<PAGE>



                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                  For the fiscal year ended: December 31, 2001

                         Commission File Number: 0-18711


                             Creative Bakeries, Inc.
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

<TABLE>
<S>                                             <C>
           New York                                           13-3832215
-----------------------------------------       -----------------------------------
(State or Other Jurisdiction of                 (I.R.S. Employer Identification No.)
Incorporation or Organization)

20 Passaic Avenue, Fairfield, NJ                                07004
-----------------------------------------       -----------------------------------
(Address of Principal Executive Offices)                     (Zip Code)
</TABLE>

Issuer's telephone number: (973) 808-8248

Securities registered under Section 12(b) of the Exchange Act:

<TABLE>
<CAPTION>
                                                   Name of Each Exchange on
Title of Each Class                                    Which Registered
-------------------                                ------------------------
<S>                                                <C>
Common Stock, $.001 per share                               NASDAQ
</TABLE>

Securities registered under Section 12 (g) of the Exchange Act:  None

     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
                                                                       --
     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form,and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

     Issuer's revenue for its most recent fiscal year was $3,770,507. As of
December 31, 2001 there were 5,245,250 shares of Company's Common Stock, par
value $.001 per share, outstanding. The aggregate market value of the voting
stock of the issuer on December 31, 2001 was approximately 1,049,050.


     Transitional Small Business Disclosure Format (check one):

               Yes                                   No  X
                  ---                                   ---




<PAGE>


                                     PART I

ITEM 1. DESCRIPTION OF THE BUSINESS

GENERAL

     Creative Bakeries, Inc. ("Creative"), offers a broad line of premium
quality pastries, cakes, pies, cookies and other assorted desserts which are
produced at its baking facility. Such baked goods are marketed and distributed
on a wholesale basis to supermarkets, restaurants, and institutional dining
facilities.

     Creative was incorporated in November 1993. The Company's executive offices
are located at 20 Passaic Avenue, Fairfield, NJ 07004 and its telephone number
is (973) 808-8248.

     The company had two subsidiaries. The sale of William Greenberg Jr.
subsidiary was completed in November 1998. From the remaining subsidiary known
as Batter Bake - Chatterley (BBC), the company sold the Batter Bake business in
December 2001.


BUSINESS STRATEGY

     The Company's business strategy is comprised of the following:

     Institutional/Wholesale: The Company plans to increase its penetration in
the institutional/wholesale food market by expanding its marketing efforts to
restaurants, hotels and corporate dining facilities and by offering its products
to supermarkets on a national basis. The Company plans to expand both its
product line and geographic distribution through the following strategies:

     Expand geographic distribution by acquiring new food distributors in the
Connecticut and Philadelphia areas as well as key distributor areas throughout
the United States. To do this, the Company intends to appoint food brokers in
various states to handle sales on a commission-only basis.

     Continue to expand the fat-free product line targeting existing customers
as well as new customers; and


                                       2




<PAGE>


     Enter into co-packing arrangements whereby the Company would introduce
private label products of other bakery operations.

     Kosher Foods. The Company also is seeking to benefit from the growth of the
kosher food industry. According to Prepared Foods, the kosher food industry
generated approximately $33 billion in sales in 1994 and has been growing at a
rate of approximately 15% per annum. The company's BBC Subsidiary has a kosher
certification and the Company believes that it can benefit from the projected
growth of this market.

BUSINESS PHILOSOPHY

     High Quality Ingredients. The Company believes that developing and
maintaining premium quality products is the key to its future success. The
Company uses the highest quality ingredients in its products including, AA
creamy butter, whole eggs, premium fruits, nuts, and chocolates blended for the
Company's unique recipes. The Company seeks to maintain rigorous standards for
freshness, quality, and consistency.

     Customer Service. The Company's goal is to provide its customers with warm,
courteous and efficient service. The Company depends on and enjoys a high rate
of repeat business. The Company believes that the quality of the relationship
between its employees and its customers is critical to its success. The Company
strives to hire and train well-qualified, highly motivated employees committed
to providing superior levels of customer service.

PRODUCTS

Baked Goods

     The Chatterley Desserts Subsidiary markets a full line of premium quality
baked products such as cheese cakes, mousse cakes and tart shells as well a
complete gourmet line of muffins. The Company continues to develop new products
and welcomes customer requests.

Kosher Foods

     Kosher foods generally are consumed by persons of the Jewish faith as well
as Muslims, Seven Day Adventists and others who perceive kosher certification as
a seal of purity. Kosher is a biblical term originally used to denote that which
is "fit" and "proper".

     The Company's subsidiary has kosher certification and the Company believes
that it can capitalize on the projected growth of this market. The Company
believes that its kosher certifications will enable it to better penetrate
certain market areas. The Company's products are not kosher for Passover.

CUSTOMERS

INSTITUTIONAL/WHOLESALE


                                       3




<PAGE>


     The Chatterley Desserts Subsidiary sells its products through food
distributors to hotels, hospitals and institutional feeders such as corporate
caters, restaurants, coffee shops etc. The products are also sold retail through
food distributors and direct to supermarket distribution centers.

INGREDIENTS AND PRINCIPAL SUPPLIERS

     The Company seeks to use only the highest quality ingredients available.
The Company has a policy of inspecting all raw ingredients before their intended
use.

     The ingredients used by the Company consist primarily of flour, eggs,
sugar, butter and chocolate. All ingredients used by the Company are subject to
substantial price fluctuations. The Company historically has been able to pass
any significant price increases in its ingredients through to its customers.
However, no assurance can be given that the Company will be able to continue
this practice in the future. Any substantial increase in the prices of
ingredients used by the Company could, if not offset by a corresponding increase
in product prices, have a material adverse effect on its business, financial
condition or results of operations. The Company does not believe the loss of any
of its suppliers would have a material adverse effect on its business and
believes that other suppliers could readily provide such products if necessary.

DISTRIBUTION AND MARKETING

     The Chatterely Subsidiary bakes all of its products in its 30,000 square
foot facility in Fairfield, New Jersey. Although utilization of the facility
varies based on seasonal fluctuation, the facility is operated on the basis of
two shifts, five days a week. The Company believes that the Chatterely
Subsidiary has the capacity to meet future requirements, including those arising
out of the consolidation with the Company. The Chatterley Subsidiary delivers
90% of its products by common carrier trucks to its institutional/wholesale
customers. About 10% of its customers pick up their orders directly at the
bakery and utilize their own distribution networks.

     Historically, the Company has relied upon word-of-mouth and customer
satisfaction to market its products to new customers and to make existing
customers aware of new products.

