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                     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, 1998

                         Commission File Number: 0-18711

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

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<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 $4,906,296. As of
December 31, 1998 there were 5,141,750 shares of Company's Common Stock, par
value $.001 per share, outstanding. The aggregate market value of the voting
stock held by of the issuer on 12/31/98 was approximately $ 8,998,000.

     Transitional Small Business Disclosure Format (check one):


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              Yes                      No    X 
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ITEM 1. DESCRIPTION OF THE BUSINESS

GENERAL

     Creative Bakeries, Inc. ("Creative"), through its two operating
subsidiaries, WGJ Desserts and Cafes, Inc. (the "WGJ Subsidiary") and Batter
Bake-Chatterley Inc. (the "BBC Subsidiary") (Creative, the WGJ Subsidiary and
the BBC Subsidiary to be hereinafter collectively referred to as the "Company"
unless the context indicates otherwise) 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
as well as by mail order. The Company has recently completed a corporate
restructuring pursuant to which it has eliminated its William Greenberg retail
operations while consolidating the operations of JMS Specialities, Inc. ("JMS"),
which the Company acquired in January 1997, and of Chatterley Elegant Desserts,
Inc. a New Jersey corporation ("Chatterley"), which the Company acquired in
August 1997. The Company is continuing to pursue its strategy of seeking
acquisition or merger candidates which would expand the Company's existing
product offerings and geographic markets. There can be no assurance that the
Company will be able to successfully identify such candidates on terms
acceptable to the Company or at all.

     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.

BUSINESS STRATEGY

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

     Retail: After carefully analyzing its retail operations, management has
concluded that the additional William Greenberg stores it had recently opened
were not generating the level of sales required to become profitable and that
the resources required to increase retail sales would be better utilized in
expanding its wholesale division. The Company therefore closed down all the
retail stores.

     Institutional/Wholesale: With the acquisitions of JMS and Chatterley, 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



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

     Mail Order. The WGJ Subsidiary is offering its products through other
specialty food retailers and through its mail order catalogue business. Mail
order sales accounted for approximately 1% of total sales for each fiscal year
ended December 31, 1998, 1997 and 1996 respectively.

     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 WGJ Subsidiary and the BBC Subsidiary
each have 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 fresh ingredients in its products including, AA creamy butter,
fresh 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 BBC Subsidiary markets a full line of premium quality baked products
such as cheese cakes, mousse cakes and tart shells. Additionally the Company has
now expanded its offerings to include a line of frozen batter and baked products
such as a variety of Gourmet Frozen Muffin Batter products, No Sugar Added
Batters as well as a selection of Fully Baked Thaw & Sell muffins and cakes. 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 subsidiaries have kosher certifications and the Company
believes that it can capitalize on the projected growth of this market. The

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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

RETAIL

     The WGJ Subsidiary has licensed the "William Greenberg Jr." name to a
retail operator who sells its products directly to individual consumers. The
retailer also sells its specialty desserts to customers for parties, weddings,
bar mitzvahs and other special occasions.

INSTITUTIONAL/WHOLESALE

     This market is mainly served through the BBC Subsidiary. With the
acquisition of Chatterley the Company now offers its institutional and wholesale
customers an expanded line of baked goods, batter and frozen-finished cakes,
brownies and muffins.

     The BBC Subsidiary sells its products through food distributors to hotels,
hospitals and institutional feeders such as coffee shops, Marriott, Restaurant
Associates,etc. The products are also sold retail through food distributors and
direct to supermarket distribution centers.

MAIL ORDER

     The WGJ Subsidiary sells select products through mail order. These products
are shipped via overnight delivery and second day delivery throughout the United
States and internationally. The Company has a toll-free number (800)564-2470 for
its mail order operations.

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. The WGJ Subsidiary obtains its principal
ingredients from three suppliers in each of their respective industries. 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.

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DISTRIBUTION AND MARKETING

     The WGJ Subsidiary no longer operates the commissary and does not directly
operate any retail stores either. Instead it has licensed its name to a an
operator who runs retail and wholesale operations.

     The BBC Subsidiary bakes all of its products at 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 BBC Subsidiary has the
capacity to meet future requirements, including those arising out of the
consolidation with the Company. The BBC Subsidiary delivers 90% of its products
by truck 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.

     The WGJ Subsidiary competes with all restaurants and beverage outlets that
serve bakery items and/or coffee, including a growing number of specialty coffee
stores in the New York City metropolitan area, although its main business
continues to be as a full service bakery servicing wholesale and retail
clientele. The specialty coffee/cafe business has become increasingly
competitive and relatively few barriers exist to entry. Some of the WGJ
Subsidiary's major competitors include Au Bon Pain, Brothers Gourmet Coffees,
Eclair, New World Coffee, Starbucks and Timothy's Coffee of the World. Some of
the BBC Subsidiary's major competitors include Karps, Bake-N-Joy, Pillsbury, and
Quaker Oats. Competitors with significant economic resources in the baking
industry or existing non-specialty and specialty coffee/cafe businesses could,
at any time, enter the institutional/wholesale or retail bakery/cafe business.

TRADEMARKS

     The WGJ Subsidiary has trademarks registered with the United States Patent
and Trademark office for the trademarks Wm. Greenberg Jr.'TM', William Greenberg
Jr.'TM', William Greenberg Jr. Dessert'TM' and William Greenberg Jr. Desserts
and Cafes'TM'. The JMS Subsidiary has a trademark and design registered with the
United 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

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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

     The WGJ Subsidiary no longer has any employees.

     As of April 1, 1999, the BBC Subsidiary together with Creative had
approximately 45 full-time employees, of whom 37 are employed in production, 2
in sales, 4 in administration and 2 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 April 1, 1999, 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

WGJ Subsidiary:

     The company has completed its plan of closing down the commissary and the
retail operations.

     The company has licensed the "William Greenberg Jr." brand to an operator
who continues to run the Madison Avenue store and the wholesale business. This
has effectively stopped any further losses on the part of the WGJ subsidiary and
provides opportunity to rebuild the business in certain areas such as Mail Order
Business.

     In connection with the restructuring plan, management had written down its
baking equipment, leasehold improvements and fixtures as of December 31, 1996,
by approximately $ 850,000 in 1996 and to $35,000 in 1998 due to impairment in
their value. In addition, management has determined unamortized goodwill of

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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 $369,459 was
actually incurred as of December 31, 1998. This charge mainly comprises
write-down of leasehold improvements on stores that have been closed down,
provisions for lease obligations on certain retail stores, and charges for
consultants involved in the restructuring. By taking the above actions, future
periods will not be affected by amortization, depreciation or expense of these
costs.

Acquisition of JM Specialties, Inc.

     The Company acquired JM Specialties Inc. in January 1997 and appointed Phil
Grabow as the CEO and President of the Company.

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. Pursuant
to the contract both individuals received a signing bonus aggregating $68,000.
These employment contracts have been terminated.

Acquisition of Chatterley Elegant Desserts, Inc.

     On August 28, 1997 the Company entered into a stock purchase agreement
("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 Corporation, in exchange for 1,300,000 shares of
the Company's common stock. The Stock Purchase Agreement was subsequently
amended and Ms. Abrahami surrendered to the Company 200,000 shares of the
Company's common stock. The acquisition has been accounted for as a
pooling-of-interests.

     Chatterley leases a 35,000 sq.ft. baking and office facility. Its products
are highly regarded by upscale super markets such as Kings and by executive
chefs in some of the finest hotels and restaurants.

     Currently, the Company is pursuing contracts with various Supermarket
chains for both private label and The Healthy Bakery label which is a trademark
of the Company.

JMS and Chatterley Consolidation

     As planned, the JMS facility in Parsippany was closed and the consolidation
of its operations into Chatterley's Fairfield facility was completed in 1997.

     JM Specialties Inc. and Chatterley Elegant Desserts Inc. have been formally
merged to form the BBC Subsidiary.

     Management believes that the merger of JMS and Chatterley adds considerable
strength to the Company's marketing plan. The efficiencies derived

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from the merger of JMS and Chatterley positions the Company to aggressively
pursue new business with improved profit margins. Management intends to
implement new marketing programs with a focus on increasing the wholesale
division of the business. Brokers have been hired for New England, Philadelphia
& Western Pennsylvania and the Southern Florida markets with other areas to
follow with a view to expanding from a tri-State (New York, New Jersey and
Connecticut) base to a regional and ultimately, a national bakery and dessert
company.

