $12,500 in 1997 and 1996.

      The excess cost over the fair value of the net assets acquired from
      Greenberg's - L.P. aggregated $934,200.  This goodwill has been
      amortized over its estimated useful life of fifteen years.  Amortization
      charged to operations in 1996 was $31,156.

      Continuing  operating  losses  has caused  management  to  reevaluate  the
      goodwill  acquired  in the  purchase of  Greenberg's  - L.P. In the fourth
      quarter of 1996, management completed its reevaluation and determined that
      the  goodwill  had no  continuing  value and the  unamortized  portion  of
      $840,780 was charged to operations in the fourth quarter of 1996.

      On December 30, 1993, John McDonough, a fifty percent shareholder in
      J. M. Specialties, Inc., sold 100 shares of the Company's common stock
      to Philip Grabow, making Mr. Grabow the owner of all of the Company's
      outstanding shares.  As part of this transaction, J. M. Specialties,
      Inc. entered into a covenant not to compete with Mr. McDonough, whereby
      Mr. McDonough agreed not to manage, operate, join, control, or
      participate, in or be consulted as an officer, employee, sole
      proprietor, partner, shareholder or otherwise, with or for any business
      which in any such matter, directly or indirectly, has competed or will








                                                                          F-10


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








7.  Intangible assets (continued):

       compete with J. M. Specialties, Inc.  As consideration for entering into
       this agreement, the Company agreed to pay Mr. McDonough $1,000 per week,
       commencing the first week of January, 1994 and continuing through
       December 31, 1998 until a total of $260,000 has been paid.  Because no
       interest rate was stated in this agreement, $29,358 was deemed to be
       interest, as per Accounting Principles Board Opinion No. 21, leaving a
       value of $230,642 to be assigned to the covenant not to compete.

       In April of 1996, Mr. McDonough passed away, leaving the remaining
       balance of the note to his estate.  In October of 1996, J. M.
       Specialties, Inc. negotiated with the Estate of Mr. John McDonough and
       paid the remaining balance of the note of $147,179 with a lump sum
       payment of $115,000 leaving an extraordinary gain of $32,179 on the
       extinguishment of the debt as of December 31, 1996.

       Amortization  expense  amounted to $22,750 for the period  ended June 30,
       1996.



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:

       In November 1996, the Company issued 11,000 shares of its common stock to
       two (2) employees  valued at $33,000 for services  rendered.  In November
       and December  1996,  the Company  issued an aggregate of 26,000 shares of
       its common  stock  valued at $54,510  to two law firms in  settlement  of
       amounts owed for legal services.














                                                                          F-11


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









9.    Capital stock (continued):

       (a)  Common stock (continued):

       In  November  1996,  25,000  shares  of  common  stock  were  issued to a
       consultant  pursuant  to an  exercise  of an  option  at $2.00  per share
       resulting in a charge to  operations  of $50,000  which  represented  the
       value of his services.

       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).

        (b)  Warrants:

           (i)  Warrants issued in 1995:

             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  534,000  shares of  common  stock and
                2,425,000  warrants  during  1997,  the lender is entitled to an
                additional  179,229  shares of common  stock.  Accordingly,  the
                financial  statements include a charge to operations of $197,230
                which  represents  the market value of the stock at the time the
                179,229 warrants were issued by the Company.

             (ii) Other warrants issued in 1997:

             As part of the Acquisition, the Company issued on January 17, 1997,
             350,000  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).









                                                                          F-12


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS











9.      Capital stock (continued):

        (b)  Warrants (continued):

              (ii) Other warrants issued in 1997 (continued):

              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.

              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.




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-13


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










10.  Commitments and contingencies (continued):

      Employment Agreements (continued):

       In order to supplement its cash flow, in August 1996, the Company reduced
       payments to all employees  under  contract by 50%. The unpaid  portion at
       March 31, 1997 aggregating  $343,653 has been accrued and will be paid at
       such time as the Company has sufficient funds.

       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
 .
       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            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.














                                                                         F-14


<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









10.  Commitments and contingencies (continued):

      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 an addendum to the above  agreement,  during 1996 the Company opened a
        second  cafe in the Macy's  34th  Street  store and has placed  four (4)
        kiosks in various Macy's locations outside New York City. The additional
        locations  all operate under the  provisions  of the original  agreement
        described above.



11. Related party transactions:

      The Company shares warehouse facilities with J. P. Veggies, Inc.  Mr.
      Grabow and his family, own 40 percent of J. P. Veggies, Inc.  The
      Company charges 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 and $44,023 in 1996.

      The Company has a demand note receivable with a related party that carries
      interest  at five  percent.  The  balance  at June 30,  1997  amounted  to
      $59,300.