COMPETITION

     The baking industry is a highly competitive and highly fragmented industry.
The Company competes with national, regional and local bakeries as well as
supermarket chains that have in-store bakeries. Many of these competitors are
larger, more established and have greater financial and other resources than the
Company. Competition in both the retail and institutional/wholesale baking
industry is based on product quality, brand name loyalty, price and customer
service.

TRADEMARKS

     The JMS Subsidiary has a trademark and design registered with the United


                                       4




<PAGE>


States Patent and Trademark office for The Healthy Bakery'TM' (US Registration
No. 1,644,559). While the Company believes that the trademarks are valid and
enforceable, there can be no assurance as to the degree of protection its
registered trademarks will afford the Company.

GOVERNMENT REGULATION

     The Company is subject to numerous state regulations relating to the
preparation and sale of food. It is also subject to federal and state laws
governing the Company's relationship with employees, including minimum wage
requirements, overtime, working and safety conditions, and citizenship
requirements. The failure to obtain or retain required food licenses or to be in
compliance with applicable governmental regulations, or any increase in the
minimum wage rate, employee benefits costs (including costs associated with
mandated health insurance coverage) or other costs associated with employees,
could adversely affect the business, results of operations or financial
condition of the Company.

EMPLOYEES

     As of March 31, 2002, the BBC Subsidiary together with Creative had
approximately 37 full-time employees, of which 30 are employed in production, 2
in sales, 4 in administration and 1 in executive positions. The BBC Subsidiary
does not have a union and the Company believes that it has good relations with
its employees.


ITEM 2. DESCRIPTION OF PROPERTY

     As of March 31, 2002, the Company leases in Fairfield, New Jersey 29,362
square feet for its baking facilities. The Company believes that its existing
lease will be renewed when it expires in 2004 or alternative properties can be
leased on acceptable terms. The Company believes that its present facilities are
well maintained, in good condition and are suitable for the Company to continue
to operate and meet its production needs in the foreseeable future. The Company
is also considering subcontracting certain of its production requirements.

PLAN OF OPERATION

     Management has determined unamortized goodwill of approximately $671,000
has no continuing value and accordingly it was written off during 2001.

Future mergers and acquisitions:

     The Company continues to seek business in markets it does not currently
serve and is continuing to pursue mergers and acquisition opportunities.



                                       5




<PAGE>



ITEM 3.  LEGAL PROCEEDING

     There are no pending legal proceedings.



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

     None.



                                       6




<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is quoted on the Nasdaq Small Cap Market under
the symbol "CBAK" and the Boston Exchange under the Trading symbol "BYK". The
following table sets forth the range of quarterly high and low bid prices, as
reported on the NASDAQ SmallCap Market, during the last two fiscal years through
March 31, 2001.

<TABLE>
<CAPTION>
Period                                  High               Low
-----------------------------------------------------------------
<S>                                     <C>               <C>
FISCAL YEAR 2000:
First Quarter                           11/16             7/16
Second Quarter                          7/8               1/2
Third Quarter                           3/4               1/2
Fourth Quarter                          1/8               .12

Fiscal Year 2001:
First Quarter                           .09               .08
Second Quarter                          .22               .22
Third Quarter                           .11               .11
Fourth Quarter                          .20               .13
</TABLE>


     The number of shareholders of record of the Common Stock on February 28,
2002 was 41 excluding 2,637,778 shares of Common Stock held by Cede & Co. The
Company believes that it has in excess of 500 shareholders.

     The Company has never paid cash dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The payment of future
cash dividends by the Company on its Common Stock will be at the discretion of
the Board of Directors and will depend upon the Company's earnings (if any),
general financial condition, cash flows, capital requirements and other
considerations deemed relevant by the Board of Directors.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS

General

     The Company had licensed William Greenberg Jr. to a retail operator. During
the 4the quarter of 2000 the company also sold the license to the same operator.
Since the operator defaulted on the payment terms, the company has regained the
license.

     At December 31, 2001 to the extent the Company may have taxable income in
future periods, there is available a net operating loss for federal income tax


                                       7




<PAGE>


purposes of approximately $8,680,450 which can be used to reduce the tax on
income up to that amount through the year 2019.

     The Batter Bake name, customers and muffin batter operation was sold to
Fairfield Gourmet Foods, Fairfield, NJ on December 1, 2001. Management
determined that the category of muffin batter did not offer sufficient growth
opportunity. The company will focus on its bakery operations and promote its
cheesecake and its higher end dessert items. The company is also in negotiations
to acquire the assets of the Brooklyn Cheesecake Company. This acquisition is
expected to occur in early March of 2002.

Results of Operations

     The Company's consolidated revenues from continuing operations aggregated
$3,770,507 and $4,377,601 for the years ended December 31, 2001 and 2000
respectively, a decrease of 14%. The cost of goods sold was $3,279,919 and
$3,606,332 respectively, an increase of 9%. Operating expenses were $766,248 and
$1,053,350 respectively, a decrease of 27%. As a result, the loss from
continuing operations was $275,660 and $282,081 respectively, a decrease of 2%.

     Due to Management's intensive cost cutting efforts, the net loss was
reduced marginally in spite of the drop in sales volume.

     Depreciation and amortization for 2001 decreased as compared to 2000 due to
assets written down or written off for the year ended December 31, 2001.

     The company's consolidated revenues from its discontinued operation, the
WGJ subsidiary were $0 in 2001 and in 2000. The WGJ subsidiary showed a loss
from operations of $40,822 in 2001 vs. a gain of $48,701 in 2000.

SEGMENT INFORMATION: Not applicable since retail operations were discontinued.


LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

     Since its inception the Company's only source of working capital has been
the $8,455,000 received from the issuance of its securities.

     As of December 31, 2001, the Company had a negative working capital from
continuing operations of approximately $20,407 as compared to a negative working
capital of $182,731 at December 31, 2000.

CAPITAL RESOURCES:

     On January 23, 1997, the Company purchased JMS for $900,000 in cash,
500,000 shares of the Company's common stock valued at $875,000 and $400,000
purchase warrants valued at $440,000.


                                       8




<PAGE>


     In order to finance the acquisition, the Company sold in a private
placement 1,875,500 common stock purchase warrants at a net price to the Company
of $1,747,500.

     In October 1997 the Company raised $883,000 in connection with the exercise
of the warrants from the private placement related to the purchase of JMS.

     If and when the market price of the Company's stock increases and exceeds
the exercise price of the warrants previously issued, the Company may receive
additional funds upon the exercise of its warrants to operate and fund future
expansion and acquisitions. The Company is looking for opportunities to acquire
other companies which would improve its cash flow and capital positions in both
the short- and long-term. Management believes that funds for such acquisition
can be raised in transactions similar to the sale of stock purchase warrants
which funded the JMS acquisition.

     Although the Company has previously been successful in obtaining sufficient
capital funds through issuance of common stock and warrants, there can be no
assurance that the Company will be able to do so in the future.