Future mergers and acquisitions:

     In line with its goal of "growth through mergers and acquisitions", the
company is negotiating a merger with Paramark Corporation. If successful, it
will provide a springboard for further expansion.

     The Company continues to seek opportunities in markets it does not
currently serve. It has secured a contract to produce Private Label cookies and
muffins. It is estimated that the Private Label business will provide upto a $1
million in revenue. The company has also secured orders from Fund Raising
business which will amount to approximately $800,000 in annual sales. This is a
seasonal business which will be delivered between September and December.

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ITEM 3. LEGAL PROCEEDINGS

     This is with reference to the request, dated March 17, 1999, by Creative
Bakeries, Inc. and its subsidiaries (the "Company"), that we furnish you with
certain information in connection with your examination of the financial
statements of the Company as of December 31, 1998.

     Our engagement has been limited to specific matters as to which we were
consulted by the Company. You should note that we do not represent the Company
in connection with its general affairs. We call your attention to the fact that
we have not made an independent investigation of the Company's affairs in order
to respond to the request for information. Our response is, therefore, based
essentially upon the information contained in our files and, therefore, it is
probable that there exist particular matters of a legal nature with respect to
which we have not been consulted.

     Please be advised that our response is directed only to matters which have
been given substantive attention by this firm on behalf of the Company in the
form of legal consultation and, where appropriate, legal representation during
the appropriate period. In the preparation of this response, our procedures have
been limited to an endeavor to determine from lawyers currently in our firm who
have performed services for the Company during the applicable period whether
such services involved substantive attention in the form of legal consultation
or representation concerning matters coming within the scope of our response.

     Please be further advised that insofar as information is requested with
respect to "loss contingencies" (as that term is defined in ABA Statement of
Policy referred to in the last paragraph of this letter), our response is
limited to pending or overtly threatened litigation (the latter involving only
those instances where a potential claimant has manifested to the Company an
awareness of a present intention to assert a possible claim or assessment) as to
which we have devoted substantive attention on behalf of the Company in the form
of legal consultation or representation, and we do not undertake to comment upon
contractually assumed obligations (such as guarantees of indebtedness of others)
or unasserted possible

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claims or assessments unless the Company has specifically identified the same
and has expressly requested our comments. The Company's inquiry letter, dated
March 17, 1999 does not specifically identify any such matters as to which our
comments have been expressly requested.

     Subject to the foregoing and to the last three paragraphs of this letter,
please be advised as follows:

     1. As of December 31, 1998 and as of the date hereof, we were not devoting
substantive attention on behalf of the Company in the form of legal consultation
or legal representation in connection with pending or threatened litigation
within the scope of our response as hereinabove set forth except as follows:

     A. Murray Bacal v. Creative Bakeries, Inc., Edmund Abramson and William
Abramson, William Hl. Greenberg Jr. Dessert & Cafes, Inc. and Richard Fechtor.
This case was filed in Supreme Court, New York County on April 1, 1998. The
action was brought to recover damages allegedly sustained by plaintiff by reason
of an alleged breach of a contract between plaintiff and defendants Edmund
Abramson and William Abramson pursuant to which plaintiff agreed to purchase
warrants in the stock of William H. Greenberg Jr. Dessert & Cafes, Inc. (the
predecessor to Creative Bakeries, Inc.) Plaintiff alleges that the Abramsons had
agreed to purchase the warrants back from him if he exercised that prerogative.

     Plaintiff alleges that, pursuant to the contract, he tendered $123,750 to
the Abramsons, that he subsequently exercised his option and demanded the return
of his original investment and out of pocket expenses, and that the Abramsons
refused to return his money. His cause of action against Creative Bakeries and
Greenberg (collectively, the "Creative Bakeries Defendants") sounds in fraud,
and is specifically alleged against defendant Richard Fechtor, who is sued both
in his personal capacity and as a corporate representative of Creative
Bakeries.(1) Fechtor, according to the complaint, represented to plaintiff that
if he purchased the warrants he could received the return of his monies together
with out of pocket expenses at any time, and plaintiff claims that he is

------------------
(1) We are not representing Richard Fechtor in this action.

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entitled to $1,000,000 in punitive damages from Fechtor and/or the Creative
Bakeries Defendants based on this "fraudulent" inducement.

     On December 14, 1998, the Creative Bakeries Defendants moved by order to
show cause to dismiss the complaint in its entirety as against them based on the
fact that, inter alia, the action involves a private transaction between
plaintiff and the Abramsons, and the complaint fails to state a cause of action
as against the Creative Bakeries Defendants. After a full briefing and oral
argument, the papers were taken by the court on submission, and we are awaiting
a ruling on the motion.

     B. The Company has been named as a defendant in Ackerman v. Allan Sloan, et
al., Adv. Proc. No. 899-8042-288 (Bankr. E.D.N.Y.), an adversary proceeding
brought in the United States Bankruptcy Court for the Eastern District of New
York by the Chapter 7 Trustee of Alliotte Bakery Cafe, Inc. The complaint
alleges that the Company, while operating as William Greenberg Jr. Desserts &
Cafes, Inc., used customer lists and property of the Chapter 7 debtor for a
period of several weeks sometime after June 1997, without having paid fair value
or consideration. While the Company does not believe it committed any actionable
conduct, the Company does not believe that the claim is material because it is
believed to involve a potential exposure of only several thousand dollars. The
Company has not yet filed a formal response to the complaint.

     C. Martas v. Greenberg. In this action, the Welfare and Pension Funds of
Local 3 (Bakers' union) seek to recover unpaid contributions to the Welfare Fund
of $137,063.43 and to the Pension Fund of $49,673.54 plus 11% interest, plus
costs and attorneys fees and liquidated damages equal to 20% of the principal
amounts. Thus the total sought is approximately $186,000 in unpaid contributions
plus about $36,000 in penalties, plus interest, plus attorneys fees.

     The parties have reached an agreement in principle to settle this matter
for the sum of $50,000, payable over time. Greenberg's last offer was to pay
$12,000 in May and then $2,500/month until paid. The Funds, conceptually, want
more money up front and larger payments but we are waiting for them to get back
to us with exact terms.

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     D. A demand has been made by counsel to Yona Gonen (formerly Abrahami) for
amounts alleged to be owed to Ms. Gonen in the amount of $69,926.09 and
$9,995.90 owed to Good Eats, Inc. and unspecified amounts owed to attorneys and
accountants by Chatterly Elegant Desserts ("Chatterly"). We refer you to the
Company with respect to this matter.

     E. A demand for repayment of a $10,000 loan allegedly owed to David
Abrahami by Chatterly has been made by counsel to Mr. Abrahami. We refer you to
the Company with respect to this matter.

     F. The Company has received notice of two separate actions for unpaid
insurance premiums filed in New York Civil Court by Aetna US Healthcare and
Oxford Health Plan, seeking $6,978.77 and $12,028.02, respectively. No response
has yet been made.

     2. As of December 31, 1998, the Company was indebted to us for legal fees
and disbursements in the aggregate amount of $12,787.93 heretofore billed to the
Company. We have also accrued fees and disbursements for legal services rendered
to the Company during the period ended December 31, 1998 which had not yet been
billed, in the aggregate amount of $7,039.37.

     This letter is solely for your information and assistance in connection
with your examination of, and report with respect to, the financial statements
of the Company as of December 31, 1998, and may not be quoted or otherwise
referred to in any financial statements of the Company or any other related or
unrelated document or documents, nor should it be filed with or furnished to any
governmental agency or other person, without the prior written consent of this
firm.

     If in the course of your audit there should come to your attention a matter
involving a possible loss contingency which you believe may have been the
subject of legal consultation or representation by us and which is not covered
by the Company's request and this response, please bring that matter to our
attention so that there may be no misunderstanding concerning the reason for its
omission.

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     This response is limited by, and in accordance with, the ABA Statement of
Policy Regarding Lawyers' Responses to Auditors' Requests for Information
(December 1975); without limiting the generality of the foregoing, the
limitations set forth in such Statement on the scope and use of this response
(Paragraphs 2 and 7) are specifically incorporated herein by reference and any
description herein of any "loss contingencies" is qualified in its entirety by
Paragraph 5 of the Statement and the accompanying Commentary (which is an
integral part of the Statement). Consistent with the last sentence of Paragraph
6 of the ABA Statement of Policy and pursuant to the Company's request, this
will confirm as correct the Company's understanding as set forth in its audit
inquiry letter to us that whenever, in the course of performing legal services
for the Company with respect to a matter recognized by us to involve an
unasserted possible claim or assessment that may call for financial statement
disclosure, we have formed a professional conclusion that the Company must
disclose or consider disclosure concerning such possible claim or assessment,
we, as a matter of professional responsibility to the Company, will so advise
the Company and will consult with the Company concerning the question of such
disclosure and of the applicable requirements of Statement of Financial
Accounting Standards No. 5. In this regard, however, we assume no obligation to
advise you of any such unasserted possible claim or assessment unless the
Company has specifically identified such matter and has expressly requested, in
an inquiry letter or supplement thereto, that we provide you with information
with respect thereto.