                                                                        F-15


<PAGE>


                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










12. Reconciliation of shares used in computation of earnings per share.


                                                           1997         1996
                                                           ----         ----

               Weighted average of shares actually
                 outstanding                           3,060,000      3,060,000

               Common stock purchase warrants          2,544,703        742,703
                                                       ---------      ---------

               Primary and fully diluted weighted
                 average common shares outstanding     5,604,703      3,802,703
                                                       =========      =========




13. Subsequent events:

      On March 17, 1997, the Company signed a letter of intent to acquire all of
      the capital stock of a bakery.  Financial  statements of Chatterly Elegant
      Desserts,  Inc. have not been provided since the proposed acquisition does
      not  meet  the  test  for  a  significant  subsidiary  as  required  under
      Regulation  SX 210-02(w).  The combined  investment in and advances at the
      proposed  acquisition  date did not exceed 10% of  consolidated  assets at
      June 30, 1997.






























                                                                        F-16


<PAGE>


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





General:

     The Company was  incorporated  in November 1993 and was in the  development
stage  through  July 1995.  From  April 1994  through  June  1995,  the  Company
assembled  its core  management,  raised  approximately  $ 600,000  from  equity
financing,  and  negotiated  a definitive  agreement  to purchase the  operating
assets and business of  Greenberg's - L.P. In July 1995,  the Company  completed
the  acquisition  for a purchase  price of $ 1,967,300  in cash and a promissory
note for $ 32,700. In connection with the acquisition,  the Company obtained a $
2,000,000  term loan and applied a portion of the net proceeds  from its initial
public  offering,  consummated  in October 1995 to pay in full the principal and
accrued  interest  under the term loan. The  acquisition  was accounted for as a
purchase and the excess of the  purchase  price over the value of the net assets
acquired was recorded as goodwill.




     At June 30,  1997 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  $  5,900,000  which can be used to reduce the tax on
income up to that amount through the year 2011.





b.  Results of Operations:

      Historical:

     The Company  from its  inception on November 12, 1993 through July 10, 1995
was in the developmental  stage and did not carry on any significant  operations
nor generate  any  revenues.  Management's  efforts  were  directed  towards the
development and implementation of a plan to generate  sufficient revenues in the
baking  industry  to cover all of its costs and  expenses.  The  Company did not
generate any revenues until July 10, 1995 when it acquired the operating  assets
of Greenberg's -L.P.

     The Company consolidated revenues aggregated $ 3,337,935 and $3,391,630 for
the six months  ended June 30,  1997 and 1996,  respectively.  The cost of goods
sold was $ 2,409,771 in 1997 and $ 2,412,178 in 1996.  Operating expenses were $
2,278,116 in 1997 and $ 2,067,441 in 1996. As a result, the loss from operations
for the six months ended June 30, 1997 and 1996 was  $1,347,684  and $ 1,053,196
respectively.


     The Company's  consolidated  revenues aggregated $ 1,655,149 and $1,758,295
for the three months ended June 30, 1997 and 1996,  respectively,  a decrease of
5.8%. The cost of goods sold for 1997 was $ 1,102,159 and $ 1,294,886 in 1996, a
decrease of $ 192,727,  or 14.8%. In addition,  operating  expenses  decreased $
137,733  from $ 1,064,226  in 1996 to $ 926,493 in 1997, a decrease of $ 221,737
or 37.2%. Management attributes this positive trend to its restructuring efforts
and its implementation of new management.


     In the first six months of 1997, the Company incurred costs associated with
issuance of the warrants.  These costs,  for services  rendered and loan fees to
Interequity,  were  charged to  operating  costs and  amounted to  approximately
$623,000  of which $ 198,000 was used to pay certain  payroll  obligations  when
employment   contracts  were  settled.   In  addition,   one  of  the  Company's
subsidiaries,  JM  Specialties,  Inc.,  paid one  time  signing  bonuses  to two
employees amounting to $ 68,000.


     For the six months ended June 30, 1996, the Company earned  interest income
of $ 31,639 which arose  mainly from  investing a portion of the net proceeds it
received upon the  consummation  of the initial  public  offering in liquid cash
equivalents.

     The 1997  statements  of  operations  reflect a charge  in the  amount of $
197,230, which represents the fair market value of 179,299 warrants, issued to a
lender in order to  satisfy  the  obligation  under a written  agreement.  These
warrants were valued at $ 1.10.

     The resulting net loss aggregated $ 1,347,684 for 1997 ($.24) per share and
$ 1,053,196 for 1996 ($.28) per share.