INFLATION AND SEASONALITY:

     The Company's revenues are affected by seasons with higher revenues during
holiday seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
Passover.

STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

     This annual report contains certain forward-looking statements with respect
to the financial condition, results of operations and business of the Company
including statements relating to the cost savings, revenue enhancements and
marketing and other advantages that are expected to be realized from the
Company's plans to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve certain risks
and uncertainties that could cause actual results to differ materially from
those contemplated by such forward-looking statements. Such risks and
uncertainties include, without limitation: (1) expected cost savings from the
restructured or consolidated operations cannot be fully realized; (2)
difficulties relating to the integration of new businesses that may be acquired;
(3) the impact of competition on revenues and margins; (4) increases in the
costs of ingredients; and (5) other risks and uncertainties as may be detailed
from time to time in the Company's public announcements and Commission filings.


ITEM 7. FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                        <C>
Index to Financial Statement................................................................

Independent Accountants' Report.............................................................F-1
</TABLE>


                                       9




<PAGE>


<TABLE>
<S>                                                                                        <C>
Financial Statements:

     Balance Sheets as at December 31, 2001 and 2000........................................F-2

     Statement of Operations For the Years
        Ended December 31, 2001 and 2000....................................................F-3

     Statements of Stockholders' Equity (Deficiency) For the Years
        Ended December 31, 2001 and 2000 ...................................................F-4

     Statements of Cash Flows For the Years Ended December 31, 2001 and 2000 ...............F-5

     Notes to Financial Statements .................................................F-6 to F-12
</TABLE>


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

Not Applicable



                                       10




<PAGE>


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

Information Concerning the Board of Directors and Executive Officers

     The following table sets forth certain information concerning the Board of
Directors, persons nominated to be elected as directors and executive officers
of the Company:

<TABLE>
<CAPTION>
Name of Director or
Executive Officer,
Age and Position              Principal Occupation                                 Date of Initial Election
Held with Company             For Previous Five Years                              as Director
--------------------          -----------------------                              ------------------------
<S>                          <C>                                                   <C>
Ron Schutte 45                Chief Executive Officer, Aug. 2000 - May 2001         June 1, 2001
President and Director        Brooklyn Cheesecake Company Apr. 1999 - Jul 2000
                              Crestwood Consulting Mar 1997 - Mar 1999
                              Mother's Kitchen

Richard Fechtor, 71           Founder of and since 1974 Executive Vice              July 11, 1996
Director                      President of Fechtor, Detwiler & Co.,
                              Inc., the representative of the
                              underwriters in the Company's initial
                              public offering; Director of Vascular
                              Laboratories since 1989

Raymond J. McKinstry, 54,     Investment manager with Astair & Partners,            August 1995
Director                      Limited, a London based brokerage company,
                              1987 to present

Karen Brenner, 48,            President of Fortuna Advisors, Inc., an               July 1997
Director                      investment advisory firm in California
                              1993 to present; founder and President
                              of Karen Brenner, Registered
                              Investment Advisor, the predecessor to
                              Fortuna Advisors, Inc., 1984 to 1993;
                              Managing Partner of F.C. Partners, a
                              California limited partnership, April
</TABLE>


                                       11




<PAGE>


<TABLE>
<CAPTION>
Name of Director or
Executive Officer,
Age and Position              Principal Occupation                                 Date of Initial Election
Held with Company             For Previous Five Years                              as Director
--------------------          -----------------------                              ------------------------
<S>                          <C>                                                   <C>
                              1996 to present; Director on DDL
                              Electronics, Inc., a publicly held
                              company, July 1996 to present;
                              Director of Krug International Corp.,
                              a publicly held company, July 1996 to
                              present.

Yona Abrahami, 53             Founder and President of Chatterley                   August 1997
Director
                                                                                    January 1997
                              Former C.E.O. Creative Bakeries Inc. 1997
Philip Grabow 62              - 2001
</TABLE>

     All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualified. For a period of five years
from October 12, 1995, Fechtor Detwiler & Co., Inc. (the "Representative") has
the right to nominate one member to the Company's Board of Directors. Mr.
Fechtor is the Representative's current nominee to the Board of Directors. There
are no family relationships among any of the directors and executive officers of
the Company.

     Officers are appointed by the Board of Directors and serve at the
discretion of the Board.

Compliance With Section 16(a) of the Securities Exchange Act of 1934

     The Securities and Exchange Commission (the "Commission") has comprehensive
rules relating to the reporting of securities transactions by directors,
officers and shareholders who beneficially own more than 10% of the Company's
Common Shares (collectively, the "Reporting Persons"). These rules are complex
and difficult to interpret. Based solely on a review of Section 16 reports
received by the Company from Reporting Persons, the Company believes that no
Reporting Person has failed to file a Section 16 report on a timely basis during
the most recent fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

Compensation of Directors

     Directors of the Company who are not salaried officers receive a fee of
$500 for attending each meeting of the Board of Directors or a committee
thereof. In addition, all directors are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attending such meetings.

Executive Compensation in 2001


                                       12




<PAGE>


     The following table sets forth compensation paid to the Chief Executive
Officer and to executive officers of the Company, excluding those executive
officers who did not receive an annual salary and bonus in excess of $100,000 in
the fiscal year ended December 31, 2001.

<TABLE>
<CAPTION>
Name and Principal Position        Year        Salary ($)           Bonus ($)      Other Annual Compensation
---------------------------        ----        ----------           --------       -------------------------
<S>                                <C>          <C>                   <C>                    <C>
Ron Schutte, CEO                   2001         $150,000              $0.00                  $0.00
</TABLE>

     No other executive officer received a salary and bonus in excess of
$100,000 for the year ended December 31, 2001. The Company has not granted any
stock options, stock appreciation rights or long-term incentive awards to any
executive officer of the Company since its inception.

Employment Agreements

     Simultaneously with the acquisition of Chatterley, the Company entered into
employment agreements with Yona Abrahami and David Abrahami. Their contracts
have since been terminated. These agreements were filed as exhibits B and C
respectively with the Form 8-K/A on November 17, 1997.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the number and percentage of Common Shares
beneficially owned, as of the date of this Amendment to the Annual Report, by:
(i) all persons known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock; (ii) each director of the Company;
(iii) each of the "named executive officers" as defined under the rules and
regulations of the Securities Act of 1933, as amended; and (iv) all directors
and executive officers of the Company as a group (7 persons):

<TABLE>
<CAPTION>
       No. of shares beneficially owned                                     Percentage Benef. owned
       --------------------------------                                     -----------------------
      <S>                                                      <C>                  <C>
       Yona Abrahami(1).........................................500,000               9.53%
       Philip Grabow(2).........................................500,000               9.53
       Richard Fechtor(3).......................................142,933               2.0
       Raymond J. McKinstry(4)...................................50,000
       InterEquity Capital Partners, L.P.(5)....................378,390               7.0
       Ron Schutte(6)............................................50,000
       Executive directors and officers as a group ...........1,621,323
</TABLE>


                                       13


<PAGE>



(1)  Ms. Abrahami's address is c/o 20 Passaic Avenue, Fairfield, New Jersey
     07004.