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

     None.

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                                     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, 1999.

<TABLE>
<CAPTION>
Period                             High       Low
--------------------------------------------------------------------
<S>                               <C>         <C>
FISCAL YEAR 1997:
First Quarter                     3 3/8      1 1/2
Second Quarter                    2 7/16     1 13/16
Third Quarter                     2 7/16     1 5/8
Fourth Quarter                    2 7/16     1 1/4
Fiscal Year 1998:
First Quarter                     1 3/4      1 1/4
Second Quarter                    1 3/4      1 1/4
Third Quarter                     1 1/16     11/16
Fourth Quarter                    2 3/8      1 1/8
</TABLE>


     The number of shareholders of record of the Common Stock on March 31, 1999
was 34 excluding 2,445,216 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 demands 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

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     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 December 31, 1998 to the extent the Company may have taxable income in
future periods, there is available a net operating loss for federal income tax
purposes of approximately $7,100,000 which can be used to reduce the tax on
income up to that amount through the year 2011.

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's consolidated revenues from continuing operations aggregated
$3,814,440 and $5,014,558 for the years ended December 31, 1998 and 1997
respectively, a decrease of 24%. The cost of goods sold was $3,137,519 and
$4,224,113 for 1998 and 1997 respectively, a decrease of 26%, due to the overall
decrease in sales. Operating expenses were $1,300,317 and $1,867,242 for 1998
and 1997, respectively, a decrease of 31%, mainly attributable to the
termination of certain management personnel and reduction in the number of such
personnel. As a result, the loss from continuing operations was $576,796 and
$1,464,235 for 1998 and 1997 respectively, a decrease of 61%. Management
attributes this positive trend to its overall restructuring efforts.

     Depreciation and amortization for 1998 decreased as compared to 1997 due to
assets written down or written off for the year ended December 31, 1998.

     In 1998, 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 $5,005.

     During 1998 the Company earned interest income of $10,195 which arose
mainly from investing a portion of the net proceeds it received upon the private
placement and exercise of warrants.

                                       16


<PAGE>
<PAGE>


     The company's consolidated revenues from its discontinued operation, the
WGJ subsidiary were $1,064,856 in 1998 and 3,443,005 in 1997. The WGJ subsidiary
showed a loss from operations of $282,045 in 1998 and $1,171,121 in 1997 and a
net loss of $347,728 in 1998 and $1,089,611 in 1997.

     The 1998 statements of operations reflect a charge in the amount of $5,005
which represents the fair market value of 10789 warrants, issued to a lender in
order to satisfy an obligation under a written agreement. These warrants were
valued at $0.47

     The net loss from continuing operations aggregated $? per share for 1998
and $.68? per share for 1997.

SEGMENT INFORMATION

     The following is the breakdown of operating data between Retail and
Wholesale for both its continuing and discontinued operations:


<TABLE>
<CAPTION>
                          1998        % of       1997     % of       Change      % of
                          ----        sales      ----     sales      ------      sales
                                      -----               -----                  -----
<S>                      <C>          <C>        <C>      <C>          <C>        <C>
Operating data:
Net Sales:

Retail (discontinued)  1,064,856        100  $2,604,229   100     -1,539,373      100
Wholesale (continuing) 3,841,440        100   5,853,334   100     -2,011,894      100
Total                  4,906,296        100  $8,457,563   100     -3,551,267      100

Operating Income
(Loss):
Retail (discontinued)  (282,045)         29  ($  751,868)  57     -  469,823      -28
Wholesale (continuing) (384,237)         27  ( 1,558,745)  16     -1,174,508       11
                       (666,282)         27  ( 2,310,613)  29     -1,644,331      -02

General Corp. Exp.     (212,159)         03  (   243,233)  24     -   31,074      -21
Net Loss               (619,458)         30  ($2,553,846)  53     -1,934,388      -23

Balance Sheet Data:
Identifiable Assets:
Retail                 $  599,901            $  312,905              286,996
Wholesale               1,471,966             2,036,453           -  564,487
                        2,071,867             2,349,358           -  277,491
General Corporate         772,362             1,904,406           -1,132,044

Total                  $2,844,229            $4,253,764           -1,409,535
</TABLE>

                                       17


<PAGE>
<PAGE>



PLAN OF OPERATION

WGJ Subsidiary:

     The company has completed its plan of closing down the commissary and the
retail operations.

     The subsidiary has licensed its brand to an operator who continues to run
the Madison Avenue store and the wholesale business. This has effectively
stopped any further losses on the part of the WGJ subsidiary and provides
opportunity to rebuild the business in certain areas such as Mail Order
Business.

     In connection with the restructuring plan, management has written down its
baking equipment, leasehold improvements and fixtures as of December 31, 1998,
by approximately $1,288,000000 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 $369,459 was actually incurred as of
December 31, 1998. This charge mainly comprises write-down of leasehold
improvements on stores that have been closed down, provisions for lease
obligations on certain retail stores, and charges for consultants involved in
the restructuring. By taking the above actions, future periods will not be
affected by amortization, depreciation or expense of these costs.

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.

     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

                                       18


<PAGE>
<PAGE>


of two notes to InterEquity Capital Partners, L.P. ("InterEquity"). During
October 1995, the Company received net proceeds of $4,900,000 from the sale of
1,150,000 shares of its common stock in an initial public offering. During
January 1997 the Company received net proceeds of $1,747,500 from the private
placement of 1,875,500 common stock purchase warrants at $1.10 per warrant.
During October 1997 the Company received net proceeds of $883,000 from the
exercise of a portion of these common stock warrants. Of the $5,700,000 proceeds
from the aforementioned stock sales: (i) $2,125,000 was issued to repay the
InterEquity debt including interest; (ii) $2,615,000 was used in operations;
(iii) $765,000 was used to purchase property, equipment and leaseholds; and
(iv) $195,000 was used for general corporate purposes. The $1,650,000 proceeds
from the private placement warrants was used to acquire JMS. Of the $883,000
proceeds from the exercise of warrants $325,000 was used for consolidation and
merger of JMS and Chatterley, $388,000 was used for corporate expenses and the
remaining $170,000 will be used for working capital purposes.

     As of December 31, 1998, the Company had a negative working capital from
continuing operations of approximately $385,696 as compared to a negative
working capital of $89,287 at December 31, 1997. During 1998, management took
actions with a view towards restructuring the Company in order to reduce
operating costs and enhance the Company's efficiency. Pursuant to such
restructuring, a new management team was put into place, executive contracts and
leases were renegotiated and certain positions were eliminated and certain
stores were closed down. The Company expects, although there can be no
assurance, that the aforementioned actions will reduce and reverse the negative
cash flow which it has experienced since inception.

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.

     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.

                                       19


<PAGE>
<PAGE>


     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:

     To date, inflation has not had a significant impact on the Company's
operations. The Company's revenues are affected by seasons with revenues
anticipated to increase 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

                                       20


<PAGE>
<PAGE>


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>
Independent auditor's report                                 F-1

Consolidated financial statements:

    Balance sheet                                            F-2

    Statement of loss                                        F-3

    Statement of stockholders' equity                        F-4

    Statement of cash flows                                  F-5

Notes to consolidated financial statements                F-6 - F-23
</TABLE>


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

Not Applicable

                                       21


<PAGE>

<PAGE>



                    [LETTERHEAD OF ZELLER WEISS & KAHN, LLP]




                          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, 1998 and 1997, and the related consolidated
statements of loss, stockholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 and the report of other auditors provide a reasonable
basis for our opinion.

     In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of
Creative Bakeries, Inc. as of December 31, 1998 and 1997, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred a significant net loss
for the year ended December 31, 1998 and as of December 31, 1998 has a working
capital deficiency in the amount of $385,695, which raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management's plans in regard to these matters are
discussed in the notes to the financial statements.

                                                             Zeller Weiss & Kahn

April 7, 1999

 
                                                                             F-1




 <PAGE>
<PAGE>





                             CREATIVE BAKERIES, INC.