     The retail division and wholesale divisions of the Parent Company,  William
Greenberg Jr. 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  consist  of
ingredients,   direct  labor  and  overhead.   Since  the   acquisition  of  the
Greenberg-L.P.,  management  has  concentrated  their  efforts  on  running  the
wholesale segment as a separate business.



     J.M. Specialties,  Inc., offers a line of batter and frozen finished cakes,
brownies, and muffins. J.M Specialties, Inc.'s financial records and affairs are
kept  separate  from the  parent  but  included  in the  consolidated  financial
statements at June 30, 1997 and 1996.

     Selling,  general and administrative expenses of the retail segment consist
of (i)  expenses  incurred in each of the five retail  stores and (ii)  expenses
allocated  from the Company's  centralized  operating  facility  which are based
primarily on sales volume.  The increase in selling,  general and administrative
expenses  as a  percentage  of sales  during  1997,  as  compared  to 1996,  was
primarily  the result of the effect of the  issuance  of common  stock  purchase
warrants for services rendered, salaries, and fees ($425,000) and the settlement
and termination of various employment agreements.

     The decrease in depreciation  and amortization for 1997 as compared to 1996
is  attributable to depreciation  and  amortization  from assets written down or
written off for the year ended December 31, 1996.



c.       Plan of Operation:

Reorganization of  New York City Baking Operations:


     During the first six months of 1997  management has taken numerous steps to
restructure  its New York City baking  operation  in a  concentrated  efforts to
reduce operating costs.  Their plans have involved a restructuring of the entire
management team. Duties have been divided between manufacturing,  wholesale, and
retail  operations.  The  commissary  at 47th  Street,  New  York  City has been
redesigned  with  resulting  savings in labor and overhead.  Purchasing has been
centralized which has also resulted in savings.  Leases have been  renegotiated,
employment  contracts,  which have seriously  impacted the Company's cash flows,
have been either renegotiated or terminated.



     In connection with the restructuring plan,  management has written down its
baking equipment,  leasehold  improvements and fixtures as of December 31, 1996,
by  approximately  $ 800,000 due to  impairment  in their  value.  In  addition,
management has determined unamortized goodwill of approximately $ 840,000 has no
continuing  value and accordingly it was written off during 1996.  Finally,  the
Company  had  charged  1996  with a $ 450,000  provision  for  actions  aimed at
restructuring  the Company,  of which $100,000 was actually  incurred as of June
30,  1997.  This  restructuring  charge  is  predominantly  comprised  of  costs
associated  with the  elimination  of certain  positions,  provisions  for lease
obligations on certain retail stores,  and charges for  consultants  involved in
the restructuring.  By taking the above-mentioned  actions, future periods, will
not be burdened with the amortization, depreciation or expense of these costs.


     Management feels that as a result of the  restructuring  and elimination of
costs, savings for the fiscal year 1997 will be in excess of $ 1,000,000.



Acquisition of J.M. Specialties Inc.:

     On January 17, 1997, the Company  entered into a stock  purchase  agreement
("Stock,Purchase  Agreement") with Philip Grabow ("Grabow"),  pursuant to which,
January 23, 1997,  the Company  consummated  the purchase from Grabow of all the
outstanding  shares of J.M.  Specialties,  Inc., a New Jersey  Corporation ("JMS
Subsidiary"),  in exchange for (I) $ 900,000 in cash,  (ii) 500,000  shares (the
"Shares") of the Common  Stock of the Company and (iii)  400,000  warrants  (the
"Warrants")  exercisable  for  shares  of  Common  Stock  of  the  Company  (the
"Transaction").  Each warrant  entitles  Grabow to purchase one share of Company
common stock at the exercise  price of $ 2.50 per share until December 31, 2000.
In connection  with the Stock  Purchase  Agreement , Grabow and the Company also
entered (i) a  registration  rights  agreement,  dated as of January  23,  1997,
regarding  the terms of the  registration  of the Shares of Common  Stock of the
Company  issuable  upon  exercise  of the  Warrants,  and  (ii)  and  employment
agreement dated January 23, 1997. Pursuant to the employment  agreement,  Grabow
will serve as president and Chief Executive Officer of the Company at the annual
salary  level of  $250,000  for the  first  year,  and a  minimum  of $  150,000
thereafter. Also in connection with the Transaction, effective January 23, 1997,
Grabow  was  elected to serve as a  director  of the  Company as a result of the
Transaction,  Grabow  beneficially  owns 850,000 shares (or 24.5%) of the common
stock of the Company.