(2)  Mr. Grabow's business address is c/o 20 Passaic Avenue, Fairfield, New
     Jersey 07004. Includes 500,000 Common Shares and currently exercisable
     warrants to purchase an additional 300,000 shares of Common Stock. See
     "Certain Relationships and Related Transactions."

(3)  Mr. Fechtor's business address is 155 Federal Street, Boston, Massachusetts
     02110. Upon the conversion of a certain note, InterEquity Capital Partners,
     L.P., received a six-year warrant exercisable until October 2001 to
     purchase, on one occasion, 6% of the issued and outstanding capital shares
     of the Company on a fully diluted basis as of the date of exercise. Certain
     persons associated with the Representative, received an aggregate 17.5%
     interest in such warrant, including Mr. Fechtor, who received a 5% interest
     in such warrant. As of March 31, 1998, there are 7,644,250 shares of Common
     Stock outstanding on a fully diluted basis, 6% of which equals 458,655
     shares of Common Stock. Accordingly, Mr. Fechtor's ownership as shown in
     the table includes 22,933 shares issuable upon exercise of such warrant.
     See "Certain Relationships and Related Transactions." Also includes 120,000
     shares of Common Stock. Excludes 5,500 shares of Common Stock owned by Mr.
     Fechtor's wife, of which he disclaims beneficial ownership.

(4)  Mr. McKinstry's business address is 40 Queen Street, London EC4R 1DD,
     England. Includes currently exercisable warrants to purchase 50,000 Common
     Shares.

(5)  InterEquity's business address is 220 Fifth Avenue, New York, New York
     10001. Includes an 82.5% interest in a six-year warrant exercisable to
     purchase, on one occasion, 6% of the issued and outstanding capital shares
     of the Company on a fully diluted basis as of the date of exercise. As of
     March 31, 1998, there are 7,644,250 shares of Common Stock outstanding, 6%
     of which equals 458,655 shares of Common Stock. Accordingly,


                                       14


<PAGE>


     InterEquity's ownership as shown in the table includes 378,390 shares
     issuable upon exercise of such warrant. The warrant is currently
     exercisable and expires in October 2001.

(6)  Mr. Schutte address is 20 Passaic Ave, Fairfield, New Jersey 07004.

     Includes the shares of Common Stock beneficially owned by Ms. Abrahami, Mr.
Grabow, Mr. Fechtor, Mr. McKinstry, Mr. Schutte,

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The JMS Acquisition

     On January 17, 1997, the Company entered into a stock purchase agreement
(the "Stock Purchase Agreement") with Philip Grabow ("Grabow"), pursuant to
which, on January 23, 1997, the Company consummated the purchase from Grabow of
all the outstanding shares of J.M. Specialties, Inc., a New Jersey corporation
(the "JMS Subsidiary"), in exchange for (i) $900,000 in cash, (ii) 500,000
shares (the "JMS Shares") of the Common Stock of the Company and (iii) 350,000
warrants (the "JMS Warrants") exercisable for shares of Common Stock of the
Company (the "JMS Transaction"). Each JMS Warrant entitles Grabow to purchase
one Common Share of the Company 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 Common Shares of issuable upon
exercise of the JMS Warrants, and (ii) an employment agreement dated as of
January 23, 1997. Pursuant to the employment agreement, Grabow will serve as
President 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. Also in
connection with the JMS Transaction, effective January 23, 1997, Grabow was
elected to serve as a director of the Company.

JMS Acquisition Indebtedness

     The payment of the cash portion of the purchase price for the JMS
Subsidiary and such working capital, was funded through the net proceeds
received from the sale by the Company of 1,500,000 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 qualified as
"accredited investors" under the Securities Act of 1933. The terms of the
Private Placement Warrants are substantially similar to the JMS Warrants.

The Chatterley Acquisition

     On August 28, 1997 the Company entered into a stock purchase agreement with
Yona Abrahami pursuant to which the Company purchased from Ms. Abrahami all the
outstanding shares of Chatterley Elegant Desserts, Inc., a New Jersey


                                       15




<PAGE>


Corporation, in exchange for 1,300,000 shares of the Company's common stock.
Such stock purchase agreement was subsequently amended and Ms. Abrahami agreed
to reduce the purchase price by surrendering 200,000 shares of common stock back
to the Company.


                                       16




<PAGE>


                                     PART IV

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

(a)  Financial Statements

     The financial statements filed as part of the Company's Form 10-KSB are
listed in Item 7. Financial Statements are included in Part IV hereof at page
F-1.

(b)  Reports on Form 8-K

     On September 11, 1997, the Company filed a Current Report on Form 8-K
announcing completion of the Chatterley acquisition.

(c)  Listing of Exhibits

        **2.1  Purchase and Sale Agreement, dated June 2, 1995, by and among the
               Company, Greenberg Dessert Associates Limited Partnership, SMG
               Baking Enterprises, Inc. and its limited partners.

       ***2.2  Stock Purchase Agreement, dated as of January 17, 1997, by and
               between the Company and Philip Grabow, without exhibits.

        **3.1  Restated Certificate of Incorporation.

        **3.2  Amended and Restated By-laws.

        **4.1  Form of certificate for shares of Common Stock.

        **4.2  Form of Representatives Warrant.

        **4.3  Loan Agreement, dated July 10, 1995, by and between InterEquity
               Capital Partners, L.P. and the Company.

       **10.1  Employment Agreement, dated July 10, 1995, by and between the
               Company and Stephen Fass.

       **10.2  Employment Agreement, dated as of July 10, 1995, by and between
               the Company and Willa Rose Abramson.

       **10.3  Employment Agreement, dated as of July 10, 1995, by and between
               the Company and Maria Maggio Marfuggi.

       **10.4  Employment Agreement and Consulting Agreement, dated July 10,
               1995, by and between the Company and Seth Greenberg.

       **10.5  Consulting Agreement, dated July 10, 1995, by and between the
               Company and William Greenberg Jr.. and Carol Greenberg.

       **10.6  Departmental License Agreement effective February 1995 by and
               between the Company and Macy's East, Inc.