                 CONSOLIDTAED BALANCE SHEET - DECEMBER 31, 1998

<TABLE>
<S>                                                                       <C>        
                                     ASSETS
Current assets:
  Cash and cash equivalents                                               $   129,626
  Accounts receivable, less allowance for doubtful
   accounts of $40,480                                                        262,476
  Loans receivable                                                             19,002
  Inventories                                                                 235,592
  Prepaid expenses and other current assets                                    52,815
                                                                          -----------

    Total current assets                                                      699,511
                                                                          -----------

Property and equipment, net                                                   722,214
                                                                          -----------
Other assets:
  Goodwill, net of amortization                                               970,853
  Security deposits                                                             5,464
                                                                          -----------

                                                                              976,317
                                                                          -----------

                                                                          $ 2,398,042
                                                                          ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt                                       $    33,405
  Notes payable, bank                                                         148,079
  Loans payable, other                                                          9,549
  Accounts payable                                                            525,640
  Payroll taxes payable                                                       120,816
  Accrued expenses                                                            247,717
                                                                          -----------

    Total current liabilities                                               1,085,206
                                                                          -----------

Other liabilities:
  Long-term debt, net of current portion                                        2,496
  Deferred rent                                                               151,338
  Net liabilities of discontinued operations
   less assets to be disposed of                                              676,881
                                                                          -----------
                                                                              830,815
                                                                          -----------

Stockholders' equity:
  Preferred stock $.001 par value, authorized 2,000,000
   shares, no shares issued and outstanding
  Common stock, $.001 par value, authorized 10,000,000
   shares, issued and outstanding 5,101,750 shares                              5,102
  Additional paid in capital                                               11,206,588
  Deficit                                                                 (10,482,200)
                                                                          -----------
                                                                              729,490

  Common stock held in treasury, 184,500 shares                           (   247,369)
                                                                         -----------

                                                                              482,121
                                                                          -----------

                                                                          $ 2,398,042
                                                                          ===========
</TABLE>


                 See notes to consolidated financial statements.

                                                                             F-2




 <PAGE>
<PAGE>




                             CREATIVE BAKERIES, INC.

                         CONSOLIDATED STATEMENT OF LOSS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                       1998               1997
                                                                       ----             Restated
                                                                                        --------
<S>                                                               <C>                <C>       
Net sales                                                           $3,841,440         $5,014,558

Cost of sales                                                        3,137,519          4,224,113
                                                                    ----------         ----------

Gross profit                                                           703,921            790,445

Selling, general and administrative expenses                         1,300,317          1,867,242
                                                                    ----------         ----------

Loss from continuing operations                                    (   591,392)      (  1,076,797)
                                                                   -----------        -----------

Other income (expenses):
  Gain (loss) from sale of disposition of assets                        35,383       (     57,963)
  Interest income                                                       10,195             17,385
  Compensatory charges                                             (     5,004)      (    287,837)
  Rental income                                                                            21,193
  Interest expense                                                 (    25,978)      (     31,101)
                                                                   -----------        -----------

                                                                        19,600       (    338,323)
                                                                    ----------        -----------

Loss from continuing operations                                    (   576,796)      (  1,415,120)

Income taxes, deferred                                                                     49,115
                                                                   -----------         ----------
Loss from continuing operations                                    (   576,796)      (  1,464,235)
                                                                   -----------         ----------

Discontinued operations:
  Loss from operations of New York facility
   to be disposed of                                               (    42,662)      (  1,089,611)
  Estimated loss on disposal of New York facility                  (   305,066)                   
                                                                   -----------          ---------

                                                                   (   347,728)       ( 1,089,611)
                                                                   -----------         ----------

Net loss                                                           ($  924,524)       ($2,553,846)
                                                                   ===========         ==========

Earnings per common share:
  Primary and fully diluted:
    Loss from continuing operations                                (      0.11)        (     0.40)
    Loss from discontinued facility                                (      0.01)        (     0.28)
    Estimated loss on disposal of New York
     facility                                                      (      0.06)                   
                                                                   -----------         ----------

                                                                   (      0.18)        (     0.68)
                                                                   ===========         ==========
Weighted average number of common shares
 outstanding                                                         5,040,900          3,703,217
                                                                   ===========         ==========

</TABLE>


                 See notes to consolidated financial statements.

                                                                             F-3




 <PAGE>
<PAGE>





                             CREATIVE BAKERIES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>
                                                                      Common stock
                                                                   ------------------
                                                                   Number                Additional                      Total
                                                                     of                   Paid in      Accumulated   Stockholders'
                                                                   Shares     Amount      Capital        Deficit         Equity
                                                                   ------     ------      -------        -------         ------
<S>                                                             <C>          <C>       <C>          <C>               <C>         
Balance at December 31, 1997                                     2,621,500    $2,622    $ 6,746,564  ($ 6,999,703)     ($  250,517)

Warrants issued January 17, 1997, less expenses
  of the offering of $315,000                                                             1,747,500                      1,747,500

Common shares issued regarding acquisition of J.M.
  Specialties, Inc.                                                500,000       500        874,500                        875,000

Warrants issued regarding acquisition of J.M. Specialties,
  Inc.                                                                                      385,000                        385,000

Common stock issued in consideration of legal and consulting
  services                                                          34,000        34         59,466                         59,500

Fair market value of warrant to acquire 185,682 shares of
  common stock issued to a lender in order to obtain financing
  for the purchase of the operating assets of Greenberg
  Desserts Associates Limited Partnership, valued at $1.09
  per share                                                                                 202,393                        202,393

Shares issued regarding the acquisition of Chatterly Elegant
  Desserts, Inc. to be treated as a pooling of interest          1,300,000     1,300         18,861                         20,161

Fair market value of warrant to acquire 84,017 shares of common
  stock issued to a lender in order to obtain financing for the
  purchase of the operating assets of Greenberg Desserts
  Associates Limited Partnership, valued at $.8124 per share                                 68,263                         68,263

Common shares issued October 1997 when warrants exercised at
  $1.25 per share                                                  706,250       706        882,106                        882,812

Fair market value of warrant to acquire 50,506 shares of common
  stock issued to a lender in order to obtain financing for the
  purchase of the operating assets of Greenberg Desserts
  Associates Limited Partnership, valued at $.8805 per share                                 44,470                         44,470

Net loss for the year ended December 31, 1997                                                         ( 2,557,973)     ( 2,557,973)
                                                                 ---------    ------    -----------    -----------      ----------

Balance at December 31, 1997                                     5,161,750     5,162     11,029,123   ( 9,557,676)       1,476,609

Common stock issued June 30, 1998                                  100,000       100        111,900                        112,000

Fair market value of warrant to acquire 19,149 shares of common 
  stock issued to a lender in order to obtain financing for the
  purchase of the operating assets of Greenberg Desserts
  Associates Limited Partnership, valued at $.560 per share                                   5,005                          5,005
                                                                 ---------    ------    -----------    -----------      ----------
                                                                 5,261,750     5,262     11,146,028  (  9,557,676)       1,593,614

Common stock issued in settlement of accrued obligations            40,000        40         60,360                         60,400

Cancellation of shares regarding the purchase of Chatterly
  Elegant Desserts, Inc.                                        (  200,000)  (   200)           200

Net loss for the year ended December 31, 1998                                                        (    924,524)    (    924,524)
                                                                 ---------    ------    -----------   -----------      ----------

Balance at December 31, 1998                                     5,101,750    $5,102    $11,206,588  ($10,482,200)      $  729,490
                                                                 =========    ======    ===========   ===========       ==========

</TABLE>


                 See notes to consolidated financial statements.