     With the acquisition of the JMS  subsidiary,  the Company now also offers a
line  of  batter  in  frozen-  finished  cakes,  brownies,  and  muffins,  which
constitute  approximately 90% of the JMS Subsidiary's  sales. These products are
manufactures  in  batches  using  partially   automated  equipment  at  the  JMS
Subsidiary's  facility in  Parsippany,  NJ. The  products  are sold to wholesale
customers as well as supermarket distribution centers and are marketed primarily
through food distribution  companies in New York and New Jersey.  The management
of the Company believes that distributors sell approximately 40% of the products
to supermarket and 60% to food service customers.


     To develop new accounts,  JMS Subsidiary  personnel present the products at
food shows,  contact possible  customers directly to have them order the product
from  their  distributor  an  through  direct  mailings  to  customers.  The JMS
Subsidiary's  current food  distribution  include  SYSCO Foods,  Alliant  Foods,
Rykoff-Sexton and over 75 other accounts consisting of supermarket  distribution
centers,  Food service  distributors,  and independent bakery distributors.  The
product  ultimately  ends up at Food  Service  accounts  such as the  Museum  Of
Natural History, Various colleges, Hospitals,  corporate feeders, and retailers,
such as Shop Rite, PathMark, A & P etc.


     The JMS  Subsidiary  started  business in October 1994 as a company  making
gourmet  batter  product.  The product line was then extended to Sugar Free then
Fat-Free and finally frozen finished baked product.



     According to the Company's  management , this change reflects the change in
the  marketplace  where  consumers  wanted more Fat -Free products and customers
wanted frozen - finished  products to minimize  customer time to bake and finish
batter product.

     Management of the JMS  Subsidiary  believes that the  reputation of the JMS
Subsidiary has grown  considerably as a result of the product's taste,  texture,
and  price  value.  The  product  has  no  preservatives,  hydrogenated  oil  or
chemicals: rather it uses natural ingredients.


     In connection with the Transaction,  the Company provided $ $600,000 to the
JMS Subsidiary for working capital purposes.  The payment of the cash portion of
the purchase price for the JMS Subsidiary and such working capital  aggregated $
1,500,000, was funded through net proceeds received from the sale by the Company
of $1,875,000 common stock purchase warrants (the "Private Placement  Warrants")
at a price of $ 1.10 per  Private  Placement  warrant  to a  limited  number  of
purchasers  that qualify as "accredited  investors"  under the Securities Act of
1933.The terms of the Private Placement  Warrants are  substantially  similar to
the Warrants.



 (iii) Other Acquisitions:


     On March 20, 1997, the Company entered into an employment contract with the
former owners of a company that produced low-fat and fat- free  cookies.Pursuent
to the contract 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 performance.  In addition both  individuals
will be entitled to an  aggregate  of $ 50,000  warrants in the event that sales
volume exceeds $ 750,000 per annum.


     Currently,  a contract  has been  signed to produce  fat free  cookies  for
Safeway  Supermarkets  under their  Healthy  Advantage  label.  This contract is
estimated to take effect July 1997. The Company is also pursuing other contracts
with various Supermarket chains.




Pending Negotiations:


     On March 17,  1997,  the  Company  signed a letter of intent to acquire the
Stock of a bakery.  The acquisition if  consummated,  will be accounted for as a
pooling of interests.

     Plans call for closing the JMS facility and merging it with the bakery with
which the letter of intent has been signed. This merger will result in estimated
savings of between $ 400,000.00 and $ 600,000.00 per year.  These savings are in
addition  to the  estimated  savings  from the  restructuring.  There  can be no
assurance  that a  definitive  agreement  will be reached or, if reached  that a
closing thereunder will occur.




Liquidity and Capital Resources:


     Since its inception the Company's  only source of working  capital has been
the $ 7,460,000 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.  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.


     As of June  30,  1997,  the  Company  has a  negative  working  capital  of
approximately $ 715,629 as compared to a negative working capital of $ 1,134,000
at December 31,  1996.  During the first half of 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. The Company expects that the
aforementioned  actions will stop the cash  outflows,  which it has  experienced
since inception.

     Selling,  general and administrative expenses of the retail segment consist
of (i)  expenses  incurred in each of the five retail  stores and (ii)  expenses
allocated  from the Company's  centralized  operating  facility  which are based
primarily on sales volume.  The increase in selling,  general and administrative
expenses as a percentage  of sales during 1997 as compared to 1996 was primarily
the result of the effect of the issuance of common stocks purchase  warrants for
services rendered, salaries, and fees ($623,000).

     The decrease in amortization  for 1997 as compared to 1996, is attributable
to  amortization  from  assets  written  down or written  off for the year ended
December 31, 1996.



<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 August 8, 1997

     CREATIVE BAKERIES, INC.

     BY:___/s/Philip Grabow 
              Philip Grabow
              Chief Executive Officer