                                       17




<PAGE>


       **10.8  Form of Warrant for InterEquity Capital Partners, L.P.

       **10.9  1995 William Greenberg Jr. Desserts and Cafes, Inc. Stock Option
               Plan

       **10.10 Lease Agreement dated July 1995 between the Company and Murray
               Greenstein.

       **10.11 Lease Agreement dated January 1994 between Schnecken Baking
               Realty Corp. and Gerel Corporation.

       **10.12 Assignment and Assumption of Lease dated July 1995 between the
               Company and Schnecken Baking Realty Corp.

       **10.13 Lease dated April 1991 between Greenberg's 35th Street Baking
               Co., Inc. and Rugby Managed Asset Fund.

       **10.14 Assignment and Assumption of Lease dated July 1995 between the
               Company and Greenberg's 35th Street Baking Co.

       **10.15 Lease dated May 1989 as modified in January 1991 between
               Greenberg's Triple S. Baking Co., Inc. and Stahl Real Estate Co.

       **10.16 Assignment and Assumption of Lease dated July 1995 between the
               Company and Greenberg's Triple S. Baking Co., Inc.

       **10.17 Consulting Agreement, dated July 10, 1995, by and between the
               Company and Marilyn Miller.

       **10.18 Form of Indemnity Agreement.

       **10.19 Sublease dated December 1995 between Timothy's Coffees of the
               World, Inc., and the Company.

     ****10.20 Lease dated March 8, 1995 between Harran Holding Corp., c/o A. J.
               Clarke Management and the Company.

     ****10.21 Agreement dated January 13, 1996 by and between the Company and
               Barry Kaplan Associates.

    *****10.22 Employment Agreement, dated January 23, 1997, by and between the
               Company and Philip Grabow.

    *****10.23 Form of Warrant for the Private Placement made in conjunction
               with the JMS Subsidiary acquisition.

   ******10.24 Stock Purchase Agreement dated August 28, 1997, between the
               Company and Yona Abrahami.

   ******10.25 Employment Agreement dated August 28, 1992 between the Company
               and Yona Abrahami.


                                       18




<PAGE>


   ******10.26 Employment Agreement dated August 28, 1992 between the Company
               and David Abrahami.

        *10.27 Amendment to Stock Purchase Agreement dated March 10, 1997,
               between the Company and Yona Abrahami.

        *21.1  List of Subsidiaries of the Company, the state of incorporation
               of each, and the names under which such subsidiaries do business.

---------------------

* Filed Herewith.

** Incorporated by reference to the Company's Registration Statement on
          Form SB-2 Registration Number 33-96094.

*** Incorporated by reference to Schedule 13-D filed by Philip Grabow on
          SEC File Number 005-48185.

**** Incorporated by reference to the Company's Annual Report for the
          fiscal year ended December 31, 1995, on Form 10-KSB Commission File
          Number 1-13984.

*****Incorporated by reference to the Company's Annual Report for the fiscal
          year ended December 31, 1996, on Form 10-KSB Commission.

******Incorporated by reference to the Company's Current Report on Form 8-K,
          dated September 11, 1997 and Form 8-K/A, dated November 17, 1997.


                                       19




<PAGE>


                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 31, 2002.

                                  CREATIVE BAKERIES, INC.

                                  By: /s/ Ron Schutte
                                      ---------------------------------
                                      President and Chief Executive Officer

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 31, 2002.


<TABLE>
<CAPTION>
Signatures                            Title
                                      -----
<S>                                   <C>



/s/Ron Schutte
                                      President, Chief Executive Officer/Director
----------------------------------
Ron Schutte




                                      Director
----------------------------------
Richard Fechtor

/s/ Raymond J. McKinstry              Director
----------------------------------
Raymond J. McKinstry




/s/Karen Brenner                      Director
----------------------------------
Karen Brenner

/s/Yona Abrahami                      Director
----------------------------------
Yona Abrahami
</TABLE>



                                       20









<PAGE>

                             CREATIVE BAKERIES, INC.

                          YEAR ENDED DECEMBER 31, 2001


                                    CONTENTS


                                                                        Page

Independent auditors' report                                             F-1

Consolidated financial statements:

  Balance sheet                                                          F-2

  Statement of operations                                                F-3

  Statement of stockholders' equity (deficiency)                         F-4

  Statement of cash flows                                                F-5

Notes to consolidated financial statements                            F-6 - F-12






<PAGE>

--------------------------------------------------------------------------------

Zeller Weiss & Kahn, LLP
CERTIFIED PUBLIC ACCOUNTANTS

--------------------------------------------------------------------------------
1084 Route 22 West       Melvin H. Zeller, CPA      Stephen E. Rosenthal, CPA
Mountainside, NJ 07092   Harold N. Binenstock, CPA  Alfred J. Padovano, CPA
TEL: 908-789-0011        Philip E. Hunrath, CPA
FAX: 908-789-0027        Peter J. Quigley, CPA




                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


Board of Directors
Creative Bakeries, Inc.

     We have audited the accompanying consolidated balance sheet of Creative
Bakeries, Inc. as of December 31, 2001, and the related consolidated statements
of operations, stockholders' equity (deficiency), and cash flows for the years
ended December 31, 2001 and 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Creative Bakeries, Inc. as
of December 31, 2001, and the results of its operations and cash flows for the
years ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred significant losses from
operations for the years ended December 31, 2001 and 2000 and as of December 31,
2001 has a working capital deficiency in the amount of $20,407, which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in the notes to the
financial statements. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


March 6, 2002


                                       F-1






<PAGE>

                             CREATIVE BAKERIES, INC.

                 CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2001


                                     ASSETS

Current assets:
  Cash and cash equivalents                                         $   121,616
  Accounts receivable, less allowance for doubtful
   accounts of $15,500                                                  300,524
  Inventories                                                           152,578
  Prepaid expenses and other current assets                              71,616
                                                                   ------------
    Total current assets                                                646,334
                                                                   ------------
Property and equipment, net                                             368,775
                                                                   ------------

Other assets:
  Goodwill, net of amortization                                          50,000
  Security deposits                                                       4,964
                                                                   ------------
                                                                         54,964
                                                                   ------------
                                                                    $ 1,070,073
                                                                   ============


               LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
  Loans payable, other                                               $    7,500
  Accounts payable                                                      421,471
  Accrued expenses                                                      237,770
                                                                   ------------
    Total current liabilities                                           666,741
                                                                   ------------
Other liabilities:
  Deferred rent                                                          94,533
  Net liabilities of discontinued operations
   less assets to be disposed of                                        442,092
                                                                   ------------
                                                                        536,625
                                                                   ------------
Stockholders' equity (deficiency):
  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 5,245,250 shares                        5,245
  Additional paid in capital                                         11,340,530
  Deficit                                                           (11,388,583)
                                                                   ------------
                                                                        (42,808)
  Common stock held in treasury, 158,500 shares                         (90,485)
                                                                   ------------
                                                                       (133,293)
                                                                   ------------
                                                                    $ 1,070,073
                                                                   ============

                 See notes to consolidated financial statements.