                                                                             F-4




 <PAGE>
<PAGE>





                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                             STATEMENT OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                      1998                 1997
                                                                      ----               Restated
                                                                                         --------
<S>                                                                <C>                <C>         
Operating activities:
  Net loss from continuing operations                               ($576,796)         ($1,464,235)
  Adjustments to reconcile income from
   continuing operations to cash provided
   from continuing operations:
     Depreciation                                                     154,443              227,315
     Amortization                                                      80,910               80,910
     Stock issued in consideration of services                         40,000               59,500
     Compensatory element of issuance of warrants                       5,005              287,837
     Gain on sale of fixed assets                                   (  35,383)             238,888
     Changes in other operating assets and
      liabilities from continuing operations:
        Accounts receivable                                           182,795          (   100,196)
        Inventory                                                     107,417               60,370
        Prepaid expenses and other assets                              11,253          (    60,022)
        Security deposits                                              18,850                3,674
        Accounts payable                                            (  32,118)             260,745
        Accrued expenses and other current
         liabilities                                                (  65,360)             399,897
        Deferred rent                                               (   1,540)              15,919
                                                                     --------            ---------
        Net cash provided by (used in) continuing
         operations                                                 ( 110,524)              10,602
        Net cash used in discontinued operations                    (  35,510)         ( 1,089,611)
                                                                     --------            ----------
        Net cash used in operating activities                       ( 146,034)         ( 1,079,009)
                                                                     --------           ----------
Investing activities:
  Proceeds from sale of fixed assets                                   35,383
  Purchase of property and equipment                                (  11,970)         (   210,185)
  Purchase of treasury stock                                        ( 247,369)         (   900,000)
                                                                     --------           ----------
        Net cash used in investing activities                       ( 223,956)         ( 1,110,185)
                                                                     --------           ----------
Financing activities:
  Proceeds from financing                                                                   75,000
  Issuance of common stock and warrants                               112,000            2,630,312
  Payment of debt                                                   (  91,696)         (    45,935)
                                                                     --------           ----------
        Net cash provided by financing activities                      20,304            2,584,377
                                                                     --------           ----------
Net increase (decrease) in cash and cash
 equivalents                                                        ( 349,686)             395,183

Cash and cash equivalents, beginning of year                          479,312               84,129
                                                                     --------           ----------

Cash and cash equivalents, end of year                               $129,626           $  479,312
                                                                     ========           ==========

Supplemental disclosure:
  Cash paid during the year for:
    Interest paid during the year
      Continuing operations                                          $ 25,978           $   33,805
                                                                     ========           ==========
      Discontinued operations                                        $      0           $        0
                                                                     ========           ==========
    Income taxes paid during the year
      Continuing operations                                          $      0             $      0
                                                                     ========             ========
      Discontinued operations                                        $      0             $      0
                                                                     ========             ========
</TABLE>


                 See notes to consolidated financial statements.

                                                                             F-5


<PAGE>

<PAGE>


                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

1.      Realization of assets - going concern:

        Although the Company is currently operating its businesses, the
         continuation of such business as going concerns is contingent upon,
         among other things, the continued forbearance by the Company's
         creditors from exercising their rights in connection with delinquent
         accounts payable and payroll obligations. Management has indicated its
         plan to meet its obligations is dependent upon cash flows, if any,
         generated from JMS and Chatterly Elegant Desserts, Inc. and the
         acquisition of additional businesses. These conditions, among others,
         raise substantial doubt about the Company's ability 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 of the amount and classification of liabilities that
         might result should the Company be unable to continue as a going
         concern.

        William Greenberg Jr. Desserts and Cafes, Inc. was incorporated in the
         State of New York on November 12, 1993.  In 1997, the Company
         transferred all of its business assets and liabilities to a newly
         formed wholly-owned subsidiary, WGJ Desserts and Cafes, Inc. At this
         time the Company's name was changed to Creative Bakeries, Inc. WGJ
         Desserts and Cafes, Inc. operated a number of retail locations as well
         as operating a bakery facility, all located in New York City. As of
         June 1998, WGJ Desserts and Cafes, Inc. shut down its manufacturing
         facility and effective November 1998, sold its final retail store.
         Although the Company has not vacated its manufacturing facilities,
         all operations have ceased.

        During the year ended December 31, 1998, the Company incurred a loss
         from continuing operations in the amount of $576,796 and a net loss of
         $924,524, and as of December 31, 1998 had a net working capital
         deficiency of $385,695. During 1998, the Company discontinued
         operations of its two remaining retail stores. In June the Company also
         closed its manufacturing plant in New York.

        During 1997, the Company incurred restructuring costs in the form of
         consulting fees, salary settlement costs and losses incurred on the
         abandonment of assets at the retail facilities closed late in the year.
         These costs amounted to $369,458 and were offset against the estimated
         restructuring costs recorded at the end of 1996.

        In connection with the restructuring plan, the Company determined the
         carrying value of its baking equipment, furniture and fixtures and
         leasehold improvements exceeded their fair market value. Therefore, in
         accordance with SFAS No. 121 "Accounting for the Impairment of Long-
         Lived Assets", a provision for impairment losses aggregating $305,066
         was charged and included as part of other expenses in the accompanying
         statement of operations for the year ended December 31, 1998. Such
         impairment loss represents the excess of the carrying value of $340,066
         over management's estimate of the fair market value of the assets of
         $35,000.

                                                                             F-6


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

1.      Realization of assets - going concern (continued):

        In view of these matters, management believes that 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.

2. Organization of the Company:

        Creative Bakeries, Inc., formally 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 Dessert
         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.

        As more fully described elsewhere herein, the Company, on January 17,
         1997, purchased all the outstanding capital stock of J.M. Specialties,
         Inc. ("JMS") in an acquisition to be accounted for as a purchase (the
         "Acquisition"). The total purchase price aggregated $2,160,000 of which
         $900,000 was paid in cash and the remaining $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 350,000 shares of the Company's
         common stock at a price of $2.50 per share. JMS offers a line of batter
         and frozen finished cakes, brownies and muffins.

        In order to finance the Acquisition, the Company raised net proceeds of
         $1,747,500 from the issuance of 1,875,000 common stock purchase
         warrants which are exercisable at a price of $2.50 per share.

        In connection with the above described 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 three wholly-owned subsidiaries, JMS, WGJ Desserts and Cafes, Inc.
         and Chatterly Elegant Desserts, Inc. Upon obtaining consent of the
         Company's stockholders, the Company changed its name to Creative
         Bakeries, Inc.

        On September 1, 1997, the Company purchased all of the outstanding
         shares of Chatterly Elegant Desserts, Inc. ("Chatterly") in an
         acquisition to be accounted for as a pooling of interest. The Company
         issued 1,300,000 of shares to Chatterly, of which 200,000 shares were
         returned in 1998. Chatterly offers a line of tortes, cakes and mousses.

                                                                             F-7


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

2. Organization of the Company (continued):

        J.M. Specialties, Inc., t/a Batter Bake, was incorporated in the State
         of New Jersey in 1985. The Company manufactures muffins, batter and
         baked goods which are sold to supermarkets, food distributors,
         educational institutions and restaurants. The Company has expanded its
         product line to include yogurt and fat-free items. Although the Company
         sells its products throughout the United States, its main customer base
         is on the East Coast of the United States.

        Chatterly Elegant Desserts, Inc. was incorporated in the State of New
         Jersey in February 1985.  The Company manufactures baking and
         confectionery products.  The Company's customers are retailers located
         in the Northeast portion of the United States.

        Effective December 1997, Chatterly Elegant Desserts, Inc. was formally
         merged with J.M. Specialties, Inc. under New Jersey law. Because of the
         consolidation of the two companies facilities, management feels this
         merger was beneficial and cost efficient.

3. Summary of significant accounting policies:

        Restated financial statements:

         The accompanying financial statements for 1997 have been restated to
           show the effect of the discontinued operations discussed in Note 17.

        Revenue recognition:

         The Company recognizes revenues in accordance with generally accepted
           accounting principles in the period in which its products are shipped
           to its wholesale or mail order customers. Retail store sales are
           recorded when the consumer purchases the Company's products at one of
           its retail stores. Expenses are recorded in the period in which they
           are incurred, in accordance with generally accepted accounting
           principles.

        Use of estimates:

         The preparation of financial statements in conformity with generally
           accepted accounting principles requires management to make
           assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           could differ from those estimates.

        Concentrations of credit risk:

         Financial instruments that potentially subject the Company to
           significant concentrations of credit risk consist principally of cash
           and trade accounts receivable. The Company places its cash with high
           credit quality financial institutions which at times may be in excess
           of the FDIC insurance limit. Concentrations of credit risk with
           respect to trade accounts receivable are generally limited due to the
           large number of customers comprising the Company's customer base. In
           addition, the Company performs ongoing credit evaluations of its
           customers' financial condition and, as consequence, believes that its
           trade accounts receivable credit risk exposure is limited.

                                                                             F-8


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

3.      Summary of significant accounting policies (continued):

        Inventories:

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

        Cash and cash equivalents:

         For purposes of the statement of cash flows, the Company considers all
           short-term debt securities purchased with the maturity of three
           months or less, as well as money market funds, to be cash
           equivalents.

        Property and equipment and depreciation:

         Property and equipment are stated at cost. Depreciation of property and
           equipment is provided using the straight-line method over the
           following useful lives:

<TABLE>
<CAPTION>
                                                                    Years
                                                                    -----
<S>                                                                   <C>
             Machinery and equipment                                  10
             Furniture and computers                                   5
             Leasehold improvements                                  10-15
</TABLE>

        Expenditures for major renewals and betterment that extend the useful
         lives of property and equipment are capitalized. Expenditures for
         maintenance and repairs are charged to expenses as incurred. When
         assets are retired or otherwise disposed of, the cost and the related
         accumulated depreciation are eliminated from the accounts and the
         resulting gain or loss, is any, is reflected in income. As discussed in
         Note 1, management had determined that there had been an impairment to
         the value of the property of WGJ Desserts and Cafes, Inc. (formerly
         William Greenberg Jr. Desserts and Cafes, Inc.) in 1998 and 1996 and
         property and equipment had been written down to their net realizable
         value.

        Allowance for doubtful accounts:

         An allowance for doubtful accounts has been established by management
           based on a review of open accounts receivable at each balance sheet
           and their respective collectibility.

        Intangibles:

         The covenant not to compete is amortized over the term of the agreement
           and goodwill is amortized over its estimated useful life of forty
           years (see Note 6).

                                                                             F-9


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

3.      Summary of significant accounting policies (continued):

        Income taxes:
         Deferred income taxes:

         Deferred income taxes arise from timing differences resulting from
           income and expense items reported for financial/accounting and tax
           purposes in different periods. Deferred taxes are classified as
           current or non-current, depending on the classification of the assets
           and liabilities and disclosure of contingent assets and liabilities
           at the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           differ from these estimates.

4. Principles of consolidation:

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

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
         $2,160,000 consisted of (i) $900,000 in cash, (ii) 500,000 shares of
         the Company's common stock valued at fair market value of $1.75 per
         share (aggregating $875,000), and (iii) 350,000 purchase warrants
         valued at fair value of $1.10 per warrant (aggregating $385,000) to
         acquire 350,000 shares of the Company's common stock at $2.50 per
         share. The warrants are in the same form as those described below.

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

        In connection with the Acquisition, the Company entered into an
         employment agreement with the selling shareholder pursuant to which he
         will serve as a director and chief executive officer of the Company at
         an annual salary level of $250,000 for 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-10


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

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

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

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

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

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

        The assets acquired and the liabilities assumed at December 31, 1996, in
         connection with the Acquisition, are as follows:

<TABLE>
<S>                                                           <C>     
         Assets:
           Cash                                               $ 84,129
           Accounts receivable                                 224,378
           Notes receivable                                     60,000
           Inventories                                         274,803
           Prepaid expenses                                     14,063
           Property and equipment                              483,608
           Other assets                                         27,999
                                                              --------
                                                                          $1,168,980
         Liabilities:
           Long-term debt                                       23,607
           Notes payable - bank                                 75,000
           Accounts payable and accrued expenses               123,938
                                                              --------
                                                                             222,545
                                                                             -------
         Excess of net assets acquired over
          liabilities assumed                                                946,435

         Goodwill                                                          1,213,565
                                                                          ----------
                                                                          $2,160,000
                                                                          ==========
</TABLE>

                                                                            F-11


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

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

        Under the terms of the agreement with InterEquity Capital Partners,
         L.P., the Company reserved 185,682 shares of its common stock for
         issuance under the warrant. Management ascribed a fair value of $1.09
         per common share which resulted in a charge to operations of $202,393
         in the first quarter of 1997.

6.      Acquisition of Chatterly Elegant Desserts, Inc.:

        On September 1, 1997, the Company acquired 100% of the outstanding
         common shares of Chatterly Elegant Desserts, Inc. (Chatterly) in a
         transaction to be accounted for as a pooling of interest. The Company
         issued 1,300,000 of its common shares pursuant to the acquisition of
         which 200,000 shares were returned in 1998.

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

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

        The assets acquired and the liabilities assumed at December 31, 1996, in
         connection with the acquisition of Chatterly, are as follows:
<TABLE>
<S>                                                       <C>           <C> 
    Assets:
       Accounts receivable                                $124,950
       Inventories                                         128,576
       Prepaid expenses                                      4,713
       Property and equipment                              422,493
       Other assets                                         56,700
                                                          --------
                                                                        $737,432
    Liabilities:
       Long-term debt                                      111,034
       Notes payable, others                                47,320
       Accounts payable and accrued expenses               421,960
       Deferred rent                                       136,958
                                                          --------
                                                                         717,272
                                                                        --------
    Excess of net assets acquired over
       liabilities assumed                                              $ 20,160
                                                                        ========
</TABLE>










                                                                            F-12


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

6.      Acquisition of Chatterly Elegant Desserts, Inc. (continued):

        Under the terms of its agreement with InterEquity Capital Partners,
         L.P., the Company reserved 84,017 shares of its common stock for
         issuance under the warrant. Management ascribed a fair value of $.8125
         per common share which resulted a charge to operations of $68,263 in
         the third quarter of operations in 1997.

7. Property and equipment:

        The Company's baking equipment, furniture and fixtures and leasehold
         improvements were deemed to be impaired and written down to
         management's estimate of their fair value at December 31, 1998. 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 $305,066 was charged to operations during the fourth quarter
         of 1998.

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

<TABLE>
<S>                                                             <C>       
            Baking equipment                                    $1,429,395
            Furniture and fixtures                                  74,664
            Leasehold improvements                                 180,422
                                                                ----------
                                                                 1,684,481
            Less:  Accumulated depreciation
                    and amortization                               962,267
                                                                ----------
                                                                $  722,214
                                                                ==========

</TABLE>

8. 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 $25,000 in 1998 and 1997.

                                                                            F-13


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

8.      Intangible assets (continued):

        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 $80,900 in 1998 and 1997.

9. 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.

10. Capital stock:

        (a)  Common stock:

        On January 17, 1997, the Company issued 500,000 shares of its common
         shares pursuant to a stock purchase agreement of J.M. Specialties, Inc.
         (see Notes 2 and 5).

        In March 1997, the Company issued 34,000 shares of common stock to a law
         firm in settlement of amounts owed for services.

        On September 1, 1997, the Company issued 1,300,000 shares of its common
         shares pursuant to a stock purchase agreement of Chatterly Elegant
         Desserts, Inc. (see Notes 2 and 6). 200,000 shares were subsequently
         returned in 1998.

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

        In June 1998, the Company sold 100,000 shares of its common stock for
         proceeds of $110,000.

        In July 1998, the Company issued 40,000 in settlement of certain
         obligations due a former shareholder and unrelated debtor of Chatterly
         Elegant Desserts, Inc. The total amount of the settlement was $60,400.

                                                                            F-14


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

10.  Capital stock (continued):

        (b)  Warrants:

               (i)  Warrants issued to InterEquity Capital:

               Inorder to obtain financing for the acquisition of Greenberg's -
                 L.P. (see Note 2), the Company sold to the lender for $1,000, a
                 Convertible Note which in accordance with the terms of the
                 conversion agreement, was converted by the lender into a
                 warrant to acquire shares of stock of the Company in a number
                 sufficient to equal 6% of the Company's then outstanding
                 preferred and common stock (163,404 shares of common stock).
                 The warrant expires on July 31, 2001. The warrant contains
                 anti-dilutive provisions throughout its six (6) year life which
                 entitles the holder to its applicable percentages of the
                 Company's capital stock on the date the warrant is exercised.
                 Based upon the issuance of 100,000 shares of common stock in
                 1998, the lender was entitled to an additional 19,149 shares of
                 common stock. Accordingly, the financial statements include a
                 charge to operations of $10,809 which represents the market
                 value of the stock at the time the 19,149 warrants were issued
                 by the Company.

        Compensatory charges recorded on the income statement for 1998 amounted
         to $10,809 and $287,837 in 1997.

               (ii) Other warrants issued in 1997:

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

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

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

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

               All of the warrants issued in 1997, including the Placement
                 Warrants, aggregating 2,485,000 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
                 between $2.50 and $3.00 for a term which will expire on
                 December 31, 2000.

                                                                            F-15


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

10.     Capital stock (continued)

        (b)  Warrants (continued):

               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.