                                                                             F-2






<PAGE>

                             CREATIVE BAKERIES, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


                                                        2001           2000
                                                        ----           ----

Net sales                                         $3,770,507     $4,377,601

Cost of sales                                      3,279,919      3,606,332
                                                 -----------    -----------
Gross profit                                         490,588        771,269

Selling, general and administrative expenses         771,248      1,053,350
                                                 -----------    -----------
Loss from operations                                (280,660)      (282,081)
                                                 -----------    -----------
Other income (expenses):
  Loss on impairment of goodwill                    (670,995)
  Gain from sale of disposition of assets            100,000          5,750
  Interest income                                      1,029          3,876
  Miscellaneous income                                 3,910            872
  Interest expense                                    (8,521)       (14,491)
                                                 -----------    -----------
                                                    (574,577)        (3,993)
                                                 -----------    -----------
Loss from continuing operations                     (855,237)      (286,074)

Discontinued operations:
  Income (loss) from operations of New York
   facility to be disposed of                        (40,822)        48,701
                                                 -----------    -----------
Loss before extraordinary items                     (896,059)      (237,373)
                                                 -----------    -----------
Extraordinary items:
  Gain on extinguishment of debt, continuing
   operations                                         48,711
  Gain on extinguishment of debt, discontinued
   operations                                         59,759
                                                 -----------
                                                     108,470
                                                 -----------
Net loss                                         ($  787,589)   ($  237,373)
                                                 ===========    ===========
Earnings per common share:
  Basic and fully diluted:
    Continuing operations                        ($     0.16)   ($     0.05)
    Discontinued operations                      ($     0.01)          0.01
      Extraordinary items:
        Continuing operations                           0.01
        Discontinued operations                         0.01
                                                 -----------    -----------
Net loss per share                               ($     0.15)   ($     0.04)
                                                 ===========    ===========
    Weighted average number of common
     shares outstanding                            5,245,250      5,245,250
                                                 ===========    ===========


                 See notes to consolidated financial statements.


                                                                             F-3






<PAGE>

                             CREATIVE BAKERIES, INC.

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>
                                                     Common stock
                                                     ------------                                                    Total
                                                    Number               Additional                               Stockholders'
                                                      of                  Paid in      Accumulated    Treasury       Equity
                                                    Shares    Amount      Capital        Deficit       Stock      (Deficiency)
                                                    ------    ------      -------        -------       -----      ------------
<S>                                               <C>         <C>       <C>           <C>            <C>            <C>
Balance at December 31, 1999                      5,245,250   $5,245    $11,510,064   ($10,363,621)  ($334,244)     $817,444

Purchase of treasury stock                                                                            (112,774)     (112,774)

Treasury stock issued upon exercise of warrants                            (145,990)                   327,989       181,999

Net loss for the year ended December 31, 2000                                             (237,373)                 (237,373)
                                                  ---------   ------    -----------   ------------   ---------     ---------
Balance at December 31, 2000                      5,245,250    5,245     11,364,074    (10,600,994)   (119,029)      649,296

Treasury stock issued for services                                          (23,544)                    28,544         5,000

Net loss for the year ended December 31, 2001                                             (787,589)                 (787,589)
                                                  ---------   ------    -----------   ------------   ---------     ----------
Balance at December 31, 2001                      5,245,250   $5,245    $11,340,530   ($11,388,583)  ($ 90,485)    ($133,293)
                                                  =========   ======    ===========   ============   =========     ==========
</TABLE>


                 See notes to consolidated financial statements.


                                                                             F-4






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>
                                                            2001              2000
                                                            ----              ----
<S>                                                       <C>               <C>
Operating activities:
  Loss from continuing operations                        ($855,237)        ($286,074)
  Adjustments to reconcile loss from
   continuing operations to cash used in
   continuing operations:
     Depreciation and amortization                         164,001           208,716
     Common stock issued for services                        5,000
     Loss on impairment of long-lived asset                670,995
     Forgiveness of debt                                   (48,711)
     Gain on sale of equipment                            (100,000)           (5,750)
     Changes in other operating assets and
      liabilities from continuing operations:
        Accounts receivable                                 45,257           (31,642)
        Inventory                                           88,548            42,158
        Prepaid expenses and other current assets          (22,170)           38,284
        Security deposits                                      500
        Accounts payable                                  (101,609)          105,588
        Accrued expenses and other current liabilities      25,318          (114,398)
        Deferred rent                                      (21,497)          (21,555)
                                                          --------          --------

        Net cash used in operating activities             (149,605)          (64,673)
        Net cash provided by discontinued
         operations                                          5,343            35,214
                                                          --------          --------

        Net cash used in operating activities             (144,262)          (29,459)
                                                          --------          --------

Investing activities:
  Proceeds from sale of equipment                          100,000            25,000
  Purchase of property and equipment                        (2,500)          (10,150)
  Proceeds from sale of goodwill                            47,578
                                                          --------          --------

        Net cash provided by investing activities          145,078            14,850

        Net cash provided by (used in) investing
         activities from discontinued operations            98,750            (1,250)
                                                          --------          --------

        Net cash provided by investing activities          243,828            13,600
                                                          --------          --------

Financing activities:
  Proceeds from issuance of common stock and warrants                        182,000
  Purchase of treasury stock                                                (112,774)
  Payment of debt                                         (107,270)          (39,018)
                                                          --------          --------

        Net cash provided by (used in)
         financing activities                             (107,270)           30,208
                                                          --------          --------

Net increase (decrease) in cash and cash equivalents        (7,704)           14,349

Cash and cash equivalents, beginning of period             129,320           114,971
                                                          --------          --------

Cash and cash equivalents, end of period                  $121,616          $129,320
                                                          --------          --------

Supplemental disclosures:
  Cash paid during the year for:
    Interest:
     Continuing operations                                $  9,555          $ 14,028
                                                          ========          ========
     Discontinued operations                              $      0          $      0
                                                          ========          ========
</TABLE>


                See notes to consolidated financial statements.


                                                                             F-5






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000

1. Going concern:

     During the year ended December 31, 2001, the Company incurred a loss from
     continuing operations in the amount of $855,237 and a net loss of $787,589,
     and had a net working capital deficiency of $20,407. Although the Company
     is currently operating its businesses, their continuation is contingent
     upon, among other things, the continued forbearance by the Company's
     creditors from exercising their rights in connection with delinquent
     accounts payables. These conditions, among others, raise substantial doubt
     about the Company's ability to continue as a going concern.

     During the year 2001, the Company's board of directors brought in a new
     management team which has evaluated the Company's operations and made
     changes to the production and purchasing aspects of the business as well as
     cutting overhead expenses. The Company also plans to raise capital through
     an offering of preferred stock of which the proceeds would be used to
     streamline and modernize the production process, thus increasing profit
     margins. The Company also has plans to acquire an additional business
     through a mainly stock exchange transaction (see Note 18).

     In view of these matters management believes that the actions presently
     being taken to revise the Company's operating and financial requirements
     provide the opportunity for the Company to continue as a going concern. The
     accompanying financial statements do not include any adjustments relating
     to the recoverability and classification of asset carrying amounts or the
     amount and classification of liabilities that might result should the
     Company be unable to continue as a going concern.

2. Accounting policies:

     Principles of consolidation:

     The accompanying consolidated financial statements include the account of
     the Company and all of its wholly owned subsidiaries. Intercompany
     transactions and balances have been eliminated in consolidation.

     Cash and cash equivalents:

     For the purpose of the statement of cash flows, the Company considers all
     short-term debt securities purchased with a maturity of three months or
     less to be cash equivalents.

     Inventories:

     Inventories are stated at the lower of cost (first-in-first-out) or market.

     Property and equipment:

     The cost of property, plant and equipment is depreciated over the estimated
     useful lives of the related assets. The cost of leasehold improvements is
     depreciated over the lesser of the length of the related leases or the
     estimated useful lives of the assets. Depreciation is computed on the
     straight-line method for financial reporting purposes and on the modified
     cost recovery system method for income tax basis.

     Intangible assets:

     Goodwill represents the excess of the cost of companies acquired over the
     fair value of their net assets at the dates of acquisition and was being
     amortized on the straight-line method over forty years. The goodwill was
     determined to be impaired during the year and has been written down to net
     realizable value (see Notes 7 and 8).


                                                                             F-6






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000

2. Accounting policies (continued):

     Intangible assets (continued):

     The Company's covenant not to compete is being amortized over a period of
     five years.

     Deferred rent:

     The accompanying consolidated 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 expenses as required by generally accepted
     accounting principles.

     Comprehensive income:

     There were no items of other comprehensive income in 2001 and 2000, and
     thus, net income is equal to comprehensive income for each of those years.

     Use of estimates:

     The process of preparing financial statements in conformity with generally
     accepted accounting principles requires the use of estimates and
     assumptions regarding certain types of assets, liabilities, revenues and
     expenses. Such estimates primarily relate to unsettled transactions and
     events as of the date of the financial statements. Accordingly, upon
     settlement, actual results may differ from estimated amounts.

     Per share amounts:

     Net earnings per share are calculated by dividing net earnings by the
     weighted average shares of common stock of the Company and weighted
     average of common stock equivalents outstanding for the period. Common
     stock equivalents represent the dilutive effect of the assumed exercise
     of certain outstanding stock options.

3. Nature of operations, risks and uncertainties:

     The Company is a manufacturer of baking and confectionery products which
     are sold to supermarkets, food distributors, educational institutions,
     restaurants, mail order and to the public. Although the Company sells its
     products throughout the United States, its main customer base is on the
     East Coast of the United States.

     The Company maintains all of its cash balances in New Jersey financial
     institutions. The balances are insured by the Federal Deposit Insurance
     Company (FDIC) up to $100,000. At December 31, 2001, the Company had
     uninsured cash balances of $94,091.

     The Company maintained sales with a customer which comprised more than 10%
     of total sales for the year. If this sales level were to change this could
     have a significant impact on the Company's operations.

     At December 31, 2001 there were two customers whose balances included in
     accounts receivable comprised more than 10% of total accounts receivable.
     If these customers were to default on these amounts it could have a
     significant impact on the Company's operations.


                                                                             F-7






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


4. Accounts receivable:

     Following is a summary of receivables at December 31, 2001:

     Trade accounts                                                    $316,024

     Less allowance for doubtful accounts                               (15,500)
                                                                       --------

                                                                       $300,524
                                                                       ========

5. Inventories:

     Inventories at December 31 consist of:

     Finished goods                                                    $ 47,711
     Raw materials                                                       64,877
     Supplies                                                            39,990
                                                                       --------

                                                                       $152,578
                                                                       ========

6. Property and equipment:

     The following is a summary of property and equipment at December 31, 2001:

     Baking equipment                                                $1,280,226

     Furniture and fixtures                                              81,364

     Leasehold improvements                                             180,422
                                                                     ----------
                                                                      1,542,012

     Less:  Accumulated depreciation
             and amortization                                         1,173,237
                                                                     ----------

                                                                     $  368,775
                                                                     ==========

     Depreciation expense charged to operations was $98,545 and $102,803 in 2001
     and 2000, respectively.

     The useful lives of property and equipment for purposes of computing
depreciation are:

                                                                          Years
                                                                          -----

     Machinery and equipment                                               10
     Furniture and computers                                                5
     Leasehold improvements                                               10-15


                                                                             F-8






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


7. Intangible assets:

     The excess cost over the fair value of the net assets acquired from J.M.
     Specialties, Inc. aggregated $1,213,565. This goodwill has been amortized
     over its estimated useful life of fifteen years. Amortization charged to
     operations amounted to $40,456 in 2001 and $80,912 in 2000. As of
     December 31, 2001 the goodwill has been determined to be impaired and
     management has written down the asset to net realizable value
     (see Note 8).

8. Impairment of goodwill:

     The Company has determined that the goodwill relating to its subsidiary
     J.M. Specialties, Inc. is impaired and has taken a one-time charge of
     $493,573 on its statement of operations for the third quarter of 2001 and a
     further charge of $177,422 for the year ended December 31, 2001. The batter
     business to which the goodwill relates has seen decreasing profit margins
     and sales over the last several quarters and a decision to sell the line
     comprised of ten customers, was approved by the Board of Directors. The
     sale was completed in December, 2001 for $200,000, including $45,758 for
     goodwill, $100,000 for equipment and $52,422 for related inventory. The
     Company will receive an earnout for the years 2004 through 2007 based on
     sales on a declining percentage basis from 4% to 1%. Management's estimate
     of the amounts to be received in the earnout is $50,000.

     The amount of the impairment loss at December 31, 2001 is determined as
     follows:

     Asset cost                                                      $1,213,565
      Less: accumulated amortization                                    444,992
                                                                     ----------

     Carrying amount                                                    768,573
     Sale of goodwill                                                   (47,578)
     Estimated fair value of goodwill                                   (50,000)
                                                                     ----------

     Impairment loss                                                 $  670,995
                                                                     ==========

9. Commitments and contingencies:

     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 expiring on December
31, 2004.