11. Commitments and contingencies:

        Employment Agreements:

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

<TABLE>
<CAPTION>
                                                                     Value of
                                                  Cash               Warrants
                                               Settlement             Issued              Total
                                               For Wages             at $1.10           Settlement
                                             -------------          ----------          ----------
<S>                                             <C>                 <C>                  <C>     
        Stephen Fass                            $ 44,100            $ 55,000             $ 99,100

        Maria Marfuggi                            36,000              55,000               91,000

        Seth Greenberg, William
         Greenberg and Carol
         Greenberg                                72,003              39,732              111,735
                                                --------            --------             --------
                                                $152,103            $149,732             $301,835
                                                ========            ========             ========
</TABLE>










                                                                            F-16


<PAGE>

<PAGE>



                                     CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      YEARS ENDED DECEMBER 31, 1998 AND 1997

11.     Commitments and contingencies (continued)

        Employment Agreements (continued):

        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 by $72,914 in the quarter
         ended June 30, 1997. This amount was settled in July of 1998 by issuing
         30,000 shares of the Company's common shares which has a fair value of
         $45,089. The Company recorded the difference to income in the third
         quarter of 1998.

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

        Litigation matters:

        The Company and its subsidiary, WGJ Desserts, Inc., have been named as
         defendants in an action entitled Bacal v Creative Bakeries, Inc. which
         was filed in the Supreme Court of the State of New York for the County
         of New York. The complaint in the action alleges that defendants Edmund
         Abramson, currently a director of the Company and Willa Abramson, who
         resigned as a director in 1996, allegedly acting on behalf of the
         Company and Greenberg, entered into an agreement with plaintiff, Murray
         Bacal, whereby Mr. Bacal would purchase warrants for common stock of
         the Company and that the Abramson's agreed to repurchase the warrants
         for the same price at which they were originally sold to him, plus out
         of pocket expenses. As a consequence, the complaint seeks $131,500 in
         compensatory damages and $1,000,000 in punitive damages. On December
         14, 1998, the Company moved by order to show cause to dismiss the
         complaint in its entirety as against the Company based on the fact that
         the action involves a private transaction between the plaintiff and the
         Abramson's, and the complaint fails to state a cause of action against
         Creative Bakeries, Inc. After a full briefing and oral argument, the
         papers were taken by the court on submission and the Company is
         awaiting a ruling on that motion.

                                                                            F-17


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

11.  Commitments and contingencies (continued):

        Litigation matters (continued):

        The Company has also been named as a defendant in an action entitled
         Ackerman v Alan Sloan, an adversary proceeding brought in the United
         States Bankruptcy Court by the Chapter 7 trustee of Alliotto Bakery
         Cafe, Inc. The complaint alleges that the Company, while operating as
         William Greenberg, Jr. Desserts and Cafes, Inc. used customer lists and
         property of the Chapter 7 debtor for a period of several weeks sometime
         after June 1998 without having paid fair value or consideration. While
         the Company does not believe it committed any actionable conduct, the
         Company does not believe the claim is material because it is believed
         to involve a potential exposure of only several thousand dollars. The
         Company has not yet filed a formal response to the claim.

        Leases:

        WGJ Desserts and Cafes, Inc., the Company's division located in New York
         City, was party to a number of lease agreements for its retail stores
         and baking facility. Due to its efforts to become more cost efficient,
         the Company vacated its six retail locations in 1998 and 1997. The
         Company has received releases on all locations.

        The Company favorably settled the lease of one of its retail stores in
         1998. In the settlement, the landlord forgave $21,040 in back rent
         which had previously been recorded by the Company as expense, resulting
         in income being realized in the current year.

        During 1997, the Company sublet one of its retail locations, receiving
         rental income of $73,500, the amount of the rent expense. This lease
         was terminated in February 1998 with no further obligation to the
         Company.

        The minimum future rentals on the baking facility is as follows:
<TABLE>
<S>                                                        <C>     
                   December 31, 1999                       $ 46,949
                   December 31, 2000                         48,357
                   December 31, 2001                         49,809
                   December 31, 2002                         51,302
                   December 31, 2003                         52,842
                   Thereafter                               110,488
                                                           --------
                                                           $359,747
                                                           ========
</TABLE>

        The Company is obligated under a triple net lease for use of 29,362
         square feet of office and plant space in New Jersey with the lease
         commencing January 31, 1994 and expiring December 31, 2004.

                                                                            F-18


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

11.  Commitments and contingencies (continued):

<TABLE>
<CAPTION>
                                                          Facility
                                                         -----------
<S>                                                      <C>       
                December 31, 1999                        $  192,250
                December 31, 2000                           200,000
                December 31, 2001                           200,000
                December 31, 2002                           200,000
                December 31, 2003                           200,000
                Thereafter                                  230,000
                                                         ----------
                                                         $1,222,250
                                                         ==========
</TABLE>

        Rent expense for all operating leases amounted to $442,794 in 1998 and
         $808,385 in 1997 and includes straight-lining of rent adjustments
         discussed in Note 10.

12. Long-term debt:

        Equipment with a cost of $197,000 has been pledged as collateral on a
         note payable in monthly installments of $2,909, including interest. The
         notes carry interest varying rates of 10.30% to 17.87% and mature
         between 1998 and 2000.

        The total future annual payments as of December 31, 1998 are as follows:
<TABLE>
<S>                                                         <C>    
                December 31, 1999                           $33,405
                December 31, 2000                             2,495
                                                            -------
                                                            $35,900
                                                            =======
</TABLE>

13. Earnings per share:

        Primary earnings per share is computed based in the weighted average
         number of shares actually outstanding plus the shares that would have
         been outstanding assuming conversion of the common stock purchase
         warrants which are considered to be common stock equivalents. However,
         according to FASB 128, effective for financial statements issued and
         annual periods issued after December 15, 1997, entities with a loss
         from continuing operations, the exercise of any potential shares
         increases the number of shares outstanding and results in a lower loss
         per share. Thus, potential issuances are excluded from the calculation
         of earnings per share. These common stock purchase warrants amounted to
         2,485,000 in 1998 and 1997.

                                                                            F-19


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

13.  Earnings per share (continued):

        Reconciliation of shares used in computation of earnings per share:

<TABLE>
<CAPTION>
                                                                         1998               1997
                                                                         ----               ----
<S>                                                                    <C>                 <C>
               Weighted average of shares actually
                 outstanding                                           5,040,900          3,703,217

               Common stock purchase warrants                          ---------          ---------

               Primary and fully diluted weighted
                 average common shares outstanding                     5,040,900          3,703,217
                                                                       =========          =========
</TABLE>




14.  Inventories:

        Inventories consist of the following:

<TABLE>
<S>                                                                  <C>
                Raw materials                                        $ 82,128
                Finished goods                                         65,818
                Packaging supplies, labels, etc.                       87,646
                                                                     --------
                                                                     $235,592
                                                                     ========
</TABLE>

15. Supplemental schedule of non-cash investing and financing activities:

<TABLE>
<CAPTION>
                                                                       1998             1997
                                                                       ----             ----
<S>                                                                   <C>            <C>
            Issuance of common stock and warrants
              regarding acquisition of subsidiaries                                 $1,280,161

            Common shares issued in consideration
              of legal, consulting fees and other
              obligations                                             $40,000           59,500
                                                                      -------       ----------
                                                                      $40,000       $1,339,661
                                                                      =======       ==========
</TABLE>

                                                                            F-20


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

16. Note receivable:

        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 maturities of the notes are as follows:

<TABLE>
<S>                                                               <C>     
                        December 31, 1999                         $ 73,750
                        December 31, 2000                           73,750
                        December 31, 2001                           73,750
                        December 31, 2002                           73,750
                                                                  --------
                                                                  $295,000
                                                                  ========
</TABLE>


        In the event that the licensee opens and operates any additional retail
         store(s) utilizing the license (other than the original retail store)
         and the annual gross retail sales of any such store(s) exceeds
         $400,000, then the licensee shall pay the licensor (the Company) a five
         percent royalty on all sales in excess of the $400,000 of sales in each
         store. The licensee shall pay the licensor a royalty on a semi-annual
         basis of 3% of all mail order sales in excess of $100,000.

17. 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 of $295,000. The sale
         resulted in a gain of $321,350 which is included in other income.

         Net liabilities, less assets to be disposed of, of WGJ Desserts, Inc.
           consisted of the following as of December 31, 1998:

<TABLE>
<S>                                                                  <C>       
                    Accounts payable                                 $  402,289
                    Loans payable                                       100,000
                    Accrued payroll                                     327,823
                    Accrued expenses                                    248,607
                    Deferred rent                                        44,349
                                                                     ----------
                                                                      1,123,068
                                                                     ----------
</TABLE>

                                                                            F-21


<PAGE>

<PAGE>



                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

17.  Discontinued operations (continued):

<TABLE>
<S>                                                                     <C>   
                    Cash                                                45,556
                    Notes receivable                                   300,000
                    Interest receivable                                  3,633
                    Property and equipment                              35,000
                    Covenant not to compete                             37,500
                    Security deposits                                   24,498
                                                                    ----------
                                                                       446,187
                                                                    ----------
                                                                    $  676,881
                                                                    ==========
</TABLE>

        Information relating to discontinued operations for WGJ Desserts and
         Cafes, Inc. for the year ended December 31, 1998 and 1997 is as
         follows:

<TABLE>
<CAPTION>
                                                                     1998                    1997
                                                                     ----                    ----
<S>                                                               <C>                    <C>       
              Net sales                                           $1,064,856             $3,443,005

              Cost of sales                                          687,677              2,156,370
                                                                  ----------             ----------

              Gross profit                                           377,179              1,286,635

              Operating expenses                                     659,224              2,457,756
                                                                  ----------             ----------

              Net loss from operations                            (  282,045)           ( 1,171,121)
                                                                  ----------             ----------

              Settlement income                                       64,439

              Gain on sale of fixed assets                                                   10,000

              Miscellaneous expense                               (    6,863)

              Interest expense                                                          (     2,704)

              Loss on abandonment of leasehold

               improvements                                       (  143,176)

              Rental income                                                                  73,500

              Gain on sale of 82nd Street facility                   321,350

              Interest income                                          3,633                    714
                                                                  ----------             ----------
                                                                     239,383                 81,510
                                                                  ----------             ----------

              Net loss from operations                            (   42,662)           ( 1,089,611)

              Estimated loss on disposal of
               New York facility                                  (  305,066)                       
                                                                  ----------             ----------
                                                                 ($  347,728)           ($1,089,611)
                                                                  ==========             ==========

</TABLE>






                                                                            F-22


<PAGE>

<PAGE>


                    CREATIVE BAKERIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

18. Other matters:

        The year 2000 issue relates to the inability of many electronic data
         processing (EDP) systems to accurately process year-date data beyond
         the year 1999. Unless year 2000 problems are remedied, significant
         problems relating to the integrity of all electronically processed
         information based on time will occur.

        Additionally, there are many other operational issues that need to be
         assessed, such as computer-run maintenance systems, as well as systems
         that may be indirectly controlled by computer by way of a chip embedded
         in their designs.

        The effect, if any, at this time about the problems that could occur and
         the costs to remedy can not be determined.

                                                                            F-23


<PAGE>


<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                                    Date of
Executive Officer,      Principal Occupation           Initial
Age and Position        For Previous Five Years        Election
Held with Company       -----------------------        as Director
----------------                                       -----------
<S>                    <C>                          <C>
Philip Grabow, 58,      Chief Executive Officer,       January 23, 1997
President and Director  October 1985 to January
                        1997 of JMS

Richard Fechtor, 67,    Founder of and since           July 11, 1996
Director                1974 Executive Vice
                        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,   Investment manager with        August 1995
50, Director            Astair & Partners,
                        Limited, a London based
                        brokerage company, 1987
                        to present

Kenneth Sitomer, 51,    Chief Operating Officer        July 1997
Director                of Sam and Libby, Inc.,
                        a publicly held company,
                        1993 to present; private
                        consultant to footwear
                        industry 1992 to March
                        1993; President and
                        Chief Executive Officer
                        of Russ Togs, Inc., a
                        publicly held company
                        listed on the New York
                        Stock Exchange, 1989 to
</TABLE>


                                       22


<PAGE>

<PAGE>



<TABLE>
<CAPTION>
Name of Director or                                    Date of
Executive Officer,      Principal Occupation           Initial
Age and Position        For Previous Five Years        Election
Held with Company       -----------------------        as Director
----------------                                       -----------
<S>                    <C>                          <C>
                        1992.

Karen Brenner, 44,      President of Fortuna           July 1997
Director                Advisors, Inc., an
                        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
                        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, 49       Founder and President of       August 1997
Director                Chatterley
</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


                                       23


<PAGE>

<PAGE>


     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 1998

     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, 1997.


<TABLE>
<CAPTION>
Name and                                            Other Annual
Principal Position     Year  Salary ($)  Bonus ($)  Compensation
------------------     ----  ----------  ---------  ------------
<S>                   <C>    <C>          <C>         <C>  
Philip Grabow, CEO     1998   $150,000     $0.00       $0.00

Yona Abrahami, VP      1998   $100,000     $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, 1997. 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


                                       24


<PAGE>

<PAGE>


     Simultaneously with the acquisition of Chatterley, the Company entered into
employment agreements with Yona Abrahami and David Abrahami. David Abrahami's
contract has 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>
Name                                       Number of       Percentage
----                                       Shares          Beneficially
                                           Beneficially    Owned(2)
                                           Owned(1)        --------
                                           ------------
<S>                                         <C>             <C>
Yona Abrahami(3).........................    1,100,000       21.3%

Philip Grabow(4).........................      800,000       14.6%

Richard Fechtor(5).......................      142,933        2.8%

Raymond J. McKinstry(6)..................       50,000         *

InterEquity Capital Partners, L.P.(7)....      378,390        6.8%

Kenneth Sitomer(8).......................          --          --

Karen Brenner(9).........................          --          --

Ashwin R. Shah(10).......................          500         --

Willa Abrahamson(11).....................      400,000        7.7%

Fortuna Investment Partners(12)..........      550,000        9.6%
100 Wilshire Blvd.
Suite 1500
Santa Monica, CA 90401

Baileys Family Trust.....................      606,250       10.5%
</TABLE>


                                       25


<PAGE>

<PAGE>




<TABLE>
<S>                                         <C>             <C>
P.O. Box 9109
Newport Beach, CA 92658

All executive officers
and directors as a group                     2,097,519       19.1%
(7 persons)(14)..........................
</TABLE>

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

*    Less than 1%.

(1)  Unless otherwise noted, the Company believes that all persons named in the
     table have sole voting power with respect to all shares beneficially owned
     by them. A person is deemed to be the beneficial owner of securities that
     can be acquired by such person within 60 days from the date hereof upon the
     exercise of warrants or options.

(2)  Assumes 5,161,750 shares of Common Stock outstanding as of the March 31,
     1998. Each beneficial owner's percentage ownership is determined by
     assuming that options or warrants that are held by such person (but not
     those held by any other person) and which are exercisable within 60 days
     from the date hereof have been exercised.

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

(3)  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."

(5)  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.

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


                                       26


<PAGE>

<PAGE>



(7)  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, 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.

(8)  Mr. Sitomer's address is 303 East 57th Street, New York, New York 10022.

(9)  Ms. Brenner's address is P.O. Box 9109, Newport Beach, California 92660.

(10) Mr. Shah's address is c/o 20 Passaic Avenue, Fairfield, New Jersey 07004.

(11) Mr. Abrahamson's address is 1800 NE 115th Street, Miami, FL 53181.

(12) Includes currently exercisable warrants to purchase 550,000 shares.

(13) Includes currently exercisable warrants to purchase 606,250 shares.

(14) Includes the shares of Common Stock beneficially owned by Ms. Abrahami, Mr.
     Grabow, Mr. Fechtor, Mr. McKinstry, Mr. Sitomer, Ms. Brenner and Mr. Shah.


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,


                                       27


<PAGE>

<PAGE>


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
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.


                                       28


<PAGE>

<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


<TABLE>
<S>       <C>
   **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.
</TABLE>


                                       29


<PAGE>

<PAGE>


<TABLE>
<S>       <C>
  **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.

  **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.
</TABLE>


                                       30


<PAGE>

<PAGE>


<TABLE>
<S>       <C>
    **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.

******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.

</TABLE>

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

* Filed Herewith.


                                       31


<PAGE>

<PAGE>



<TABLE>
<S>    <C>
**      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.
</TABLE>


                                       32


<PAGE>


<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 April 14, 1999.


                                      CREATIVE BAKERIES, INC.

                                      By: /s/ Philip Grabow
                                          --------------------------------
                                           Philip Grabow
                                           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 April 14, 1999.

<TABLE>
<CAPTION>
Signatures                         Title
                                   -----
<S>                             <C>
/s/Philip Grabow                  President, Chief Executive
-------------------------         Officer/Director
Philip Grabow


/s/Ashwin R. Shah                 Chief Financial Officer
-------------------------         (Principal Accounting Officer)
Philip Grabow


-------------------------         Director
Richard Fector


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


/s/Kenneth Sitomer                 Director
-------------------------
Kenneth Sitomer


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


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


                                       33




                          STATEMENT OF DIFFERENCES
                          ------------------------

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



<PAGE>