     The minimum future rentals on the baking facility are as follows:

                                                    Facility
                                                    --------

               December 31, 2002                     200,000
               December 31, 2003                     200,000
               December 31, 2004                     230,000
                                                    --------
                                                    $630,000
                                                    ========


                                                                             F-9






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


9. Commitments and contingencies (continued):

     Rent expense amounted to $229,833 in 2001 and $222,617 in 2000 and includes
     straight-line amortization of rent adjustments discussed in Note 2.

     The Company also leases a vehicle under an operating lease agreement that
     expires in December 2004. Total lease expense for 2001 was $7,200. Future
     minimum rentals are as follows:

               December 31, 2002                     $ 7,200
               December 31, 2003                       7,200
               December 31, 2004                       7,200
                                                     -------
                                                     $21,600
                                                     =======

10. Off-balance-sheet risk:

     The Company is a third co-guarantor on a vehicle lease for a former officer
     of the Company with a lease buyout of approximately $12,000. The entire
     amount has been escrowed with an attorney by the former officer of the
     Company.

11. Income taxes:

     The Company accounts for income taxes in accordance with Statement of
     Financial Accounting Standards ("SFAS No. 109") "Accounting for Income
     Taxes", which requires an asset and liability approach to financial
     accounting and reporting for income taxes. Deferred income tax assets
     and liabilities are computed annually for differences between the
     financial statement and income tax basis of assets and liabilities
     that will result in taxable or deductible amounts in the future based
     on enacted tax laws and rates applicable to the periods in which the
     differences are expected to affect taxable income.

     Valuation allowances are established when necessary to reduce deferred tax
     assets to the amount expected to be realized. Income tax expense is the tax
     payable or refundable for the period, plus or minus the change during the
     period in deferred tax assets and liabilities. There was no cumulative
     effect of adoption or current effect in continuing operations mainly
     because the Company has accumulated a net operating loss carryforward
     of approximately $8,680,450. The Company has made no provision for a
     deferred tax asset due to the net operating loss carryforward because a
     valuation allowance has been provided which is equal to the deferred tax
     asset. It cannot be determined at this time that a deferred tax asset is
      more likely that not to be realized.

     The Company's loss carryforward of $8,680,450 may be offset against future
     taxable income. The carryforward losses expire at the end of the years 2006
     through 2019.


                                                                            F-10






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000


12. Warrants:

     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 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 143,500 shares of common stock
     in 1999, the lender was entitled to an additional 8,610 shares of
     common stock. Accordingly, the financial statements include a charge
     to operations of $4,305 for 1999 which represents the market value of
     the stock at the time the warrants were issued by the Company.

     The above warrant, representing 171,215 shares, was to expire on
     October 1, 2001 and the lender exercised its right under the warrant
     before the expiration date. Upon consultation with management, the
     lender who is in bankruptcy, has not acted on its option to exercise
     as of December 31, 2001.

     In addition, at December 31, 2001 the Company had 1,816,500 outstanding
     common stock purchase warrants. These warrants have not been utilized in
     the calculation of earnings per share in the statement of operations due
     to their anti-dilutive effect. 250,000 warrants become eligible for
     exercise as described in Note 13. The balance of the warrants, their
     option prices and expiration dates are as follows:


                   270,000 warrants at $0.52      December 31, 2002
                 1,296,500 warrants at $0.6875    December 31, 2002


13. Employment agreement:

     On May 1, 2001 the Company entered into a one year employment contract with
     its new chief executive officer. The agreement sets compensation at an
     annual salary of $150,000 plus a signing bonus of 50,000 registered shares
     of the Company's common stock, deliverable after ninety days of employment,
     which was completed by August 1, 2001.

     The contract also makes available a stock option plan whereby shares of
     common stock can be purchased at two anniversary dates of the beginning of
     employment at the stock price which existed at that date. 125,000 shares of
     the Company's common stock is available for exercise on May 1, 2002 and
     another 125,000 shares on May 1, 2003.

14. Related party transaction:

     Included in accounts receivable and accounts payable are amounts owed to
     Brooklyn Cheesecake Company, Inc., an entity owned by the chief executive
     officer of the Company, in the amounts of $60,406 and $45,267 respectively.
     The amount is owed for inventory sales and purchases used in the normal
     course of operations.



                                                                            F-11






<PAGE>

                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2001 AND 2000

15. Discontinued operations:

     In 1998, the Company adopted a formal plan to close WGJ Desserts and Cafes,
     Inc., its New York manufacturing facility, which was done in July of 1998
     and to dispose of its one remaining retail store, which was accomplished
     in November 1998. The New Jersey facility was unaffected and still
     continues to sell and manufacture.

     The sale of the final retail location resulted in a selling price of
     $405,000 which includes a note receivable with a balance of $73,750 at
     December 31, 2001.

     On November 3, 1998, the Company sold its one remaining retail facility for
     $405,000 which represented disposition of equipment and a license to sell
     under the "William Greenberg, Jr. Desserts and Cafes" name. The agreement
     called for a cash down payment of $110,000 with the remainder being paid on
     a note receivable due in semi-annual installments of $36,875 plus interest
     at prime. The note matures November, 2002.

     Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
     consisted of the following as of December 31, 2001:

          Liabilities:
             Accounts payable                               $112,461
             Accrued expenses                                403,912
                                                            --------
                                                             516,373
                                                            --------
          Assets:
             Notes receivable                                 73,750
             Interest receivable                                 531
                                                            --------
                                                              74,281
                                                            --------
                                                            $442,092
                                                            ========

     Information relating to discontinued operations for WGJ Desserts and Cafes,
     Inc. for the year ended December 31, 2001 and 2000 is as follows:

                                                          2001          2000
                                                          ----          ----
          Operating expenses                            $50,000        $43,347
                                                        -------        -------
          Net loss from operations                      (50,000)       (43,347)
                                                        -------        -------
          Sale of Trademark                                             75,000
          Interest income                                 9,178         17,048
                                                        -------        -------
                                                          9,178         92,048
                                                        -------        -------

          Income (loss) before extraordinary item       (40,822)        48,701
                                                        -------        -------
          Extraordinary item:
           Forgiveness of debt                           59,759
                                                        -------
          Net income                                    $18,937        $48,701
                                                        =======        =======

16. Extraordinary items:

     During 2001, the Company recognized an extraordinary gain of $48,711 ($0.01
     per share) from continuing operations and an extraordinary gain of $59,759
     ($0.01 per share) from discontinued operations. The extraordinary gains
     resulted from forgiveness of certain accounts payable liabilities.

17. Subsequent events:

     The Company has entered into an agreement to acquire the assets of Brooklyn
     Cheesecake Company, Inc. in exchange for 300,000 shares of the Company's
     common stock and $45,000 for equipment, the purchased Company's name and
     goodwill. The purchase is expected to be completed in March, 2002.


                                                                            F-12


                             STATEMENT OF DIFFERENCES

The trademark symbol shall be expressed as................................'TM'